The Truth about Aid and Donations

[A.Rahman]

The Truth about Aid and Donations

13 Nov 2005

The Truth about Aid and Donations

This past year has witnessed many disasters; the Indonesia Tsunami and the South Asian earthquake to name two. However much of what is reported as generous aid from Western capitalist countries for these disasters actually ends up back with the richer nations, as subsidies that benefit large companies. This article aimes to look at the controversies that underlie donations to disaster struck regions.

Promoting donors’ interests

In the past half century aid has been driven by ideology. This can be seen in the American aid program to Europe following World War II. The Marshall Plan provided recourses not only to help rebuild war-devastated Europe, but primarily it was there to improve markets for American goods.

Following America’s example other imperialist nations like France and Britain set up assistance programs for their former colonies as a buffer against the spread of communism. Australia later adopted such ventures. In the underdeveloped countries, apart from some basic infrastructure, only the ruling elites really benefited from these arrangements. However all this changed with the collapse of the Soviet Union. The US and other imperialist nations slashed funds and adjusted their aid programs to the new reality. The US aid budget, for example, dropped by 32 percent between 1985 and 1995. International assistance to regions such as sub-Saharan Africa has declined by almost 50 percent in the 1990s.

Putting it into Perspective

According to Paying the Price, a report published by Oxfam, the annual aid budgets of the top 20 donor nations are half what they were in 1960, in real terms. On average, G7 nations—Canada, France, Germany, Italy, Japan, the UK and the US—allocate only 0.19 percent of their Gross National Income (GNI) for international assistance.

The combined annual foreign aid from the world’s wealthiest nations is also far less than capital expenditure on the military. Britain currently spends eight times as much on its military as it does on aid, France 9, Italy 15 and the US 33 times. The US annual defence budget in 2003 was over $400 billion, or 3.6 percent of its Gross National Income (GNI), while its foreign aid was only $16 billion or just 0.14 percent of GNI. This is about a ninth of the $148 billion it has spent invading and occupying Iraq.

Demands

Assistance and development loans to the less-developed nations come with increasing demands from donor nations and the international banks e.g IMF, World Bank.

From 1995 to 2000, here were, on average, 41 conditions attached to every International Monetary Fund (IMF) loan to poorer countries. These included specific demands on exchange rates, pricing and market privatisation, financial sector regulation and privatisation of education, health and social welfare systems.

By 1999, IMF loans to sub-Sahara African countries had 114 conditions on average, with most requiring prior compliance before the finance, or even thereof, was granted. These directives were made irrespective of the social and economic impact on the recipient nations. In other words, these loans rather than improving living conditions in the under-developed nations worsened the poverty and undermined the existing, and already inadequate, basic infrastructure in water, power, health, education and transport.

As Joseph Stiglitz, Nobel Prize winner and chief economist at the World Bank from 1996 until November 1999, admitted in 2000, the policies pursued by Washington and the international banks during the 1990s were akin to “using a flamethrower to burn off an old coat of house paint, and then lamenting that you couldn’t finish the new paint job because the house had burned down”.

The “aid” offered to Indonesia following the 1997-98 Asian economic crisis, for example, increased poverty significantly. To secure emergency assistance, the Indonesian government had to agree to privatise state services, restructure national banks, cut social spending and move to abolish price subsidies on fuel, electricity and food. These measures were clearly incompatible with the basic needs of the majority of Indonesians. The result - the number living in poverty doubled to 100 million, and real wages plummeted by 30 percent during this period.

Like Indonesia, Sri Lanka is also dependent on international aid. But apart from some basic health programs and other limited measures, recent foreign assistance packages have done little to improve the position of the poor. A high-profile international aid project was launched in June 2003, with representatives from the US, Japan, the European Union, the IMF, World Bank and Asian Development Bank. However the $4.5 billion promised at the meeting was to be provided only after the Sri Lankan government agreed to introduce a number of so-called “poverty reduction” programs.
One of these, entitled “Regaining Sri Lanka,” drawn up by the Sri Lankan government in conjunction with donor countries and the banks, included agreements to increase the privatisation of Sri Lanka’s ports, health, education and other state sectors.

Foreign aid redefined

Foreign assistance for long-term development not only dropped in recent decades but donors also expanded their definition of aid to include spending on refugees in the donor country and the education costs of overseas students from the recipient nations. Debt relief was also added into the donor nation’s overall aid spending. These calculations cut real assistance to the underdeveloped countries and artificially boosted official aid budgets -e.g. inflating aid figures.

Another means of inflating aid figures has been “technical assistance”. This involves forcing recipient countries to use expensive consultants and financial corporations from the donor nations. According to a 1999 UN estimate, technical assistance swallows up $14 billion per year, or about a quarter of total annual development aid.

In Bangladesh for example, 60 per cent of the funds spent on the Flood Action Plan between 1990-1995, did not stay in the country but were used to pay foreign consultants.

Even as overseas aid to the less developed nations remains close to an all-time low, moves are afoot to modify OECD rules so that spending on so-called peace-keeping operations, or the training of foreign armies, can be counted as aid spending. Several countries, including Australia, Denmark and others, were lobbying for this change. This would allow them to artificially boost their aid budgets and claim to be meeting previously agreed UN Millennium Project targets, under which wealthy nations were to increase foreign assistance spending to 0.7 percent of their GNI by 2015.

Wrong Direction

Many donors and governments direct their aid efforts mainly towards rebuilding damaged infrastructure, not peoples' livelihoods.

Survivors of Venezuela's devastating mudslides in 1999 were moved to safer, remote areas, but were unable to earn a living there and have begun to return to the site of their former homes and are again at risk.

Since Tajikistan gained independence, little investment has been made in developing its small scale rural economy. Despite extensive food aid for eight years, it is still unable to feed itself. In 2000, it had its worst drought in 74 years which left around two million people facing hunger and malnutrition while some of its available water was pumped into irrigating its cotton fields, Tajikistan's main cash crop.

Tied aid

Tied aid is a notorious technique that ensures most foreign funds flow back to the donor. Although officially condemned by international financial institutions and the UN, “tied aid” has still increased over the past 20 years. According to OECD reports on tied aid to least developed countries, the United States tops the tied aid list.

Some of the effects of tied aid are recipient counties are denied an opportunity to get the same services and goods at a lower price elsewhere, transfer of inappropriate skills and technologies, more costly to recipient country, no openness and accountability, the implied financial costs of tying are high (billions lost), it raises transaction costs for recipients as donors apply restrictive procurement rules, inefficient use of taxpayers’ money and creates markets for large companies.

According to a recent UN survey, 84 cents of every US aid dollar returns to America in the form of purchased goods and services. Up to 75 percent of Canadian aid is tied, while Germany, Japan, France, Australia follow close behind.

Approximately $1.8 billion per annum in official Australian foreign assistance is distributed to a select group of wealthy local companies involved in the “aid” industry. GRN International, which is owned by Kerry Packer, Australia’s richest individual, for example, receives $200 million per year for Australian aid projects. As AusAID, the official donor of Australian aid money, declares in its mission statement, its prime objective is to improve Australia’s “national interest”.

A large component of Australian overseas aid consists of payment for its military and police operations in the South Pacific Solomon Islands. Australian Defence Forces have occupied the Solomon Islands since 2003, claiming this as international aid, and the Howard government recently threatened to suspend all assistance to Vanuatu unless it agreed to accept Australian police and government “advisors” inside the poverty-stricken South Pacific country.

Washington’s African Growth and Opportunity Act is another example of how foreign aid is directed back to US banks and corporations. Adopted by the US Congress in May 2000, the Act stipulates that African countries seeking American aid must comply with IMF “structural adjustment” conditions. Africa can only sell its textile, clothing and footwear, if the manufacturers use nominated American raw materials.

One of the more blatant examples of “tied aid” is Washington’s HIV/AIDS assistance program. Under this policy, African governments seeking help for HIV/AIDS treatment are compelled to purchase all anti-AIDS drugs from the US, instead of cheaper generics from South Africa, India or Brazil. US drugs cost up to $15,000 per year compared to $350 for their generic versions.

Losing Control

Countries that receive aid have less control and decision-making on how to spend aid money. For example, countries like Malaysia or Sri Lanka, where the staple diet is rice may get shiploads of wheat, because these items are available from U.S. company stockpiles.
What is worse is that goods like sugar or roofing sheets that may have been bought in the region, and helped the regional economy, are ignored as U.S. materials are imported at top dollar. It is ironic that the Bush administration, which in its rhetoric promotes free markets and less government involvement in the economy, turns foreign aid into corporate welfare.

Foreign Influences

Aid also provides the opportunity to influence countries' foreign policies for example several recipient countries were virtually held to ransom when the United States was seeking council support for the war in 2003.

The September 11, 2001 attack on the US also provided Washington with the opportunity to radically transform its international assistance. Aid would now be distributed according to Washington’s immediate military requirements and its so-called “war on terror”.

Pakistan subsequently became a major recipient of US aid, receiving over $600 million in 2001. Other countries previously deemed ineligible for assistance, but vital strategically for the “war on terror”, also began to receive funds.

At the same time, countries that refused to back US demands in the United Nations for war against Iraq had their development funds cut. Washington followed this by blocking assistance to any country that refused to grant American citizens immunity for human rights violation cases in the International Criminal Court.

Conclusion

Clearly there is no real humanitarian purpose to the giving of aid by Capitalist nations or the overall effectiveness of any assistance given. What good is inappropriate aid, which does not meet the needs of the poorer which does not allow choice for the provision of services, allowing the recipient country to benefit from buying from suppliers on the basis of price, quality, and service. Surely untying aid in this way would help strengthen the local and regional economies and contribute to building local productivity.

At the time of a disaster, it must be remembered that there are ample supplies of local expertise—carpenters, building contractors, management consultants, architects, surveyors—and many of these skilled workers are unemployed. A sincere state would assist in restoring human dignity to those affected by a disaster by giving them the opportunity to earn a living and feed their families. This cannot happen when U.S. companies, agencies, and contractors crowd out locals because of current practices.

In September 2004, the United Nations’ Economic Commission for Africa’s Economic Report on Africa reported that “the donors’ habit of insisting that aid funds be spent purchasing goods and services from the same donor countries is crippling Africa’s chances of pulling ahead.” According to the report, “tied aid” reduces the real value of the assistance by some 25 to 40 percent, given that recipient countries are forced to buy imports that are not priced competitively.

Likewise not only have the recent earthquakes and tsunami devastated regions but no doubt the donating habits of the Western nations will ensure that they never fully recover. In the end the only beneficiaries will be the capitalist nations.

Source:  Journal