Restructuring and aid have not helped
poor countries boost their economies
By Dr. Noor Fatima

Is it just a market test - a matter of demand and supply that if there is a demand for foreign assistance, the rich West will supply it to poor countries? Or the West has a vested interest in maintaining the global trade? Why there is lack of funds of foreign aid for economic crises, famine, and poverty reduction etc, whereas, there is never shortage of funds when it comes to financing a war. Hardly any one opposes the idea that developed countries should help poor countries for growth and development. The question is- does it?  Most countries are poorer today than they started their restructuring of economy through increased aid. These are the rich landowners, heads of multinational company, big financers, shareholders and Icons etc that benefit from Structural Adjustment Programs (SAP). Who pays for them?-- The ordinary people, their present and future generation for donor’s luxuries.

If we go back to the beginning and question, who decides what is in recipient’s interest? We will find that this is normally decided by donors. Similarly it is donor’s estimation that what is in recipient’s interest and what it is suppose to deliver. So the donor selects what is in recipient’s interest and later they do not bear the corollary of their own choice. So they decide for other’s fates without being affected by the consequences themselves. The debt servicing and cost for aid is borne by the taxpayers of the recipient country. No doubt the recipients when cannot meet the desired targets, turn against such imposed choices of the donors. Nevertheless, choice remains with the recipient to reject donor’s choice even when it is a reasonable one

The myth that more foreign aid will cure the poverty and support development will smash all those minds that have faith in development through aid.  Poor will not be poor, if rich are not very rich. 21st century is guilty enormously for not considering its poor effectively. The history of foreign assistance particularly last 3 decades shows that despite all the generosity of the world's richest governments, they did not exhibit commitment to wipe out poverty at global level. For the last more than 40 years Africa is getting trillions dollars in the name of aid, but it is even poorer today.

Transnational corporations have almost total control over International Finance. Two thirds of international trade is accounted for by just over 500 corporations, even some of the largest TNCs have their income more than 100 of the world's poorest countries. There is no monitoring mechanism to evaluate the demeanour of these companies, they are answerable to just their investors who are there just to maximize their profits. Moreover, they can operate distantly and also can also set up business any where in the world. Consequently there is no accountability how much they are earning on the cost of the poor.

Actually, the West started rectification of third Word in the decade of 1960s, in fact for US economy as they spent more then they earned, so had to print more dollars to cover that deficit. Resultantly oil producing countries were getting lesser value of dollars for export of their oil, therefore in 1970s the price of oil was increased and the money earned out of increased prices was deposited in the Western Banks. The world was going towards recession, the interest rates of the banks were supposed to be dropped following he financial crises, therefore, strategically this money was lent to the developing countries for the development purpose, on soft terms, and low interest rates without any realization whether recipient countries are able to digest this aid for development purposes, as well their pay back capacity. So it was taken as easy money by the recipient country. On the one side it made the countries heavily dependent on just aid and on the other side, aid was used to exert pressure on the recipient countries to allow foreign investment with the conditions of tide aid to also protect their investment in recipient countries.

This financial assistance since 1960s came under the development doctrine -‘poverty alleviation & growth’ to the developing countries including Pakistan. Pakistan is the typical example of debt trap. The composition of loan and grant since 1950s shows that the grants were 80 percent of total aid till late 60 and later grants were reduced drastically and loans were increased. Following figure is showing the flow of loan grew faster in terms of per capita aid as compared to aid as percentage of GNI. The question is whether did it lift people out of poverty or perhaps it was even counterproductive? If the philosophy of aid was workable then the linkage of investment and aid would have worked for GDP growth and poverty alleviation. But that is not the case.  (See Graph)

As Pekka Hirvonen, Global Policy Forum (2005) described that 'Recent increases (in foreign aid) do not tell the whole truth about rich countries’ generosity, or the lack of it. Measured as a proportion of gross national income (GNI), aid lags far behind the 0.7 percent target the United Nations set 35 years ago. Moreover, development assistance is often of dubious quality. In many cases:

- Aid is primarily designed to serve the strategic and economic interests of the donor countries;

- Or [aid is primarily designed] to benefit powerful domestic interest groups.

- Aid systems based on the interests of donors instead of the needs of recipients’ make development assistance inefficient;

- Too little aid reaches countries that most desperately need it; and,

- All too often, aid is wasted on overpriced goods and services from donor countries.

Therefore, foreign Aid is not win-win strategy. The ‘big push’ development paradigm produced gloomy results. Aid is not failed only because developing counties were not able to deliver but it is also failed because it was not able to gear up investment. Instead the recipient countries were using it to fulfill their current expenditure as well as debt retirement. Investment was only restricted to the public sector in many developing countries. Rather, Aid was instrumental in boosting the public sector and its expansion as fiscal budget were supported by the aid money. The result was mounting debt, high poverty level with high level of debt repayment of the developing countries of 1990s and “structural adjustments” program was started by IMF aand WB to basically to restructure the economy for poor, they insisted these countries to open up for ‘market economy’. That demystified the myth that foreign aid is meant for poverty reduction and development. Majority of aid given in this period was spent on debt repayment and current expenditure and non-development expenditure. Under SAPs conditions the governments of poor countries were not only forced to cut spending on health, education, social services and welfare but also for financial reforms to devalue the national currency, to cut back on subsidies, to cut jobs and wages for workers in government and encourages the large –scale export crop instead of small subsistence farms growing staple foods. Similarly it goes on demanding privatization of public sector entities, lower taxes on high income earners and lower tariffs on imports etc.

Primarily, World Bank and the IMF lenses see the services that are "public" as not to be subsided by the government, for them it is more favourable for the recipient economy to privatize the provision of services. However, other consideration, whether people can pay for it, work environment, conditions are not considered relevant. Numerous evaluations of World Bank on SAs has not only produced results which shows that lack of detrimental policies have been major cause of failure of SAs, but report also pointed out that a boosted fiscal budgets through aid also led corruption of State owned entity. Therefore not only the recipient but donor is also part of the problem of corruption. Actually misconception is that foreign aid purchases prosperity, where as fact is that the recipient government can go for transformation of their economies to the market only if recipients have good economic performance, they can attract private investment through sound economic policies which can bring prosperity, not the Aid. 

In most developing countries including Pakistan SAP has worsen the economic situation. The results of structuring the poor are very obvious- main beneficiaries is the West and catastrophic for the poor countries. Many Western economists comprehended the misconstruction of aid and development. According to Hans Singer, a development specialist, "The results of structural adjustment have been poor, indeed negative. The social costs have been enormous - growth has not happened, debt has not disappeared and investment has fallen”. Pakistan is no exception. The World Bank has been lending to Pakistan since early 50s and also is one of the beloved debtor countries of the World Bank, despite having good planning mechanism; most of the development aid could not achieve its target.

Another bigger myth of aid is that the conditionality can be used to ensure that bad governments put good policies into place and that reform can be financed by the aid agencies. But actually this money is there to sustain their bad governance. Donors have tried to get around this problem by giving aid conditional on promises to reform. The outcome of the rising poverty around the world, unemployment and ever increasing gap between rich and poor, show that the aid with  conditionality has not led to successful reforms. Rather it has helped the rent seekers as well the comprador bourgeoisie in the recipient countries.

To sum up, what needs to be taken more seriously is that aid must be targeted to performance not promises only. Relying heavily on aid in  short-term plans to kick-start development will bring the results which we are facing presently not only the energy deficit, but fiscal deficit which is again growing fast around 4 per cent of GDP , and likely to go up if not taken path of sustainable resource generation through investment and reforms.  This is also a   misconception that aid is for poverty reduction whereas is it very seldom gets to those who need it most the aid does not show that it can, because it has not vision of development. If through market reforms developing countries are forced to open up the markets for the west, then it is urged that rich countries should immediately open up their markets for exports from poor countries as it is trade which can be instrumental in development not Aid.