Official Development Assistance (ODA)

In our August 4 issue, we started a discussion on the Project Development Cycle, which is the basic process of executing a development project, from the time it is conceptualized to the time it is completed.  For big, multi-million or multi-billion peso projects, this will take five to seven years, some even longer.  We also said that these kinds of projects are either funded from the national budget, i.e., the General Appropriations Act (GAA), Official Development Assistance (ODA), or Public-Private Partnership (PPP) schemes.

Traditionally, ODA projects were the most popular among big-ticket projects.  But oftentimes, people have vague ideas of what really ODA is.  Most, if not all, equate it immediately to foreign loans and grants.  That is true, to a certain extent.  But there are further qualifiers to their being that - their purpose and rationale, most especially.  Not all projects can be funded out of ODA.  There has to be an evaluation on which funding mode will be best for a particular project - GAA, ODA, or PPP.  You can have a mix, too.

ODA is defined as official financing assistance from the group of developed countries (donors) to the group of developing countries (recipients), which are concessional in nature, the objective of which is the promotion of economic development and welfare of the latter.  The assistance maybe direct, from one country to another, or through pooled money in a multilateral development bank (MDB), like the World Bank and the Asian Development Bank (ADB).  It started when a group of countries decided to establish a fund to finance the “Marshall Plan,” which was aimed at the reconstruction of Europe after World War II.  The group eventually evolved into the Organization for Economic Cooperation and Development (OECD).

Under OECD definition, countries are grouped into Part I (developing/recipients) and Part II (developed/donors).  Over the years, some countries have actually evolved from being Part I to Part II, achieving a level of Gross Domestic Product (GDP) and financial health to be able to extend ODA assistance instead of requiring it.  Not all financing that flows from one country to another can be called ODA, though.  As specified in the OECD definition, there are certain requirements involved for a financial assistance to be considered ODA.

First, it has to be in the official sector.  Private business money transferred from one country to another, even if these are from Part II to Part I countries, are not ODA.  Second, it has to be concessional in nature, meaning, with financing costs much lower than standard banking rates.  Grants are free.  For loans, it has to have a grant element of at least 25 percent in order for it to become concessional and thus considered as ODA.  Otherwise, it's just a commercial loan.

Third, and maybe the most important, the assistance has to be for economic development and social welfare of the developing country.  ODA is extended by a donor developed country to a developing recipient country, with the purpose of alleviating the economic conditions of the people of the latter, and/or uplifting their standard of living.  That's why military aid and such activities as anti-terrorism are not qualified, as well as building casinos.

While ODA may be directly transferred from one country to another (through bilateral agreements), it can also be coursed through multilateral development banks (MDBs).  Foremost of these is the World Bank, of course.  Here in the Philippines, the Asian Development Bank (ADB) is quite popular; especially that it has its headquarters here.  But there is also the European Investment Bank (EIB), Central American Bank for Economic Integration (CABEI), Nordic Investment Bank (NIB), and many others, usually by regions.

Among the bilaterals, the more prominent in the Philippines are the Japan International Cooperation Agency (JICA), the Korea International Cooperation Agency (KOICA), the United States Agency for International Development (USAID), and Australian Aid (AusAID).  We also receive ODA from the Canadian International Development Agency (CIDA), the Swedish International Development Agency (SIDA), Agence Française de Développement (AFD) of France, Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) of Germany.  Many other countries also lend ODA to the Philippines.

As ODA, they have common characteristics: the aid is official, concessional, and geared towards economic development and social welfare.  Of course, there are also donor preferences and likewise, ineligible projects specific to the ODA sources (to be continued).