Flows in Aid (DP IB Geography)

International Aid

• International aid is any form of needed assistance provided by one country or multilateral institution to another

• Aid is most commonly provided as official developmental assistance (ODA), which targets poverty reduction and the promotion of public welfare and economic development

• There are many types of international aid, and it varies according to:

  • Timing: emergency vs. long-term, loans vs. grants

  • Source: multilateral vs. bilateral, charities, NGOs, companies, UN, etc.

  • Constituents: financial, capital goods, military, experts/technical advice, information, food, etc.

  • Relationship: former colony, military pact, part of trade bloc, etc.

  • Why aid is needed: foreign exchange gap, savings gap, technical gap, medical gap, knowledge gap

• Major donors range from multilateral institutions such as UN agencies and the EU to bilateral donors such as the UK, US and non-governmental organisations (NGOs) such as Amnesty International and World Vision

• The distribution of humanitarian and development aid has changed since the 1950s

• Initially, aid was directed to developing countries through the funding of large infrastructure projects, in the hope that economic development would ‘trickle down’ to those in poverty

• This attitude changed in the 1970s, when those in poverty were directly targeted for funding

• However, this ended in the 1980s with the emergence of Structural Adjustment Programmes (SAPs), along with International Monetary Fund (IMF) attempts to enact structural change within developing economies

• The end of the Cold War and the continued failure of development in regions such as Africa led to a stalemate in development during the 1990s, with Overseas Development Aid (ODA) levels falling

• By the turn of the millennium, a new determination to target the causes of poverty and economic deprivation emerged

• Strategies became focused on giving developing countries and their citizens’ ownership of their own economic development

• The UN Millennium Development Goals were a result of this

What constitutes foreign aid?

• Foreign aid is the voluntary transfer of resources from one country to another—typically capital (i.e. financial resources)

• Some types of foreign aid:

  • Bilateral aid: direct government-to-government assistance

  • Multilateral aid: when multiple governments pool resources in cooperation with organisations like the World Bank, the IMF and the UN

  • Tied aid: the receiving country accepts aid with the expectation that it will be spent in the lending country

  • Voluntary aid: a charitable donation, particularly when countries are facing a humanitarian crisis

  • Project aid: when aid is used to finance a specific project

  • Military aid: similar to tied aid, but specific to weapons and military supplies

• Aid can sometimes be seen as patronising by the country receiving it

• Aid from some countries may be inappropriate owing to cultural differences

  • Sometimes local practices are more efficient than aid offered, e.g. in India, a bullock cart is potentially more useful than a truck (depending on the specific location)

Advantages and Disadvantages of International Aid

International Loans

• Loans are transfers of money or skills that need to be repaid within a set time

• In 1970, the United Nations' official development assistance (ODA) set a percentage target of 0.7% GNI (i.e. countries should aim to allocate at least 0.7% of their GNI towards loans or aid to other nation)

  • So far, only a few donors have met this target

How much do countries lend?

• The main providers are HICs to developing countries

• In 2022, the United States spent $60.5 billion on foreign aid, with Ukraine receiving $16.4 billion. Both Jordan and Egypt received military aid from the US

• However, when compared to their gross national income (GNI), the US donated less than 0.25%

• The largest donors in relation to GNI are Sweden at 0.9%, Denmark at 0.7%, and Norway at 0.86%

• France and the UK provided 0.5% of their GNI in aid

Structural Adjustment Programmes

• Structural adjustment programmes (SAPs) are loans from the IMF

• They require the borrowing country to cut back on government spending in healthcare, education and other social services

• They increase liberalisation and international trade

• They privatise national resources such as water

• They encourage countries to become economically self-sufficient by creating innovation, attracting inward investment and promoting growth

Criticisms of SAPs

• It is argued that without controls, these loans would create a cycle of dependence where countries in financial difficulties would continue to borrow without solving the issues that caused the problem in the first place

• Others argue that imposing controls on an already-poor country is adding to their vulnerability and impacts women, children and the vulnerable the most

• Countries with SAPs have less policy freedom to deal with economic shocks, unlike richer lending countries that can call on public borrowing to help them out

  • This was particularly noticeable during and after the global pandemic, when many poorer countries were unable to call on extra loans to see them through

• Critics also argue that SAPs are a form of neocolonialism where rich countries offer bailouts to former colonies or other poorer countries in exchange for reforms that favour them in the future

Debt Relief

• A country’s debt can be expressed as either a ratio of debt to a country’s GDP or as a ratio of a country’s external debt to the value of its exports

• The lower the percentage to GDP, the lower the debt

  • For instance, the UK’s general government gross debt was £2,223.0 billion at the end of March 2021, equivalent to 103.7% of gross domestic product (GDP), according to data from the Office for National Statistics (ONS) as of March 2022

  • Although this is high by UK standards, other countries have a much larger ratio

  • Japan, for example, has a national debt of 256%; Italy has over 134%

  • The US national debt is over 100% of GDP

  • Also, the UK had much higher national debt in the past; in late 1940s, UK debt was over 200% of GDP

• Many countries have borrowed more money and accumulated more debt than it is feasible for them to pay back in the near future

Why do some countries find it difficult to repay?

• There is usually a combination of economic and political factors: high interest rates on international loans, demands of the country’s population as development grows, changes in government and policies, corruption, etc.

• Other factors include natural disasters

• Social factors such as high levels of population growth, limited educational provision and poor infrastructure also means a lack of governmental funds to repay or ‘service’ the loan or re-pay the capital

• Debt is a major development issue. The $5 trillion of external debts owed by developing countries costs them more than $1.5 billion a day in repayments, and much of that comes from the poorest countries

• Most of the world’s poorest countries have limited access to international capital markets; their sovereign debt does not have an official credit rating

• Most of the countries in Sub-Saharan Africa are in this situation and are classified as heavily indebted

• 25 of the 32 countries are rated as severely indebted

• In 1962, sub-Saharan Africa owed $3 billion in loans

• By 2017, its debt had risen to $230 billion

• There is widespread support for either cancelling a country’s debt altogether, rescheduling debt payments or indexing interest rates to the country’s economic growth

• Debt relief frees developing countries from their debt service payments. They can then use these savings to contribute to poverty reduction

The Heavily Indebted Poor Countries (HIPCI) Initiative

• Launched by the World Bank and the IMF in 1996 to reduce the debts of the poorest and most indebted countries to sustainable levels

• Under the initiative, a calculation would be made to find the reduction needed in the country’s external debts to bring them below <150% of the value of the country’s annual exports; this is considered to be a sustainable level

  • Côte d’Ivoire benefited from HIPCI; it has been granted external debt relief of $7.7 billion.

  • As a result, the stock of Ivorian public debt decreased from 69% of GDP in 2011 to 40% of GDP in 2012

• Criticism of debt relief suggests that countries are encouraged to overspend, it does not help countries that are not in debt, and it does not help the poor