Aid and Aid Programmes

I

Introduction

Aid and Aid Programmes, general term for the help provided by developed nations to the developing nations. More specifically, aid refers to the net flow of official development assistance provided by governments, international agencies, and public institutions of the industrialized countries. But the term is also used to encompass help (both material and technical) provided by non-governmental organizations (NGOs) and voluntary agencies to countries and people in need, particularly for disaster or emergency relief. The overall portfolio of assistance of a donor, or the range of aid it provides to a particular country, is often referred to as its aid programme.

II

Types of Aid Programme

Official development assistance (ODA) is an internationally agreed term for aid to developing countries as reported to the Development Assistance Committee (DAC) of the Organization for Economic Cooperation and Development (OECD), established in 1961, which aims to improve the levels and effectiveness of such aid. The basic aim of ODA is to assist recipient countries to improve their standard of living, through the promotion of economic development and welfare. It mainly comprises loans or grants or both, but also includes the value and costs of providing other forms of assistance, consultancy services, technical skills, and goods and materials.

There are various recognized categories of aid:

Net aid: the amount of aid allocated through government overseas aid schemes. Major donor governments aim to meet a target of 0.7 per cent of gross national product (GNP), set by the United Nations (UN), for net aid flow.

Gross aid: net aid plus repayments of capital from past loans (amortization) and interest on such loans.

Bilateral aid: aid provided by a donor country to a recipient country government. This also includes financial assistance for development projects provided to individual national institutions. Over half of total bilateral aid is provided to fund specific projects, while about 10 per cent takes the form of food aid and about 2 per cent is given as disaster relief.

Multilateral aid: aid provided by multilateral organizations (for example, the World Bank) and other international institutions. The term is also applied to donor government contributions to such organizations for use in, or on behalf of, developing countries.

Concessional funds: loans provided by bilateral donors and multilateral development banks which are at low interest, or are interest free but may include a small administrative fee.

Budgetary aid: financial assistance provided to a developing country government to support recurrent expenditure within an annual budget.

Financial aid: the sum of bilateral and multilateral financial assistance provided to a country through project and non-project aid (excluding that for technical cooperation—manpower aid).

Aid and trade provision: the proportion of an individual bilateral aid allocation designated for the support of commercial and industrial projects, usually through export credits and “soft” loans.

Project aid: grants, loans, and technical assistance provided for particular development initiatives (projects) in contrast to non-specific programme aid. Projects may involve the establishment, expansion, or improvement of infrastructure and production facilities, rural development schemes, urban rehabilitation programmes, natural resource conservation, and so on.

Non-project aid: all financial assistance apart from project aid, for example, budgetary aid, debt relief, disaster relief, food aid, and programme aid.

Sector aid: aid targeted to assist particular economic sectors or to benefit important sectoral institutions. It can be provided in various ways including technical assistance, support for individual projects, and goods and equipment, and so on.

Programme aid: aid usually given to countries with balance-of-payments problems to finance essential imports.

Grant aid: aid which does not have to be repaid, either as a capital sum or in the form of interest.

Tied aid: aid which is conditional on the recipient nation buying specified goods and services from the donor country. Such aid effectively represents an export subsidy.

Technical assistance: aid provided in the form of technical expertise (manpower) and advice, often through technical cooperation programmes.

Emergency aid/Disaster relief: financial and material aid (tents, blankets, medicines, and so on) provided in response to disasters such as earthquakes and famines. Such aid is provided both by governments and public donations through private voluntary charities.

Food aid: under the Food Aid Convention (1967), contracting countries commit themselves to give specific minimum amounts of domestic grain to developing countries (or cash to purchase grain from other convention members).

Voluntary aid: aid provided for development and relief programmes by (non-governmental) voluntary agencies with charitable status, and raised from voluntary and private sources.

III

Evolution of Aid Programmes

Aid provided by the official agencies of individual donor countries (bilateral aid agencies), and that channelled through international institutions (multilateral development banks and UN agencies funded mainly by contributions from donor countries), grew steadily following World War II. The new international system which emerged was dominated by developed countries. With the exception of the countries of Latin America, most developing countries were still under colonial rule (see Colonies and Colonialism). With independence, these countries, mainly in the southern hemisphere (hence they are often collectively referred to as the South), found themselves in poverty and debt to the developed world. The colonial powers continued to provide technical expertise and financial assistance to their former territories, and the government colonial departments evolved into aid and development ministries or agencies. Other industrialized countries’ governments also began to establish aid programmes.

As the developing countries became independent, commercial banks, the International Monetary Fund (IMF), and the World Bank began to loan money for development in these countries. These latter institutions were originally established, after a conference in 1944 at Bretton Woods in the United States, to help Europe redevelop after World War II. Other multilateral development banks were later established for particular regions (in Asia, Africa, the Caribbean, and so on).

The World Bank is a family of institutions. Aid is provided through two principal affiliates: International Development Association (IDA) and the International Bank for Reconstruction and Development (IBRD). IDA aims to promote economic development through providing concessionary finance from funds contributed every three years by individual donor governments. By comparison, IBRD raises most of its funds on the world’s financial markets and lends to developing countries at interest rates somewhat below those of commercial banks and with longer maturities.

Following rising oil costs and deteriorating trade conditions for many raw materials in the 1970s and 1980s, many developing nations had to pay more for their oil while receiving less for their exports. This led to increased dependence on large loans from commercial banks. Subsequent economic recession in the West resulted in even lower export earnings and greatly increased interest rates on loans. In the 1980s, developing countries found it increasingly difficult to secure further loans from commercial banks and turned to the World Bank for help. The latter began to provide loans only if recipient countries agreed to structural adjustment programmes (planned economic reform to reduce imports, promote “free-market” policies, and relax state controls). By 1990, nearly one third of the World Bank’s budget was directed to such programmes.

In 1979, the Brandt Commission—an independent commission on international development issues chaired by former West German Chancellor, Willy Brandt—put forward a comprehensive plan for dealing with world debt and slow development. The main elements comprised: global food and energy programmes, more participation by developing countries in the World Bank and other international organizations, and increased aid in the form of grants, low-interest loans, and debt cancellation. However, Northern governments largely ignored the plan. Despite this, there was enormous international response to a series of emergencies, notably famines in Ethiopia and Mozambique, in the form of disaster relief from governments and voluntary charities. Unfortunately, emergency aid, while vital, usually deals only with symptoms and rarely with the fundamental issues which cause problems such as famine, for example, conflict, iniquitous access to resources, and so on.

In the 1990s, following the collapse of the Soviet bloc in Eastern Europe and the break up of the USSR itself, increasing amounts of aid were directed to support the newly emerged economies there. The European Bank for Reconstruction and Development (EBRD) was established in 1990 to promote economic reforms and provide assistance to these countries, causing concern to some that increased ODA to Eastern Europe was at the expense of official aid to the South. However, as of the early 21st century a number of developing countries have made remarkable economic progress and are on the point of joining the ranks of high-income countries (for example, Brunei, South Korea, Kuwait, and Singapore). These countries, and the more advanced economies of Eastern Europe, are now commonly called “countries in transition”.

IV

Structure of Aid

The Development Assistance Committee (DAC) is a forum which brings together bilateral aid agencies from the OECD’s main donor countries to undertake twice-yearly peer reviews of aid volume, policies, and performance. The DAC’s annual report reviews major developments and analyses data and trends in resource flows and debt. The report includes aid statistics for countries in two main parts: part one comprises those countries named in the List of Least Developed Countries (LLDCs) and in other groups based on per capita GNP levels; part two lists countries in transition. About 75 per cent of all official aid recorded by the DAC is bilateral aid, mainly grant aid. On average, however, DAC records that the main donor countries give less than the UN target of 0.7 per cent of GNP. Other sources of assistance include private resource flows, particularly from OPEC countries, and although these have tended to fluctuate they can be significant factors in international aid. Donor countries also channel some of their aid, including disaster relief, through charities or NGOs. But the latter also raise significant amounts from public donations. In the United Kingdom, NGOs such as ActionAid, Oxfam, and Save the Children Fund work mainly in developing countries where they have direct contact with poor communities. In addition, a relatively small percentage of overall international aid is spent on research to address fundamental problems concerned with development such as agricultural research, and in most donor countries there are agencies which recruit volunteers (increasingly professionals such as health workers or teachers) to work in developing countries to pass on their knowledge and skills (for example, Voluntary Service Overseas in the United Kingdom).