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Aid, Debt & Development

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Overview
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Insufficient hand outs of international aid and highly criticized mechanisms of debt cancellation continue to be the primary means by which the international community addresses poverty in the developing world. Despite many high profile campaigns and a 40 year old commitment to strengthen these measures, donors continue to prioritize their own economic interests and consequently sanction the needless deaths of around 50,000 people each day.

The Call for Aid

Development aid or Official Development Assistance (ODA), is distinguished from humanitarian aid as it is generally aimed at eliminating poverty through longer-term development. Aid is usually provided bilaterally to individual developing nations from wealthier donor countries, or multilaterally through institutions such as the IMF and World Bank.

The urgent need for aid is reflected in the World Bank's poverty statistics, with 40% of the world - around 2.7 billion people - living on less than $2 a day, resulting in 25,000 people dying each day from hunger alone. In recognition of the prevalence of poverty, the Pearson Commission first stipulated in 1969 that donor countries should provide at least 0.7% of their GDP as international aid. There have been numerous reports and campaigns since then, including the widely read Brandt Report and the Millennium Development Goals (MDGs), all calling for significant increases in aid. Yet forty years since the initial recommendations, the average ODA accounts for a mere 0.3% of GDP from donor countries. In comparison, military expenditure currently accounts for around 2.5% of the world's GDP.

Ineffective and Conditional Aid

Of the relatively insignificant proportion of aid donated, it is estimated that 58% is tied to conditions, a practice which promotes the economic and political aims of donor countries. For example, donors often expect recipient countries to spend their aid money on exports from the donor country. However, the OECD argues that the primary motivation for this practice is political, including maintaining historical and cultural relations, and securing geopolitical and trade interests.  ActionAid estimates that roughly half of all aid is "phantom aid", which is to say it is not genuinely available to developing countries to help relieve poverty.

In addition, significant amounts of aid are lost through poor donor coordination and excessive administrative costs, and it is estimated that one quarter of all aid is spent on over-priced technical assistance.  Confusion also arises through ‘double counting' - the practice of including debt relief in aid figures; and surplus food in rich countries is also often distributed as aid, which can adversely affect local farmers and industry.

The amount and effectiveness of donor aid is grossly insufficient.  According to recent research however, even if the Millennium Development Goals are met, which most analysts doubt, 900 million people will still be living on less than $1-a-day in 2015.

Debt in Developing Countries

The prevalence of debt in developing countries is another key factor stifling development. Left with little choice but to trade in global markets, cash-strapped developing countries are often forced to approach the IMF and World Bank for loans. To ensure the viability of these loans, they come attached with conditions such as Structural Adjustment Programs (SAPs) which often divert public funding away from essential welfare services. Combined with odious debts accumulated through loans from countries intent on furthering their own security objectives, the total debt in developing countries stands at around $2.5 trillion.

Despite ongoing international campaigns to ‘drop the debt', the existing debt relief framework has had only limited success.  It is likely that many struggling economies will be burdened with unfair debt indefinitely, maintaining the vicious cycle of economic subjugation imposed upon them by creditor nations.

The neoliberal financial prescriptions of the IMF and World Bank have provoked widespread revolt, particularly in Latin American countries where the presence of these institutions have been replaced by regional finance initiatives such as the recently appointed Bank of the South.

Cancelling Debt and Giving Aid is Not Enough

Debt cancelling is an absolute imperative for developing countries, but it is also crucial that the focus of development shifts from ineffectual aid donations to a fundamental restructuring of global economic priorities. Greater international co-operation and the establishment of a framework to prioritise development over other economic interests will ultimately benefit all nations.

A global economy based on greater economic sharing is likely to be a much more effective tool for development, and an emergency program of relief to immediately address extreme poverty and facilitate sustainable development must be the priority for the international community.