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Development aid (a.k.a development assistance or foreign aid) is financial aid provided by governments and other agencies to hold up developing countries’ development in terms of social, economic, political, and environmental concerns. It is distinct from humanitarian aid as development aid focuses on poverty alleviation in the long term, rather than the short term.
Development cooperation means that a partnership should be present between donor and recipient. This is contrary to tradition in which the relationship was one-sided. Western industrialised nations mostly are the donors of development aid but there are some less developed countries that also contribute aid.
Foreign aid is provided because of the good objectives from donor nations. However, even with this great start, this financial aid goes to waste on corrupt recipient governments. There is no good quality in terms of financial aid as there has not been accountability with the donor nations.
In 1970, the richest countries in the world agreed to offer 0.7% of their GNI (Gross National Income) as their annual official international foreign aid. However, these rich countries are not able to comply with their actual promised targets. An example of this scenario is the US. The US is the biggest donor but is the least in terms of reaching the 0.7% target.
There are issues that crop up in terms of financial aid. These includes:
- Aid goes to waste as the recipient nation must use goods and services that are overpriced from donor nations.
- Most foreign aid does not proceed to the poorest countries.
- Amounts of foreign aid are crowded by the economic protectionism of rich countries that deny market access to poor country products. On the other hand, rich countries use foreign aid as a leverage to open the markets of these poor countries to their products.
- There is often failure with massive grand strategies and large projects due to embezzlement of money.
Governments Not Fulfilling Their Promises
“Trade, not aid” is considered as an important part of development promoted by some countries. However, this becomes an excuse for rich nations in not fulfilling their international obligations as they cut back aid that has been agreed and promised in the United Nations.
Rich Nations Agreed 0.7% of GNI to Aid in UN
Financial aid will come from 22 OECD members or popularly known as the Development Assistance Committee (DAC). [OECD changed GNP to GNI in 2000]. Official development assistance (ODA) is aid from the wealthy countries’ governments. However, these do not include private capital flows and investment or private contributions. The promotion of development is the main objective of ODA.
Majority of Rich Countries are Unable to Fulfill their Obligation
Targets and agenda are set annually. However, rich countries are unable to constantly reach their 0.7% agreed target. This is reduced to 0.2 to 0.4% which is $150 billion short every year.
Money Moves from Poor to Rich, Rather Than Rich to Poor
OECD countries inability to fulfil their financial obligations is a political issue compared to being an economic problem. Examples include:
- United States increased its military budget approximately by $100 billion dollars.
- Europe finances its agriculture to $35-40 billion per year which is conflicting with its demands for other countries to free their markets to foreign competition.
- The US supports its farms with $190 billion subsidies through the US Farm Bill.
- Foreign aid is approximate $70 to $100 billion per year, yet underdeveloped countries pay around $200 billion to the rich countries annually.
A lot can be done through development aid but measures have to be done to ensure that its original intentions are met.