In general, foreign aid in the international arena should be understood from the government’s point of view as a voluntary transfer of resources from one country to another in the form of assistance. In terms of international development aid obligations, there are two types of grants and loans, while in terms of institutions, there are three types that flow through bilateral, multilateral, and civil society organizations. Although international and foreign aid can be defined, classified, explained, and analysed in various ways, in this column, only a partial academic discussion of the overall effectiveness of projects concerning international development aid has been done.
No formal statistics on international aid are found until the eighteenth century, while in the nineteenth-century foreign aid appears to have a negligible presence. To provide relief to the citizens of devastated Venezuela by the earthquake, the United States of America Congress passed the Foreign Aid Act in 1812. Before the First World War, only a few benevolent states and private philanthropic grants were made for societies, schools, and scholarships in some African and other colonial states. Such donors were mainly the United States, Britain, and France. After World War-I, foreign aid focused on humanitarian and political, and economic reconstruction to provide relief to war-torn European states. After the Second World War, a new dimension related to foreign aid appeared with the establishment of the United Nations, the International Monetary Fund, and the World Bank, especially to rebuild the European economy damaged by the war. The successful implementation of the Marshall Plan and the institutionalization of foreign aid as an international resource (establishment of the United Nations, the International Monetary Fund, and the World Bank) laid a decisive foundation for upgrading the dimensions of development in the emerging world. With this established base of foreign aid, along with the changed schedule, the countries of Europe that were destroyed in the First and Second World Wars were completely revived and were able to be listed as donor countries.
Analysing the history of foreign development assistance, it can be seen that it has set the course for different dimensions of development: community development in the 1950s; Green Revolution, technology and infrastructure development in the 1960s; integrated rural development, import displacement, poverty-focused aid in the 1970s; poverty adjustment, and structural adjustment in the 1980s; In the 1990s, the poverty alleviation agenda was set. Similarly, the new millennium development goal in 2000 and sustainable development and poverty alleviation programs in the 2010s and 2020s. To eradicate poverty from the world by 2030 the global dimension is currently in the progress of development aid. From 2019 onwards, the world is focused on fighting the Noble Covid-19 pandemic and accelerating the post-Covid pandemic economy, and coping with the Russia-Ukraine war consequences.
Development refers to economic growth as well as long-term positive changes in economic, social, political, technological, and environmental dimensions. Mainly, the term development, especially for developing countries, requires a sustainable positive change in various components such as natural capital, social capital, technological capital, and financial capital. Proper management of local and foreign resources and working in close collaboration with local governments and international development partners can provide scientific solutions to growing global development challenges. Both domestic and foreign resources should be used for the overall physical development of economic, social, political, technological, and natural progress. According to the stage of development of each country, the focus areas, priorities, indicators, and goals of development are different. New issues of foreign aid are changing over time at various local, regional, national, and global levels. However, in the case of underdeveloped countries, fighting against poverty and scarcity has been a permanent issue since the beginning. Although the evidence shows that trillions of dollars of resources from donor countries are being spent for the reform of the countries that receive aid, the expected results have not been achieved in many poor countries.
Foreign aid literature has created a big issue (controversy) in society about the importance and effectiveness of foreign aid to the economic growth and development of developing countries. Even though trillions of dollars are flowing annually from developed countries to underdeveloped countries in the form of foreign aid, the condition of poor countries has reached a situation where they cannot afford simple expenses without foreign aid. No matter how many slogans and brands are established by international development aid between developed and underdeveloped countries, there is no uniformity in their effectiveness. Even though researchers have been pondering for decades, there has been widespread evidence that the impact, role, effectiveness, productivity, results, value addition, and results of overall aid have turned out to be negative. Whether or not it is in the interest of the country receiving assistance in the name of foreign development assistance; It is important for the residents of a foreign aid-dependent country like Nepal to clearly understand whether it will flourish or kill. How foreign aid works depends on the conditions of various grants and loans, the intentions of the donors and the long-term political strategies, the nature of the aid, the interests of the stakeholders involved, the time, the socio-economic environment of the recipient country, geopolitical conditions, the ability of the administrator, contemporary It is determined by elements and various reasons.
Since the beginning of the foreign aid literature, wherever the special interests of the donors have been hidden, the effect of foreign aid has been disputed. Foreign aid, such as MCC, appears more controversial in the economic development of low-income countries due to donor interests. The different generations of development theories, statistics, and empirical methods have not only shown the negative effects of foreign aid on growth and development. The best examples of success are found in South Korea, Malaysia, China, India, Mozambique, Vietnam, Poland, and partly in some developing countries, while the failure stories are in Sub-Saharan Africa, Nepal, Cambodia, Democratic Republic of Congo, Lesotho, Uganda, Somalia, Botswana, Sierra Leone, and in many other underdeveloped countries.
Foreign aid has played a major role in the turning point of countries that have been unconditionally and with good governance to promote economic growth and structural change; to establish business relations with donor countries for the export of goods and services; to create savings-investment-employment; to maintain the balance of payments; to meet the needs of urban-rural linkages; to enhance community development opportunities; trade barriers, lack of market information, ineffective policies, weak private sector, weak infrastructure, and institutional integration and foreign aid were found to promote overall economic growth. Likewise, to alleviate poverty; raising the standard of living of the community; fighting against poverty; implementing development programs; building physical and human capital; acquiring technology; strengthening public institutions; it has played an important role in creating per capita national production, investment, savings, and long-term employment. Studies have shown that foreign aid has achieved significant success in the last half-century and is even more effective today than in the past.
Those studies have proven that foreign aid has not played a positive role in countries like Nepal where good governance has not been established. Large amounts of development aid from development partners do not make poor countries richer; do not make it effective to use additional development resources to provide relief to the target population; a large number of donors are failing to bring economic prosperity and stability. There is only the work of showing development dreams, which is called “development discourse fantasy”. Much evidence has shown that conditional aid has not worked to promote economic growth and reduce poverty. It weakens local accountability, leads to communal conflict, increases corruption, discourages independent enterprise, weakens domestic savings and investment, induces reduced tax capacity, increases domestic economic inequality, and aid dependency increases inflation, weakens the domestic currency, reduces exports, Barriers are created, misguided macroeconomic policies, distorted incentive systems and structures, savings and foreign exchange are diverted. Likewise, it has created a problem that distorts the socioeconomic system and hinders public spending, and helps make poor countries even poorer.
Since joining the Colombo Plan in 1951, trillions of foreign aids have been flowing to Nepal. According to the portal of the Ministry of Finance of the Government of Nepal (2020), the size of the current foreign aid is about 70 percent of the development budget, while the share of foreign aid is 45 dollars per capita and 6% of the gross domestic product. In this way, at present, as many as 750 projects are being conducted in 50 economic and social sectors of various development, while aid is being flowed through 72 donor organizations. Why is Nepal so poor even though so much aid flows into the country? Kul Chandra Gautam says, “The issue of whether developing countries swallow foreign aid or whether developing countries are swallowed by foreign aid has become a subject of special research and research.”
Several scholars have revealed the stark facts about the complexities in the relationship between ‘foreign aid and development’. Humanitarian and unconditional aid helps solve the capital shortage of poor countries, but studies have proved that what is called conditional aid is always focused on fulfilling the long-term international diplomatic, economic, religious, and political ambitions of the donor country by concealing development issues. In economics, the principle of interdependence has been presented. Ferguson says ‘it is a powerful political weapon’, it works very cleverly as an “anti-politics machine”. How much an impossible ‘machine’ works, and what it does, will only take long-term results to better understand the facts. Various development agencies in the Third World are acting in their self-interest as “development fictions”. This is just a “development dream”. The convoluted language, jargon, and terms used by development experts at the direction of donor countries are likely to have negative consequences. If the operation of the international “development” instrument is in a special setting, in a special event, if different interests are seen at different levels of the aid process chain if complications are inserted in the negotiation process if the information is hidden and if jargon is used, experts have advised the countries receiving assistance to be especially careful. Since any foreign aid recipient country has a weak voice and very little power, if foreign aid is not determined and addressed by the actual needs of the recipient countries, there is no evidence that donor countries and central planners have ever ended poverty anywhere.
A country like Nepal, which is weak in terms of economic resources, should bring in foreign resources, but only by completely removing the long-term conditions and complex jargon. A country like Nepal, which has strategic importance in terms of geography, should pay attention not only to the interests of its own country but also to such things if there is a possibility of negative manipulation in immediate neighbouring countries. No matter how big the project is, if any conditions have long-term negative effects, we should have the ability to reject it in time. Since Nepal is a country that depends on foreign aid, it seems that the relevant stakeholders should also consult experts’ opinions on time.
Jagannath Kafle
Doctoral Researcher, Economic Geography
Turku School of Economics, University of Turku, Finland
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