Chapter 5 | Page 195 Countries with a better policy environment have no difficulty absorbing and repaying loans, but those with higher poverty and poor governance are likely to benefit more from fewer but more concessional resources.34 Those with strong institutions benefit from a high level of aid, whereas for those with poor institutions, aid has the reverse effect.35 Despite the apparent ‘aid-institutions paradox’, which shows that countries that receive more foreign aid have less incentive to strengthen public institutions,36 the role of effective, accountable and inclusive institutions in attracting and effectively managing aid has been strongly acknowledged by scholars based on empirical evidence.37 Therefore, it can be argued that one of the objectives of aid should be the provision of better incentives for good institutions and good governance. Apart from direct provision of financial assistance, cancelling or forgiving the debt of the poorest countries is another valuable instrument, if managed well. Although debt cancellation performs better than either loans or grants alone,38 it is argued that countries seeking debt relief under the Heavily Indebted Poor Countries (HIPC) initiative need to establish and demonstrate good policy reforms to tackle poverty.39 These conditions are likely to have a positive policy impacts on overall human rights performance. The objective of financial co-operation is ‘to make resources available to enable partner countries to undertake the necessary investment and 34 Tito Cordella and Hulya Ulku, 'Grants vs. Loans' (IMF Staff Papers, Vol. 54, No. 1, International Monetary Fund), <https://www.imf.org/external/pubs/ft/staffp /2007/01/pdf/cordella.pdf>, 152. 35 Deborah Bräutigam, Aid Dependence and Governance (Expert Group on Development Issues, 2000), <http://www.swisstph.ch/fileadmin/user_upload/Pdfs/swap/swap404.pdf>. 36 Todd Moss, Gunilla Pettersson and Nicolas van de Walle, 'An Aid-Institutions Paradox? A Review Essay on Aid Dependency and State Building in Sub-Saharan Africa' (Working Paper 74 Centre for Global Development, 1/10/2006) <http://www.cgdev.org/publication/aid-institutions-paradox-review-essay-aid-dependencyand-state-building-sub-saharan>. 37 See for example, Matthew S Winters, 'Accountability, Participation and Foreign Aid Effectiveness' (2010) 12(2) International Studies Review 218. 38 Daniel Cohen, Pierre Jacquet and Helmut Reisen, 'Loans or Grants?' (2007) 143(4) Review of World Economics 764-782. 39 Oliver Morrissey, 'Aid and the Financing of Public Social Sector Spending' in Katja Hujo and Shea McClanahan (eds), Financing Social Policy: Mobilizing Resources for Social Development (Palgrave Macmillan, 2009) 141, 154.