32. Aid, debt and economic development Flashcards
Define aid
Aid (foreign aid) - any assistance that is given to a country that would not have been provided through normal market forces
Reasons for providing aid
- natural disaster
- war
- political alliance
- fill savings gap -> encourgae investment
- improve human resources
- improve technology
- fund specific development projects
What are the types of aid? what are the types of aid based on the purpose?
- Official ODA (by government) - unofficial (by NGOs)
- Humanitarian - development
- Official aid also classified:
bilateral (directly from one country to other) - multilateral (through international aid agencies: World Bank, IMF)
Explain humanitarina aid
- for short-term suffering (drougts, wars, natural disasters)
- many forms, usually grant aid
Define grant aid and three main forms of it
Grant aid - short-term aid provided as a gift and does not have to be repaid
FORMS:
- food aid: food, money for food, its distribution and transport
- medical aid: provision of medical services and equipment
- emergency aid: emergency supplies: shelters, tents, clothing, fuel, lighting
Define development aid and explain its types
Development aid is given to alleviate poverty in the long run and improve welfare of individuals (usually referred as ODA, prvided by govs)
Development aid must pass the tests:
- administered for ptomoting economic development and welfare
- at least 25% of it is a grant
TYPES:
- long-term loans: usually repaid (concessional loans / soft loans - repayed in various currencies)
- tied aid: grants / loans with condition that it will be sued to buy production of odonor country
- project aid: given for a specific project - no repayment (to improve infrastructure)
- technical assistance aid: to raise level of technology or human capital
- commodity aid: to increase productivity (oils, seeds, fertilizers, chemicals)
What are the concerns about aid?
- aid usually doesn’t reach the people in need - the wwealthier ones - curruption
- aid given for political reasons and not for countries which most need it
- tied aid is uneffective comapred to untied aid (does not create employment or extra output, harms domestic industries)
- food supply is necessary in short-term but in long term it may reduce domestic food prices - better to eliminate subsidies in developed countries
- dependency on aid might little incentive to innnovate -> develop welfare mentality
- aid usually promotes indutrialization - destroy local agriculture
- some aid comes if developing countries approve policies - favour developed countries - use of power
- developing countries become indebted
Explain NGOs
NGOs - non-governmental organisations interested in promoting economic development, sustainability
Examples: Oxfam, Greenpeace, Doctors Without Borders
Focus on:
- poverty reduction
- workers’ rights
- human rights
- environment
- women
By raising funds in developed countries and spreading awarness, work directly with the fields they support
Explain indebtedness
World Debt Crisi in 1970s: dveloping countries borrwoed form Western banks - money was not used for development - worldwide recession started - commodities price fell - developing countries made little revenue - developing countires not able to pay back the loan and its interest
IMF lent funds to developing to pay back if they adopted policies - SAPs (Washington Consensus):
- ttrade liberalization
- encouraging exports of commodities
- devaluing currency
- encouraging FDI
- privatisation
- reducing gov expenditure
- making education, healthcare little price
- removing subsidies, price controls
- reducing corruption
Why are SAPs critisised?
Limits development because:
- reduced gov provision of education / healthcare
- increased unemployment (privatisation)
- fall in wage levels
- increased prices of essential products
=> countries experienced de-development - SAPs in short term not effective
Explain debt relief
Debt relief - reducing or cancelling the debt of developing countries
FOR:
- countries ont able to pay back - only can repay the interest but not the loan - for some debt keeps growing
- by financing debts govs cannot finance development: education, healthcare, infrastructure - opportunity cost
- the debt is odious debt - debt incurred by a regime and used for purposes that do not serve the needs of the people
define odious debt
Odious debt - debt incurred by a regime and used for purposes that do not serve the needs of the people
