Negative Consequences Of Foreign Aid Misuse

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The aim of this research is to identify and explain the causes behind issues concerning the misuse of foreign aid, while providing concepts for potential long-term solutions. The research will go over the respective issues, detailing the issues themselves, their causes, consequences and possible solutions for them. This research will also go over their relevance and importance in the personal, national, and global perspective. It is important to note that the information presented in this document is based on the sources as a whole rather than being directly linked to an individual source unless stated otherwise. This document is intended for persons or groups of interest whose occupation or study focuses on foreign aid.

The main issue for each is as follows:

  • What is the cause and consequence of misapplication and what can be done to fix it?
  • Are the problems in Foreign Aid too big to fix?

Foreign Aid

The Problem and Causes: Foreign Aid

Foreign Aid, coming from abroad is well-intentioned: to help support and accelerate economic and human development in its target area. However once it reaches the government of the country receiving aid, there is always the risk of it being used for other, less relevant projects or simply not being used at all, more so in a corrupt government.

A corrupt government or corruption in particular is defined by the Merriam-Webster dictionary as “dishonest or illegal behaviour especially by powerful people (such as government officials or police officers.” Often, the groups most vulnerable to corruption are the poor, one example is in Paraguay where 12.6 percent of a “poor’ person’s income is lost in bribery, in countries like Sierra Leone the number is closer to 13 percent according to an article by the World Bank.

The largest reason aid is susceptible to misuse is because of the fact that most bilateral aid is not from government to citizens, but from one government to another government. When the government receives aid – which is often (but not exclusively) in the form of capital – they have final jurisdiction on how it would be allocated. Once the government receives the aid, there is no outside authority that can physically or legally prevent it from using it for other purposes because once the credit is converted to the receiving country’s legal tender, it is indistinguishable from the government’s discretionary budget from other sources of revenue.

Matthew Rycroft, permanent secretary of the Department of International Development in the UK told a civil service website that two common arguments raised by skeptics are that problems are too big to fix, and that the process as a whole is subject to corruption. He admitted those claims were indeed “valid criticisms” that needed to be addressed. This is supported by the information that DfID fraud cases quadrupled between 2010 and 2015.

Foreign aid misuse however is not solely the result of corruption. Poor financial management or an unforeseen disaster or issue may redirect aid that a country receives away from its initial objective and create a situation where aid money or resources were utilized, but the aim has not been achieved.

In an article posted on the World Economic Forum, Winnie Byanyima, Executive Director of Oxfam International said that overall, donor countries have made promising commitments to fixing the aid process:

“Donors have made some progress. They’ve improved their reporting to bodies like the International Aid Transparency Initiative. In making information publicly available and doing so in a more timely and comprehensive manner, donors will increase the legitimacy of development cooperation.”

Over time this is expected as it is natural to want to increase the stability and effectiveness of any process as it is a net benefit and brings about more noticeable and measurable improvements, leading to a better image as well as the incentive to keep improving.

According to Oxfam, foreign aid can actually fight corruption when aid incentivises government institutions to be accountable to the people in their country especially when a citizen-led effort is involved in government which gives people social mobility to be integrated into their local governments.

Another reason may simply be a government’s inexperience leading to bad application and planning for foreign aid, using it as more of a stop-gap measure to solve immediate problems instead of being invested in long term prevention. That means there is little left to be used in mitigating future damage and eventually lowering the burden – particularly financial – on a society to recover. While that strategy is indeed a valid one, it’s sometimes followed irrespective of the purpose of the aid being received.

Possible Scenarios

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This redirection or misuse of aid means that citizens do not get the infrastructure and service investment that they require and that keeps development hampered and that lack of progress does either one of two things: either it encourages even more foreign aid to be sent to the country, only for it to be poorly managed again and hamper development; or it aid could be withheld if the donor sees it as a reason to believe that aid is ineffective. It would damage public opinion of foreign aid in both the donor and receiving country, however receiving large amounts of aid certainly does have noticeable effects on public opinion of the donor.

A survey was conducted by Pew Research Center and the Kaiser Family Foundation was conducted to gauge public opinions on the efforts of nations donating aid to their country, and Pew Research Center gave the following statement:

“Majorities in nearly every country surveyed say wealthier countries are not doing enough to help poorer nations with problems such as economic development, reducing poverty, and improving health. But among countries surveyed that were major recipients of development aid, people were much more likely to say that wealthy nations are “doing enough” to help poorer nations.”

The US-based Pew Research Center is according to itself: “a nonpartisan fact tank that informs the public about the issues, attitudes and trends shaping the world.” It claims to be factual and unbiased and its credibility is strengthened by its reports being used as sources by outlets such as the New York Times. Foreign aid falls under its “Foreign Affairs and Policy” section and has published articles on foreign aid in 2015 and 2016. The section is headed by Michael Dimock a political scientist with a Ph.D. of political science from the University of California – San Diego, which is convincing enough to give their statements credence on the topic.

The statement from Pew would suggest that Public opinion on Foreign Aid and Donor countries is proportional to the amount of aid that country is receiving. However when reading any information on Public Opinions it is possible that the reason some countries receive a lot of foreign aid is because of their populace’s high public opinion of a donor country, especially one that has historical ties to the donor (i.e. the United States and Western Europe as the United States is the biggest contributor to foreign aid and China has begun investing billions of dollars into African economies to gain leverage (the latter statement is however based on my assumption after reading headlines in passing)). The paper published by Pew however didn’t seem to have that issue, as the populations that showed the greatest support came from Indonesia and Sub-saharan Africa, who historically have always been the main target areas of foreign aid.

Corruption is an issue in almost any form of government, but it could still set a potentially dangerous precedent where aid is intentionally mishandled and then aid is still sent to counteract that loss. That incentivizes corrupt governments to follow a similar model, as a matter of fact this can already be seen in the Democratic People’s Republic of Korea (DPRK), where the government receives food aid, redistributes it unfairly by inflating prices several times beyond their original value, and continues demanding food aid or they threaten to limit the population’s access by inflating prices even further.

This has given the government political leverage to continuously receive aid and continuously misuse it because of the high moral and human cost of not cooperating, according to Yeonmi Park, an outspoken North Korean defector and critic in her book “In Order to Live.” While the testimony of a defector may be biased against the DPRK, historically that scenario would not be surprising.

Proposed Solutions

A solution that can be considered is instead of giving aid upfront as a lump sum, it can be given slowly and conditionally, only growing as the quality of life grows. This can limit the extent to which foreign aid can be misused and incentivise worthwhile investment. If there is no real progress being made, then a re-evaluation of strategy will have to be done, possibly by using more field personnel or to make it more targeted towards certain aspects of domestic affairs or certain communities. If necessary, even temporarily halted as a preventive measure, even as morally compromising and hard to justify as that would be.

Ideally aid would be micromanaged by local jurisdiction, going over expenses, budgets, and being constantly in contact with the sources of funding to help gain a sense of their objectives and recommended courses of action in achieving said objectives, whilst having the ability to adjust plans to get better results with their funding as experience compiles, data is gathered and analysed, and better methods of local support become available. Unfortunately this would only be under ideal conditions and the manpower and planning that would be involved simply would not be available across all types of aid missions across different regions and cultures.

Although such an approach where the application of aid was left to the local government had effect (Rwanda, 1994), based on initial personal judgement, it seems more of an exception than the norm given that the situation in Rwanda was different (preventing ethnic tension and violence alongside UN Peacekeepers) from the most common form of aid (developmental aid, which focuses more on infrastructure and economics as well as disaster relief.)

Foreign aid is not perfect, it can’t be because of all the connections between people and organisations that the process of foreign aid is conducted through. It can however be refined by changing working practices to be more secure and more traceable and easier to oversee.

Full Personal Response

The topic of foreign is very broad and many times it is on a case by case basis when it comes to assessing their effects and the driving causes behind them, this research may not be applicable in every case, but it does outline a general trend in the problems with aid.

As to the importance of this issue, foreign aid is a common part of foreign policy. In an increasingly globalised world since the end of the Second World War, foreign aid has been a significant part of a country’s diplomatic missions especially in the era of the Cold War where the US and USSR vied for influence abroad. With the global economy becoming more interconnected and the rise of global initiatives such as the OECD, the World Bank, and the International Monetary Fund, foreign policy has become a pillar of modern society and aiding other countries has been a valuable way of building cooperation and creating connections between different peoples.

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