Lecture 6: History of Aid Flashcards
evolvement of aid industry
− beginning after the WW2
− foreign aid = instrument of the Cold War diplomacy
− change in attitudes of donor countries:
norm that richer countries should help governments of poor countries was hardly imagined at the beginning of the foreign aid era
− without the Cold War aid would probably not exist today or it would be much smaller in volumes
Cold War x Post-Cold War
− different motivations and forms/strategies of development assistance
− development theories (providing the basis for aid) differed
During the Cold War:
− political instrument of the rivalry between the Western and Eastern block
− economic motives less important
Post-Cold War:
− geopolitical motives losing importance, economic motives more important
− humanitarian motives getting stronger
− new feature: emphasis on human development (not only economic growth)
since the Irish Great Famine (1845–1849):
− the US Congress refused to provide aid – use of public sources for „the others“ seemed unacceptable at that time
− attitudes changed towards the late 19th century: printed newspapers, growth in welfare
− 3 main antecedents of DA:
− end of 19th century: origins of humanitarian aid (short-term, not long-term development of affected regions)
− interwar period: assistance by European powers for development of their colonies (interrupted by WW2)
− beginning of WW2: technical assistance provided by the US to Latin American countries
Periodization of development assistance
late 1940s – early 1950s: established
1950s – 1960s: era of modernization theory
1970s: era of people-centered approaches
1980s: era of neoliberal theories
1990s: democratization
New Millennium: poverty reduction
Establishing development assistance
− after the end of WW2
− dominant role of the US:
− European Recovery Program (Marshall Plan):
− aid aimed at rebuilding European economies after WW2 (Eastern Europe rejected => pressure from the Soviet Union)
− combination of humanitarian, geopolitical and economic motives
− successful → a model for future strategies in development assistance (massive investments in infrastructure)
− 1948: Organisation for European Economic Co-operation (OEEC): to help administer the Marshal Plan (1961 -> OECD)
− Point Four Program (1949): technical assistance program to help the growth in developing countries (know-how), by Harry Truman
− early 60s: European countries setting up their development programs (influenced by the US), as well as socialist countries
− multilateral cooperation:
− 1943-47: United Nations Relief and Rehabilitation Administration (UNRRA) − aim: to coordinate the relief for victims of WW2 − dominated by the US, became part of UN in 1945
− 1944: Bretton Woods Conference, establishing IMF and IBRD (IBRD today part of the WB group) − aim: to strengthen international economic stability and trade and to help the recovery of the war affected countries
− 1945: UN Conference on International Organization, San Francisco → establishment of the UN − main aim: settlement of international conflicts, peacekeeping
1950s – 1960s
− development assistance = instrument to support economic growth
− assumption that developing countries will follow the path of development of developed countries
− dominant theory: modernization theory:
− development = economic growth
− lack of capital and savings for investments seen as the main problem in developing countries
− solution: “big push” (large amounts of investments in form of development assistance) to allow for economic development => “take-off” = period of rapid, self-sustained growth
− development assistance as a short-term aid: after “take-off” the growth will be sustained by own savings
− states were the main recipients of aid (industrialization, infrastructure)
− expectation of the “trickle-down effect” = eventually, everyone will benefit from the economic growth
− high rate of economic growth in 1960s did not lead to an increase in welfare and improvement of living conditions for most of the people living in developing countries
− population growth faster than the economic growth → negative growth of GDP per capita, increased inequalities
− disillusion and revision of development strategies
Rostow’s model of development
1970s
− reaction to the failure of the macro approach of the economic growth => growth of micro approach to development, people-centered approach, in parallel with the macro approach
− economic growth seen as an important precondition but not as sufficient criterion for development
− high income inequalities seen as obstacle to growth
− number of people living in poverty not declining, acceleration of rural-urban migration
− new criteria for assessing development policies: poverty reduction, income distribution, unemployment etc.
− pro-poor growth, bottom-up approaches
− growing importance of multilateral organizations (WB)
− Basic Needs Approach
− focus on the fulfillment of basic needs of the poor and marginalized, especially rural
− access to clean water, food, shelter, education and basic health services
− supported by big development actors (UN)
− “redistribution with growth” - to make distributional objectives an integral part of development strategy
poverty reduction and people’s welfare → new forms of interventions
− projects in agriculture, rural development, social services (housing, education, health), with greater emphasis on interventions to benefit the poor
− “social infrastructure” projects: health and education
− in rural areas, combination of capital and technical assistance projects: Integrated Rural Development Projects
− initiatives promising immediate improvement of living conditions of the poor preferred
− professionalization of the development agencies, introduction of the logical framework matrix
1980s
− 2 oil crises in 1970s: Yom Kippur war & Iranian revolution and Iran-Iraq war → significant increase in oil prices:
− oil producers benefited from high oil prices
→ petrodollar surpluses, motivation to invest them – lend them through commercial banks
− negative effect on oil importing countries: oil more expensive, high inflation, rising interest rates, economic problems of rich countries →decline in imports of raw material
− development strategies in developing countries based on excessive spending in past decades (loans)
− rising commodity prices in 1970s
− high oil prices + drop in export revenues + debt servicing more expensive → deepening of the balance of payments deficit of public budgets
− reaction: defensive lending: money form the new loans aimed at debt servicing of previous loans, not for investments
− loans mostly from commercial banks (petrodollars) or IMF & WB
→ debt crisis at the beginning of 1980s
− started in Mexico, spread quickly to other developing countries
− worsening economic situation in debtor countries, recession, concerns over international stability → interventions by the creditors
Structural Adjustment Programmes (SAPs):
− creditors required debtor countries to implement certain set of reforms to obtain new loan or lower interest rates on existing loans
− economic and political reforms based on neoliberal principles (Washington consensus):
− currency devaluation (to reduce the deficits in balance of payments)
− higher taxes and lower government spending to reduce the budget deficit
− liberalization of markets, reduction of trade barriers and tariffs
− privatization of state-owned enterprises
− export-oriented policies, openness to FDIs
→ significantly weaker role of state (x previous development strategies, in line with neoliberal principles)
− not taking into account the varying conditions in countries, were enforced by powerful creditors (IMF & WB) = low ownership, resistance to put them into practice (new loans provided ex-ante)
− impact of SAPs:
− highly controversial
− negative effects especially in social sector (lower availability and quality of public health services, decrease in education expenditures etc.)
− countries participating in SAPs lagged behind other developing countries in almost all indicators of human and social development (adult literacy, access to clean water, infant mortality, malnourishment etc.)
− negative effect of reduction of trade barriers and tariffs on local industries
− no economic growth of countries implementing SAPs
− 1980s = “lost decade”
− decrease in financial flows to developing countries due to the debt crisis
− negative effects of SAPs
− however, the dominance of SAPs was not absolute – development assistance of some donors and UN agencies was not influenced by these neoliberal principles
− increase in development NGOs due to the lack of state involvement in social sector
1990s: Major characteristics:
- end of the Cold War
- significant decline in the volume of aid (first half of 90s) → donor fatigue
- beginning of debt relief initiatives
- poverty back on the agenda
- new focus on global problems (environment, global health etc.)
- increased attention to governance and role of institutions
1990s 1. end of the Cold War:
− less geopolitical motives → loss of major rationale for foreign aid
− democratization processes (mostly post-communist countries) => transition countries
− more aid into transition countries to support the democratization, law and institutional reforms, transformation from centrally-planned to market economies
− increased number of conflicts in developing and some of the transition countries, mostly intrastate, ethnic conflict (World powers less willing to engage in solving these conflicts)
− increased political instability → donors supporting post-conflict recovery
1990s 2. donor fatigue:
− decline in aid volumes
− focus on Central and Eastern Europe (many countries not classified as developing => not reported as ODA)
− foreign aid to sub-Saharan African countries dropped
− aid volumes started to grow again towards the end of 90s
− some of the transition countries started to provide aid again
1990s 3. beginning of debt relief initiatives:
− 1996: Heavily Indebted Poor Countries Initiative (HIPC Initiative) by IMF and WB
− followed after intensive campaigns by NGOs (e.g. Jubilee 2000) criticizing the debt burden (paying back more than they receive etc.)
− provide debt relief to highly indebted poor countries (reduction or total cancellation of foreign debts)
− only some countries qualified as HIPC
− 2 steps process:
Decision point: fulfillment of conditions (low level of econ. development, unsustainable debt burden, established track record of reforms and sound policies through IMF&WB-supported programs, developed PRSPs)
Completion point: countries must establish further track record of good performance under IMF&WB’s programs, implement key agreed-on reforms, implement PRSPs for at least one year → full debt relief
Poverty Reduction Strategy Papers
− 2005: Multilateral Debt Relief Initiative (MDRI)
1990s 4. poverty back on the agenda:
− 1990: World Development Report on poverty (WB): introduction of international poverty line 1$ a day
& first Human Development Report (UNDP):
− Mahbub ul Haq and Amartya Sen
− to shift the focus from economic growth only to other aspects of human wellbeing as well (health, freedom, education, meaningful work etc.)
− introduction of Human Development Index
− 1995: World Summit for Social Development, Copenhagen: objectives of development conquest of poverty, full employment and the fostering of social integration
− 2000/1: World Development Report: Attacking poverty: WB acknowledged the multidimensional nature of poverty
− poverty = low income, low consumption, lack of education, nutrition and health care, lack of trust in public institutions etc.
1990s 5. new focus on global problems:
− environment, global health (impact of HIV/AIDS ..) etc.
− 1992: UN Conference on Environment and Development (The Earth Summit), Rio de Janeiro:
− environmental issues and sustainable development among donors
1990s 6. increased attention to governance and role of institutions:
complementary role of state in economic development
political reforms, democratization: multiparty elections, observance of political human rights, good governance
good governance = open and transparent political and administrative system accountable to citizens, inclusion of civil society in decision-making process, control of corruption and misuse of power, decentralization of power… (=Western model)
democracy as precondition for development: non-transparent governments →corruption, mismanagement, repression etc., impeding social and economic progress
national ownership
aid selectivity: choosing only countries performing well in political, economic and social criteria, those that had implemented “correct” policies
