FACTS againest MYTHS JUNE-JULY-2005
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- FACTS againest MYTHS JUNE-JULY-2005
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ANZKENDRA
JUNE - JULY 2005
INFORMATION BULLETIN
Official Development Assistance (ODA)
as Condition for Enforcing Imperialism
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"... we will provide military advice and equipment to free nations which will cooperate with us
in the maintenance of peace and security. Fourth, we must embark on a bold new program for
making the benefits of our scientific advances and industrial progress available for the
improvement and growth of underdeveloped areas. More than half the people of the world are
living in conditions approaching misery. Their food is inadequate. They are victims of disease.
Their economic life is primitive and stagnant. Their poverty is a handicap and a threat both to
them and to more prosperous areas. For the first time in history, humanity possesses the
knowledge and skill to relieve the suffering of these people."
(Harry Truman, at the foundation of the NATO)
(c O M
he year 2005 will be a historic one for many of the heavily indebted poor countries in Africa.
Eight of the world’s highly industrialised nations, that comprise the G-8 countries have agreed to
canceling $40 billion worth of multilateral debt owed to the World Bank, the International Monetary
Fund (the IMF) and the African Development Bank (the AfDB). These are 100% debt cancellations!
There is a need to unpack such terms as aid,, debt relief, official development assistance,
heavily indebted poor countries, multilateral and bilateral aid, etc. These are a whole set of
jargon that has been used traditionally by global aid agencies and funding organisations and
also the governments in the various countries that have provided such aid or loans. Most nations
of the South have’needed this assistance, but it has come at a heavy price and has only led to
the furthering the impoverished status of the developing nations. Hence, it is important to
understand the dynamics behind the business of aid and assistance and thus counter the forces
behind imperialism.
The term ODA is often used to refer specifically to Official Development Assistance, which is
aid given by governments on certain concessional terms, usually as simple donations. It is
given by governments through individual countries’ international aid agencies and through
multilateral institutions such as the World Bank and by individuals through development NGOs.
Historically, the term used for donation of expertise has been technical assistance. International
aid falls into two categories broadly: Public and Private. The former, i.e. the public component
(known as ODA) is channeled through international institutions such as those within the UN
system or by directly donor governments. These can be of two types- multilateral aid and
bilateraLaid. Private aid on the other hand flows from private charities or through philanthropic
activities of high net worth private individuals or corporations or a number of private NGOs (such
—as some Dutch development organisations) depend considerably on their governments for their
resources rather than the public directly.
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Definition of Official Development
Assistance
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ODA consists of flows to developing
countries and multilateral institutions
provided by official agencies, including state
and local governments, or by their executive
agencies, each transaction' of which meets
the following test a) it is administered with
the promotion of the economic development
and welfare of developing countries as its
main objective, and b) it is concessional in
character and contains a grant element of
at least 25% (calculated at a rate of discount
of 10%).
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(Source: A History of the Development Assistance
Committee and the Development Cooperation
Directorate in Oates. Names and Figures - Helmut
Fuhre. Organisation for Economic Cooperation and
Development, Paris 1996)
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The historical beginnings of official development
assistance are in the development activities carried
out by the colonial powers in their overseas territories.
Institutions and programs for economic cooperation
were created under the United Nations auspices after
the Second World War, the US Point Four Program
and the large scale support for economic stability in
the countries on the periphery of the communist bloc
of that era. The success of the Marshall Plan created
considerable and perhaps excessive optimism about
the prospects for helping poorer countries in quite
different circumstances through external assistance.
However, it should also be located in the context of
the Cold War and the speech given by Harry Truman
when announcing the foundation of the NATO (refer to
the quote at the beginning of the fact sheet). According
to Truman, provision of military advice and equipment
to free nations would lead to a program where the
benefits of scientific advances and industrial progress
would be made available for the growth of the under
developed area of the world. He saw the poverty in
these (many newly independent) countries as a
hindrance to the progress of the “prosperous areas”
too. And hence the aid given by the rich countries was
considered essential under the circumstances of the
Cold War.
Close to the end of the Second World War, the United
Nations Monetary and Financial Conference at Bretton
Woods in the United States of America led to the
formation of the International Bank for Reconstruction
and Development or the IBRD (which later came to be
known as the World Bank) and the International
Monetary Fund or the IMF. Later in 1945,
representatives of fifty countries drew up the United
Nation’s Charter and the preamble to the Charter
expresses the determination of the peoples of the
FACTS against MYTHS — JUNE-JULY 2005
United Nations “to promote social progress and better
standards of life iq larger freedom” and “to employ
international machinery for the promotion of the
economic and social advancement of all peoples”. Over
the years following their declaration, a number of
countries who had colonies in the South passed acts
that recognised the situation there and provided
development assistance to them.
The Earth Summit at Rio de Janeiro in 1992 adopted
the Agenda 21 which among other things included an
ODA aid target of 0.7% of Gross National Product for
rich nations, which are roughly 22 members of the
OECD. However, year after year, none of these targets
have been met. Instead of 0.7%, the amount of aid
has been around 0.2% to 0.4%, which is some $100
billion short. Also, according to the World Bank, over
the years, overall ODA worldwide has been decreasing
by about 20% since 1990.
A majority of the loan is disbursed by the United States
and Japan. In 2001, the OECD noticed that the United
States increased aid due to “$600 million disbursed to
Pakistan for economic support in the September 1
aftermath”. However, Japan’s ODA fell by nearly
billion due to the depreciation of the Yen. There was a
5% increase in 2002- again the United States increased
its ODA by 11.6% (in relation to health and
humanitarian aid) and Japan’s ODA fell by 1.8%- again
due to the depreciation of the Yen. In 2003, the aid
increases were modest- this was due to the continuing
growth in general bilateral grants ($2 billion), the start
of reconstruction aid to Iraq ($2 billion) and offset by a
cyclical fall of contributions to multilateral concessional
funds (-$1.2 billion). There was a sharp decline in aid
for agricultural development and a rising share in total
aid outlays of humanitarian aid in response to
emergencies as opposed to long term development
and aid to the poorest countries.
The combined ODA of OECD countries in 2004 was
$78.6 billion. The United States is the world’s largest
contributor of ODA in absolute terms, $19 billion, but
this figure should be compared to the combined
contribution that totaled $42.9 billion. Expressed as a
percentage of Gross National Income, Norway’s
contribution remained in the lead at 0.87% with the
combined European Union at 0.36%. The United States
however, remains the lowest contributor as a
percentage of the OECD at 0.16%. Aid also rose in
real terms by 4.3% between 2003 and 2004 due to
increases in contributions to international organizations,
aid to Afghanistan and Iraq and technical cooperation
grants.
The following table shows the official development
assistance that has been given out by the various
countries in the years between 2001 and 2004. The
figures are in U.S. Dollars and also given as a
percentage of the Gross National Product of that
particular country.
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Official Development Assistance (ODA) from 2001 to 2004
ODA in U.S. Dollars (Millions)
ODA as GNP Percentage
Country
Australia
Austria
Belgium
Canada
Denmark
Finland
France
Germany
Greece
Ireland
Italy
Japan
Luxembourg
Netherlands
New Zealand
Norway
Portugal
Spain
Sweden
Switzerland
United Kingdom
United States
2001
2002
2003
2004
2001
2002
2003
2004
852
457
866
1,572
1,599
389
4,293
4,879
194
285
1,493
9,678
142
3,155
111
1,346
267
1,748
1,576
908
4,659
10,884
962
475
1,061
2,013
1,632
466
5,182
5,359
295
397.
2,313
9,220
143
3,377
124
1,746
282
1,608
1,754
933
4,749
12,900
1,237
503
1,887
2,209
1,747
556
7,337
6.694
356
510
2,393
8,911
189
4,059
169
2,043
298
2,030
2,100
1,297
6,166
15,791
1,465
691
1,452
2,537
2,025
655
8,475
7,497
464
586
2,484
8,859
241
4,235
210
2,200
1,028
2,547
2,704
1,379
7,836
18,999
0.25
0.25
0.37
0.23
1.01
0.33
0.34
0.27
0.19
0.33
0.14
0.23
0.8
0.82
0.25
0.83
0.25
0.3
0.76
0.34
0.32
0.11
0.25
0.23
0.42
0.28
0.96
0.35
0.36
0.27
0.22
0.41
0.2
0.23
0.78
0.82
0.23
0.91
0.24
0.25
0.74
0.32
0.3
0.12
0.25
0.2
0.61
0.26
0.84
0.34
0.41
0.28
0.21
0.41
0.16
0.2
0.8
0.81
0.23
0.92
0.2
0.25
0.7
0.38
0.34
0.14
0.25
0.2
0.61
0.26
0.84
0.34
0.41
0.28
0.21
0.41
0.16
0.2
0.8
0.81
0.23
0.92
0.21
0.25
0.7
0.38
0.34
0.14
Note: The U.N. ODA agreed target is 0.7 percent of GNP. Most nations do not meet
that target.
Source: OECD Web site- http://www.oecd.org
India has been receiving Official Development
Assistance since the 1980s. Post independence India
opted for a centrally planned industrialisation strategy
that looked at creating a congenial environment for
the growth of private industry*. The state also outlined
that the majority of the industrial activity would be done
by the private sector, but it would itself take the
responsibility of seeing that the industrial growth was
performed by social purpose and not for profit. Hence,
it reser/ed some sectors such as defense production,
communications, power, steel and fertilizers. The
(Agricultural sector was given special attention. This
resulted in over 60% of investments in the industrial
sector going into public sector enterprises. All these
measures had resulted in a reasonably high growth
rate of the economy. Following, Nehru and
Mahalonobis’s socialist framework of a heavy industry
planning model, India in the 1960s began to be heralded
in the West as the epitome of rational planned economic
development. John P. Lewis, the dean of American
foreign aid experts, argued that India’s planned
development was the most feasible and desirable path
for a country at an early juncture in the development
process and that the decentralised market system was
inappropriate, destined to fail, and had only led to the
development of Great Britain and the United States
because of “special circumstances”. He also made an
impassioned plea for vastly stepped up levels of
American aid to support, the rationally planned
( FACTS against MYTHS — JUNE-JULY 2005
economic development of India’s second five year plan.
According to Frankel (2005), signs of stagnation came
into the economy from the second half of the Third
Five Year Plan (1961-66). Per capita income did not
increase at all as the population growth rates neutralized
the low overall gains in the rate of growth of national
income. Per capita availability of food grains and other
essential articles ot consumption were below level.
Average growth rates of 8-10% during the first years
of the 3rd Plan, the proportion of domestic budgetary
finances to total finances for Plan outlay fell to 59%.
The balance was funded by foreign aid which accounted
for 28% of total plan outlay. Thereafter the loan from
the IMF with a credit of over $ 187 million and the
PL480 came about. This was probably the first few
steps towards economic liberalization.
As of 1981/82, India’s eight largest firms were in the
public sector, as were 24 of the top 30 in terms of total
capital employed. The planners had succeeded in
making Nehru’s dream come true- a self reliant
economy with a socialist pattern of society. However,
a number of economic costs had been incurred in the
process. Industrial growth rates were stagnating at 4%
until 1975-76 and this was in contrast with the high
growth rate of East Asian, South East Asian and
Chinese economies which had entered a period of
sustained high growth and competitive international
trade. Further downfalls in the agrarian sector, a
phenomenal rise in the external debt ($ 91.78 billion
by 1993) and finally the balance of payments crisis
led to India receiving loans from the IMF (yet again),
the World Bank and the Asian Development Bank which
in turn initiated a series of economic reforms under
the New Economic Policy in 1991 and which in turn
was based on the prescription of the Structural
Adjustment Program (SAP) of the IMF and the World
Bank.
India’s heavily centralised economic planning, its lack
of openness to trade and investment (as a measure to
protect the domestic manufacturing industries) and its
large accumulated inflow of foreign aid mainly in the
form of ODA have set it apart from its neighbours.
Even though the multilateral agencies have come
forward to provide aid to the dwindling state of the
economy, they came with economic reforms that would
have to be instituted. Hence, along with the aid came
the conditionalities by the IMF and the World Bank.
According to Kamath (1992), “the interaction between
a country’s economic performance and official foreign
economic assistance (or foreign aid in contrast to other
voluntary private foreign assistance) is difficult to
isolate...although the statistical evidence seems to
indicate a balance that aid has had little or negative
impact on development indicators such as saving,
investment and the growth of national income. It is
clear, however, that the majority of the so-called
developing nations that have received large amounts
of foreign aid have failed to develop”. Despite the fact
that so much foreign assistance has come in to the
country and on the pretext of development, that
particular development has not taken place in over
five decades of all this money pouring in. However,
with the increasing number of conditions imposed by
the Bretton Woods Institutions, the role of the State in
social welfare has been decreasing, and yet again the
country has to depend on foreign aid to develop critical
areas such as education, health, etc.
In August 1958, the World Bank organized the Aid-toIndia Consortium, consisting of the World Bank Group
and thirteen countries: Austria, Belgium, Britain,
Canada, Denmark, the Federal Republic of Germany
(at that time, West Germany), France, Italy, Japan,
the Netherlands, Norway, Sweden, and the United
States. The consortium was formed to coordinate aid
and establish priorities among India’s major sources
of foreign assistance and to simplify India’s requests
for aid based on its plans for development. Consortium
aid was bilateral government-to-government aid from
the thirteen consortium countries, and almost all of
the aid, including that from the World Bank Group,
was for specific projects judged to be valuable
contributions to India’s development.
Since the beginning in 1979-80, ODA worth Rs. 1859.5
crores was disbursed to India. Out of this Rs. 1353.1
crores was utilised. Similarly in 1990-91, Rs. 8123.4
crores was disbursed as ODA and Rs. 18124.7 crores
FACTS against MYTHS — JUNE-JULY 2005
was used and given as ODA to India, out of which Rs.
14254.3 crores were utilised. The latest figures, i.e.
for the year 2003-04 so that Rs. 17105.1 crores was
disbursed and Rs. 17344.4 crores was utilised. If one
would look at the amounts that were authorised, then
we could see that between 1990 and 1991 and 197980, the ODA has increased by Rs. 6263.9 crores and
between 1990-91 and 2000-01, it has increased by Rs.
10,001.3 crores. However, between 2000-01 and 200304 there has actually been a decrease in the
disbursement of ODA to India by about Rs. 1019.6
crores.India receives a large chunk of foreign aid from
the United States and the European Commision.
The aid from the United States assistance was
significant in the late 1950s and 1960s but, because
of strained India-United States relations, it fell sharply
in the 1970s. The United States accounted for 8.6%
of all of the aid India received from independence
through financial year 1988, but for only 0.6% in
financial year 1990. In financial year 1993, actual United
States obligations through USAID totaled almost
US$161 million. The bulk of this aid was provided as
United States PL480 food aid grants with lesse|)
amounts for development assistance (including energy
and the environment, population control, child survival,
acquired immune deficiency syndrome (AIDS).
prevention, and economic growth) and housing
guaranty loans. Similarly Germany and Britain have
also carried out substantial aid-to-lndia programs.
Among countries not in the World Bank consortium,
the Soviet Union was the most important contributor,
providing more than 16% of all aid between 1947 and
financial year 1988. Since 1991, however, Russia has
provided little aid.
The European Commission on the other hand has been
extending economic assistance to Indra since 1976.
The EC assistance is entirely in the form of grants.
According to the Ministry of Finance (http://
finmin.nic.in/the_ministry/dept_eco_affairs/eec/
eecjndex.htm), the cumulative total of EC’s financial
and technical assistance since 1976 has been arounck
Euro 2.00 billion. The three priority sectors for the ECx
are education, health and environment. Presently, EC
assistance is being provided for projects in the sectors
of irrigation, forestry, education and health. There are
two ongoing central projects in education sector (Sarva
Siksha Abhiyaan) and health sector (Health & Family
Welfare Sector Development Program) with EC
assistance of Euro 200 million and Euro 240 million
respectively.
Over the years India has gained a foot hold in this
area too. The country maintains a small but wellestablished foreign aid program of its own. In financial
year 1990, Rs. 1.6 billion of aid was authorized, of
which Rs.582 million was for Bhutan and Rs.578 million
for Nepal. Bangladesh and Vietnam received significant
amounts of aid during the 1980s, but, as the result of
the changing world political and economic conditions,
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these programs were hardly significant by the early
1990s.
The other continent that gets the largest amount of
aid is Africa. Most of the country’s economies here
survive on the official development assistance that
they receive. However, a large number of these
countries come under the category of Highly Indebted
Poor Countries (HIPC) and have had to bear the debt
to the first world donor countries for decades together.
Along with the loan amounts, the countries have had
to restructure their economies and institute policies
(the Structural Adjustment Program or SAP) that have
not been in favour of the population. The recent move
by the G-8 countries towards debt cancellation was
brokered by the Chancellor of the Exchequer- Gordon
Brown and who has claimed that this will “save
countries such as Mozambique and Ethiopia a total of
$15 billion in debt payments over the next ten years”.
The U. S. Treasury Secretary can be quoted to say
that they have “presented the most comprehensive
statement that finance ministers have ever made on
Jhe issues of debt, development, health and poverty...
Q: represents a new deal between the rich and the poor
countries put together for the announced cancellation
is less than half of the amount the US government
spends every month on its continued illegal occupation
of Iraq. Hence, even though the debt cancellation is a
welcome move, one should still recall that these
countries would still have to grapple with a large
amount of multilateral debt. Along with the debt owed
to multilateral agencies come the conditions- selling
natural resources, their public assets, and depriving
the people of the basic conditions of a decent life, in
order to advance the profiteering by large corporations
from the G-8 countries and elsewhere.
of the world”. The G-8 countries would compensate
the World Bank and the AfDB in full for the assets
written off and have also agreed to meet any shortfall
that the IMF could not cover from its own resources.
Britain will pay $700 million - 960 million over the next
ten years, while the United States will pay $1.3 billion
- 1.8 billion. Germany would pay $848 million - 1.2
billion.
The global aid groups have praised the G-8 rich
countries on their debt cancellation, but have also said
that more could be done. Aid agencies have expressed
their desire for this relief money to be used for health
care, education and infrastructure development. Many
argue that the G-8 is rewarding bad governance, and
the write-offs would “only relieve the most indebted of
their past sins of profligacy” and that “it cannot
guarantee that they will build fresh infrastructure or
jdarget basic education needs”. However, there is
^another point of view that says that the “indebtedness
has been choking the weakest economies and blocking
the economic progress for billions of the poorest. The
write-off gives them an opportunity to start with a clean
state”.
Looking at the entire deal more critically, only eighteen
countries would ‘benefit’ from such a move. If one looks
closer one would see that the debt relief is partial and
is not a complete cancellation as only bilateral aid and
the debt held by the World Bank and the AfDB has
been cancelled. According to Ghosh (2005), the total
financial burden on the G-8 of the entire operation would
amount to some $2 billion, a year, which when
compared to the estimated $350 billion annually
devoted by the G-8 to farming subsidies or the $700
billion spent by the G-8 on military expenditure is much
less. The annual amount spent by all these G-8
FACTS against MYTHS — JUNE-JULY 2005
There are a number of conditionalities that these
countries would havedo undergo privatisation of natural
resources and of strategic economic sectors to the
benefit of large multinational corporations; higher cost
of health care and education, directly affecting the
access of the poor to these basic socio-economic
rights; increases in VAT, a regressive tax, which
means increased costs and lower real incomes of
ordinary people; free flow of capital, which leads to
great volatility of exchange rates and capital flight by
the elite; and lastly, lower tariff protection, which leads
to thousands of small and middle producers losing their
livelihoods because they cannot compete with imported
goods
One can conclude to say that except for a few cases
of alleged foreign aid success (such as critical food
relief when millions were on the verge of starvation in
the early 1950s and again during the mid-1960s) foreign
aid to India and most other countries has been an
unmitigated disaster. In many ways it has encouraged
corruption, rent seeking, and forming a graft in the
economies of these developing nations. Foreign aid
has been—and continues to be—predicated on an
outdated and false theory of development economics
that assumes that only capital and access to
technology are needed for economic development.
Aid is more than just charity and experiences so far
show that it cannot be separated from other issues of
politics and economics. The United Nations notes that
effectiveness of aid to poor countries requires a focus
on economic infrastructure. Countries giving aid could
help by providing greater investment; greater debt
relief; actually practise free and fair trade. Those
donors’ largesse has actively encouraged the
impoverishment of nations. It is time to stop this
weaning of the resources of the developing nations in
the name of providing assistance. It is time to “Make
Poverty History”.
The “Make Poverty History” campaign has mobilised
people to creating the political will to drive lasting policy
changes. It has engaged a new generation into holding
their governments accountable for their actions on the
world stage. In the run up to the G-8 meeting in
Scotland, this United Kingdom based campaign that
comprises 450 development agencies, campaigns,
faith groups, trade unions and other organisations had
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Why has Aid Dropped over the Years?
Most of the developing countries and India too have witnessed a decrease in ODA from governments
of developed nations. With the collapse of USSR and the emergence of a uni-polar world, the developing
nations have lost one of their key rationales for aid, i.e. to win friends in the developing world and
prevent them from allying with USSR. On earlier occasions, aid has been used to prop up undemocratic
regimes. Developed nations have recommended that opening up of borders so as to allow a free flow of
transnational investment would be the panacea to all the problems. In this respect then the role of aid
has also been modified, i.e. it now assists or facilitates such investment and thereafter the quantities
of aid that was flowing into these countries has also increased.
According to Thomas (1999), ODA flows amounted to $206 billion in 1997. But, only 10% of this went
to low income countries and among them, the bulk to. China and India”. Again, it is not the poor who
benefit from this aid. According to Thomas (1999), average expenditure for OECD countries on basic
education is only 1.4% of ODA in 1997 in India and for basic health it was 2.4%. The large inflow of
private funds into developing countries is for the most part debt which these countries are called upon
to repay at a future date. Thus, official aid has long been a convenient cover to promote the business
interests of the developed nations. The economic misuse of aid is also evident in the widespread use
of aid for arms deals by some developed nations where sophisticated weaponry is sold to developing
countries on the back of aid promises.
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got together to how solidarity towards the world’s poor.
The ‘Make Poverty History’ campaign advocates three
policies: First, donors must now deliver at least $50
billion more in aid and set a binding timetable for
spending 0.7% of national income on aid. Aid must
also be made to work more effectively for the poor.
Second, the unpayable debts of the world’s poorest
countries should be cancelled in full, by fair and
transparent means. Third, fight for rules that ensure
governments, particularly in poor countries, can choose
the best solutions to end poverty and protect the
environment. These will not always be free trade
policies. End export subsidies that damage the
livelihoods of poor rural communities around the world.
Make laws that stop big business profiting at the
expense of people and the environment. These are
ambitious and valid demands that all the developing
nations ask from the rich countries. What we need to
think about is how to persuade the rich nations to do
all the above. Debt for Africa has been cancelled. But
one still has to wait and see how much of it can be
achieved, how much of it is just hot air and how all of
this can be achieved after fighting corruption, political
weakness, rampant HIV infection and civil wars.
Myth: Official Development Assistance (or ODA)
given to India through multilateral agencies will
resolve many of the problems of under
development in India.
Fact: The biggest multilateral aid agency that comes
to mind when one thinks of India is the World Bank.
India received its first World Bank loan on August 18,
1949 for development of the government owned Indian
Railways. Over the years India has received an
accumulated net amount of well over $20 billion in
historical year’s dollars from 1951 through 1989.
According to Kamath (1992), “the Bank would prefer
( FACTS against MYTHS — JUNE-JULY 2005
to ... base its financing on a national development^
program, provided that it is properly worked out in terms
of projects by which the objective of the program are
to be attained”. Most of the money went to public sector
projects. Thus Kamath comments that “by requiring
governments to undertake comprehensive
development planning as a pre-condition for receiving
foreign aid, donor nations and agencies actively abet
the socialisation of the developing world”.
A substantial part of the World Bank’s (as well as the
USAID’s) concessional loan to India has gone for state
projects in irrigation, area development, infrastructure
development, dairy development, rural and urban
drinking water supply, population and nutrition, and
agricultural extension and training. The major portion
of the World Bank’s lending to India for rural
development has been for state run irrigation projects.
Most of the projects that were put into operation b^^
the World Bank have actually been dubious themselves®
leave alone the ones run by the government of that
particular country itself. Many of them have ended in
failures. But despite the impressive record of failure
of public irrigation projects in India, the World Bank
approved more than $1.2 billion in new irrigation credits
for New Delhi between 1985 and 1990, including $150
million (of a total credit of $450 million) for the Narmada
dam and river valley project. The threat of environmental
damage, flooding of valuable agricultural and forest
lands, destruction of critical ecosystems, and
displacement of thousands of tribal and other
communities has made the Narmada project
(especially the component called the Sardar Sarovar
project) one of the most hotly debated World Bank
(and Indian) projects of all time. In spite of a World
Bank policy on involuntary resettlement, which requires
that a resettlement plan be established before a project
is approved, no comprehensive resettlement plan has
been established for the Sardar Sarovan project; even
the number of people to be displaced has not been
determined. The gap between the World Bank’s stated
goals and reality on the ground is growing.... The World
Bank, rather than consistently aiding in alleviating
Third World poverty, in reality has contributed to the
marginalization and devastation of hundreds of
thousands of tribal and indigenous people and rural
poor in India, Indonesia, and Brazil.
groups are expected to coordinate, develop, manage
and finance their own water infrastructure’s. The states
are no longer obliged to provide financial means and
logistical support for drinking water and sanitation
services. There is however, no support for
decentralised, low cost alternatives to public and private
provision of water services, such as rain water
harvesting. Hence, one would be led to think- is this
the solution to be used to change our nature of being
undeveloped or under-developed?
The second multilateral agency that has given
extensive loans and ‘support’ to India is the
International Monetary Fund (or IMF). India was one
of the first recipients of an emergency IMF loan, after
the fund’s founding in 1944, and (except for short
periods of time) it has been on one or another IMF
program ever since—that is, for more than five and a
half decades. Several times in the 1970s India received
short-term loans from the IMF for balance-of- payments
support. Its biggest borrowing from the IMF was
negotiated in 1980, when the combination of the oil
shock of 1979’and a disastrous harvest led India to
Week a $5.8 billion loan under the IMF’s relatively new
“Extended Fund Facility.” The loan’s early repayment,
due to a set of fortunate circumstances, caused India
to be heralded as a developing nation that had matured
and transcended the vicissitudes of uneven
development. In early January 1991, however, foreign
exchange reserves fell to the equivalent of the value
of two weeks of imports, and India came close to
defaulting on its commercial borrowing, as well as on
loans from the World Bank and the IMF. In late January
the IMF hurriedly approved a $1.8 billion loan for India.
That initial loan was followed in October 1991 by many
more until the loan committed India to negotiate a further
structural adjustment loan from $5 billion to $7 billion
with the IMF.
Myth: Aid given to developing countries has to be
‘tied’ so that the donor agencies can prove their
position of being absolutely transparent and
accountable organisations in their dealings.
Money has come in plenty through the loans of the
IMF and the World Bank as the leading multilateral
agencies in India. However, the projects for turning
|ndia into a developed country have been failures. They
nave only led to the further impoverishment of the
limited natural resources of the country. Instead of
giving the requisite support through these loans, these
Bretton Woods Institutions have tried to control the
natural resources by reshaping national policies,
reframing national laws and changing institutional
structures in the country, so as to ensure their
monopoly over the market for these resources. If we
use the natural resource- water as an illustration of
the above, we will see that the multilateral agenciesespecially the World Bank has pushed India to reform
its water sector since the 1990s. They have sought to
introduce commercialization, decentralisation and cost
recovery to the Indian water supply market. This new
focus could increase decision making power over water
issues. But it also stipulates a definition of water as a
commodity provided by the private sector according
to the demand and to be purchased by clients. User
FACTS against MYTHS — JUNE-JULY 2005
Fact: The argument given by most donors regarding
funds is that at most times they have to hand out
conditions along with the aid as their actions are
accountable in the parliaments and the public discourse
in their own country. However, they also assert that
adequate conditionality is requisite and that at the same
time it must give scope to the control needs of donors
and respect the political autonomy of recipients at the
same time.
The concept of tied aid is not new to the big world of
foreign aid. When aid is given to a poor country on the
condition that all or part of the money will be spent on
buying commodities from the donor countries, it is
called Tied Aid. This is done to boost the export
incomes of donor countries. Tied aid exists in the
category of bilateral aid (country-to-country). Using
foreign aid to promote a country’s exports is standard
policy in Britain, France, and Japan. The problem with
tied aid is that the recipient country is not able to shop
around for the best prices or the most appropriate
product.
In many ways this may seem fair and balanced to
many, because the donor gets something out of this
relationship as well. But on the other hand, for the
poor country it can mean that important resources are
used up in buying more expensive options, which
could otherwise have been used in other
circumstances. It also means that the recipient country
has less control and decision making on how aid money
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African Growth and Opportunity Act signed
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interest’. The war against Iraq was of
strategic interest to the United States, as a
result several African members of the UN
Security Council including Cameroon, Guinea
and Angola, were virtually held to ransom
when the United States was seeking council
support for the war in 2003.
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Reasons why governments do not
want to implement conditionality
1.
2.
3.
4.
5.
6.
Governments do not have the capacity
or expertise to implement technical
reforms
Governments are not willing to implement
reforms because they do not agree with
or understand the Bank and Fund’s policy
prescriptions
Governments are not willing to implement
reforms because it is politically difficult
for them to do so since they are regarded
as biased, or inappropriate by their
electorates or harmful by significant
elites
Past experience with IMF/WB reform
programs have not been positive
Programs contain too many conditions
They have insufficient finance to do so
properly
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privatisation of public infrastructure, take over small
subsistence farmers for large scale export crop farming
instead of staple foods. Thus, acceptance of the SAP
conditions can be a pre-condition for receiving further
aid.
It has been emphasised that areas such as gender,
poverty, environmental and education have been
neglected in the programs designed by the IMF and
the World Bank, and these have directly or indirectly
caused unnecessary hardship and suffering as a result.
When the program outcomes have been poor, the
Bretton Woods Institutions have argued that the policy
prescription is correct but expected improvements
have not materialised because reforms have not been
deep or wide enough or programs have not been
properly implemented. Thus they have imposed even
more conditions and preconditions in more areas of
government policy and have placed more stress on
monitoring the reform process. Hence, the ‘Second
Generation of Reforms” which focuses on good
governance, deeper structural reforms and capital
account liberalisation, and reorienting the allocation o^
government spending to social sectors and away frorrW'
unproductive sectors.
is spent. The money that is being doled out to Africa
to fight HIV/AIDS. USAID officials in Washington insist
that the continent’s government purchase anti-AIDS
drugs from the United States instead of buying cheaper
generic products from South Africa, India or Brazil. In
this way a status quo is maintained whereby rich
countries like the United States continue to have
financial lever to dictate what good governance means
and to pry open markets of developing countries for
MNCs. Developing countries have no such handle for
the Northern markets, even in sectors like agriculture
and textiles, where they have an advantage but
continue to face trade barriers and subsidies. Another
aspect of aid tying into interests of donors is
exemplified with climate change negotiations. Powerful
nations such as the United States have been vocally
against the Kyoto Protocol on climate change.
The conditionalities attached to borrowing from
multilateral agencies is far worse. Acute economic
crisis in Mexico, South East Asia, Russia, Brazil and
Argentina etc forced them to borrow money from the
IMF. Debtor governments had to agree to impose very
strict economic programs in their countries in order to
reschedule their debts or borrow more money. These
programs were known as Structural Adjustment
Programs or SAP. The SAP consists of measures
designed to help a country repay its debts by earning
more hard currency- i.e. increasing exports and
reducing imports. Applying the SAP meant the country
had to spend less on health, education and social
services, devalue the national currency, reduce export
earnings and increase import costs, cut back on food
subsidies, cut jobs and wages for workers in the
government industries and services, encourage
FACTS against MYTHS — JUNE-JULY 2005
According to a paper prepared by the Policy
Development and Review Department of the IMF in
February 2001, (Conditionality in Fund-Supported
Programs—Overview), it is stated that the Fund’s
conditionality has been an important element in recent
proposals to reform the international financial system.
According to the Fund, conditionality is “the link
between the approval or continuation of the Fund’s
financing and the implementation of specified elements
of economic policy by the country receiving this
financing ... it provides safeguards to the Fund to
ensure that successive tranches of financing are
delivered only if key policies are on track, and
assurances to the country that it will continue to receive
the Fund’s financing provided that it continues to
implement the policies envisaged”. Further the paper
also states that the period since the 90s has seen a|
major expansion of conditionality, particularly in th ’
structural area, and it was not so prior to this. These
changes were a result of several factors:
First, the Fund has over time placed increasing
emphasis on economic growth as a policy objective,
with the recognition that raising growth on a sustainable
basis requires strengthening the supply side through
structural reforms and thus growth became increasingly
prominent as an objective in the 1980s, against the
background of the poor growth record of the heavily
indebted countries and mounting criticisms that Fund
programs had focused excessively on austerity.
Second, the Fund became increasingly involved with
different groups of countries in which structural reforms
were viewed as a particularly important part of an
overall policy package. In particular, with the
establishment of the Structural Adjustment Facility
8
(SAF) and later the Enhanced Structural Adjustment
Facility (ESAF) in the 1980s, the Fund became
increasingly involved in lending to low-income
countries.
are critical about how the money is being utilised.
Hence, even though Russia is a minor donor, they
have not been left out. It is the same with the United
States.
A third factor behind the expansion of structural
conditionality was an increasing awareness that the
monetary and fiscal policy objectives that are key to
macroeconomic adjustment often themselves depend
critically on structural conditions—including the
removal of extensive market distortions and the
establishment of the institutional underpinnings for
effective policy making in a market economy.
It is this kind of circumstances that leads first world
countries to question the idea whether aid is required
at all? The snapping of aid by many of the donor
countries due to the stand of the government can have
a number of implications. First, this would mean a
crucial fall out in India’s federal politics. Reforms that
were initiated in 1991 meant that there would be less
control by the central government over the state
government, thus allowing direct negotiations with
donors- both bilateral and multilateral. This meant a
lot for the social sector programs such as education,
reproductive health, watershed development, social
forestry, urban sanitation and water supply, many of
which were being carried out by donors who have been
struck of the list. Secondly, India’s ability to access
soft loans, aid and grants even from the multilateral
agencies would be doubtful. The Scandinavian
countries are one of the key donors to the multilateral
agencies. After being snubbed by the Indian
government, they may not be inclined toward
supporting programs that would be supported by these
multilateral agencies in India.
Many in the first world imagine the amount of money
spent on aid to developing countries is massive.
Actually it amounts to only 0.3% of the gross national
income of the industrialised nations. According to Shah
(2005), in 1995, the director of the USAID defended
his agency by testifying to his congress that 84 cents
of every dollar of aid goes back into the US economy
in goods and services purchased. He also stated that
“in 1995, severely indebted low-income countries paid
^one billion dollars more in debt and interest to the
whternational Monetary Fund (IMF) than they received
from it". So one can add to the above by saying that
while aid does not aid the recipient, it aids the donor.
The disastrous food aid policies is another example of
how aid was used as an arm of foreign policy
objectives. It helped their corporations and large
farmers at a huge cost to developing countries. This
leads us to the question of whether foreign aid is
required at all or not?
Myth: “Abolishing aid gives people their self
respect back. It offers the developing countries the
chance to refute western scepticism about their
capacities”.
Fact: Donor agencies (both multilateral and bilateral)
have been known to harbour the opinion that it is best
for the developing countries or the recipient countries
to work out their own policies and this would work out
best if national governments draft them, argue their
^fease and implement reforms. “Ownership” has become
On the other hand many donor governments put forth
the argument that aid to the developing nations should
be stopped. Peter Marres, the Dutch ambassador to
Ethiopia wrote an article in May 2001 about stopping
development aid. According to Peter Marres’s article,
abolishing development aid gives people their self
respect back and only then the process of
decolonisation is rounded off. It offers the developing
countries the chance to refute western scepticism about
their capacities. He also cited a number of pros and
cons of abolishing aid. These were:
❖
Abolishing aid gives people their self respect
back
❖
If aid is no longer forthcoming, the tax system
will have to be reformed an actively collected
and the water and electricity bills would have
to be paid. And then tax paying citizens will
make demands from the government
❖
“Abolishing aid is a hardly conceivable option:
a whole branch of industry closes down
overnight. Not only can one slim down within
the governments, but also international and
national development organisations will stop
to exist.
the buzzword. The developing countries have also
recognised that the structural adjustment policies of
the 80s and 90s were widespread failures.
Such a policy of the government of India has led to
the criticism that these countries that have been barred
from any interaction such as the Scandinavian ones,
have been done so because of their severe criticism
for India’s policies. For instance, countries such as
Norway, Sweden and Denmark snapped their aid to
' India post Pokhran II. Japan had criticised it too at the
time, but Japan has not been penalised in such a
manner. Similarly, The Nethrlands had criticised the
events in Gujarat 2002 but has initiated a number of
successful programs such as the Indo-Dutch Program
on Alternatives in Development (IDPAD) and Mahila
Samakhya, etc too. This just goes to show that the
Indian government becomes unhappy with those who
( FACTS against MYTHS - JUNE - JULY 2005
In response to the above, John Breman (at the
University of Amsterdam, The Netherlands) said that
Marres had raised an important argument, but the way
in which it was raised was wrong. Breman found the
statement about developing countries loosing their selfrespect a “pitiful” statement. According to Breman,
“poverty always goes together with a loss of self-
respect. How can one give back their self-respect by
stopping aid”. Breman also goes on to say that more
aid should be given to developing countries as the
wealth of the rich nations is never questioned whereas
developing countries have been placed at such
structural arrears that they would never succeed in
making it up. He also stated that most donors demand
good governance while giving aid, however, they
themselves may not enforce it. Breman has discussed
how the donor countries have got rich today because
they had been able to put up trade barriers and under
also gained advantages under colonisation. But today
too free trade and opening up of the markets
presupposes equality within parties and globalisation
of the economy will deprive the poor countries of the
possibilities the rich countries had for themselves.
and innovative ways to navigate the road to life on the
basis of their capacity to control their own destiny,
; regardless'.pf its-global worth”.
x Reference:
,«.t
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Agarwal, J..0. and Amita Batra (17 June. 2005), Is G8'& debt waiver a wrong move?, The Economic Times,
1.
Mumbai
In comparison the aid recipient countries in Africa are
in a much worse situation. Under the reign of the
Washington Consensus development aid became
aggressively conditional upon good governance as was
defined by the Washington based multilateral aid
agencies and thus SAP had to be the mould in which
all foreign aid transactions had to fit. What one sees
now is a cementing of the union between aid and
politics. Hence, development aid including
humanitarian assistance cannot be left to bilateral
parties or agreements.
2.
Elliot, Larry and Ashley Seager (12 June 2005), Accord
on $55-bilion Africa debt relief, The Hindu, Chennai
3.
Excerpts of John Breman’s (Professor of nori-western
sociology at the university of Amsterdam) comments
from article - Development aid- The Controversy,
Selections, July 2001, no. 26, Missionary Centre
4.
Frankel, Francine R., (2005), India’s Political Economy
1947-2004- The Gradual Revolution (Second Edition).
Oxford University Press, New Delhi.
5.
Ghosh, Jayati (18 June, 2005), Debt -forgiveness as
imperialism, Editorial, The Indian Express, Mumbai
6.
Harsh Sethi, What price hubris?, The Hindu, Friday
June 20, 2003 from the website: http://
www. thehindu.com/2003/06/20/stories/
2003062000191000.htm
A
7.
Kamath, Shyam J. (1992), Foreign Aid and India^
Financing the Leviathan State, Cato Policy Analysis
No. 170 from the website http://www.cato.org/pubs/
pas/pa-170.html
8.. Millet, Damien and Eric Toussaint, The Debt Scam*
IMF, World Bank and Third World Debt, Vikas Adhyayan
Kendra Publication, Mumbai, 2003
Aid has to be effective. It has been seen that foreign
aid and development assistance have gained a bad
reputation on account of their not showing any capacity
to reduce poverty, even in economies that have
attracted the largest share of foreign assistance. For
instance in Kenya, despite all the plutocracy to which
Moi’s government subjected the Kenyan economy, the
country was able to withstand donor withdrawals of
multilateral assistance without bringing the economy
to its knees.
9.
Shah, Anup, The US and Foreign Aid Assistance, article
posted on the website: http://www.globalissues.org/
TradeRelated/Debt/USAid.asp, June, 25, 2005
10.
The Indian Express (12 June, 2005), G-8 gifts Africa
$40-bn debt write-off, Assoeited Press, Mumbai
11.
The Policy Development and Review Department,
Conditionality in Fund-Supported Programs—Overview,
February 20, 2001
12.
Thomas, Binu S., Global Giving: who benefits from
International Aid?, Humanscape, March 1999
13.
Tom Kamara (Ed.), Development aid- The controversy,
Selections, July 2001, no. 26, Missionary Centre
14.
Wood, Angela (Bretton Woods Project) and Matthey
Lockwood (Christian Aid), The ‘perestroika of aid’?
perspectives on conditionality, Christian Aid Report.
March 1999.
15.
Hiddleston, Sarah, (July 4. 2005;), Making Poverty
History: the three keys, The Hindu, Chennai.
According to the Reality of Aid Report on Africa,
“foreign aid to Africa has acted like a storm gathering
away from the rains. In a number of instances, the
storm has ended up destroying social infrastructure
without boosting the economy. It also states that “the
theory and practise of foreign aid points to a power
system that is not keen to provide the people of Africa
with practical tools for mastering basic life challenges
G3SO
GMO
Please feel free to reproduce material from this publication but with due credit.
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Facts against Myths is a bi-monthly bulletin of factual information on a number of development myths and
fallacies, etc, including information against alien development models, paradigms and false concepts on caste,
creed and gender.
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Vikas Adhyayan Kendra, D-1 Shivdham, 62 Link Road, Malad(W), Mumbai 400 064, INDIA
® 2882 2850 & 2889 8662
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