1. Aid, debt and economic development IB Econ Chapter 32

2. What is Aid?  Foreign Aid is any assistance that is given to a country that would not have been provided through normal market forces  It is likely to be given for a number of reasons  After a natural disaster or war  To help achieve economic development  To strengthen or create strategic alliances  To fill the savings gap and encourage investment  To improve the quality of human resources  To improve levels of technology  To fund specific development projects  Aid can be given by government agencies or NGO’s (non government organisations  There are two main types of aid  Humanitarian Aid and  Development Aid

3. Humanitarian Aid  This is aid given to alleviate short term suffering due to droughts, wars, or natural disasters  It can be described as grant aid; it is short term provided as a gift and does not have to be paid back  The three main forms are  Food aid  Medical aid  Emergency aid e.g. temporary shelters, tents, clothing, fuel, heating and lighting

4. Development Aid  This type of aid is given in order to alleviate poverty in the long run and improve the welfare of individuals  It is sometime referred to as ODA – Official Development Assistance  There is a committee called the Development Assistance Committee (DAC) which organises development aid for the OECD countries  In the 1970s the UN general assembly agreed that developed nations would aim to spend 0.7% of GNI on development aid although many are still far from this target In 1970, The 0.7% ODA/GNI target was first agreed and has been repeatedly re-endorsed at the highest level at international aid and development conferences In 2005, the 15 countries that were members of the European Union by 2004 agreed to reach the target by 2015

5. Of the 15 only Denmark, Luxembourg, Netherlands, Norway and Sweden have hit the target The US is one of the worst at 0.2%

6. Types of Development Aid  Long term loans  Payable over 10 to 20 years  Very low interest rate  Tied aid  Grants or loans given on the condition that funds are used to buy goods and services from the donor country  Project aid  Given for a specific project  Often given as grant aid (no repayment necessary)  Projects are often to improve infrastructure  The World Bank is one of the main suppliers of project aid  Technical Assistance Aid  Aims to raise the level of technology (foreign technology and technicians are sent to developing country)  Aims also to raise quality of human capital  Foreign scholarships may be given too  Commodity Aid  E.g. edible oils, seeds, fertiliser, chemicals, cement, steel, pumps and other equipment Bilateral aid is aid given directly by one country to another Multilateral aid is aid given by rich countries to international aid agencies who then decide where the aid is most needed Research time: Complete Student Workpoint 32.2

7. Concerns about Aid (Evaluation)  While it is generally agreed that humanitarian aid is necessary to relieve short term suffering there is a question mark over development aid and there seems to be no significant correlation between aid and development  Corruption may mean that aid does not reach those that need it  It is often argued that developed countries give aid to those of political or economic interest to them  Japan gave 617 million yen to St Kitts and Nevis and US$17 million to Nicaragua  Both voted with Japan to end the whaling ban  It is generally agreed that tied aid is not as effective as untied aid  The developing country may have to buy more expensive goods and services from the donor country  It creates no employment or extra output in the developing country  Imports may replace domestic goods and further damage employment  The UK made tied aid illegal in June 2002

8. Concerns about Aid (Evaluation)  Continued dependency on aid may mean that there is little incentive to be innovative and people may develop a welfare mentality  Some believe that aid is focused too heavily on the industrialised sector which cause an income gap between those in that sector and the traditional agricultural sector  Aid is often only available if the country agree to certain economic policies which emphasise free market principles (reflecting the Washington consensus) which might be not be in the best interest of the developing country  People in developed countries (particularly in times of recession) are beginning to suffer from aid weariness  They think that their economic problems are more important than aiding developing countries which leads to a reduction in the flows of aid Complete Q1,2 and 3 P400

9. Research/Debate Should developed countries help poor, third world nations without expecting debt repayment? Individually do some research Feed your findings back to your team leader Together create your argument (use real life examples to back your arguments