Development Assistance

International AidTaking a new look at Africa: Andrew Mwenda on TED.com

http://blog.ted.com/2007/09/04/andrew_mwenda_i/

QuickTime™ and a decompressor

are needed to see this picture.

International Aid

• Reasons people around the world need help

• Myanmar http://it.truveo.com/Cyclonehit-Myanmar-opens-border-to-international/id/3136122002

• Darfur http://video.google.com/videoplay?docid=641187334991728583&ei=BothSbT0PISa-wG5hK0h&q=international+aid#

On Darfur visit, Goodwill Ambassador Mia Farrow appeals for international aid

EarthquakesFamine

War Poverty

Disease

Drought

International Aid•Official development assistance (ODA) delivered by governments

•Private development assistance (PDA) delivered by non-governmental organizations (or NGOs)

International Aid

•Canadian Prime Minister Lester B. Pearson suggested that member countries of UN make a commitment in 1969 to donate 0.7% of their GNP as a contribution to international aid

International Aid

• Only Norway, Sweden, Denmark and Netherlands have met this target on a regular basis

Norway

SwedenDenmark

Netherlands

International Aid• US should be largest

contributer (has largest GNP $13,811,200,000,000 should contribute $96.7 billion

• In 2006 contributed .2%(27.6 billion)

• Canada contributed $3.98 billion but should have contributed $9.28 billion

• Almost all aid is a loan • It must be paid back over an

agreed period of time• June 2008 - 37.7% of all US

aid in the form of grants and 62.3% was loans

International Aid2 Channels for giving aid

1. Multilateral Aid: Aid involving more than 2 donors - eg. aid that comes from the World Bank or UN funded by many governments

Example: UN Development Program providing money for women’s educational development in Afghanistan

2. Bilateral aid: direct help from one government to another

Example: a grant from the Japanese government for the construction of a hospital in Syria

Reasons For International Aid1. Economic development

• Giving aid may benefit the economy of the donor country

• The aid given can be used to develop an aspect of a countries economy. Often the receiving country will be obliged to import goods from the country that provided the aid.

• Eg. Canada may give aid in form of wheat from Sask. or purchased transportation equipment from Ont.

International Aid2.Political influence

• Aid provided to reinforce or create political obligations of a recipient country to a contributing country.

• i.e. in exchange for food aid country receiving aid would adhere to contributing countries foreign policy wishes. If not, things like embargo’s may be implemented to encourage the desired outcome.Embargo: An embargo is the partial or complete prohibition of commerce and trade with a particular country, in order to isolate it.

Embargoes are considered a strong diplomatic measure.

International Aid3. Historical Obligation

• Personal ties with former colonies

• Obligation to pay back for time country was exploited.

• Example: Britain and India

4. Humanitarian obligation

• Aid based on feeling or moral responsibility

• i.e. Canada taking in Kosovo refugees in 1999 (war in Yugoslavia)

• Hope for Congo http://www.pbs.org/moyers/journal/04042008/watch.html

Concerns About Foreign Aid

1)There is a growing feeling, in the world, that foreign aid does not seem to accomplish very much

• From 1970-2002 the poorest countries in Africa have borrowed $294 billion and have paid almost all of the interest and principal

• They still owe over $200 Billion in interest and penalties to the richest countries in the world (US, Canada, Germany, UK)

Concerns About Foreign Aid

After half a century of aid ($500 Billion) much of Africa seems worse off than it was before aid began

Bono http://www.guardian.co.uk/society/video/2008/may/11/bono

Bob Geldolf http://www.youtube.com/watch?v=oF3XFSuR7Fk

20/20 http://www.youtube.com/watch?v=KZHyspuEEKg

Concerns About Foreign Aid

2) Often aid does not reach poorest people (Israel, Egypt, and Turkey receive more U.S. aid than India, or African countries)

3) Aid limited in usefulness due to poor infrastructure that cannot support improvement over the long term (roads, schools, hospitals, rail, & common services)

4) Aid can inhibit local entrepreneurs, who find it difficult to compete with low-cost items For example, local farmer cannot sell their produce while food aid is being provide for free.

The Debt Trap: The Power of the Creditors

• The debt of periphery countries far exceed their ability to pay (In 2006 owe $2.9 trillion and interest charges in were $513 billion per year)

• Once countries are in debt they must pay large amounts of interest on money borrowed.

• They have to borrow further to pay back interest to international financial institutional like the World Bank (WB), International Financial Institutions and the International Monetary Fund (IMF)

The Debt Trap: World Bank

• The World Bank is an international development organization owned by more than 180 countries both developed and developing.

• Its role is to reduce poverty by lending money to the governments of its poorer members to improve the health of their economies and to improve the standard of living of their people.

The Debt Trap: International Monetary Fund

• IMF – an international financial organization with 183 member countries

• Purpose is to promote international financial co-operation

• Seeks to develop economies of all countries (esp. developing or those in need of stability)

• Provides loans and technical economic assistance

• 2001 had outstanding loans worth greater than $65 billion

The Debt Trap• When money is loaned to a country from the WB or IMF this is

considered multilateral aid• Once this multilateral aid is given its creditors can influence

the way its economy is run.• Power is assigned according to the % of finance a country

gives the organization• In 2008 USA provided 17% of funding and was allowed that

amount of influence• G7 countries contribute 45% (France, UK, US, Canada,

Germany, Italy, Japan) • E.G. 1970 WB told Sudan it should not grow grain to feed its

people but should grow cotton instead (cash crop) $$ to pay off some of its debt. In addition, Many loans often carry strict conditions with them, like cuts in spending on health care, education and food subsidies. This makes life even worse for people in the indebted countries.

Thoughts On The Issue• Refinancing loans can get countries into even more trouble.

Refinancing is when more money is borrowed to pay off earlier loans (most of the debt dates back to the 1970’s-1980’s). In theory, refinancing is a measure to help developing countries with their debt problems and sometimes it does this. However, it does not make good sense to take on new debts in order to service existing debts.

• Cancel the debts: Debts would no longer exist. The developing countries would not have to repay the loans and they would not have to pay the interest. The Bank and the IMF can't just erase the debt these countries owe them because then they would use most of their financial resources to fund this debt relief and cease to exist.

Do the developing countries really owe the developed world? They have repaid their loans many times over in interest payments.

• At the G8 Summit held in July 2005, leaders of the world's 8 richest countries

(who are also the biggest donors) proposed to cancel all the (multilateral)

debt of 18 of the poorest countries in the world. Now, after this proposal the world

leaders need to figure out how to go about canceling this debt.