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Does Foreign Aid Work?

For decades, the international community has pumped massive amounts of money into the world’s poorest countries to help promote development and fight poverty. But some critics charge that foreign aid has proven ineffective.

According to the United States Agency for International Development, or U.S.A.I.D., western countries have spent more than one trillion dollars in grants and loans to 70 countries since the early 1950s to help reduce poverty. But some critics say such foreign aid has failed to pull the world’s poorest nations out of poverty and should be stopped altogether.

A Mixed Bag

Michael Radew, a Senior Fellow with The World Policy Institute in New York says research shows that foreign aid is ineffective and may even be harmful.

“It encourages all the wrong economic policies that made those countries poor in the first place. It strengthens the role of the state sector and of those who control it, who are generally unelected, incompetent and corrupt officials. It actually disadvantages the large majority of the population, especially the rural population, says Mr. Radew.”

But other analysts contend that foreign aid has produced mixed results, depending on where and how the funds are spent. They note that Taiwan and South Korea, for example, used foreign aid successfully, eventually becoming donors themselves.

Steve Radelet, a Senior Fellow at the Center for Global Development in Washington, D.C. says aid is least effective in countries such as Somalia and Haiti, where governments are especially weak, and in politically unstable countries, like Iraq and Afghanistan. He says, “It’s highly risky. Some of the aid is going to disappear. Some of it is going to be stolen. That is just the environment you are working in. I don’t think that means that we don’t take that risk. I do think it means that we need to be careful, that we take good opportunities and we do the best that we can. But sometimes, we are going to fail.”

United Nations analysts acknowledge that foreign aid runs into difficulties in parts of the world that have little or no democratic infrastructure, such as Sub-Saharan Africa, where poverty levels have risen from 41 percent in 1981 to 46 percent in 2001.

Long-Term Success

Nonetheless, Luca Barbone, Director of the World Bank’s Poverty Reduction Program says foreign aid has contributed to an overall brighter global picture.

“If you look at the worldwide experience, there has been quite a substantial reduction in poverty levels as measured by income poverty over the last 20 years or so. So while it is true that in Sub-Saharan Africa there’s been less than what is desirable, I think that the global numbers indicate quite a substantial success from the poverty point of view, says Mr. Barbone.”

According to the World Bank, the number of people living in extreme poverty, on less than a dollar a day, has fallen by another 8 percent from 1.2 billion in 1990 to 1.1 billion people in 2001. But the World Bank’s Luca Barbone says the international community has learned from past successes and failures how to use foreign aid more effectively.

Mr. Barbone adds, “The international community and the donor countries themselves have to give very high priority to having good systems of financial control and expenditure control in place. So I would say that the concern goes beyond the aid that is provided in the form of grants or loans. The concern goes really to the capacity of the country to utilize public monies in general, in a non-corrupt and effective manner.”

Corruption and Foreign Aid Reliance

Because aid grants are often diverted to corrupt officials in undemocratic countries, some analysts are calling for a new approach. American University economist, George Ayitey, a native of Ghana, says new strategies are needed because foreign aid typically has failed, especially in Africa.

“If you look at the budgets of several African countries, Uganda for example, Uganda’s budget is 53 percent aid-dependent. And if you take a country like Ghana, Ghana’s budget is almost 58 percent aid-dependent. In other words, the recipient governments expect to get more aid from you in the future.”

Professor Ayitey says the West should reduce the amount of foreign aid it donates, and remove trade barriers, especially for the types of goods that developing countries are likely to export, such as agricultural products and textiles. But Mohamed Akhter, President of InterAction, an alliance of 165 non-governmental agencies and humanitarian organizations in Washington, D.C., says foreign aid can succeed if donor countries designate their monetary aid for specific purposes.

Mr. Akhter adds, “Health and education are two areas that take you out of poverty toward prosperity. And I can say this because I myself belong to a very poor family. It is only through education that one is able to break through the cycle of poverty. Second, you work with the governments to make sure that they have an infrastructure with less corruption, and that the aid they are given is appropriately utilized to help the people and not line their own pockets.”

In an attempt to address the problems with foreign aid, 189 nations participating in the United Nations Millennium summit in September 2000, signed the Millennium Declaration, which paves the way for a massive effort to slash global poverty levels in half by 2015. But the goals outlined in the Declaration also recognize that, in order for foreign assistance to be more effective, countries receiving aid must invest in human capital, build democratic institutions, and respect human rights and the rule of law.

This story was first broadcast on the English news program, “VOA News Now.” For other “Focus” reports, Click Here.