Pro & Cons of Foreign Aid
Understanding the reasons for foreign aid is not difficult. The basic mentality is that such aid benefits the donor as the recipient. But whether the system works well is another matter. There are as many pros as cons for providing aid to struggling states.
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Types
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Aid can come to a struggling state in the form of grants, loans, preferential trade agreements, or shipments in kind, such as grain, technological hardware or military supplies. A loan that would qualify as "aid" is often one that carries a below-market interest rate or none at all. For example, South Korea is a well-known example of a state that has benefited from foreign aid in the form of technology transfers, military hardware and an open U.S. market.
Pros
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Foreign aid is, among many other things, an attempt to relieve suffering. Many states do not have the infrastructure for an advanced economy, and aid is a means to assist the state in creating permanent solutions to problems linked to poverty. This is most commonly seen in sub-Saharan Africa. Many states, such as Taiwan, require military assistance in order to fight or deter much more powerful neighbors. Countries throughout the world cannot pay their debts. In certain cases, aid is meant to relieve a short-term problem, such as poverty brought on by war, or a long-term problem, such as reinforcing the local banking and financial sector.
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Cons
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Aid can breed a culture of dependency. States often live on aid, and this aid acts as an excuse to avoid serious structural reforms. For the donor country, aid seems problematic if the donor state, such as the United States, cannot pay its own debts, both public and private. In many cases, the aid is inappropriate, coming from the donor state's perception of a problem rather than the actual problem. In addition, aid can sustain a government that might be the cause of the problems to begin with.
Significance
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Foreign aid is really about the donor state. Many countries live in poverty, but those of strategic importance, such as Egypt and Israel—the two states receiving the most U.S. foreign aid—receive the lion's share of the money. Aid is often tied to the donor state, with common riders such as the requirement that aid be used to buy products from the host state. This means that aid can be a large subsidy to domestic producers.
Considerations
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New ideas have recently been brought into foreign aid policy. Policymakers and academics have begun worrying about targeted programs that specifically tie aid with structural reforms in a specific sector, such as banking or agriculture. Aid is no longer about money, but about structural and even attitudinal reforms. Bringing governments into the global marketplace is considered the main purpose of foreign aid. The money injected into the economy is meant to facilitate this kind of transition.
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References
- Pacific Island Report: Pros and Cons of Foreign Aid
- Greenwood College: Pros and Cons of Canada's Foreign Aid
- "Foreign Aid: Diplomacy, Development, Domestic Politics"; Carol Lancaster; 2007
- CRS Report: U.S. Foreign Aid (2004)
