Aid has in many places actually destroyed the possibility for sustained economic growth by driving local producers,

especially farmers, out of business. Such was the case in Micronesia, Bangladesh, India, Egypt, Haiti, Guatemala, Kenya, and many other places (Bovard, p. 18; Bandow, p. xiv; Fitzgerald, p. 278 and 288; Eberstadt, 1985b, p. 22). Some experts believe that food aid to India may have been responsible for millions of Indians starving (Bovard, p. 18). Other studies have shown that malnutrition in Bangladesh actually rose as food aid to that country increased (Krauss, p. 160). It is unlikely that these are isolated occurrences. Countries such as Peru, Haiti, and Guatemala have either refused to accept U.S. food aid or pleaded with the U.S. government to restrict such aid (Bovard, p. 18). In practically every case, the influx of aid has been immediately followed by the emergence of a massive, unproductive, parasitic government bureaucracy whose very existence undercuts the recipients ability for sustained economic growth Finally, Taiwan and South Korea are often touted as foreign aid success stories. However, their impressive economic performances began only after large-scale economic aid from the U.S. was discontinued (Krauss, p. 190).

 The view that everyone has a moral and legal right to have his basic needs supplied was the thrust behind the Foreign Assistance Act of 1973 as well as the Report of the Presidential Commission on World Hunger, commissioned by the Carter administration. The later suggested that a principal goal of foreign aid is to reduce hunger in the world and that this could be achieved by redirecting income from the rich to the poor

 The question of who runs the government has become paramount in many Third World countries and is especially so in multiracial societies, like those of much of Asia and Africa. In such a situation the energies and resources of people, particularly the most ambitious and energetic, are diverted from economic activity to political life, partly from choice and partly from necessity. Foreign aid has contributed substantially to the politicization of life in the Third World. It augments the resources of governments as compared to the private sector, and the criteria of allocation tend to favor governments trying to establish state controls.

http://www.thefreemanonline.org/col umns/the-failures-and-fallacies-offoreign-aid/

conclusion
Foreign aid is not aid at all; it is foreign harm, and the sooner this is recognized the better. The capitalist countries of the West developed without aid, as did Japan. The most rapidly developing Third World countriesTaiwan, Hong Kong, Singapore, and South Koreareceived little aid or began developing only after massive amounts of aid were discontinued. What is needed, as Melvyn Krauss perceptively points out (p. 109), is not the transfer of wealth but the transfer of prosperity, i.e., the transfer of the ability to produce adequate amounts of real income. Since the public sector can only transfer wealth while the private sector produces wealth, the transfer of prosperity, Krauss points out, depends greatly on private sector participation. As Peter Bauer has written (1972, pp. 97-98): If all conditions for development other than capital are present, capital will soon be generated locally or will be available . . . from abroad . . . . If, however, the conditions for development are not present, then aid . . . will be necessarily unproductive and therefore ineffective. Thus, if the mainsprings of development are present, material progress will occur even without foreign aid. If they are absent, it will not occur even with aid.

Transfer 4m poor to rich

Finally, many maintain that the more fortunate have a moral obligation to help those who are less fortunate. However this may be, foreign aid cannot be justified on such grounds for, as already alluded to, it does not transfer wealth from the more to the less fortunate. True, it transfers wealth from rich to poor nations, but this is hardly the same as transferring wealth from rich to poor individuals. Many of the taxpayers in the rich nations are themselves either poor or middle-income wage earners; many of the recipients in the poor nations are the economic elite. As Ayittey (1986a, p. 9) points out, Aid, rather incongruously, often turns out to be a tax on the poor people in rich nations for distribution to the rich people in poor nations. Thus, foreign aid is actually a program for transferring wealth upward, from the poor to the rich.

Foreign sources of finance

1. Concessional financial flows: Foreign Aid
Lower interest rates, longer repayment periods. Soft loans / Grants (gifts) Public: Official Development Assistance (ODA).
By an individual country (bilateral aid), or by international organizations (multilateral aid). Loans / Grants

Private: NGOs grants

2.

Non-concessional lending Same terms as in the commercial banking systems

Public: multilateral organizations: World Bank, IMF Private: commercial banks

3.

Private investment
FDI Foreign portfolio investment: Inflows of financial capital that is invested in the local stock and bond markets of LDCs.

Foreign Aid
Foreign Aid is a voluntary transfer of resources from one country to another, given at least partly with the objective of benefiting the recipient country. Foreign finance can help LDCs to address three constraints:
1. Insufficient domestic savings 2. Insufficient foreign exchange earnings 3. Insufficient technical skills, managerial skills & technology can be supplemented by the transfer of foreign skills & technology into the LDC.

Foreign Aid: Concessional loans & grants

Largest share: ODA, including bilateral and multilateral soft loans (25%) and grants (75%). Donor countries: most of OECD countries, some OPEC countries and some Eastern countries.

Aid Sources and Statistics

Total foreign aid 2010- $128.7 billion 2009- $119.6 billion Coordinated by the Development Assistance Committee (DAC). Relates only to 23 of the richer OECD countries ODA-80% of all international aid south-south- $12 billion Private foundations and non-governmental agencies -$22 billion. These aid statistics are net of any loans repaid to the donor countries. Gross Aid in 2010 -$141.3 billion.

Aid Sectors
Long teem as well as short term Humanitarian aid relates to short term emergencies such as natural disasters accounting for $11.7 billion in 2009. The cost of reconstruction of war zones - currently on a similar scale to humanitarian aid Technical assistance-refers to the transfer of skills and knowledge, typically carried out by individual consultants from the donor country, accounting for just under 15% of total aid in 2009. Other items not normally associated with foreign aid but which count as ODA include any costs incurred in the donors own country for refugees and foreign students. The value of debt relief also qualifies. long term development aid. Aid for sub-Saharan Africa amounted to $26.5 billion in 2010, barely 20% of total ODA.

Aid Distribution
Multilateral Aid-30% of ODA Bilateral Aid -70% of ODA These multilateral banks generally offer low-interest loans to poor countries. Governance of the World Bank weighted according to the scale of donor funding, leaving the beneficiary countries with limited influence. Bilateral aid - paid direct to developing countries, usually in the form of grants. Reflects the priorities of individual donor countries rather than a global strategic plan for poverty reduction. Offers valuable expertise in partnering local communitybased organizations. In some circumstances, this route has the advantage of bypassing inefficient or corrupt government ministries.

Rationale for aid

Humanitarian (moral or ethical responsibility to help the poor) Political (strategic self interest) Economic (develop markets)

Rationale for foreign aid

1.
a. b. c.

Humanitarian (moral or ethical)

Compensation for past injustices Uneven distribution of global natural resources Moral obligation to help the poor improve their nutritional status and standard of living

2.

Political (strategic self interest) (buy friends) (security assistance)

3.
a. b.

Economic self-interest
Develop markets for developed countrys goods Dispose of surpluses

 http://www.slideworld.com/slideshow.aspx/forei gn-aid-to-south-asian-countries-ppt-2773564# http://www.authorstream.com/Presentation/Yua n-37299-Aid-Lecture-Slides-2-Economics-ForeignAidLecture-Political-Economy-Last-as-Educationppt-powerpoint/ https://sites.google.com/site/delpriorenow/unit3---foreign-aid--the-end-of-poverty http://masalai.wordpress.com/tag/population/

Aid Critics
Impressive success stories - provision of access to safe drinking water for 1.8 billion people since 1990 and delivery of anti retroviral treatment to 6.6 million people as at the end of 2010. Biggest criticism - long term development aid is not working. Explanations for this failure fall within three headings. The first - proliferation of donors and their implementing agencies, an administrative nightmare for embryonic government ministries. Example In Ethiopia in 2008, there were over 1,000 small aid projects disbursing less than $100,000. During 2007, the European Union approved 22,000 new projects for an average value of less than $1.0 million. The absence of strategic coordination has enabled powerful single issue agencies, especially in the health sector, to conduct vertical programmes, attracting staff and resources at the expense of general health services.

 The second area of weakness stems from the difficult task of achieving appropriate accountability for the very different concerns of taxpayers in rich countries (who ultimately fund the aid) and the beneficiaries
Recepientant govt more accountable to donor than their own people

Accountability for concern of taxpayer

Conditionality to aid reflecting donors benefits

Aid ineffectiveness

The third area of concern - Aid Dependency Foreign aid contribution to national budgets of recipient countries typically around 10%-15% but often as high as 50%. No independent policy-making and institutional delivery.

 Dambisa Moyo argue that aid should be phased out over the next few years. Donors should instead promote faster economic growth in developing countries (i) Through improving the terms of trade, (ii) Encouraging foreign business investment and access to international capital markets. .

Aid Effectiveness
The 2005 Paris Declaration made by DAC countries and the multilaterals, together with its review, the 2008 Accra Agenda for Action, represents a determined attempt to rebalance the relationship between donors, recipient governments and the ultimate beneficiaries of aid. Targets for 2010 encouraged donor agencies to pool their funds in direct government budget support for national sector programmes. In return for ownership of development strategies and priorities, developing countries have promised to strengthen the capacity to perform and deliver services at all levels. Commitment to greater transparency by all parties also emerged from the Accra Forum with the launch of the International Aid Transparency Initiative. The Initiative has subsequently agreed a set of common standards for reporting foreign aid.

This move has been inspired by the belief that policymaking in developing countries is hampered by the fragmented and inconsistent reporting of donor activities. Accountability should also be improved if the beneficiaries themselves are fully aware of the services that aid is designed to deliver.

 Greater transparency might also hasten the end of the practice known as "tied aid". This links donor country business providers to delivery of aid projects. The inevitable result is inappropriate or overpriced contracts. Although the MDGs include an indicator relating to the proportion of bilateral aid that is tied, many governments are silent in reporting the data. Progress towards the 2010 Accra Agenda targets will be reported at a major conference on aid effectiveness in Busan, South Korea in November 2011. Evidence suggests that it has been very slow. Donors are nervous of accepting the political and economic risks, and NGOs are reluctant to concede territory to each other. A significant weakness of the Accra Agenda is the exclusion of non-DAC donors. In particular, Chinas massive but unquantified investment in Africa bolstered by its policy of non-interference in political affairs leaves the international community uneasy about the extent of support for unsavoury regimes such as Sudan.

Aid Promises
Aid contributions by individual countries are monitored by reference to a UN Resolution passed as long ago as 1970. The richest countries promised to advance - 0.7% of national income as aid The commitment was renewed in the Monterrey Consensus of 2002 and once again in 2008 at the Doha International Conference on Financing for Development. Development agencies press world leaders to make shorter term promises. The G8 summit in 2005 delivered a commitment to increase aid by 60% (a rise of $50 billion pa) between 2004 and 2010. Annual aid for Africa would double from its 2004 level of $25 billion. Another important example of a short term commitment is President Obamas election promise to double US foreign aid from its 2008 level of $25 billion by 2015. The UK government is committed to achieving the 0.7% target by 2013 and the European Union by 2015. Aid-related promises are not confined to the donor countries. In the Monterrey Consensus, developing countries accepted their responsibility to make efficient use of aid through high standards of governance and the rule of law.

Promises Unfulfilled
Aid promises have no substance in international law and there is a long track record of backsliding by rich governments. Of the extra $25 billion for Africa by 2010 promised at Gleneagles, only $11 billion has materialised, despite the US honouring its pledge in this regard.

The 0.7% aid target also remains unfulfilled. Only five countries, led by Sweden with 1%, currently exceed this benchmark.
The remainder are so far behind that the DAC average for 2010 was an embarrassing 0.32%, about the same as the equivalent figure for 1990.

Of the richer countries, US, Italy and Japan occupy the foot of the table.

To conceal these shortcomings, politicians announce new initiatives which on close examination turn out to be repackaging of existing commitments.

Promises of extra funding for agriculture and health by G8 leaders at their meetings in 2008 and 2010 are already proving difficult to monitor due to inconsistent reporting methods. Although the G8 has introduced regular accountability reports to monitor its promises, these logistical frustrations have increased the momentum behind the Aid Transparency Initiative. The global economic crisis has undoubtedly put pressure on aid budgets.. The Millennium Campaign has observed that the total cost of bailing out financial institutions in 2008/09 was nearly ten times the aggregate of foreign aid for the last 50 years.

Climate Finance
The 1992 UN Framework Convention on Climate Change (UNFCCC) places an explicit obligation on those countries historically responsible for greenhouse gas emissions. They must provide financial assistance to developing countries for (i) The costs of adaptation to climate change and (ii) Mitigation of their emissions growth path. The UNFCCC has so far inspired only tiny flows of climate finance. However, the Cancun Agreements approved by the UN climate conference in December 2010 promise financial resources for adaptation and mitigation totaling $10 billion per annum for 2010-2012, rising to $100 billion per annum by 2020. flows will be channeled through a new Green Climate Fund, Climate finance reproduces many of the familiar fault lines of international aid. It is not legally binding and reporting standards are inconsistent.