Insight into Foreign Aid

by Moya K. Mason

Foreign aid is a very complicated issue. Reading through these few pages will provide you with some insight into the issue.

1. Great comprehensive report: Global Development Finance

2. Rich Nations Fail Aid Pledge to Poor
Thalif Deen
November 2003

Pages 243-44: "Although the world's 22 rich countries were mandated by the General Assembly to provide 0.7 percent of their gross national product (GNP) as ODA to developing nations, only five countries have met this target, according to a new U.N. report on FfD.

Three of them, Luxemburg, Norway and Sweden, have also pledged to reach the 1.0 percent target by 2005-2006. The other two, Denmark and the Netherlands, have not.

Of the countries that have not reached the U.N. target, Belgium and Finland have pledged to reach 0.7 percent by 2010, Ireland by 2007 and France by 2012. Britain, on the other hand, has pledged to meet only 0.4 percent, and that too by 2005-2006.

The other European Union (EU) countries -- Austria, Germany, Greece, Italy, Portugal and Spain - have not made any promises on the 0.7 percent target.

The remaining six rich nations outside the EU -- Australia, Canada, Switzerland, the United States, New Zealand and Japan -- have provided no time-frames to reach the 0.7 percent target, and no goals for interim targets either."

3. A Half Penny on the Federal Dollar: The Future of Development Aid by Michael O'Hanlon and Carol Graham, Brookings Institution Press, Washington, 1997.

U.S. Assistance in International Perspective

Page 23: "The United States was once the dominant provider of official development assistance to poorer countries, but by the early 1990s it provided only about one-sixth of the global total. In fact, by 1995 the U.S. contribution had slipped to about one-eighth of the world total, or $7.3 billion out of $59 billion (in then-year or nominal dollars).

The United States makes out less well if one considers its aid as a percentage of gross domestic product (GDP)> By this index, it has been the least generous official provider of aid within the OECD. In 1995 the United States devoted only about 0.10 percent of its GDP to official development assistance, while all OECD providers as a whole averaged 0.27 percent. Japan provides by far the most aid of any country, an amount that exceeded $14 billion or roughly one -fourth of the global total in 1995. Even allowing for the fact that much of itsaid is given in the form of concessional loans, the grant equivalent value of its aid was roughly $12 billion, by far the greatest total by this measure as well. France and Germany each provided slightly more money than the United States - though slightly less if adjustment is made for delayed payments resulting from the U/S. budget crisis."

4. Moral Vision in International Politics: The Foreign Aid Regime, 1949-1989 by David Halloran Lumsdaine, Princeton University Press, Princeton, New Jersey, 1993.

Page: 286: "The argument that the United States cannot afford a program of foreign aid or assistance to countries in the process of recovery from communism is untenable. U.S. aid expenditures as a percentage of GNP fallen to a third what they were in the early sixties, when the cold war was at a high pitch, while U.S. per capita income has doubled. The percentage of GNP the United States spends on aid is less than that of any other developed country, less than a half of the average of the other developed countries. Ireland, with less than a quarter of our per capita GNP, spends almost as great a proportion of its national income on aid as we do. Moreover, the United States spends thirty to fifty times its foreign aid budget on military expenditures. The notion that aid is a bankrupting element of U.S. foreign affairs expenditures is utterly implausible. The United States could double its foreign aid expenditures and keep its foreign policy expenditures constant by a 3% cut in military spending. The United States has spent 5-9% of GNP for many years to maintain itself against military threats that are now largely abated. What we cannot afford to do is create a divided and bitter world by failing to take seriously the problems of poverty that afflict most of the world's people and to which we are now contributing as little as one fifth of a percent of GNP."

5. Transforming Foreign Aid: United States Assistance in the 21st Century by Carol Lancaster, Institute for International Economic, Washington, August 2000.

What Is Foreign Aid?

Page 9-10: "Foreign aid is often used to refer to a wide variety of resource transfers. Some think of any transfer of public funds abroad - including military expenditures or trade financing -- as foreign aid. Others think of it only as humanitarian relief for victims of disasters. In fact, foreign aid has an official meaning. According to the Development Assistance Committee (DAC) of the Organization for Economic Cooperation and Development (OECD), foreign aid (or Official Development Assistance) is the transfer abroad of public resources on concessional terms (with at least a 25 percent grant element), a significant objective of which is to bring about an improvement in economic, political, or social conditions in developing countries. This definition -- expanded to apply to concessional resource transfers, one objective of which is to improve economic, social, and political conditions in any foreign country -- is the one we shall use for the purposes of this study. It does not include military expenditures or military aid, trade or investment financing, public funding for cultural exchanges, expenditures on foreign intelligence gathering or covert action, or government-to-government loans at market rates of interest. Funding for anti-drug or anti-terrorism activities abroad, international peacekeeping operations, or efforts to stop the spread of weapons of mass destruction are not included in the DAC definition of foreign aid, although they are often lumped together with that aid in the public mind and, at times, in the statements of government officials. We shall note the size and importance of such flows here but not include them in our overall definition and data on foreign aid.

US foreign aid is provided largely as grants to international organizations, foreign governments, or NG0s. In 2000, of an overall aid level of $9.4 billion, just over $1.4 billion, or 14 percent, was planned as contributions to multilateral development banks and international organizations. Detailed data are not available on the proportion of US bilateral aid channeled through NG0s, but USAID officials have estimated that about a third of the nearly $2 billion Development Assistance funds are implemented by NG0s. US aid is used to fund relief activities, investment projects, technical advice and training, and balance of payments and budgetary support -- the latter two are usually termed program aid. Aid can also be provided in kind rather than in cash or credits, in the form of food, medicine, or other commodities."

Page 17: "US foreign aid in 2000 is different from what it was just 10 years ago. There are six identifiable purposes of US aid. Three of them - promoting security, supporting development, and providing humanitarian relief - have existed for the past five decades. Whereas the words used by policy-makers to describe these three purposes have remained the same, the substance of each has changed significantly in the past ten years. In addition, three other purposes have gained in prominence in the past decade - supporting economic and political transitions in former socialist countries, addressing transnational problems, and promoting democracy abroad."

6. Aid Money is Actually Way Below What has Been Promised

2002 saw an increase in ODA from 2001 by about 5%. However, the total still only accounted for just 0.23% of their combined resources, still well below the agreed 0.7%. For the OECD, the optimistic side of this was that this maybe marked "the beginning of a recovery from the all-time lows of 0.22% of GNI in each of the last three years." 2001 had seen an overall decline in the ODA, as the OECD also noted. Though also pointed out (in the previous link) that the fall resulted "in part from falls in the exchange rates of some currencies against the United States dollar." However, they continue, "In real terms, ODA remained relatively stable, with a slight fall of 1.4 per cent." In a similar way, as the OCED also noted, 2000 didn't differ much from 1999, either.

2003 saw ODA reach $68.5 billion, the highest level ever, both in nominal and real terms. This amounted to 0.25% of DAC members' combined gross national income (GNI). While this was up from 0.23% in 2002, it was still well below the promised 0.7%. As noted further above some trends are encouraging, such as promoting good governance, but others should cause concern, such as less on long term development and a substantial amount being counted towards Iraq's reconstruction.

On the whole, ODA has been declining in recent years, even though the United Nations reports that it is "rather ironical that ODA should be experiencing a steady decline even as conditions are improving for its greater effectiveness". See this UN PDF document for the source of that quote but also more about trends and issues in financing development, etc. See also this section from the UN Economic and Social Development's Financing for Development part of their web site for some other issues with ODA and the 0.7% target.

Leading up to the UN Conference on Financing for Development in Monterrey, Mexico in March 2002, the Bush administration promised a nearly $10 billion fund over three years followed by a permanent increase of $5 billion a year thereafter. The EU also offered some $5 billion increase over a similar time period.

7. Developing countries made the sixth consecutive and largest ever transfer of funds to "other countries" in 2002, a sum totalling "almost $200 billion."

"Funds should be moving from developed countries to developing countries, but these numbers tell us the opposite is happening.... Funds that should be promoting investment and growth in developing countries, or building schools and hospitals, or supporting other steps towards the Millennium Development Goals, are, instead, being transferred abroad." -- Kofi Annan, Development funds moving from poor countries to rich ones, Annan says, United Nations News Centre, October 30, 2003

8. More Money Is Transferred From Poor Countries to Rich, Than From Rich to Poor

For the OECD countries to meet their obligations for aid to the poorer countries is not an economic problem. It is a political one. This can be seen in the context of other spending. For example,

While the amount of aid from some countries such as the U.S. might look very generous in sheer dollar terms (ignoring the percentage issue for the moment), the World Bank also points out that at the World Economic Forum in New York, February 2002, "[U.S. Senator Patrick] Leahy noted that two-thirds of US government aid goes to only two countries: Israel and Egypt. Much of the remaining third is used to promote US exports or to fight a war against drugs that could only be won by tackling drug abuse in the United States."

9. The Monterrey Poverty Summit,6512,669450,00.html

Ministers and aid officials are gathering in Monterrey, Mexico, to discuss the aid and trade needs of the world's poorer countries.

What is happening in Monterrey?

The international conference on financing for development was called by the UN secretary general, Kofi Annan, to prod countries into meeting the ambitious development goals set out at the UN millennium summit in 2000. Those goals included universal primary education, halving world poverty, and reducing child deaths by two-thirds - all by 2015.

Will it be just another talking shop?

Cynics will dismiss this as another useless jamboree, but these conferences concentrate the mind, and before Monterrey some countries agreed to increase their aid figures. Also, interest has picked up in recent weeks with far more delegates attending than originally expected.

Who agreed to what?

In a considerable breakthrough, the US president, George Bush, agreed to increase foreign aid by $5bn (3.5bn) over three years and the EU agreed to boost aid by $5bn a year by 2006, after Germany, which is under severe budget pressure, dropped its opposition. The problem is that Mr. Bush will have to push his proposal through a US Congress historically skeptical of foreign aid.

How far off is the world from meeting the 2015 target?

According to the World Bank an extra $40bn-$60bn will be required to meet the millennium development goals, but Oxfam, the aid group, estimates the figure to be closer to $100bn.

How feasible is it to bridge the funding gap?

When the world's governments met at the Earth summit in Rio de Janeiro in 1992, they adopted a programme for action - Agenda 21 - that included an aid target of 0.7% of gross domestic product (GDP) for rich countries. If all countries from the Organisation for Economic Cooperation and Development (OECD) - basically the rich man's club - were spending 0.7% of GDP on aid, aid flows would be $114bn higher.

Is there much political will for more aid?

Not much, especially when times are hard. Moreover, EU governments claim that they are constrained by the stability and growth pact that sets limits on government spending and borrowing. But whatever the rigours of the pact, the EU spends 25% more subsidising farmers through the common agricultural policy (Cap) than on development assistance. Most of the $35bn allocated to the Cap provides subsidies to large commercial farms.

Which countries actually meet the 0.7% target?

Only five - the Netherlands, Denmark, Norway, Sweden and Luxembourg. The US, the world's richest country, allocates only 0.1% of GDP to aid, less than half of the OECD average. Britain, for all its talk, devotes less than the EU average (0.33%) with 0.32%.

What are the practical consequences of failing to meet aid targets?

According to Oxfam, on current trends there will be 9.6 million child deaths in 2015, compared with the millennium summit goal of 4.2 million. The cumulative total of additional child deaths between 2000-2015 resulting from the widening gap between the millennium target rate and current trends will amount to 56 million.

How effective is aid?

The record is patchy, which allows its opponents to question its usefulness. In the past, too much money has either funded corrupt politicians or subsidised unwanted infrastructure projects. Another problem is that much aid is "tied" so that the poor are forced to buy goods from the country providing the funds. However, campaigns to eradicate debilitating diseases, such as tuberculosis and malaria, have been highly successful.

Is trade not supposed to be more effective than aid?

International trade will be an important topic at Monterrey, partly at the behest of the richer countries. The trouble is that industrialised countries throw up a lot of trade barriers that inflict huge costs on the world's poor. These costs amount to around $100bn a year. The most restrictive barriers are targeted at labour intensive manufactures and agricultural commodities.

Is there not supposed to be a new trade round?

The world agreed to another round of negotiations to liberalise world trade at Doha last November. But the industrialised countries avoided any concrete commitments either to improve market access for poor countries, or to reduce agricultural subsidies. Falling commodity prices have cut export incomes in some of the world's poorest countries by 25%, piling on the problems caused by less aid. But Mike Moore, the director-general of the World Trade Organisation (WTO), said he did not expect new trade initiatives at Monterrey. The threat of a trade war between Europe and the US, which imposed tariffs on steel imports, has cast a pall on a new trade round.

Is debt on the agenda?

Yes. Rich countries have made progress in cutting debt to the world's poorest countries under the heavily indebted poor countries (HIPC) initiative. But a lack of funds has limited its effectiveness. Total debt service relief for the 23 countries covered by HIPC in 2001 amount to a projected $34bn. But 15 of these countries were still spending more than 10% of government revenue on debt servicing. In more than half, repayments to creditors were larger than spending on primary education.

Who is attending?

President Bush will be the star guest, seeking to burnish his multilateralist credentials. Other dignitaries include Jacques Chirac, the French president, Jose Maria Aznar, the Spanish prime minister, and Jean Chretien, the Canadian prime minister. Mr. Annan will be there, along with the heads of the International Monetary Fund and the WTO.

10. Modest Increase in Development Aid in 2003,2340,en_2649_33721_31504022_1_1_1_1,00.html

16/04/2004 - Member countries of the OECD's Development Assistance Committee (DAC) increased their official development assistance (ODA) to developing countries by 3.9% in real terms from 2002 to 2003, following a 7.0% real increase between 2001 and 2002. These "real terms" data are adjusted both for inflation and for the large fluctuations in exchange rates over the past two years.

According to preliminary data total DAC ODA in 2003 reached $68.5 billion, the highest level ever, both in nominal and real terms. This total represented 0.25% of DAC members' combined gross national income (GNI), up from 0.23% in 2002 and 0.22% in 2001. Three major factors are behind the $2.3 billion rise, in real terms, in 2003:

The United States remains the world's largest aid donor in volume terms, followed by Japan, France, Germany and the United Kingdom. Denmark, Luxembourg, the Netherlands, Norway and Sweden are still the only countries to meet the United Nations ODA target of 0.7% of GNI. Three other countries have given a firm date to reach the 0.7% target: Belgium by 2010; Ireland by 2007; and France to reach 0.5% by 2007 and 0.7% by 2012.

Twelve of the twenty-two DAC member countries reported an increase in ODA in real terms. In 2003, the United States increased its ODA by 16.9% in real terms to $15.8 billion in 2003, representing 0.14% of its GNI. US bilateral aid jumped by $3.9 billion, including $2 billion for Iraq, partly offset by a $1.4 billion fall in US multilateral aid due to the timing of capital subscriptions to international financial institutions.

Japan's ODA fell by 8.9% in real terms, to $8.9 billion, representing 0.20% of its GNI. While gross disbursements remained relatively steady, there was a substantial increase in repayments of ODA loans.

EU countries increased their ODA in 2003 by 2.2% in real terms, representing 0.35% of their combined GNI. Prior to Monterrey, EU Members committed to increase their ODA by 2006 collectively to 0.39% of GNI, and individually to a minimum of 0.33% of GNI. Features of EU aid included:

ODA rose substantially in Belgium to 0.61% of its GNI mainly due to Paris Club debt forgiveness operations to the Democratic Republic of Congo; in France to 0.41% of GNI reflecting its debt relief efforts under the HIPC initiative; and in the UK to 0.34% of GNI partly due to contributions to the International Development Association (IDA, the concessional lending window of the World Bank) deferred from 2002.

Other DAC countries showed the following changes in real terms in ODA in 2003:

Among the non-DAC donors, Korea's ODA rose in current dollars from $279 million in 2002 to $334 million in 2003.

11. Net ODA from DAC countries from 1950 to 2002

12. Net ODA from DAC countries in recent years

13. UNFPA Global Population Policy Update
Issue 4 - June 8 2003

This issue of the Global Population Policy Update focuses on official development assistance by developed countries. In the Call to Action of the Ottawa Commitment adopted at the International Parliamentarians' Conference on the Implementation of the ICPD Programme of Action (November 2002, Ottawa, Canada), parliamentarians from around the world pledged to "strive to fulfill the agreed target of 0.7 per cent of GNP for official development assistance (ODA) and make every effort to mobilize the agreed estimated financial resources needed to implement the ICPD Programme of Action."

The following information is quoted from a 22 April 2003 report by the Organisation for Economic Co-Operation and Development (OECD) entitled, "OECD DAC Countries Begin Recovery in Development Aid: 5% Increase in 2002."

Member countries of the OECD's Development Assistance Committee increased their official development assistance to developing countries by 4.9% in real terms, accounting for inflation, from 2001 to 2002. The total amounted to $57 billion, equivalent to 0.23% of their combined resources, measured as gross national income (GNI), marking the beginning of a recovery from the all-time lows of 0.22% of GNI in each of the last three years.

Donor countries committed to increasing their official development assistance (ODA) to developing countries in the context of the International Conference on Financing for Development held in Monterrey, Mexico, in March 2002. According to OECD estimates, fulfilling these promises would raise ODA in real terms by 31% (about $16 billion) and the ODA/GNI ratio to 0.26% by 2006-still well below the ratio of 0.33% consistently achieved until 1992.

DAC member countries account for at least 95% of worldwide ODA disbursements. The United States remains the world's largest aid donor in volume terms, followed by Japan, Germany, France and the United Kingdom.

Twelve of the twenty-two DAC member countries reported an increase in ODA in real terms; for nine of them the increase was over 10%. Denmark, Luxembourg, the Netherlands, Norway and Sweden are still the only countries to meet the United Nations ODA target of 0.7% of GNI. Three other countries have given a firm date to reach the 0.7% target: Belgium by 2010; Ireland by 2007; and France to reach 0.5% by 2007 and 0.7% by 2012.

The United States increased its ODA by 11.6% in real terms in 2002 to $12.9 billion, representing 0.12% of its GNI. This increase was mainly due to additional and emergency funds in response to the 11 September 2001 terrorist attacks as well as new aid initiatives, especially in relation to health and humanitarian aid. Japan's ODA fell slightly by 1.8% in real terms in 2002. Most of the fall from $9.8 billion in 2001 to $9.2 billion in 2002 was because the Yen depreciated against the US dollar.

EU countries increased their ODA in 2002 by 2.8% in real terms, representing 0.34% of their combined GNI. Prior to Monterrey, EU Members committed to collectively increase their ODA to 0.39% of GNI by 2006. Features of EU aid included:

Other DAC countries showed the following changes in real terms in ODA in 2002:

14. U.S. Remains Largest Donor of Foreign Aid
Daily Policy Digest
International Issues / Foreign Aid

In 2000, the United States officially gave $9.9 billion in foreign aid -- also referred to as Official Development Assistance (ODA). President Bush has pledged a 50 percent increase in ODA by 2006 -- the largest increase since the Marshall Plan -- in addition, new legislation devotes $15 billion to fight AIDS, tuberculosis and malaria in Africa and elsewhere.

Although the United States routinely gives the greatest overall amount of foreign aid, critics argue that as a percentage of national income, ODA places America behind all the other industrialized nations.

But according to Carol C. Adelman, a former U.S. aid official, private donations dwarf official aid:

Ultimately, the United States is the most generous nation, providing the most foreign direct investment and generating the bulk of the world's research and development. Moreover, through its military, it guarantees the security necessary for promoting economic growth and democracy in developing countries.

Source: Carol C. Adelman (Hudson Institute), "The Privatization of Foreign Aid: Reassessing National Largesse," Foreign Affairs, November 2003.

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