DEVELOPMENT CO-OPERATION REVIEW OF ITALY
SUMMARY AND CONCLUSIONS (1996)

The situation at the 1993 Aid Review of Italy

The last Aid Review took place at a time of dramatic political upheaval in Italy. Fundamental reform was being demanded. Investigating judges were laying bare a system of entrenched corruption involving political leaders, major industrial groups and organised crime. The aid programme was not immune from these developments. Although there was little evidence of corruption at the operational levels of aid administration, it was plain that aid management tools had been inadequate to ensure the integrity and effectiveness of a programme that had expanded too rapidly in the 1980s.

Public confidence in aid had collapsed. While the DAC's 1993 Aid Review identified special strengths in areas such as conflict resolution and community-based social programmes, it called for major reforms in administration, including:

• the introduction of country programming, competitive procurement, systematic project appraisal and project cycle management; creation of an evaluation capacity and strengthening field missions;
  

• creating the capacity to design and implement private sector development policies and programmes;
  

• strengthening staffing levels and staff training;
  

• reducing the high degree of dependence of NGOs on state funding.
  

Reforms implemented and the evolution of public and political attitudes

Under strong leadership in the Directorate-General for Development Co-operation (DGCS), the majority of reforms called for in the 1993 Aid Review are now being implemented. The project disciplines, in particular, are being rigorously applied, and new project proposals are subject to stringent expert examination against a comprehensive checklist of criteria. Less effective older projects have been identified and wound up as efficiently as possible within contractual obligations. Evaluation activities will take some further time to develop fully, but the benchmarks now being laid down for new projects will provide a sound basis for future assessments of project effectiveness. A comprehensive policy on private sector development has been introduced.

There is still some way to go to improve the staffing arrangements and the organisation of the DGCS. The structure of the DGCS is overly compartmentalised, and the more sophisticated economic and social analysis of recipient countries now being undertaken as a basis for preparing country strategies requires special expertise.

Since 1993 the level of state funding for non-governmental organisations has fallen drastically and there has been a crisis, resolved only by special legislation, in payments to NGOs. However, NGOs have been able to maintain and in some cases increase their activities by drawing on local and EU sources of funding. And Italian local and regional authorities are now more involved and co-ordinated in the assistance effort. But political circles, and the public generally, remain sceptical of aid activities. Continuing parliamentary investigations have kept the spotlight on the past errors in the official programme. Some see aid as just another part of a wider Italian public management problem, and DGCS officials have perceived themselves as working in a "climate of condemnation and ridicule". Fortunately there have been hopeful signs recently of a recognition of reform efforts already undertaken and of the importance of aid as a part of a modern foreign policy.

Sharp decline in core aid activity; increased importance of debt relief

Italian aid budgets soared in the 1980s, and have collapsed in the 1990s because of the erosion of public confidence in aid and the increasingly stringent overall constraints on public expenditure.

Bilateral grants and loans have taken the brunt of cuts in aid. Multilateral contributions have been reduced more gradually, as they are regulated by burden-sharing agreements which often run for a number of years.

An increasing share of Italy's total reported aid arises from the rescheduling on concessional terms of loans originally made for commercial purposes. Agreements to facilitate this are worked out on a multilateral basis in the Paris Club. Italy has lent substantial sums to recipient countries which now have major debt problems and which qualify for concessional debt relief or exceptional measures. As the Paris Club reviews the debt positions of more of these countries over the next few years, Italy's reschedulings will continue to boost its level of official development assistance (ODA). The ODA/GNP ratio of 0.27 per cent in 1994 would have been only 0.18 per cent without the debt relief component. Funds for debt rescheduling are provided separately from the main aid budget.

The strengths of Italian aid in the light of DAC principles

Italian aid policy reflects the strengths of its civic traditions and the special role played by small and medium-sized enterprises in its economic development. It emphasizes principles of human solidarity and the promotion of self-reliant and sustainable development, not only in economic, but also in environmental, social and cultural terms. These principles closely reflect the norms and guidelines which Members of the Development Assistance Committee have elaborated. Particular features of Italy's programme include:

• Regions, municipalities and non-governmental organisations make a major contribution to development, relief and reconstruction efforts, and mechanisms have been established to ensure that their contributions are well co-ordinated both among themselves and with official activities. One example is the "Tavolo di Coordinamento" which co-ordinates Italian aid to the former Yugoslavia. Important developments and debates are underway in Italy on the expansion of this kind of "decentralised aid".
  

• On the recipient level, Italy has developed effective social development strategies showing how official programmes can involve local people to improve economic and social conditions, build up institutional capacity and promote gender equality. The major Italian-funded effort to promote the reintegration of refugees in Central America, PRODERE, has served as a model for these interventions.
  

• There is close collaboration with multilateral agencies, particularly in relief and peace-building programmes like PRODERE, but also in development activities such as the World Bank-led Albanian Development Fund.
  

• More open and competitive bidding procedures have been introduced. In many cases, recipient governments are now running the tender process, which increases their own expertise and helps ensure that assistance meets their needs. More aid is now effectively untied, following a dramatic fall in infrastructure projects and the channelling of more aid through international organisations which conduct procurement under their own rules.
  

• Activities to develop the private sector now account for about one quarter of the bilateral programme. These bring the strengths of Italian small and medium-sized enterprise to bear on the key tasks of building a modern market economy in Italy's priority recipients. Projects stress technical and marketing assistance and knowledge transfer, not just efficient provision of equipment.
  

The road ahead

The Italian authorities have introduced major reforms to improve the quality and transparency of the aid programme. Current aid allocations are being effectively employed. Italy's experiences with people-to-people aid involving the Italian community and in grass-roots based social programmes, including in conflict zones, provide models of interest for the whole aid community.

To build on these strengths the Italian authorities need to:

• continue the reform of the administration and staffing structure so that ongoing improvements to country programmes, policy analysis, project disciplines and evaluation could yield their full benefits;
  

• amend existing budget provisions to allow assured financing for aid programmes and projects which extend over several years;
  

• modify administrative procedures so as to enhance flexibility and effectiveness, while emphasizing accountability for results as well as financial integrity;
  

• reinforce interdepartmental co-ordination, especially on funding for multilateral development banks;
  

• enhance consultation arrangements with regions, municipalities, NGOs and social partners, including business and unions, on broad policy directions for aid;
  

• increase funding for bilateral aid to a level consistent with Italy's foreign policy aims, its improved management capacity, and the scope for effective use of aid by Italy's main development partners.
  

The basis exists for restoring public confidence and building a new consensus around a style of aid which reflects Italy's concern for international solidarity, uses Italy's special talents and civic traditions, and helps achieve its foreign policy goals.

[October 2004: this publication is unfortunately out of stock.]