Standard Definition [Development Assistance Committee (DAC) of the Organization for Economic Cooperation and Development (OECD) ] Financial flows, technical assistance, and commodities that are: (1) designed to promote economic development and welfare as their main objective and (2) are provided as either grants or subsidized loans
The DAC classifies aid flows into three (3) broadcategories: Official development assistance (ODA) Official assistance (OA) Private voluntary assistance
Non-monetary Aid-- Equipments, raw materials, food and expert services>Advantage: avoids financial mismanagement on the part of the recipient country>Disadvantage: the donor country decides what type of projects the beneficiary country should put up
History: Gilipin: Foreign aid became a significant element of international political economy after World War II Under the Marshall Plan, the United States provided aid to Europe, devastated by the war.
As European countries and Japan recovered and prospered, they provided aid to developing nations. International organizations such as the World Bank and the International Monetary Fund developed to provide aid to poorer nations
Historically most aid has been given as: Bilateral assistance directly from one country to another. Multilateral assistance, which pools resources together from many donors.
Major multilateral institutions include: The World Bank International Monetary Fund The African, Asian, and Inter- American Development Banks, and Various United Nations agencies such as the United Nations Development Programme
Rationale for Foreign Aid: National Interest –a countrys goals and ambitions: Economic Political Military Cultural or Other benefits for the donor country
Humanitarian, Moral, and Ethical considerations -Relieving human suffering -Providing economic and educational opportunities -Supporting human rights; and -Promoting a better and safer world
Maintaining a viable Global SystemCommon areas of cooperation include: Halt or if possible, reverse environmental degradation. Stop the growth of global population sooner rather than later, and by human means.
Achieve a secure balance between the world of food needs and supplies. Reduce the rates of the depletion of non-renewable natural resources by means of conservation and development of renewable resources substitutes. Bring energy demands and supplies into sustainable balance
Why Do Donors Give Aid? -During the Cold War, both the United States and the Soviet Union used aid to vie for the support of developing countries with little regard as to whether the aid actually was used to support development. -Taiwan and China have used aid (among other policy tools) to try to gain support and recognition for their governments from countries around the world.
-Many donors provide significant aid totheir former colonies as a means ofretaining some political influence.-For political reasons, donors generallywant to influence as many countries aspossible, which tends to lead to adisproportionate amount of aid going tosmall countries.
-Many donors “tie” portions oftheir aid by requiring that certaingoods and services be purchasedfrom firms in the donor’s homecountry, or that it be used forspecific purposes that supportgroups in the donor countries(such as universities or businessconsulting firms).
Criticisms of Foreign Aid: Aid can breed a culture of dependency. States often live on aid, and this aid acts as an excuse to avoid serious structural reforms. For the donor country, aid seems problematic if the donor state, such as the United States, cannot pay its own debts, both public and private.
In many cases, the aid is inappropriate, coming from the donor states perception of a problem rather than the actual problem. In addition, aid can sustain a government that might be the cause of the problems to begin with.
Countries extend foreign aids to other countries to serve their own self-interest. Even for moral and humanitarian reasons, the donors expect certain benefits one way or the other. Foreign aid or (development assistance) is often regarded as being too much, or wasted on corrupt recipient governments despite any good intentions from donor countries.