What is the true definition of foreign aid? Economists say that any capital given to an LDC is considered to be foreign aid if (1) It has a noncommercial stand point from the view of the donor and (2) that it is under concessional terms; interest and terms of repayment are less stringent than those of commercial terms. Everything sounds great from the definition- it is capital given to needy LDC’s with very low interest rates and long repayment periods. The problem is thought that this is usually never the case. The reality of this situation comes down to the concept of motivation; why would a donor (a DC) give aid to begin with?
The answer is very simple; it’s in the donor’s best political, strategic, or economic self-interest. Basically, an LDC is not going to get free, or very cheap equipment along with millions of dollars at their own disposal without the actual donor getting something in return. From the United States in the late 1940s in which it helped out war-torn economies of Western Europe as a means of stopping the spread of communism, to the British minister of overseas development who noted that “two-thirds of the country’s aid is spent on goods and services from Britain…
Trade follows aid. (Earl Grinstead, Overseas Development (November 1968): 9); if it’s not in a countries best interest, no donations will be made. So, if foreign aid may harm an LDC’s economy because of the things that are expected from them in return, why do they accept it? The main reason that has become apparent is that aid is believed to be a necessity in the development process as it is taught in all university development courses; it is thought to ‘supplements resources’, ‘transform the economy structurally’, and ‘contribute’ to the achievement of ‘economic growth’ in LDCs.
In other words, the LDC’s reason for accepting this “foreign aid” is based on their acceptance of the requirements, constructed by the donor, of what poor countries need for economic development. Of course, this is very understandable as rulers and leaders of developing nations only wish for their countries to become stronger and economically fortified. So they take the “advice” and “aid” of the countries that have already developed; the countries that they strive to be like one day.
Thus, for all these obvious reasons, Dan Mitchell and his Wall Street Journal guest are absolutely correct about several things mentioned in the article; of those things is that the last thing LDC’s actually need is more “foreign aid”. Prof. Jeffrey Sachs admits that “Out of every dollar of aid given to Africa, an estimated 16% went to consultants from donor countries, 26% went into emergency aid and relief operations, and 14% went into debt servicing.
He could not account for how much of the remaining 44% got siphoned off by corrupt officials, nor could he explain why $400 billion dollars of aid over the last 30 years has left the average African poorer… ” The author is absolutely correct; more foreign aid means more debt and restrictions for the LDC and more money for corrupt officials. “… remove bureaucratic obstacles to setting up businesses, establish property rights and enforce laws”; as stated by the author, these are the things that have to be taken up instead of foreign aid.
They will not only ensure an LDC a “free” economy, but, in the long-run, the LDC will truly grow and develop debt and restriction-free. Despite this though, the author fails to mention these LDC’s should get out there into the world market and compete. To do this, the country should take up either an outward-looking (export promotion) or inward-looking development plan in which the LDC can finally take control of its destiny and get on the right track. The only people the country will have to follow know is its own.
The matter of the fact is that even though the more “commercial” form of foreign aid that the world is seeing today may seem to give a glimmer of hope to LDC’s in the beginning, but, in reality, it will change their economies for the worse in the long run; statistics even show that “… $400 billion dollars of aid over the last 30 years has left the average African poorer… ” Through the utilization of the things mentioned above, development and growth can become a reality for LDC’s everywhere if they ‘play their cards right’.