Questioning the intelligent use of foreign aid: Diplomacy all the way

By

Anant Mishra

Introduction

Not long ago, Secretary General Ban Ki-moon, on the occasion of International Migrants Day said: “Migration is an expression of the human aspiration for dignity, safety and a better future.”

Today, these migrants are becoming a big problem even for the host countries, which are left without “space” to take any more, most of which are low skilled, uneducated, prone to diseases and hunger…, even though Article 13 of the Universal Declaration of Human Rights proclaims that “(1) Everyone has the right to freedom of movement and residence within the borders of each state. (2) Everyone has the right to leave any country, including his own, and to return to his country.”

Through this column, we will look for a definite solution to this issue and understand the true definition of International Aid for Development, commonly referred to as Foreign Aid. The focus of this column will be on finding solutions through engagements of neighbouring and power nations along with the flow of funds that will rescue these migrants, in an effort to provide economic security in the host nation. This research fits within the framework of the first objective of the Millennium, which is to reduce extreme poverty and hunger: these are permanents in the countries of departure of these migrations.

Defining International Aid Organization (IAD)

The International Aid Organization (IAD) is financed by the member nations of the United Nations and is used by the agencies of the United Nations, in an effort to help the developing nations, and therefore assists in different projects initiatives with an aim to develop areas and cities and provide better living standards for the masses. It is thus now clear that the public aid is important: many international aid organizations such as the IMF, the OECD, the International Bank and the European Union assists developing economies, by providing subsidies, loans or by advising them on particular projects including technical advancements, agriculture, or their educational and health policy. This further opens the path for microcredits, for longer running projects (one such as clean drinkable water, which began in 2008, and costed around 120 billion dollars).

However, this “foreign enrolment” has received heavy criticism: some experts rule out the ideology of “one nation assisting another”, as according to them developing countries are in a situation of being victimised by developed economies? while others criticise the use of money, which may compromise the market at some point. Some non-governmental agencies talk about a “ghost” fund, which means that the money was sent by the host country, but does not help in any way to assist in the progress of the host country. Another major concern is corruption, which occurs due to over complexity of the governance or bad distribution of the system: some thus goes to waste, and thus the “help” remains partially ineffective.

Thus, it is imperative for policy makers to improve efficiency of the development aid which will further add to the commitments of Sustainable Development.

The Necessity of International Assistance

Today, there are various types of migrants, who leave their nation for various reasons. Every year, the influx of such migrants increases, but the progress of the host nations slow down. Reasons for their departure are quite common, but their destinations vary significantly: we observe the movements of migrants coming from South going South and those coming from North move out to North, heading out for a better life in developing economies.

Migration due to environmental issues

Some people are forced to leave their home because of environmental conditions, such as typhoons or earthquakes. Others cite pollution as a factor, while others cite overpopulation due to mass evacuation: thus vulnerable to unhealthy lifestyles. The rise of water level in some areas force the masses to leave.

Migration due to social disturbances

Many migrants leave their country because of religious and political turmoil in their nation, because due to their political and religious differences they would be prosecuted: thus, they apply for asylum. Others leave their home in wake of war: they become refugees. Many young leave their country to look for better opportunities outside. Lastly, the procedure for reunification, when the father is an immigrant working in the host country, his family comes to join him.

Migration due to economic conditions

Many leave their country to avoid severe economic hardship, as the rate of unemployment level rises above the sky. Some of the population moves because of architectural reasons (let’s say a dam). Others leave their place for professional reasons: they are qualified as migrants.

Role of Public Aid

The history of Public aid goes back to the Second World War, then again in the Cold War: The Marshall Plan, created by the American government in the aftermath of cold war and during the period of decolonization, was designed to reconstruct Europe by mobilizing financial resources to ensure international development. The Nixon government focussed on two pillars: economic (role of exports) and strategic. Then the French and British became donors. In the early 1960s, the Committee of Development Aid (CDA) was created under the Organization for Economic Cooperation and Development (OECD), and was tasked to coordinate financial support, in a way useful for lesser developing economies. These programs were quite fruitful for donor countries: the more the destination for development for the host countries, better interests would be served for donors (especially at the level of exports for richer economies).

Unfortunately, the plan trembled: it became very much clear that the assistance from developed economies did not affect the economy much? unemployment did not decrease, however poverty increased consistently. For donors, Aid, remain the only agenda. Now, it became a moral duty for member nations from the South to help the North and the North to help the South. So, in the General Assembly session of 1970, member nations adopted the resolution, which asked donor nations to dedicate 1% of their GDP to Public Aid. Thus, public aid became the new mechanism to reduce poverty, a kind of tax paid by rich nations to the poor. In the 1980s, numerous developing economies came in to pay their debt, thus Public Aid became a way to pay their debt. Almost 10 years later, the Cold War was on its last stand, the World Bank released a report which heavily criticised public aid, after the report was out, public aid reduced drastically: in the early 2000s, only 0.2 % of the GDP of donor countries were dedicated to Public Aid.

With the session of the 3^rd Millennium in 2000 (which had 8 objectives, and its 48 indicators) the horrific incident of the September 11 attack changed the course of public aid. By mid-September 2001, Public Aid re-emerged to the centre stage: the moral imperative now became a moral imperative of safety for the donor nations. So, during the Monterey Summit (an international conference on the financing of development), donor countries pledged to increase their public aid, whereas the host nations promised to deliver good governance. Since then, during the G8 summits, nations discuss to reduce taxes and increase the African partnership (taxes on plane tickets, partnerships between public and private money).

Today, the European Union is the biggest supplier of international aid, helping many nations to achieve their goals targeted in the Millennium Development and now the Sustainable Development Goals. The European Union also celebrated the year 2015 as the “European year for development.” During the entire year, the EU in association with its agencies showed the masses the role of aid in development and how it is used. It also cited the importance of Europeans to participate in this international assistance through activities of development.

The Evolution of International Assistance and the problems that come with it

In March, 2002, a conference took place on the financing of development in Monterey, organized by the UN in partnership with the World Bank and the IMF supported by other agencies of the United Nations. Member nations pledged to find concrete solutions to eliminate poverty and work effectively towards improving the living conditions in lesser developed economies. The “Consensus of Monterey” was then set up during the conference: which aimed to improve coordination among donor countries and recipient ones and strengthen cooperation within the donors and the recipients and give a new image to Public Aid. The member nations decided to simultaneously work towards increasing public aid and create another body which acted as vigilance. However, results proved to be quite disappointing. The member nations then decided to improve the beneficial consequences and efficiency of this help, by understanding its defects and failures.

The UN further advised developed economies to donate 0,7 % of their GDP to Public Aid. Today, only Denmark, Sweden, Luxembourg, Norway and the Netherlands respect this rate.

As noted by African philosopher Teresa Hayter, globally known economist Dambisa Moyo, Public Aid does not serve any purpose, besides those of the donors: so this makes developing economies a hostage of the donors. In 1971, the well known philosopher asserted in her work “Aid as imperialism” that “the help provided by World Bank and the countries of the Organization for Economic Cooperation and Development would serve the interests of the rich countries and their transnational companies first.” Public Aid also heavily favours growing resources of the developing economies to that of donors, by amplifying the cycle of poverty which further weakens growth.

Now looking at the GDP of Ethiopia, it has been stagnant since 1979, while the amount of public aid has multiplied, which throws light on its ineffectiveness. This similar condition can be recorded in nations such as Mozambique, meanwhile in South Africa and in Botswana, the public aid has drastically decreased while the GDP has increased.

The way it works: Public Aid

Economists, throughout the world have been actively criticising public aid. Developed economies provide financial aid to corrupt governments, ineffective institutions, and incompetent bureaucracy, so the sent money benefits some section of the community and does not benefit the entire population. Moreover, if the nation chooses not to send money, food or other products are sent, which again puts small scale entrepreneurs in a difficult situation. For example, if a NGO decides to distribute 1 ton of rice, it penalizes the farmers who then cannot sell their harvests, which are replaced by imported harvests. With examples such as these, Public Aid has a negative impact.

In power nations, there are many who criticise public aid, the donor nations. Disregarding the tax paid by all classes, assigns the aid to corrupt leaders, instead of taking care of their own economic and social policies. For them public aid is just like a caution money, used by the recipient to fund the non-working members of its organization, and support non democratic and corrupt public systems. By providing financial aid, the governments further compromise the markets and entrepreneurs become vulnerable. Jeffrey Winters, professor at the North-western University, considers that in 2004, 100 billion loans granted by the World Bank were diverted to feed circuits of corruption.

Not long ago the IMF published a report which stated that Public Aid was no more effective on the positive growth of the country: indeed, when a large sum of money is brought into a country, it increases inflation, and the currency within the market decreases. Moreover, a massive influx cripples the host market and drastically affects the national economy. More importantly, the NGOs who are working on the ground level, criticise it openly. Since the conference of Monterrey in 2002, the NGOs criticising the use of foreign aid have increased. In 2005, Action Aid International stated that 2/3 of the spending of 2003 was “ghost aid” while only 20% were used to pay for the projects and governmental projects, which also went to the consultants from the wealthier nations deployed on the projects? Only 14% of the financials were recorded in the book of records, over 4% of the finances were recorded for aid debt.

Finding Solutions

Before identifying a solution to this problem, policy makers must first define what is beneficial for the host nation, most importantly what is important for the development of recipient nations. It is important for developed economies to prevent recipient countries becoming dependent on their aid, permanently.

Policy makers should also work on defining proper rules/guidelines, it will aim at limiting the negative consequences. It is also important to check every step of the money exchange, just to be sure that finances are not “embezzled” and prevent any room for “ghost assistant”, and for the finances to be used effectively, only for growth and development.

There is an absolute need for transparency here. This can be achieved by informing the populations about the functions of public aid. Most importantly, member nations should follow the guidelines and procedures of the UN in this matter, the amount of public aid used should be counted and mentioned in the book of records. Public Aid should be monitored well, especially when it is given to a dictatorial regime.

Anant Mishra

Anant Mishra is a security analyst with expertise in counter-insurgency and counter-terror operations.