Rationale of foreign aid

ByM Ali Siddiqi

writer who contributes to leading periodicals


June 19, 2022

Rationale of foreign aid

M Ali Siddiqi talks about a contentious issue

Since its adoption as an instrument of soft power, the Rationale of foreign aid has become an extremely contentious issue provoking widely contrary opinions about it. Though foreign aid comes in a variety of shapes and forms but the issue revolves around its purpose and efficacy creating huge controversy in both the donor and receiving stakeholders. It is now widely known that foreign aid includes transfer of funds, credits, goods, technical assistance and knowledge. Though the main content of such assistance is of civilian nature but it can also pertain to military assistance and Pakistan has received such assistance for many decades as it joined the American camp in the early fifties and is still in the same camp with multiple alterations in its content and form. Pakistani reliance on foreign aid, particularly American financial assistance, has become a huge liability for the country and is deeply resented by its people.

It is widely known that aid policies are pursued by governments as well as by international organisations, private voluntary organisations and charities that utilise public funds as well as by donations given by affluent individuals working in private sector. Keeping in view the growing debate about the issue various attempts are made to define the concept along with its emergence and its historical context. There is a wide consensus that economic aid is known to be transfer of resources from the government and public agencies of one state or those of a group of states to the government and public agencies of other states for any purpose other than the fulfillment of an obligation. It is further delineated that such a transfer of resources can only be considered to be aid if it involves no element of mutuality, bargain or quid pro quo.

It is also evident that aid is a government-to-government exchange of public economic resources, not commercial flows of loans and credits and comes in two forms: bilateral, from one state to another; or multilateral, from one or more states or international institutions to a state or group of states. The tensions arise when it is defined that aid can be tied to the purchase of certain products from the donor state, or untied. On the other hand, most bilateral aid is tied. The issue gets more complicated when it is observed that quite often foreign aid is double-tied as it not only requires a portion to be spent on goods and services from the donor state but also on specific projects within the recipient state. In this context, bilateral aid is usually taken to be double-tied. On the other hand, multilateral aid is considered fairer in nature as it provides considerable leeway in the use of the funds given and the receiving state can also apportion it for projects it intends pursuing.

It is now widely acknowledged that economic aid is used as soft power by decision makers engaged in statecraft therefore it is taken as a means to the end and conventionally it is recognised that its end is decisively political. By providing economic assistance the donors clearly imply that they are doing it in order to influence the internal or external behaviour of other states and thus achieve political ends. The main and significant factor of financial assistance is that it is provided through the method of inducement and is generally devoid of being used as a matter of coercion.

In this context, it is hotly contested that providing economic aid is not entirely altruistic in nature on part of the wealthier, more developed countries in the international system towards those less well off. It must, however, be observed that not all economic aid comes with political ends as it also includes humanitarian assistance, emergency relief and the meeting of basic human needs. This aspect clearly points out that there exists a moral dimension in this exercise yet in most instances states implicitly or explicitly attempt to influence the receiving states. The issue therefore is enveloped into all three dimensions but it could be inferred that most of the foreign economic aid is political in nature. Many observers duly concede that the practice of foreign economic aid is a complex interplay between political, economic and moral angles and for clarifying these dimensions it is imperative to view this process through different angles.

In the first instance the foreign economic aid is given for political and strategic considerations as is borne out by the fact that during the Cold War both the US and the USSR spent billions of dollars in efforts to lure disparate regimes into their camps and cement their friendship with such allies. In this context, the most frequently cited example is the Marshall Plan that was an overarching initiative of economic assistance provided by the US for reconstruction of war ravaged Europe that made it possible for European countries to come back to normalcy. Moreover, foreign economic assistance has also been instrumental in bringing much needed economic prosperity to the developing world.

It is also evident that aid is utilised for the purpose of promoting international economic development. In this context it is often pointed out that in the aftermath to the Second World War, economic aid was extended to increase the number of states participating in the liberal international trading order. The underlying assumption of pursuing this policy was to ensure wider participation in free-trading global system as it was anticipated that it would generate far greater volume of trade resulting in large-scale markets that would usher in much needed economic prosperity, particularly in the developing world.

It is also pointed out that the provision of aid for humanitarian and moral purposes is also to be included in the overall process of foreign economic aid. There is hardly any doubt that there has been tremendous surge witnessed in humanitarian aid given by multiple sources. Such aid is rated to be essentially moral in content as it cumulatively aimed at alleviating poverty and providing relief to sufferers of any kind of calamity. This aspect is based upon shared humanity and there is a growing interest in this respect as became evident through the global efforts to tackle the Covid pandemic in which it was observed that welfare-oriented entrepreneurs donated billions to get an anti-virus vaccine developed and it was ultimately done. Interestingly it is also observed that in developed world there is an apparent guilt about the wrongs perpetrated by the developed world during long spells of colonialism that are recognised as denying the colonised world due rights and opportunities to harness and profitably utilise their indigenous resources according to their own priorities.

The recent observation is that the post-Cold War has given rise to treating and providing foreign economic aid for multiple purposes. It is often noted that foreign aid is now provided to fight against corruption so as to bring in good governance aimed at improving the lot of people. Plenty of foreign economic aid is now given to ensure human rights in the developing world that is still riddled with arbitrary and whimsical executive regimes. Much of such aid is given to promote democratic values and practices in the developing world and post-USSR countries particularly. Most of the current foreign economic aid is now disbursed to ensure structural changes in receiving countries in order to bring their economic practices at par with best practices followed by the donor states and such aid packages are often wrapped in strict conditions. TW


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