1 Foreign Aid

Foreign Aid The expanse and variance of the meaning of aid is as complex and diverse as the human society itself. The different interpretations and conceptions have undergone numerous changes throughout history, so that it has been transformed from the assisting of individual safety of the primal man, to the support and safeguarding of the rule of world powers. With respect to what is regarded as 'Aid', there are varieties of interpretations: a) The governments providing foreign aid bring all their expenditures in other countries, regardless of their motivations and reasons for these expenditures, under the heading of aid. For example, all economic and military assistance (weather non-payable or repayable) the principal amount of long-term loans, private investments, short-term issuance, credits, technical and emergency aid (such as the supply of foodstuff in case of famine etc.) and their own holdings in multinational corporations, are defined as foreign aid. Even expenses incurred for the realisation of their own objectives, be it towards the expansion of political, cultural and military influence in other countries, they regard as foreign aid. b) In the United Nations' definition of foreign aid, more restrictions can be observed. According to this definition, solely economic assistance is accepted as aid, consisting of non-payable loans or the net amount of long-term loans to be utilised for non-military purposes furnished for non-military purposes furnished either by government or international organisations. The various forms of aid are: a) Non-repayable: This kind of aid consists of monetary assistance which the recipient is not to refund, such as in case of emergencies; earthquakes or other natural calamities, war reparations and the like. It forms but a (2 Emporium Current Essays) b) Loans: Loans consist of financial aid which the recipient is to repay plus interests, after a specified period of time. The main percentage of foreign aid is in the form of loans. From the viewpoint of the capital-holders, there are two kinds of aid: a) MULTILATERAL AID: Financial assistance, the responsibility for which lies upon international agencies, is generally referred to as Multilateral Aid. b) BILATERAL AID: The type of direct transactions arranged between two or more governments are called Bilateral Aid. Financial aid can also vary regarding its appropriation:

a) PROJECT AID: In case the objective of monetary assistance is in support of specific investments in the recipient country, such aid is referred on to as Project Aid. Whenever the purpose of financial assistance is in support of a total development programme of certain country, such assistance is called Programmed Aid. Financial aid also varies with the objective: a) Economic aid: Capital inflows which take place for specific economic plans of the group, although such aids are often a cover for political, cultural and military objectives. b) Military aid: Beside direct military aid, the lending government generally present their assistance towards security and military matters under various misnomers. The type of assistance rendered might also vary from the viewpoint of the lenders: a) Government aid: Official aid provided by a government consists of all monetary assistance by central governments central commercial bank financing, regional government, specific organisations affiliated with central governments or institutions related to regional governments, either paid out directly to the .recipient country or arranged through multilateral organisations. b) Private aid: Investments effected by the private sector including private portfolio investments; long-term loans, commercial credits, altogether a variety of private investments such as the purchase of stocks and bonds etc. are called Private Aid.

(Emporium Current Essays 3) At the most basic level, the foundation for the analysis of foreign aid is that aid is supposed to be surely for external fiscal reserves. Therefore, should foreign capital inflow be utilised for internal investments, the financial assistance can be instrumental towards economic growth and expansion, even in the case of foreign currency shortage which can be regarded as a deterrent economic growth, foreign aid can amend the shortage, rendering the import of structural goods possible. In brief, after WW II and the gaining of independence of most of the colonies, when the extreme poverty of the newly independent colonies, induced by lengthy colonisation, of these nations, became manifest, the colonising counties in order to find new ways to infiltrate the ex-colonies, also to remove from themselves the burden of responsibilities for creating the situation, attempted the presentation of numerous theories as to the reason for the so-called 'backwardness'. In between, analytical economic jargon introduced terms such as 'vicious-cycle' or 'chain-reaction'. R Nurske comments on the 'vicious-cycle' and speaks of the 'accumulation of capital and employment'. He opines that in the less developed countries,

due to a lower level of savings, there is decreased investment which leads to diminished production, thus lessened earnings and hence the decreased capacity of savings. The discussion continues to state that in this chain-reaction, the recovery of one link will result in the improvement of the remaining links, in other words, should the shortage in savings be amended by foreign capital inflow, it would result in more investments, therefore increasing productivity and income to enable the possibility of more savings, and this chain-reaction can continue towards complete economic recovery and the attainment of the desired economics growth and expansion. Thus according to this analysis, foreign aid could be instrumental in compensating the shortage of fiscal reserves and result in economic growth and development. Does foreign aid result in development? Although theoretically the objective of foreign aid is the economic development of the recipient country, yet in effect, the result of the assistance are adverse. The French author Rene Domont states: "The very word 'aid' tends to strangulate me. Instead of speaking for 'aid', they (the industrial countries) should make it their objective to cease colonisation and exploitation" third world countries, as it is due to the continued exploitation that third world countries become more impoverished by the day and small percentage-of foreign aid is placed in a situation to need increased financial assistance. (4 Emporium Current Essays) The important point of this discussion is that the flow of foreign aid is from industrial countries to non-industrial and lesser developed nations, presumably with the intention and wish to assist the development of the recipient countries. Yet even the purpose is contradictory, at least since the industrial revolution, industrial countries have attempted to impose conditions upon developing nations so that two important roles are created for them in relation to industrial countries, meaning that they should on one hand act as producers of raw materials (industrial and agricultural) needed by industrial societies, and on the other, by importers of consumer goods manufactured by the industrial countries. The continuation of economic flourish in industrial countries is why they should financially assist the developing ones, so that first they may expand and due to this growth, be themselves the consumers of these raw materials needed by the industrial societies. Secondly, due to the increase of internal output, not only cease the importation of consumer goods, but taking into consideration the availability of raw materials and cheap labour force. Indeed the inconsistencies between the economic, political and security interests of industrial countries and development and growth of under-developed nations, become truly apparent when one considers the act that whenever one of the less developed nations undertakes fundamental attempts in paving the ground for development (such as nationalisation of foreign capital, decrease %. imports, moderation of raw material prices and the implementation of plans pertaining to the improvement of agriculture and industry, without fail they face extreme reactions by the industrial countries, to the point of sanctions, boycott, or even military attacks. Therefore, do the industrial countries, through their so-called financial aid,- have the

intention to help the development and advancement of the recipient countr s is anybody's guess. The Purpose and Motives of Foreign Aaid: Despite the existence of development countries and the maintenance and continuation of the advantageous position of the industrial societies in relation to 'aid', the industrial societies have, from the start, managed to create misleading pictures for the public opinion, so much so that whether the w£or$ 'aid' is mentioned, all criticism is promptly ceased. Yet this fact should not deter us fro paying attention to the-motivations atwhpurposes of foreign aid. The following might be indicative of some of important goals regarding aid. a) Aid as an effective tool of foreign policy: One of the most important objective of 'aid' was confrontation with the spread of communism and Soviet infiltration in Europe and other countries. The Marshall Plan, Truman's Fourth Charter and other doctrines and theories of foreign aid which uniformly bore the stamp of 'acts of humanity' were in reality tools to ensure the objectives of the providers. Fitzgerald, who was in charge of United States Foreign Aid Programme for 1948 to 1961, stated, "Many assume that aid is provided towards the development of the recipient countries. This is certainly not the case. The main motives for the disbursement of aid is to counteract political crisis. Economic development, should it occur, is quite incidental and only a side-effect. In this context, it should be added that 'aid' is applied as an extremely powerful tool of foreign policy. Myrdal offers a clear explanation for this assumption. He opines that should the objective of foreign aid truly be towards economic expansion, these aids would be dispensed with between various countries in a just manner and with consideration of the economic conditions of the recipient countries. Whereas in practice; political and military considerations have been decisive in the division of aid. Between 1958 and 1965, Loas and South Vietnam received financial assistance the amount of which, in comparison, was equal to the total aid granted to larger countries such as India, Pakistan, Philippines, Burma and Sir Lanka. It must be mentioned that aid offered by the USA is altogether a part of 'mutual security programmes', thus a tool for America foreign policy. John F Kennedy once said, "Foreign aid is a means and an instrument with which the Unites States can control its influence world-wide and support many countries which would otherwise collapse and be a prey to communism." In the political context of aid, attention should be paid to the pint that providing financial aid by industrial countries naturally results in the indebtedness of the recipient nations and when a country is carrying the burden of debit, domination and supremacy will be rendered easy. It is through the application of such strategy that independence seeking uprisings in the less developed countries are often deviated from their initial

course and the revolutionary nation is gradually brought under the fetters of industrial countries. At times foreign aid is used for the prevention of infiltration by competitions in certain country. b) Aid "as an economic tool: Emphasis on aid, based on its role as a tool of foreign policy, does not exclude the ulterior financial motives of the suppliers of aid. As an example, as appears in Point 4 of the United States id Programme, "The profits of foreign aid towards expansion are in the form of returns from resources such as mines and energy products and one of the most important facets in the field of technical co-operation in the economic growth of developing countries; as vast and virgin natural resources of regions participating in this co-operation are of extreme importance for the industrial countries of the world, including the United States of America." Such economic incentives are clearly manifest n the motivations of aid rendered by Organisation for European Economic Cooperation (OECD) as well as the Colombo Plans. It is indeed through the disbursement of foreign aid that the supplying countries gain the possibility of access to raw materials and other products much needed in their own countries, or their actual incitement of the recipient country towards the production of the materials in demand (impelling the recipient country to single production). Also in numerous cases, financial assistance is the means of making recipient country dependent, or their dependence continuous, on the providers of aid, and influenced by this dependence, the needs of the lenders regarding raw and production materials are met by the recipient countries. c) Commercial incentives of aid: One of the most common objectives of the suppliers of aid is the expansion of commercial profits. The assistance rendered enables: Increase of purchasing power of the recipient country resulting in the escalation of production demands and imports and the related services. It influences the manner of growth of the recipient country, directing it towards consumerism and the increase and continuation of imports. It directs the production of the recipient country towards supplying the needs of the lending countries in raw materials so on and so forth. Fashioning of long-term commercial and economic dependence To reach such goals, the synthesis of monetary aid contains clauses and restrictions which are categorised in the form of direct and indirect obligations. Obligatory spending of the aid by the recipient countries in the country of the provider Spending of aid on specified projects and plans Obligation to purchase specific service and facilities. In all cases, the direction of ties is such that are department by supplying countries within the framework of their objectives and by the specified allocation of the aid, furthering the

goals of the lending countries. An example to clarify this point pertains to foreign aid by Germany. In late 1970s, Germany by, supplying foreign aid, was able to stress and stabilise its support of ship-building and rail industry, thus expanding exports and diminishing financial problems. Another example is food aid furnished by the United States, through which surplus agricultural produce is exported to other countries, which while assisting in the flourish of the agricultural in the flourish of the agricultural sector in the US diminishes the productivity of the recipient countries, inducing heightened dependence of these nations on the US for the supply of foodstuff. The providers of aid, in order to achieve their goals, apply direct restrictions. For instance, the emphasis on allocating the aid for the employment of designated teachers and consultants who may only be appointed by the lending countries. Also links and ties such as the transpiration of important goods by vessels or oihef freight forwarding apparatus belonging to the lending countries, and compulsory insurance, of the merchandise on route insurance companies of the supplying country. In addition to these points the lending countries are generally prone to allocate the major portion of foreign aid to countries which avail those most of the commercial opportunities. At present, most aid, rendered is in the form of commercial credits which from the start ensures the profits of the providers. This form of aid distorts the normal manner of transaction by abrogating the possibility for the buyer to make decision based on choice of the most appropriate partner, or altogether prevents competitors, who in such a case are at a disadvantage anyway, from entering that market or making an offer. The most obvious result of this manner of approach to aid is the suppliers' preference to allot the aid to higher-income countries, therefore the aid is mainly allocated for high investment projects dependent on imports such as transpiration, communication and electricity production plants, whereas projects such as rural or health-care expansion or other projects dependent on high internal expenditure are mostly ignored. For example, in the 1980s, in Thailand, the major portion of foreign credit was tied with project credit was tied with projects such as the construction of oil-refineries, the national fertiliser plant, the modernisation of the railway system and the provision of long-distance passenger buses. The noteworthy point regarding tied aid is that it creates a kind of monopoly due to which the supplier of the aid is enabled to impose merchandise and services on the recipient country at a much higher price than the current market value. A survey of development projects in Pakistan showed that the rates offered by the providers of tied aid were on average 51 per cent higher than international .prices. Another survey made pertained to the supply of nitro hate fertiliser for India showed prices to be up to 80 per cent more expensive than the actual market value. Yet another survey proved that in 1969, on average, 90 per cent of American aid was returned to the US in the form of payment for US goods imported by the countries recipient of aid.

It is on this principle to be under stood that foreign aids is provided in order to balance internal budget deficit and replenish foreign currency shortage of the recipient country and in this manner enable investments, thus growth of production result in economic development. Parallel and concurrent with economic growth, political development can, and according to some, is bound to take place. The aftermath of foreign aid affirm that the major portion of aid which is in the form of loans consists of non repayable or emergency aid, is based of the motives of the supplier. These motives can be political, military, economic and commercial or a combination thereof. In the providing of aid, the least considered is the development plans of the recipient country and as economic and political interests of the lenders are generally contrary to the political and experience of decades of foreign aid has made it obvious that it has not resulted but in the increase of debt volume of the borrowers, their heightened poverty and dependency. Foreign aid, under these circumstances and in its current form and character is a deterrent to the development of the recipient countries.