4.10.4 Foreign Aid & Development Assistance

• Aid has proven beneficial in times of distress
• It is particularly helpful in response to large-scale one-off events such as earthquakes or tsunamis

• Critics argue that aid breeds dependency, corruption & disincentivises individual responsibility
  • E.g. The Central African Republic receives ongoing food aid 

• The actual repayment of debt is removed or reduced
• The opportunity cost of debt repayments is reduced or eliminated
• The Government is able to use the money saved to provide new services and additional public/merit goods

• The country may have a lot more funds available than ever before and this can breed corruption as individuals in government seek to get their hands on it
• Once the debt is forgiven, many developing nations borrow more money and the cycle starts again

Advantages

• Funds are available to the LEDC over a long-term period to help with the economic development goals
• Bilateral ODA can help to develop the relationship between the two countries, possibly facilitating the exchange of resources, ideas and technology

• Countries may become dependent on the ODA
• Corruption may mean funds are diverted from their true purpose
• ODA in the form of loans has to be repaid and these repayments carry an opportunity cost

• NGOs can elicit support for particular need from a very wide audience including the global public and many wealthy governments
• They often have specialists working for them who provide in country support so as to increase the efficiency of their aid
• They conduct research, gather data and as a result often make highly specific project proposals aimed at directly improving the standard of living
• NGOs can help develop human skills in the countries in which they work and this helps to break the poverty trap

• The country receiving the aid can become overly dependent on it
• The scope of what an NGO can do may be limited or only focussed on one segment of the population e.g children

World Bank

• Founded in 1944 as the International Bank for Reconstruction and Development to fund postwar redevelopment
• They provide reconstruction loans to countries devastated by war
• They provide loans to developing countries to aid in their development
• They provide loans to countries to assist with the development of infrastructure
• They work with governments and institutions so as to encourage economic reform and trade liberalisation

International Monetary Fund (IMF)

• Founded in 1944 with the aim of establishing a stable global financial system that could help with postwar reconstruction efforts and better deal with challenges such as the Great Depression of the 1930s
• John Maynard Keynes was one of two founders
• They aim to facilitate a stable global financial system
• They oversee exchange rates and the system of international payments that occurs between nations and individuals
• They monitor country policies and national, regional and global economic and financial developments through a formal system known as surveillance
• They provide member countries with currency to help deal with balance of payments problems