Foreign Aid & International Debt

Vocabulary to Know World Bank: UN agency that provides loans & advice to developing nations to help advance their economy International Monetary Fund (IMF): UN agency that promotes international trade & economic cooperation while stabilizing currencies & developing programs for countries that require economic adjustments & reform Multinational corporation (MNC): a large company that produces & sells goods in more than one country First World country: Capitalist, highly industrialized, technologically advanced & usually democratic countries with high standards of living Third World country: a poor nation with low economic development, typically dependent on the industrialized world World Bank and IMF were created to help developing economies advance, but many of their programs have caused these countries to go into huge amounts of debt, which has hurt their economic development MNCs typically benefit from world poverty (e.g. cheap labour), which sometimes causes them to manipulate the economic development of poor nations in their own interests rather than in the interest of that nation’s citizens. The 1st/2nd/3rd World model comes out of the Cold War with 1st World being capitalist and mostly democratic and 2nd World being communist, but since the fall of the USSR, the 2nd World definition no longer applies and we now mostly use 1st/3rd World to refer to developed/developing countries Most North American and European nations are considered First World Most African nations and many nations of South and Central America and Asia are considered Third World

Causes of the Debt Crisis Colonial powers transferred their debts to former colonies at high interest rates Forced to repay loans accepted by corrupt governments/dictators Poor lending practices of wealthy nations during 60s & 70s Because large amounts of money are diverted to loan repayment, debt has crippled the economies of many poor countries Post-colonial debts (allegedly incurred by the colonial powers while running the country) were often billions of dollars in total Often these dictators or other corrupt leaders were kept in power by western nations for their own reasons, when dictator was overthrown the debt wasn’t forgiven

Debt: Solutions Highly indebted poor countries (HIPCs): Countries with high levels of poverty and debt are eligible for special assistance from the World Bank & IMF. Structural Adjustment Programs (SAPs): loans given by World Bank & IMF on the condition that the country adopt more free market oriented policies Debt reduction: Reducing the amount that needs to be repaid Debt forgiveness: Cancelling all remaining debt payments Foreign Aid (see next slide) HIPCs program was established in 1996, but doesn’t seem to be working as the HIPCs are still very poor and struggling economically SAPs are criticized because they force countries to focus on trade and production, which has caused poor people to suffer as money is diverted from things like health care towards the initiatives that are a condition of the loan Reduction/forgiveness would help a lot and many NGOs have put pressure on wealthy nations to do this, but there is resistance. There are economic benefits for wealthy nations to keep poor nations dependent on them. Often debt “forgiveness” or “reduction” is actually a form of tied aid Foreign Aid could reduce debt by providing money for development programs that doesn’t have to be repaid

Foreign Aid multilateral aid: many governments contribute to a join organization Example: UNICEF, World Bank bilateral aid: one government gives aid directly to another, often in the form of tied aid Example: CIDA non-governmental aid: NGOs representing religious groups, non-profits and service organizations provide aid Example: Red Cross, Doctors Without Borders, World Vision, OXFAM Multilateral aid is often used to fund large scale projects (e.g. building a dam or hospital) Governments still spend more on their militaries than they do on foreign aid The foremost international/multilateral aid organization is the UN and its various branches, like UNICEF Canada and many other nations are criticized for providing tied aid (Canada=30% of our aid) CIDA (Canadian International Development Agency) distributes aid through UN agencies, directly to governments and through NGOs Some major international NGOs have Canadian branches e.g. Canadian Red Cross

Foreign Aid Corrupt governments often divert foreign aid dollars into their own pockets In the past, foreign aid focussed on short term or one time loans In recent years, foreign aid has: supported more small-scale sustainable projects at the local level focussed on helping poor nations reduce their debt and develop their economies Corruption in Haiti’s government meant most of the promised aid after the earthquake was never given to them Only about 20% of Canada’s foreign aid goes to meeting people’s basic needs In recent years Canada’s level of foreign aid has dropped due to government spending cutbacks Example of small scale project = community well