Aid

Aid to developing countries

The different types of aid are humanitarian, bilateral, and multilateral. Humanitarian aid is normally administered by large aid organizations or governments to address a specific and discrete issue. This is not a loan. Bilateral aid is essentially a loan made by one country to another, yet with a friendly interest rate and a very long period of time before payments are due. Multilateral aid is the aid administered by a single organization that receives its contributions from many other countries, like the IMF. Furthermore, aid may be official, or sanctioned by governments and international organizations such as the UN, or it may be unofficial, such as aid from non governmental organizations.

The intelligent implementation of aid may promote the development of economies. Yet there are many stipulations and requirements that must be met lest aid has very little to no impact, or worse yet, a negative long term impact on those receiving aid.

The economic reasons for providing aid are supplementing the lack of domestic resources, enabling infrastructure changes, and breaking the cycle of poverty by allowing for savings to accumulate. When these goals are appropriately met, growth will result. Countries receiving aid will typically want as much freedom with grants as possible, while countries giving aid will try to keep as much control of their grants as possible. Donating countries do not wish to see their funds lost to wasteful spending or corruption. Furthermore, donating countries can see their aid as an investment, and duly expect returns. There are also political arguments in support of aid: aid can be a tool of foreign policy that supports friendly governments economically and militarily. This type of aid has had hugely varying results in the past. A huge amount of aid was given to Chiang Kai-shek’s corrupt and unpopular regime before the Communists won the Chinese Civil War and expelled him from the country. On the other hand, the Truman Doctrine passed by American congress after World War Two protected Turkey and Greece from falling under Soviet control.

However, other economists argue that aid can oftentimes be ineffective and actually worsen the long term economic conditions of a country. Sometimes, governments become dependent on aid by factoring them into budgets. This traps donating countries into a relationship that may turn unhealthy. Aid may also be quite inefficient. Recent studies have shown that aid provided by NGOs in the form of unskilled overseas volunteers (typically in construction like in Habitat for Humanity or in education) is damaging. Not only do unskilled volunteers do a worse job than locals were capable of (building awful structures that collapse shortly thereafter), they effectively destroy the local market economy system by offering their labor for free. This page http://www.aim.org/aim-column/africas-aid-problem/ presents a strong case against giving aid to Africa.

Therefore, I conclude that aid may be effective in promoting the development of economies only if it is well intentioned and intelligently administered. A shortcoming in either of these requirements can have negative effects. Unfortunately, humans tend to be imperfect, and therefore screw up attempts to provide aid. In most cases, we should leave socio-political and economic factors to do their own magic.

 

 

 

 

Bonus paragraph on the desired effect of aid:

The purpose of aid is firstly to overcome the low savings ratio. Savings are not very large in underdeveloped countries because citizens must spend their money on a daily basis just to survive. Savings allow for investment and if put into a bank, will create liquidity that businesses can draw from. Infrastructure is also an important part of development, and successful aid will see an increase in it by reducing foreign exchange outflows. Another goal of aid can be the reduction of government dependency on private investment. Other goals include the improvement of the standard of living in the target country, providing sustainable improvement (the idea of giving a fishing rod, not fish), and allowing for countries receiving aid to still act autonomously (not keeping heavy ties on aid).

 

 

Advertisement