Is Foreign Aid Compatible with Good Governance?

Is foreign aid compatible with good governance? Using the case of irrigation aid in the Philippines, I hypothesise that aid is embedded in a perverse set of incentives which could undermine the application of good governance principles espoused by donors. My findings suggest that the problems of “moral hazard” and aid fungibility are embedded in irrigation aid. Furthermore, these incentives also drive a vicious cycle in irrigation commonly found in many developing countries. These findings indeed suggest that incentives structured into the relationship between donors and irrigation agencies may undermine the application of some principles of good governance espoused by donors.