1. Foreign Aid & International Debt

2. 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

3. 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

4. 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

5. 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

6. 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