Y376 International Political Economy October 6, 2009
North-South Aid Issues: What the Developing Countries Want <ul><li>Increasing the total amount </li></ul><ul><li>Untying “tied” aid </li></ul><ul><li>Increasing the proportion of aid channeled through multilateral agencies </li></ul><ul><li>Making aid more automatic </li></ul><ul><li>Giving LDCs more control over the spending of aid </li></ul>
What is Aid (Official Development Assistance)? <ul><li>Undertaken by governments </li></ul><ul><li>Main objective to promote economic development and welfare </li></ul><ul><li>Made on concessional terms with a grant element of at least 25 percent </li></ul>
Figure 6-1. Annual Bilateral ODA by the G-5 Countries, 1960-2007, in Billions of Constant 2006 Dollars Source: OECD Statistics online .
Figure 6-3. ODA from DAC Countries, OPEC, CMEA, and non-DAC Countries, 1956-2007, in Billions of Current Dollars Source: OECD Statistics Online.
Example of US Aid to Iraq <ul><li>Infrastructure </li></ul><ul><ul><li>Water </li></ul></ul><ul><ul><li>Electricity </li></ul></ul><ul><li>Health system </li></ul><ul><li>Schools </li></ul><ul><li>Reconstruction </li></ul><ul><li>Elections </li></ul>Source: http://www.usaid.gov/iraq
US Aid to Iraq in Comparison with Aid to Germany and Japan
Why Hasn’t US Aid to Iraq Worked? <ul><li>Preference for US over Iraqi contractors (higher costs) </li></ul><ul><li>Huge proportion of spending went to private companies like Bechtel </li></ul><ul><li>US concentration on rebuilding oil fields and other infrastructure projects </li></ul><ul><li>Al Qaeda disruption of aid work, especially in the rebuilding of infrastructure </li></ul>
Table 6-2. U.S. Foreign Aid Programs, 2004 Source: Carol Lancaster and Ann Van Dusen, Organizing U.S. Foreign Aid (Washington, D.C.: Brookings Institution, 2005), p. 14. Department Name of Program $Millions Department of State Refugee 756 International Organizations and Programs 320 ESF (policy) 3,263 NIS (distribution) 584 SEED (distribution) 442 HIV/AIDS (distribution) 488 Andean Counter-Drug 727 Treasury Department Contributions to Intl. Financial Institutions 1,383 Debt Relief 94 Dept. of Agriculture PL-480 II (budget) 1,185 USAID DA, child survival, disaster 4,511 MCA 994 Iraq Reconstruction 18,439 Other 1,000-1,500
Table 6-1. Bilateral Aid to Former Colonies, 1970-1994 Source: Alberto Alesina and David Dollar, “Who Gives Foreign Aid and Why? Journal of Economic Growth , 5 (March 2000), p. 37. Donor Former Colony Share of Total Aid (in percentages) Portugal 99.6 United Kingdom 78.0 France 57.0 Belgium 53.7 Netherlands 17.1
Summary <ul><li>Aid flows are strongly influenced by former colonial relationships and power politics </li></ul><ul><li>Net aid flows do not always remain positive because some aid takes the form of loans that must be paid back </li></ul><ul><li>The US share of total aid to LDCs declined markedly over time </li></ul><ul><li>Aid is primarily needed to deal with poverty, disasters, and wars and cannot be used in general to promote long-term economic development </li></ul>
Table 6-3. Millennium Development Goals Source: http://www.unmillenniumproject.org/goals/index.htm . Source: http://www.unmillenniumproject.org/goals/index.htm. 1 Eradicate extreme poverty and hunger 2 Achieve universal primary education 3 Promote gender equality and empower women 4 Reduce child mortality 5 Improve maternal health 6 Combat HIV/AIDS, malaria, and other diseases 7 Ensure environmental sustainability 8 Develop a global partnership for development
Figure 6-2. Total Official and Private Flows from DAC Countries to Developing Countries, 1960-2006, in Billions of Constant 2006 Dollars Source: OECD Statistics Online
Figure 6-5. Long-Term Debt Outstanding, Low- and Middle-Income Countries, 1970-2006, in Trillions of Current Dollars Source: World Bank, World Development Indicators .
Figure 6-6. Debt/GDP and Debt Service/Exports of Goods and Services in Percentages, 1981-2006, Emerging and Developing Countries Source: World Bank, World Development Indicators; International Monetary Fund, World Economic Outlook Database, April 2008 . Debt service data are for low and middle income countries.
Origins and Consequences of the Debt Crisis <ul><li>Recession in the industrial world meant that banks had to find borrowers in the developing world </li></ul><ul><li>Petro-dollar recycling was the consequence </li></ul><ul><li>Growth in the developing world was hurt by the anti-inflationary policies adopted at the end of the 1970s </li></ul>
Petro-Dollar Recycling Oil-importing ICs Oil-exporting Countries International Banks Third World borrowers $ $ $ $
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