Foreign Aid is the transfer of money, goods, services, and technical advice from developed countries to underdeveloped or developing countries.
Foreign Aid is also one of the potent instruments of foreign policy. These Aids provide benefits to both developed and developing countries. The developed, i.e., the donor, receives some political and diplomatic objectives.
The process of Aid started after the Second World War. During the War, devastation occurred to the whole of Europe. So, in 1948 the US Secretary of State Marshall offered Aid to reconstruct European countries.
The main purpose of the USA’s Aid to European countries was to contain communism with the help of Europe. The United States made available about 3000 million dollars a year and 90% of this amount was in grants.
In 1956, to compete with the USA on equal terms, the former USSR also started the process of foreign Aid. In 1956 Mr. Khurosheve announced that the USSR would give Aid to non-socialist countries throughout the world.
The major recipients of USSR aid were India, Ethiopia, Afghanistan, and Egypt. Later on, France also entered the field, but France provided Aid only to its former colonies of Africa.
Due to the increasing influence of the USA, USSR, and France in International affairs, China has also entered the race and has extended Aid to Pakistan, Bangladesh, and other Third World Countries of Asia.
TYPES OF FOREIGN AID
Foreign Aids are of two types, which are as under: –
The first type of foreign Aid is donations from rich countries to developing countries that are not returned. For example, US aid to European countries under the Marshall plan
Loans are also one of the important types of foreign Aid. Loans are returned, but they are of two types.
(i) Soft Loans
Soft loans are repaid in the form of local currency without interest.
(ii) Hard Loans
Hard loans are returned, but together with interest in foreign currency.
OBJECTIVES OF THE DONOR OR DEVELOPED COUNTRIES
1. To Influence the Behavior of the Donee
The first and foremost objective of the donor is to influence the behavior of the donee and their decision-making process. For example, the USA provides Aid to Pakistan and other third-world countries to influence their behavior and decision-making process.
2. Strategic Importance.
Another objective of the donor regarding Aid is strategic importance. US aid to Pakistan in 1950 and now to India and Israel are the best examples in this connection. The USA provides all sorts of facilities to India because of its strategic importance.
3. Maintaining Diplomatic Influence
Foreign Aid is also extended as a means of expanding commercial opportunities. It is also utilized as a method of maintaining some diplomatic influence. For example, China, Japan, and the USA extended Aid to South Asia just for diplomatic influence.
4. Creation Of Political Stability
Another objective of Foreign Aid for developed or donor countries is creating political stability in third world countries for personal benefits. US aid to South Asia and South Korea are examples of this kind.
5. To Seek Recognition
Another objective of the donor is the seeking of recognition. For example, China extended all sorts of Aid to African and ASEAN countries for this purpose.
6. To Achieve Political Goals
One of the most important objectives of the donor is to achieve political goals. During the Cold War, both the Superpowers, i.e. USA and USSR, used foreign Aid for this purpose. Similarly, America extended Aid to Pakistan during the Afghan War just for political goals.
7. To Eliminate Poverty
To eliminate poverty from the developing countries is also one of the important objectives of donors. Sometimes Aid is extended on humanitarian grounds, e.g. UN aid to Bangladesh and Ethiopia. Similarly, China’s Aid to Pakistan can be cited in this category.
8. To Curb The Power of Other
To curb the power indirectly with the help of others is also one of the important objectives of the donor. For example, US aid to Pakistan against the USSR in 1979, US aid to Israel against the Middle East, US aid to India against China and Pakistan, and US aid to South Korea against China and North Korea.
9. Humanitarian Consideration
Sometimes Aid is extended to developing countries purely on humanitarian grounds to eliminate poverty and other related problems.
10. To Promote Alliance
Foreign Aid is also used for the promotion of the alliance system. After the Second World War, both the Super Powers, i.e. the USA and USSR, extended Aid to Third World countries to promote alliances. USA provided Aid to the members of SEATO and CENTO while USSR to WARSAW.
11. To Develop Trade Relations
Another objective of the donor is to establish and develop trade relations with donee to create a market for the products and goods of the donor because donee possesses huge economic markets.
OBJECTIVES OF THE DONEE
Developing countries seek Foreign Aid for a variety of purposes. Some of these objectives are as under:
1. Economic Development
Economic development is the process that affects the economic relations of the states and social, political, and religious relations. So the first and foremost objective of the donee is to achieve economic development. For example, Pakistan joined the American block in 1950 just for economic development.
2. National Security
Another objective of the donee regarding Foreign Aid is national security. National security is one of the foremost objectives of every state of the world. So some states request Aid to maintain national security and territorial integrity. In the early fifties, Pakistan felt threatened by Indian hostile policies; therefore, she requested military Aid from the west and joined SEATO and CENTO.
3. To Eliminate Poverty
Most developing countries have asked for Foreign Aid to promote national welfare and elimination of poverty. So donee requests Foreign Aid to provide adequate infrastructures such as highways, electricity, transport, communication, and industries, to break the vicious circle of poverty.
4. To Increase the Credibility of Government
Some countries have asked for Foreign Aid to increase the credibility of the government at the national and international levels.
5. National Welfare
Most developing countries have asked for Foreign Aid to promote national welfare and elimination of poverty. National welfare includes
- Raising The People’s Standard Of Living,
- Providing Health Facilities,
- Water Supply, And
- Construction Of Roads And Highways.
6. To Achieve Industrialization
Another main objective of foreign Aid for the donee is to establish new ‘agriculture, mineral and industrial units to provide job opportunities to the people and reduce unemployment.
7. Symbolic Projects
Some states receive Aid for symbolic projects. Such as Ultra Modern Airports and Nuclear Power Plants. For example, Pakistan received a huge amount of Aid from China for the construction of the Heavy Mechanical Complex and Gwadar Port.
8. To Achieve Political Stability
One of the major objectives of the donee is to achieve political stability. Because political and economic stability goes together, both are the two sides of a single coin. For example, in the early phase, Pakistan received Aid from Western Countries for political stability.
9. To Provide Employment opportunities.
Unemployment is one of the serious problems of developing countries. So the majority of the developing countries are receiving Aid and loans from other donors to establish new units to provide job opportunities to the people.
10. To Provide Basic Facilities
Another objective of the donee is to provide basic facilities like education, electricity, transport, highways, communication, public health, clean drinking water, and roads.
11. Technological Development
All the developing countries are very poor technologically. The developing countries can speed up economic progress by adopting advanced technology in various sectors of the economy. So another objective of the donee is to achieve technological development.
12. To Achieve Rapid Development
Another objective of the donee is to achieve rapid development in every field of life such as technological, industrial, agricultural, economic, social and political. So all the above fields are demanding foreign Aid from the donor. Because without Foreign Aid, developing countries are not in such a position to provide sufficient amounts of money to these sectors.
REASONS FOR FAILURE
The following factors are responsible for the failure of foreign Aid.
1. Not Equally Distributed
It is one of the important reasons for the failure of Foreign Aid. It means that Aid has not been equally distributed. For example, the United States made a grave error in equating Aid to developing countries with Aid to Western Europe
2. Insufficient Quantity
The most important reason for the failure of foreign Aid as advanced by developing countries is that the quantity of Aid has been insufficient. One of the main issues of the NIEO negotiations has been the demand of the developing countries to increase the flow of official development assistance.
3. To Dominate the Decision Making Process of Developing Countries
Another reason for the failure of Foreign Aid is that the donor wants to control the decision-making process of the donee. Foreign Aid provides opportunities for the north to dominate the decision-making process in developing countries. The decision-making process in most developing countries is in the strong control of the developed countries and world financial institutions.
4. No Pay Back System
The problem: of debt servicing could be regarded as one of the main reasons for the failure of foreign Aid. There is no payback system to return the loan or Aid to the developed countries to maintain its circulation.
5. To Achieve Political Objectives
The most important reason for the failure of Foreign Aid is that developed countries grant aid facilities to the developing countries for specific political objectives. For example, during the Afghan War in 1979, the USA provided Aid to Pakistan to fulfill her political objectives, i.e. containment of the USSR.
Developed countries and the world financial institutions, including the IMF, provide aid facilities to developing countries based on conditionality, e.g., making policies according to the demands and interests of developed countries and world financial institutions.
Aid Has Not Been Provided For Socio-Economic Development
Another reason for the failure of foreign Aid is that Aid has not been provided for socio-economic development but unproductive sectors. So this factor also contributed a lot towards the failure of foreign Aid.
Corruption is one of the serious problems of all the world’s developing countries. All the top leaders and politicians in developing countries are corrupt. They receive Aid not for the developmental and progressive activities but personal interests and demands. Thus corruption is the major cause of the failure of foreign Aid.
Foreign Aid has not served the purpose it had intended for economic development for the Third World Countries. The flow of finance and capital benefited those in charge of the government much more than the people. Most Third World Countries are incapable of utilizing the Aid to the proper projects. Besides bad planning, corruption, and mismanagement, a vast amount of Aid is wasted in bureaucratic red-tapism.
The former President of Colombia, Alfonso Lopez, observed, “We have concluded that foreign aid breeds an unhealthy economic dependency and delays measures that should be taken for development.”