Less Developed Countries (LDC) and Foreign Aid

Published: 30th November 2011
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The reasons why developing nations have usually been eager to accept aid, even in its most stringent and restrictive forms, have been given much less attention than the reasons why donors provide aid. The major reason is probably economic. Developing countries have often tended to accept the proposition - typically advanced by developed-country economists and supported by reference to success stories like Taiwan, Israel, and South Korea to the exclusion of many more failures - that aid is a crucial and essential ingredient in the development process. It supplements scarce domestic resources, it helps transform the economy structurally, and it contributes to economic growth. Thus the economic rationale for aid in LDCs is based largely on their acceptance of the donor's perceptions of what the poor countries require to promote their economic development.

Conflicts generally arise, therefore, not out of any disagreement about the role of aid but over its amount and conditions. Naturally, LDCs would like to have more aid in the form of outright grants or long-term low-cost loans with a minimum of strings attached. This means not tying aid to donor exports and granting greater latitude to recipient countries to decide for themselves what is in their best long-run development interests. Unfortunately, a good deal of aid that comes in this form has either been wasted in showcase but unproductive projects (e.g., an elaborate parliamentary building, an oversized airport) or actually been plundered by corrupt government officials and their local cronies. Much of the criticism of the historical patterns of foreign aid - that it wastes resources, that it bolsters corrupt regimes, that it is appropriated by the rich at the expense of the poor - is justified. Some LDC recipients in the past have accepted aid simply because it was there and they were not held accountable. A few leaders simply wish to leave no stone unturned in their quest for poverty alleviation, as perhaps describes Mozambique in the 1990s. They have been in the minority. The impact of the spread of democracy, press freedom, and the rule of law, including anticorruption drives, on the effectiveness of aid remains an open question.

Second, in some countries, aid is seen by both donor and recipient as providing greater political leverage to the existing leadership to suppress opposition and maintain itself in power. In such instances, assistance takes the form not only of financial-resource transfers but of military and internal security reinforcement as well. This phenomenon was clearly at work in Central America in the 1980s. The problem is that once aid is accepted, the ability of recipient governments to extricate themselves from implied political or economic obligations to donors and prevent donor governments from interfering in their internal affairs can be greedy diminished.

Finally, whether on grounds of basic humanitarian responsibilities of the rich toward the welfare of the poor or because of a belief that the rich nations owe the poor nations conscience money for past exploitation, many proponents of foreign aid in both developed and developing countries believe that rich nations have an obligation to support LDC economic and social development. They often link this moral obligation with the need for greater LDC autonomy with respect to the allocation and use of aid funds. An example was seen at the 1992 Earth Summit held in Rio de Janeiro, where developing nations pressed for substantial increases in foreign aid to permit them to pursue environmentally sustainable development programs. Implicit was the notion that industrialized countries were the major polluters and had no business telling LDCs to slow their growth to save the planet.

In sum, while there is no doubt that the least developed countries will need more assistance to escape from the vicious circle of poverty, fresh approaches are needed to ensure effectiveness.


Rashid Javed is an Asian author. He writes micro and macro economics articles and standard costing.

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