2.3 Aid Flashcards
Role of the IMF
- Monetary cooperation
- Exchange rate stability
- BoP adjustments
- Aid in crisis
- Produces report of areas of weakness
- Loans to countries in financial crisis
- Conditional loans with criteria met - reduce inflation, promote free trade, improve supply, reduce deficits
- Technical assistance - training, profits, publications etc.
Role of The World Bank
- Loan to developing countries
- Reduce global inequality
- Low interest loans - backed by 188 countries who contribute
- Loans to corrupt government created unwanted debt
- Loans used to fund development and relief
- Criticised for ‘structural readjustment’ which just helps HICs more than the country
- Debts mean countries spend more on debt than actual spending
- Undemocratic - most pays get most votes - US 16%, Japan 8%
What is bi/multilateral aid?
Bi - country to country - USAID, SIDA, China International Development Corporation agency
Directly given from one country to another
Multilateral - multi countries to a country e.g. UN, DFID, WHO - provided by many countries
What is tied aid?
Aid given in the form of grants or loans granted it will be spent on goods and capital from the donor country or use on a joint agreed project or reforms
- Only given for joint agreed porjects
- Benefits donor as gain from it
- Tied aid undermines right to development and point of aid - forcing them to buy higher cost capital or develop using schemes benefiting the donor raher than cheap alternatives or developing own industry
What is relief aid?
Short term emergency aid provided to help cope with disassters
- Short term emergency aid
- No long term policy
- DFID, UNDP, UNICEP, WFP, UNHCR
May be humanitarian: food aid, shelter, medical care and advice
Development aid
Long term aid directed to continuous improvement in quality of life - more long term:
- Financial aid - reduce poverty, impprove budget in general
- Technical cooperation: comms, technology, infrastructure, services, R&D, training
- DFID debt relief - relieves country of debt which countries spend most on
- AFD, US aid, DFID, Foreign and Commonwealth Office
Debt relief
Applicable if will benefit country and not lead to further issues. Done in a form of lump sum to ensure money that would’ve service debt is effectively used when relieved
Used HIPC scheme - IMF and World Bank joint scheme
- Decision point - must meet criteria - borrows, debt, record of reform, plan
- Completion point - receives aid, must see good performance, key reforms and development plan
Debt relief benefits/cons
Pros:
- Reduces debt services
- Boost social spending
- Better management
- Estimated $75bn value
- Exports rose
- Services decline
- Better borrowing policies
Weak:
- Lack of resoures
- shift to cash crops
- Unstable governments and moral hazard
- environmental issues from TNCs
- small creditors only received 1/2 of their relief
What is top down aid?
Government and managers receive aid and make decisions to help hierarchy.
Provdes services and uses experience and money of consultants and programmes. Can often lead to DofS, bureaucracy, women role not addressed, poor social conditions, badly managed
What is bottom up aid?
Helps locals get empowered, self reliant, support, equality, demogrcy and development
People in charge through elected ideas and people - dencentralised, gives voice and vision, better conditions, catalyst to mobilise, womens role improve
Leads to discrimination, inequality, leadership and poverty
What are the positives of aid?
- Focuses target groups - trade less efficient as profit driven
- Flexible as many types
- Helps people
- Stimulates development and trade and jobs
- Protects UK interest
- Level up - catalyst to development
- Bottom up can help rural poor who need most
- Top down gien to LICs for big development projects
- Saves lives, SOL rises, needs given, multiplier, jobs and industry
What is microfinance
Small loans and financial advice to tpoorest to help start generating incomes - mainly to women used to buy livestock or machinery
What are criticisms of aid?
- Tied aid increased costs 30% as higher cost there
- Rising prices with removal of subsidies prevents primary growth
- Subsidies given to HICs > LICs
- Too specialised - needs to be wider
- Repayments hard to pay off
- Corruption of government
- poorest areas ignored
- Brain drains
- High tech aid may raise need for repairs and push people out of jobs
- Benefits limited and short term
- Tied aid benefits donor more - neo colonialism
- Large capital projects worsen conditions for poor
- Ignores reforms - food dependence
- Public sector grows larger than private sector
- Crowding out as public sector development raises cost
- aid distorts prices and incentives - moral hazard and incentive to develop falls, leads to inflation
- Wasted on large projects no benefit to population
- West did not need aid to develop
- Changing terms of trade to give LIC better market share better
- Writing off debt major issue and accounts for lots of spending so debts make aid pointless
- Budget cuts
- Hard to coordinate and where to put aid
- Overdependency - agricultural reliance
What is debt servicing ratio
Proportion of export earning sto its debts
Debt crisis
- 70s low interest and excessive unsutainable investing
- Investment in corrupt countries
- Middle east war led to oil prices rising, falling commodity prices, protectionism, population growth
Reasons for deficits:
- Excessive spending, usually military
- Pensions and social benefits
- Low GDP growth rates - low tax revenues
- State debts and budget exceeded
- Tax evasion and corruption
- Hidden borrowing.
