Direct .vs. Indirect Aid
Should foreign aid donor nations and the World Bank continue to give the majority of their aid through the direct channel of Official Development Assistance (ODA), or should they instead give that aid indirectly to Charities, NGO’s, PVO’s and microfinance initiatives? (NB. See also Bilateral .vs. Multilateral Aid)
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Changing the way money is given will reduce corruption, embezzlement and manipulation. The centrali...
Changing the way money is given will reduce corruption, embezzlement and manipulation. The centralization of the governmental structures which control aid distribution in many recipient countries make embezzlement relatively easy. Even linking aid to specific projects is ineffective at solving this problem due to difficulty in tracking individual project accounts within the recipient nation. Recently the Netherlands has halted its $148m development aid programme to Kenya in protest at aid embezzlement in the wake of the ‘graft’ scandal there. Similarly Sao Tome’s Prime Minister was arrested for aid embezzlement in 2004. Corruption inside government means that aid is also often directed to supporters of the government when eventually spent. This is particularly likely to happen in ethnically diverse and tense nations, as has been observed in Zimbabwe under Mugabe and in the form of economic discrimination against Arab-Israelis in Israel.
Advocates of government-to-government aid do not have to defend such an outdated concept of ODA. Since at least 2000, many DAC member nations have tied their aid entirely or in part to political, economic environmental reform. The burden is now on recipient nations to prove that the aid is not being squandered, creating a political culture that tackles corruption, as has been seen with the creation of an ‘anti-graft task force’ in Kenya in 2006. Linked aid promotes political stability, an environmentally conscious government and a consistent economic framework.\
Furthermore, there is no guarantee that charities and NGO’s will be any less corrupt. Large amounts of money are the corrupting factor and giving aid to multiple NGOs, many of which may not be governed by as strict accounting standards as those based in the UK or USA, creates a system in which it is far harder to monitor and prevent embezzlement.
Direct aid undermines local markets. Many economists believe that economic growth needs to occur at ...
Direct aid undermines local markets. Many economists believe that economic growth needs to occur at a local level, with private industry driving growth forward. Chile is often given as an example of a country which has grown in this way. Government aid frequently results in the growth of large, state-owned corporations which undercut the creation of local markets, preventing the development of private enterprise. This is similar to the way long-term food aid has a hysteresis (de-skilling) effect on economies. If this is the case then giving microbanks the aid instead should create a large supply of low-cost credit which small firms can borrow to develop, furthering the creation of local markets and economic development.
Central spending growth is still very important. Whilst we can recognise the importance of local markets in development, they provide only half of the picture. NGO’s serve a different purpose to governments, developing local projects such as schools and wells. However, economic growth also requires central spending to develop infrastructure. Indian well-drilling efficacy has increased by 70% since the use of the national space programme to find water pockets. Brazil’s hydroelectric power scheme could never be achieved by NGOs working together. A national education policy could not be formulated by NGOs. To reduce government aid would be to remove the backbone of central spending needed for national development.
Direct aid creates dependence. ODA is entwined with foreign policy to the degree where aid is no lo...
Direct aid creates dependence. ODA is entwined with foreign policy to the degree where aid is no longer allocated on need but on politics. The result is that the USA has consistently showed the political will to provide military aid to Israel totalling nearly $3bn a year, but even in the wake of Live8, real aid (ie. not that distorted by rescheduling) to the poorest nations in Africa is not as large proportionately. Not only has ODA increasingly become a carrot in the war on terror, as shown by the aid provided to Pakistan for its cooperation in the stationing of US military bases, but ODA has also created dependent nations such as Micronesia where 4/5 of the population are employed in ‘aid-created’ jobs and the government receives 90% of its revenue from the USA. It encourages a culture of aid-dependency where nations such as Kenya have come to believe that aid is the only way to lift themselves out of poverty.
For those countries which are aid-dependent, slashing the aid their governments receive would severely harm the nation’s survival and service provision. Israel, for instance, would arguably be unable to survive without its foreign aid from the USA. Similarly, those states such as Micronesia or Tokelau which are almost exclusively aid dependent are essentially protectorates of those states that aid them, giving them political independence and the ability to develop. The other incidence to bear in mind is that on truly developing nations. Between 45-50% of all foreign aid goes to nations such as Argentina, Botswana and Brazil (in fact we sanction many poverty-stricken nations such as Angola and Zimbabwe for political reasons). Reducing aid to these countries reduces certainty and sustainability in development. We should deliver the aid which we have promised, the results of which are now coming to fruition.
Direct Aid creates an international welfare trap. ODA creates an ‘incentive problem’ by making it i...
Direct Aid creates an international welfare trap. ODA creates an ‘incentive problem’ by making it in recipient government’s interest to keep their population poor in order to keep receiving aid. This is made worse by the fact that one of the primary measures of poverty is income below $1 or $2 a day (depending on the region), so governments have an incentive to channel aid to the elites whilst leaving the very poorest members of their population below this poverty line. Even if no corruption already existed, the nature of ODA means that it acts as a corrupting influence.
We should respect the sovereignty of these nations, regardless of their motives, particularly given that many have democratically elected governments. Reducing government aid prevents recipient governments from being able to allocate aid in accordance with their people’s wishes. Instead aid distribution is decided by foreign charities that may have different motives. NGO’s are, as a general rule undemocratic, unaccountable interest groups. Not only would we be unfairly taking control over development out of the hands of the people and giving it to NGOs who may have worse records than the government, but we are also sending out a contradictory message if we are attempting to encourage responsible, democratic governments in those nations.
Much direct aid is simply recycled as debt servicing. A significant proportion (over 60%) of aid fl...
Much direct aid is simply recycled as debt servicing. A significant proportion (over 60%) of aid flowing into the poorest nations flows straight back out again to service interest (not even capital repayments) on debts incurred, often by dictatorial governments, during the 1970s and 80s. Payment of aid to NGOs would shift priorities, stimulating growth now and hence increasing tax revenue later. These can then be used to repay debts in the longer term, whilst allowing the country to develop at a faster rate once debts have been repaid.
Taking the issue of aid out of a government-government sphere of dialogue makes a settlement over debt relief such as that proposed by Jubilee 2000 more difficult. The channel through which to solve debt issues is through debt cancellation, not aid redirection. Even if debts are not cancelled, some nations can in fact pay back their debts centrally: in 2006 Nigeria used oil revenues to repay most of its outstanding, long-term foreign debts.\
However, reducing government aid would have immediate damaging effects on those countries that currently are paying off their loans. Debtor countries (in the absence of debt relief) would be left with the immediate choice of defaulting on their loans as Mexico did in 1982 and Thailand did in 1997, resulting in a massive loss of international confidence, or ‘borrowing to repay’ their loans, increasing dependency and poverty.
NGOS are better at delivering aid. Governments in those nations most in need of aid are often the l...
NGOS are better at delivering aid. Governments in those nations most in need of aid are often the least able or willing to deliver that aid. This is particularly true in those states where the line-drawing of colonialism pitched ethnic groups against one another. For example, the government in Khartoum would not provide aid to Southern Sudan, the Somali government is unable to distribute aid and the Nigerian government has no credibility in the Niger Delta region. The same is true of African nations experiencing civil wars. The only option then would be to withdraw ODA from those nations. In contrast, charities have the credibility of not being associated with governments; they can cross national borders and have a presence in rebel controlled areas such as the enclaves of northern Sri Lanka. NGOs are simply more effective at aid delivery in many of the poorest nations.
The idea that NGO’s are better able to deliver development aid is simply a myth. Because charities do not have the political staying power of governments, they are often the first to pull-out when dormant war zones turn ‘hot’ because they need to prioritise the lives of their volunteers. Major faith-based charities such as Christian Aid or Saudi educational charities, are perceived as partisan actors in African states which have tensions between Christian and Muslim populations. Most importantly, whilst groups such as the Red Cross may be able to deliver emergency aid to areas where national governments are unwelcome, typically development aid cannot be delivered to areas of civil war where projects will quickly be destroyed. Aid deliveries may even be diverted to rebel forces, and so keep conflicts alive. The kind of peace that only national governments can impose is needed before serious development can commence.
What do you think?