Thursday, November 29, 2007

Rethinking Foreign Aid

Thursday, November 29, 2007

There is no denying the importance of international organizations for creating a more just economic order and the pivotal role that aid plays in development. Again we must ask: To what extent is the role of international organizations in bringing about development outcomes such as equity and social justice and what are the fundamental motives of these organizations in giving aid? As argued by Sen (1999: 123): “individuals live and operate in a world of institutions, many of which operate across borders. Our opportunities and prospects depend crucially on what institutions exist and how they function.” There is a need, therefore, to examine the functions and motivations of these international aid-giving institutions.

Aid from international organizations (bilateral or multilateral) can advance human welfare and social justice through: 1) allowing recipients to increase consumption and investment; 2) improving the provision of basic services such as health and education; 3) extending social insurance; 4) supporting reconstruction in conflict areas; and 5) building global health challenges. (Human Development Report 2005) Moreover, donor organizations can influence the broader policy environments under which development projects and programs are designed and implemented, in ways that can either facilitate or obstruct processes of promoting poverty alleviation and human development. Foreign aid can make the greatest contribution where the institutions and policies are ‘right.’ Foreign aid donors selectively reward strong reformers and those that meet the necessary conditions the aid entails for the argument is that aid is only effective in countries with good’ policy environments, in terms of fiscal stability, low inflation rates and open markets.

The collapse of the Soviet Union and the Berlin Wall and the end of the Cold War has stimulated a rethinking of development aid and pushed for the revamping of the aid agenda as manifested in the creation of the United Nations Millennium Development Goals. However, aid distortions and issues related to strategic donor behavior and realpolitik still exist. A multitude of factors have diminished the impact of aid on development – cold war politics, the use of aid to promote commercial objectives in donor countries, aid and loan conditionalities, the absence of effective national poverty reduction strategies, corruption and economic mismanagement. A study by Alesina (2000) using OECD-DAC data from Nordic countries, covering the period of 1970 to 1994 confirms that the foreign policy goals of donor organizations continue to be the most important motive for giving aid. The pattern of aid-giving is dictated mainly by political and strategic factors instead of economic needs and policy performance of recipient countries. The strategic behavior of donor organizations, policy prescriptions and loan conditionalities in particular, even further underpins unequal power relationships among countries.


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