Foreign Aid, Blessing or Bane

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FOREIGN AID BLESSING OR BANE

OUTLINE:

Issue:

  1. Foreign aid is a vice because it makes the recipient country economically and diplomatically dependent on the donor country/institution, that gives aid to further its own strategic and economic interests.

Extent of the Issue:

  1. Aid is often given with the condition that the recipient country must use overprices goods of the donor country.
  2. Rich nations use aid as a lever to open poor countries markets for their products.
  3. Bilateral aid is politically motivated.
  4. Foreign aid does not accelerate growth or reduce poverty.
  5. It, in fact, hampers the development as a huge amount is returned as debt servicing.
  6. It corrupts the government officials and rarely reaches the people.
  7. It creates a culture of lavishness among political elite.
  8. It results in reduction of savings.
  9. Too much dependence on aid.
  10. Food aid, when not for emergency relief undercut local farmers who are driven out into poverty.
  11. Substantial variation in the flow of aid makes medium to long term planning difficult, if not, impossible.

Foreign aid, however, could be beneficial in some cases.

  1. It may improve economic infrastructure.
  2. It helps to avoid starvation and malnutrition especially after disaster.

Why countries give aid.

  1. To further their political interests.
  2. To enhance economic opportunities in a recipient country.
  3. To fulfill moral obligation towards poor counties

Why counties receive aid:-

  1. To bridge domestic saving and Investment gap.
  2. To improve balance of payment situation.
  3. To avoid default.
  4. Political motivation to suppress opposition.

Suggestions to lessen reliance on foreign aid:

  1. Improve domestic savings.
  2. Cut unnecessary imports.
  3. Domestic resource mobilization.
  4. Expand tax net.
  5. Export led growth.
  6. Improve scientific and technical expertise to enhance production.
  7. Commodity and food aid should only be accepted if the country’s agricultural production is below its requirement.
  8. Selection of donor on the basis of their policies.

Conclusion:

Foreign aid is not a blessing and it should be avoided as far as possible.

FOREIGN AID BLESSING OR BANE

Foreign aid is a curse as it makes the recipient country economically and diplomatically dependent on the donor country/institution. Rich countries do not give aid as a charity to the poor counties. They give aid to further their economic and strategic interests. In this globalized world, a country’s interests, both economic and strategic, are not confined within its borders. They are scattered throughout the world. Foreign aid is an effective tool used by the developed counties to achieve these interests. Through foreign aid, they open up the avenues of economic gains in the recipient country. It also paves the way for their interference in the domestic affairs of the aid recipient county. Thus, the donor countries are politically and economically motivated while providing aid and recipient country loses its true independence and national pride by receiving it.

Foreign aid is often tied with strict conditions. Donor countries normally place a condition on the recipient country to use the products or services from the aid amount. This way the donor countries greatly reduces the aid amount, besides obtaining considerable financial leverage. Recipient country becomes bound to use the products of donor countries which may be sub-standard and expensive.

Another important economic motivation for providing foreign aid is the opening up of borders of the recipient country for the products of donor country. Rich counties usually do not give access to their markets for the products of poor countries. This way they protect their local manufacturers. But to open up the borders of poor countries, rich countries use aid. It is extremely difficult for the aid recipient country to maintain its independent policies. Donor countries interfere in the domestic affairs of the recipient country resulting in an inevitable opening up of their borders for the products of donor country.

Apart from interfering in the domestic affairs of recipient country, aid provided by the one country to another is politically motivated. Rich countries give aid to those countries that are politically aligned with them. During the cold war, USA provided aid to capitalistic economies whereas former Soviet Union provided aid to the socialist counties. Further aid is directly affected by the political policies and interests of both the donor and the recipient country. For instance when a supply of aid from the western counties was stopped to Mauritania, the government of Mauritania becomes one of the earliest Muslim country to recognize Israel. Thus, by opting to recognize Israel, Mauritanian government managed to restart the flow of aid to their county.

From the above it is quite clear that the foreign aid is economically and politically motivated on the part of the donor countries. So when this aid comes to the recipient country it does not accelerate growth or reduce poverty. In this advance era, failure to progress is not the result of opportunities or resources but of mis-management, bad governance and toxic politics. No country has become rich because of foreign aid. Foreign aid, in fact, strangles the country more severely. Africa, for instance, receives many billion dollars every year as foreign aid, but it is becoming more poorer every year. It is when the developing countries starts to manage their affairs efficiently through good governance they gain ability to turn the wheel of national progress.

Contrary to the common perception that foreign aid fosters growth, the fact of the matter is that the foreign aid hampers development. A big chunk of the national budget of the developing countries is reserved for debt servicing. In Pakistan, for instance, 33% of the budget is allotted for repayment of debt. Had this money been available to Pakistan, she would have been able t use it for the developmental projects. Deprived of major portion of its income, the government of Pakistan left with scarce amount even to meet its expenditure. As a result, it has to sought further foreign aid, thus, encircling it in a vicious cycle of foreign aid.

Foreign aid in its nature is an easy money. It has the capacity to corrupts the government officials. Governments of the developing countries seeks foreign aid for their personal use. They instead of utilizing it for the welfare of people spend ion their personal use. Foreign aid rarely reaches to the people. Its benefits are mainly obtained by the ruling it. Among other vices, it creates a culture of lavishness especially among the political elite. Foreign aid, thus, destroys the very confidence of the people in their rulers.

Foreign aid also results in the reduction of national savings. When have an option to seek foreign aid, governments usually do not resort to the austerity measures. Domestic saving is imperative for national development. Without national savings the progress of a country is improbable.

Foreign aid breeds the culture of lavishness, resulting in the decline of national savings. Rulers are the role models of ordinary citizens, when rulers live an extravagant life; how can the citizens be expected to live a simple life? The imminent result would be less saving for investment. This is exactly the problem of Pakistani society. People of Pakistan, as a whole consume more and save less. As a result, there is hardly any money left for investment. Investment in the national economy is the backbone of national development.

When a country is in the habit of seeking foreign aid, it is extremely difficult to break this begging bowl. Such countries heavily rely on foreign aid. They lose the appetite for mobilizing domestic resources. They look elsewhere for easy money. This attitude is fatal for national development and even national pride. These countries become the sick man of the world and play no real part in global affairs.

Another problem with the foreign aid is that its flow is inconsistent. As it is politically and economically motivated, therefore, there is substantial variation in the flow of aid. This variation makes it highly difficult to plan medium to long term projects. Foreign aid is usually provided in installments. When the recipient country fails to satisfy the donor country/agency requirements, they stop the flow of aid. This has an adverse effect on the project undertook by the recipient country. Thus, the overall efficiency of the project is greatly jeopardized by the variation in the flow of aid.

Some types of aid have drastic consequences in the recipient country. Food aid, for instance, when not for emergency reliefs undercuts the local farmers who are unable to compete and thus driven out into poverty. Rich countries dump food items ostensibly as a charity at a less amount. Local farmers who have incurred more money in cultivating their harvest undergo server loss as a result of food dumping. Many of such farmers become bankrupt. This not only push the local farmers into poverty, but also destroy the agriculture sector of a country.

In spite of all the negative effects of foreign aid, which have been discussed above it has some positive effects as well. Foreign aid could be beneficial in some cases. It may become useful in improving economic infrastructure of a recipient country. If utilized properly it can be used to improve the quality of the product so that it can be exported to other countries. But it must be sought in rare case when a country has a definite project for investment and a proper plan to return it.

Foreign aid is typically useful in the time of crisis. Many natural calamities destroy the infrastructure of an unfortunate country, besides affecting the lives of tons of people. In such circumstances, foreign aid can be sought to avoid starvation or malnutrition of the local population. It can also be used for the rehabilitation of people. Apart from these situations, foreign aid must be avoided.

Before discussing the suggestions to lessen reliance on foreign aid, let us first look at the causes of why countries give aid and receive aid.

As stated above, the donor countries provide aid to further their political and economic interests. Big powers are always interested to align as many nations with them as they possibly can to safeguard their strategic interests. United states of America, for instance, the biggest provider of foreign aid effectively uses it to serve its national interests. It provides aid to only those countries that have strategic importance for it. For example, it provided aid to Pakistan so keep her ally in her war on terror. Every time U.S.A  provides aid to Pakistan, it also increases its mantra of “do more”. Thus, the first motivation for providing foreign aid is the political consideration.

Apart from political considerations, countries provide foreign aid to enhance their economic benefits. They seek economic benefits while providing aid to other countries. Tied loans which oblige recipient country to use the product or services of donor countries or the condition to open the borders of recipient country for the products of donor countries are common examples.

Rich countries also have some moral obligations towards poor countries. Some foreign aid is being provided as charity or on soft terms to enable the people of poor countries to come out from crisis.

Similarly, the countries receive aid on economic and political considerations. Their considerations, are however, totally different from the donor countries. Poor countries receive aid to bridge their domestic saving and investment gap; to improve balance of payment situation and in some cases to avoid default. Pakistan also obtain foreign aid primarily for these objectives.

A country may also receive foreign aid to further its domestic political interests i.e., to strengthen its rule and to suppress opposition. Vietnam during 1960’s and Iran during 1970’s received huge amount of foreign aid to secure their domestic political interests.

A few suggestions can be pinned down here for the poor countries to lessen reliance on foreign aid. First of all, it is imperative to improve domestic savings; increasing domestic saving means more capital for investment. Investment in the economy turns the wheel of national progress. Thus, promoting the culture of austerity by cutting unnecessary expenditure is essential to reduce reliance on foreign aid.

Along with cutting unnecessary expenditure it is also essential to cut import of unwanted items. As a matter of general policy a country should only import essential commodities which are not locally manufactured. This will improve the balance of payment position of a country. The valuable capital saved from cutting unnecessary imports can be used in the developmental projects.

A country must focus on domestic resource mobilisations if she really wants to progress. No country has ever been developed by the foreigners or through the use of foreign aid. It is the effective mobilization of resources that can change the status of a country. Pakistan, too, can lessen its dependence on foreign donors if she effectively mobilises its resources. There is enough potential in Pakistan to become one of the most advance country of the world. The need of the hour is to effectively utilise resources for the hour is to effectively utilize the resources for the progress of Pakistan.

Poor countries must also try to generate more income from home. For this purpose, they must increase the tax net. Tax to GDP ratio must be enhanced in order to lessen the reliance on foreign aid. They must do progressive taxation to increase their income from local sources.

Developing countries must also try to accomplish export led growth. They must increase the quality of their products to make it more competitive in global markets. For this purpose, they must increase, their scientific expertise to increase the quantity and quality of their production.

Developing countries must try to protect their farmers and manufactures. For this purpose, they should either provide subsidies to their farmers or levy duties on the imported items. They should be more vigilant against food dumping. Commodity and the food aid should only be accepted if the country’s agricultural production is below national requirement.

Where it is imperative to seek foreign aid, there must be an appropriate selection of donor on the basis of their policies, conditions etc. The nature of the project may also be considered. After conscious effort to select the right donor, foreign aid should be received.

From the above discussion it can be justly concluded that foreign aid is indeed a curse and it should be avoided as far as possible. Though it has some benefits, but its negative aspects far outweigh its positive aspects. Thus, if a country really wants to become a developed along with maintaining its independence and integrity, it must develop/mobilise its own resources and must not seek foreign aid principally.

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