economics

May 13, 2010

ODA

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http://www.globalissues.org/article/35/foreign-aid-development-assistance
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Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. (February 2008)

The offer to give development aid has to be understood in the context of the Cold War. The European Recovery Program, or Marshall Plan, launched by the United States in 1948, was concerned with maintaining the existing Western European governments in power by stabilising their economies so that they could resist internal dissent and external pressure from the socialist East. United States president Harry Truman clearly stated the anti-communist rationale for U.S. development aid in his inaugural address of 1949, which also announced the founding of NATO. The aid proposal was point four of the programme: “In addition, we will provide military advice and equipment to free nations which will cooperate with us in the maintenance of peace and security. Fourth, we must embark on a bold new program for making the benefits of our scientific advances and industrial progress available for the improvement and growth of underdeveloped areas. More than half the people of the world are living in conditions approaching misery. Their food is inadequate. They are victims of disease. Their economic life is primitive and stagnant. Their poverty is a handicap and a threat both to them and to more prosperous areas. For the first time in history, humanity possesses the knowledge and skill to relieve the suffering of these people.“[4]

Development aid was aimed at offering technical solutions to social problems without altering basic social structures. The United States was often fiercely opposed to even moderate changes in social structures, for example the land reform in Guatemala in the early 1950s.
[edit] Quantity
Main article: Official Development Assistance

Most Official Development Assistance (ODA) came from the 23 members of the Development Assistance Committee (DAC), or about USD 103.49 billion in 2007. A further USD 11.8 billion came from the European Commission while all non-DAC countries gave USD 5.56 billion.[5]

The largest DAC donors were the United States (USD 21.8 billion), Germany (12.29 billion), France (9.88 billion), United Kingdom (9.85 billion) and Japan (7.68 billion), while the largest non-DAC donors were Saudi Arabia (USD 2 billion) and Turkey (0.6 billion). However, none of those met the UN target of giving at least 0.7 percent of the Gross National Income (GNI) as aid. United States (0.16% of GNI) and Japan (0.17% of GNI) were in fact giving least among the members of DAC. The only countries meeting the targets in 2007 where Norway (0.96% of GNI), Sweden (0.93% of GNI), Luxembourg (0.91% of GNI), the Netherlands and Denmark (both 0.81% of GNI).[5]
[edit] Quality

Development aid is often provided by means of supporting local development aid projects. In these projects, it sometimes occurs that no strict code of conduct is in force. In some projects, the development aid workers do not respect the local code of conduct. For example, the local dress code as well as social interaction.[6] In developing countries, these matters are regarded highly important and not respecting it may cause severe offense, and thus significant problems and delay of the projects.
[edit] Effectiveness
Main article: Aid effectiveness

Aid effectiveness is the degree to which development aid works, and is a subject of significant disagreement. Dissident economists such as Peter Bauer and Milton Friedman argued in the 1960s that aid is ineffective:[7]

… an excellent method for transferring money from poor people in rich countries to rich people in poor countries.
— Peter Bauer

Many econometric studies in recent years have supported the view that development aid has no effect on the speed with which countries develop. Negative side effects of aid can include an unbalanced appreciation of the recipient’s currency (known as Dutch Disease), increasing corruption, and adverse political effects such as postponements of necessary economic and democratic reforms.[8]

. It has been argued that much government-to-government aid was ineffective because it was merely a way to support strategically important leaders. A good example of this is the former dictator of Zaire, Mobuto Sese Seko, who lost support from the West after the Cold War had ended. Mobuto, at the time of his death, had a sufficient personal fortune (particularly in Swiss banks) to pay off the entire external debt of Zaire.[8]

Besides some instances that only the president (and/or his close entourage) receives the money resulting from development aid, the money obtained is often badly spent as well. For example, in Chad, the Chad Export Project, a oil production project supported by the World Bank, was set up. The earnings of this project (6,5 million dollars per year and rising) were used to obtain arms. The government defended this purchase by stating that “development was not possible without safety”. However, the Military of Chad is notorious for severe misconduct against the population (abuse, rape, claiming of supplies and cars) and did not even defend the population in distress (eg in the Darfur conflict). In 2008, the Worldbank retreated from the project that thus increased environmental pollution and human suffering.[9]

Another criticism has been that Western countries often project their own needs and solutions onto other societies and cultures. In response, western help in some cases has become more ‘endogenous’, which means that needs as well as solutions are being devised in accordance with local cultures.[10] For example, sometimes projects are set-up which wish to make several ethnic groups cooperate together. While this is a noble goal, most of these projects fail because of this intent.[9]

It has also been argued that help based on direct donation creates dependency and corruption, and has an adverse effect on local production. As a result, a shift has taken place towards aid based on activation of local assets and stimulation measures such as microcredit.

Aid has also been ineffective in young recipient countries in which ethnic tensions are strong: sometimes ethnic conflicts have prevented efficient delivery of aid.

In some cases, western surpluses that resulted from faulty agriculture- or other policies have been dumped in poor countries, thus wiping out local production and increasing dependency.

In several instances, loans that were considered irretrievable (for instance because funds had been embezzled by a dictator who has already died or disappeared), have been written off by donor countries, who subsequently booked this as development aid.

In many cases, Western governments placed orders with Western companies as a form of subsidizing them, and later shipped these goods to poor countries who often had no use for them. These projects are sometimes called ‘white elephants’.

According to Martijn Nitzsche, another problem is the way on how development projects are sometimes constructed and how they are maintained by the local population. Often, projects are made with technology that is hard to understand and too difficult to repair, resulting in unavoidable failure over time. Also, in some cases the local population is not very interested in seeing the project to succeed and may revert to disassembling it in order to retain valuable source materials. Finally, villagers do not always maintain a project as they believe the original development workers or others in the surroundings will repair it when it fails (which is not always so).[11]

A common criticism in recent years is that rich countries have put so many conditions on aid that it has reduced aid effectiveness. In the example of tied aid, donor countries often require the recipient to purchase goods and services from the donor, even if these are cheaper elsewhere. Other conditions include opening up the country to foreign investment, even if it might not be ready to do so.[12]

All of these problems have made that a very large part of the spend money on development aid is simply wasted uselessly. According to Gerbert van der Aa, for the Netherlands, only 33% of the development aid is successful, another 33% fails and of the remaining 33% the effect is unclear. This means that for example for the Netherlands, 1.33 to 2.66 billion is lost as it spends 4 billion in total of development aid (or 0,8% of the gros national product).[11]

For the Italian development aid for instance, we find that one of their succeful projects (the Keita project) was constructed at the cost of 2/3 of 1 F-22 fighter jet (100 million $), and was able to reforest 1,876 square miles of broken, barren earth, hereby increasing the socio-economic wellbeing of the area.[13] However -like the Dutch development aid- again we find that, the Italian development aid too is still not performing up to standards.[14] This makes clear that there are great differences between the success of the projects and that budgettary follow-up may not be so strictly checked by independent third parties.

An excerpt from Dr. Thomas Dichter’s recently published book Despite Good Intentions: Why Development Assistance to the Third World Has Failed reads: “This industry has become one in which the benefits of what is spent are increasingly in inverse proportion to the amount spent – a case of more gets you less. As donors are attracted on the basis of appeals emphasizing “product”, results, and accountability…the tendency to engage in project-based, direct-action development becomes inevitable. Because funding for development is increasingly finite, this situation is very much a zero-sum game. What gets lost in the shuffle is the far more challenging long-term process of development.”

The Massachusetts Institute of Technology’s Abhijit Banerjee and Ruimin The have undertaken a rigorous study[15] of the relatively few independent evaluations of aid program successes and failures. They suggest the following interventions are usually highly effective forms of aid in normal circumstances:

* subsidies given directly to families in order to be spent on children’s education and health
* education vouchers for school uniforms & textbooks
* teaching selected illiterate adults to read and write
* deworming drugs and vitamin/nutritional supplements
* vaccination and HIV/AIDS prevention programs
* indoor sprays against malaria, anti-mosquito bed netting
* suitable fertilizers
* clean water supplies

An inquiry into aid effectiveness by the UK All Party Parliamentary Group (APPG) for Debt, Aid and Trade featured evidence from Rosalind Eyben, a Fellow at the Institue of Development Studies. Her evidence to the inquiry stated that effective aid requires as much investing in relationships as in managing money. It suggests Development organisations need to change the way they work to manage better the multiple partnerships that the Accra Agenda for Action recognises is at the core of the aid business. In relation to this specific inquiry, Dr Eyben outlined the following points:[16]

* Achieving impact requires investing in relationships, development organisations need to support their staff to do this. At the moment, the opposite is happening.
* In multiple sets of relationships there will be different ideas about what is success and how to achieve it and this should be reflected in methodologies for defining and assessing the impact of aid.
* Helpful procedural harmonisation should not mean assuming there is only a single diagnosis and solution to any complex problem.
* In addition to measuring results, donors need to assess the quality of relations at project/programme, country and international levels against indicators agreed with partners.
* Decisions on aid need to be made on a case by case basis on the advice of well-informed country offices.
* Accountable states depend on empowered citizens
* Development organisations also need to be more accountable to UK citizens through encouraging conversations as to the real challenges and limitations of aid. (Point made in relation to UK as evidence for UK parliamentary inquiry)

The views above are of Dr Eyben. There were many other submissions to the All Party Parliamentary Group for Debt, Aid and Trade’s inquiry into Aid Effectiveness. The final report gathered a vast amount of information from a wide range of sources to ensure a balanced perspective on the issues of aid effectiveness. The All Party Parliamentary Group for Debt, Aid and Trade’s inquiry into Aid Effectiveness can be found online and the submissions of other contributors are available upon request.
[edit] Private aid

Development charities make up a vast web of non-governmental organizations, religious ministries, foundations, business donations and college scholarships devoted to development aid. Estimates vary, but private aid is at least as large as ODA within the United States, at $16 billion in 2003. World figures for private aid are not well tracked, so cross-country comparisons are not easily possible, though it does seem that per person, some other countries may give more, or have similar incentives that the US has for its citizens to encourage giving.[17]
[edit] Remittances

It is doubtful whether remittances, money sent home by foreign workers, ought to be considered a form of development aid. However, they appear to constitute a large proportion of the flows of money between developed and developing countries, although the exact amounts are uncertain because remittances are poorly tracked. World Bank estimates for remittance flows to developing countries in 2004 totaled $122 billion; however, this number is expected to change upwards in the next few years as the formulas used to calculate remittance flows are modified. The exact nature and effects of remittance money remain contested,[18] however in at least 36 of the 153 countries tracked remittance sums were second only to FDI and outnumbered both public and private aid donations.[19]

The IMF has reported that private remittances may have a negative impact on economic growth, as they are often used for private consumption of individuals and families, not for economic development of the region or country.[20]

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