Donors needed to think about smart aid. This includes using aid to strengthen tax collection systems, encourage foreign investment and engage the private sector. Smarter aid also means channeling aid money through a recipient’s own financial systems instead of using parallel donor systems. Lomoy said the advantage of working with MICs is the greater potential to use aid as a catalyst.
“It is easier to use aid to mobilize private and domestic resources in middle-income countries,” he said. “Using aid in a catalytic role is easier in practice in middle-income countries.”
The report contains several examples of successful poverty reduction strategies, including a shift from programs that target poverty to more universal approaches based on concepts of human rights, social protection policies such as national health insurance and pensions.
“This is one of the most important innovations in recent social protection policy and is a reaction to the problem of how to find and target the poor,” said Michael Samson, director of research at the Economic Policy Research Institute in Cape Town, South Africa. “Increasingly, policymakers recognize the high costs associated with poverty targeting and are aware of the important trade-offs.”
Samson cites Bangladesh as having taken the lead in moving beyond income and incentives to social protection policies that contribute to overall development.
Examples include government schemes such as the rural employment opportunities for productive assets as well as NGO programs such as BRAC’s program on poverty reduction and the Chars livelihoods program, which involves the transfer of assets to women to build their negotiating power within households and in the community. Other successful examples of social protection include Mexico’s Oportunidades and Brazil’s Bolsa-Familia, both of which are conditional cash transfer programs.