Credibility of Development Aid and the lessons from Rwanda

Contents

Abstract

Short Overview of Development Aid
Bilateral Aid
Multilateral Aid
Aids provided by NGOs
Humanitarian Aid
Remittances

IMF, World Bank and the WTO
IMF
World Bank and the WTO

Is Development Aid Effective?
Critics of Development Aid

Rwandan Genocide

Rwanda Today

Lessons to Learn

Sources

Abstract

Development Aid has gained its popularity since the end of World War II. The first official development Aid, the Marshall Plan was a successful model that rebuilt devastated Europe. Aids, for third world development however, could not prove its outcome. Four decades after the beginning of development aid, Africa is poorer than fourty years ago, claims Dambisa Moyo, a prominent American educated scholor and development policy expert. Despite the flow of billions of dollors in African economies, they are more dependent today than ever before. She claims that Aid made Africans lazy. They see it as a regular income and do not try to build their nation themselves. This has a huge impact in the future of Africa. She believes that the donor countries should stop the flow of aid, as it never reaches the ones who really need it. Other prominent development aid experts however doubt this argument because this could mean millions of deaths in short term. However, we can conclude that the way how development aid functions today could be organized in a better way so that it will be more effective. The role of transnational agencies like the World Bank, International Monetary Fund (IMF) and the World Trade Organization (WTO) should be reformed. The pre- conditions for short term and long term loans should not be made dependent on market liberalisation or opening the third world markets. A close cooperation is needed among the donor countries, host countries government and the NGOs for making aid more effective.

Rwanda, a country that experienced the horrors of one of the most terrible genocide in human history, when the Hutu Militants killed almost one million Tutsis within few months, is one of the most stable countries in Africa today. Its economy is booming, it has an excellent security system. Rwanda did not get Aid from third countries for years. It fought itself to come out of the nightmares of Genocide and built a stable economy, without aid. Today, Africans learn from Rwanda. They have understood that life is possible without aid and the first step to that is being independent from any foreign assistence. Rwanda presented itself as a role model in Africa that some development aid experts started to believe that aid should be given but there should be a time frame. The Marshall Plan in Western Europe had a time frame, after few years, aid flow stopped and the Europeans had to pay back the money. Same model would be plausible for Africa and all the receivers of development aid. They should know that aid is not for always, it is just a help to selfhelp.

Short Overview of Development Aid

Commonly called aid, this is the international transfer of public funds in the form of loans or grants, either directly from one government to another (bilateral aid), or indirectly through nongovernmental organizations or a multilateral agency (multilateral aid) such as the World Bank or WHO¹. Development aid is provided to the developing countries for various reasons. The history of development aid goes back to the colonial era but there is no exact date where and how this transfer of aid began. During the British Rule in India, Great Britain supported India to build infrastructures. This is however believed to serve British interest, namely to transfer raw materials to the port to export them. The official record of development aid came after the end of World War II when George Marshall came up with the idea of Marshall Plan, to rebuild the devastated Europe. Germany, UK and France as well as Japan got their share of Marshall Plan and they were re-built. From this scenario one can obviously argue that it was to gain future influence in Western Europe. However, we should also keep in mind that in the absence of Marshall Plan, Europe and Japan would take a long time to rebuild itself from the ashes of World War II. Since then, there have been developments in the field as then poor country South Korea also emerged as a major aid provider today. The United States top the list of largest aid provider but still lag behind in the percentage of GDP. The figure below shows the largest provider of aid.

We can see that the strongest economies of the world are also the largest provider of development aid. The small economies by size, like New Zealand, Luxemburg, Portugal and Greece are also aid providers. However, the big economies like China and India aren’t there. China and India has their own problems to solve. Even though their economies are huge, they have got very less per person. Considering the population of over one billion people in China and India, their trillion dollar economy is not a huge one. In the second figure, we will see the development aid according to the Gross National Income.

The second figure is topped by Sweden, as it gives 1.1% of its GNI as aid. We can see the domination of Scandinavian countries. Norway and Denmark took second and fourth position. Up to the position eight, we can just see the small sized, wealthy economies. These countries have already fulfilled the criteria of Millennium Development Goals of providing at least 0.7 % of GNI as development in order to end global problems like halving the extreme poverty by 2015 and ending it totally by 2025.

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With the current figure however, this goal looks very pessimistic. Just five countries have reached the proposed percentage, few others are close to it but the majority of them have a long way to go. Three largest economies of the world, the United States, Japan and Germany both are currently at below 0.4%. As 2015 is coming nearer, the goal seems unrealistic.

There are normally two forms of Aid:

i) Bilateral Aid - Aid given from one country directly to another. For example the United States give Mexico dollar 5 million to build bridges or repair schools.
ii) Multilateral Aid – Money that a donor country gives to any organisation like the World Bank or the United Nations and this organisation later give it to a certain country further. For example, the members of the United Nations pay certain amount of money every year in the UN fund. The UN for example, gives 20 million from that fund to Rwanda to fight Maleria in the capital city Kigali or for other reasons. Multilateral aids are provided by many other institutions like the International Monetory Fund (IMF), European Union (EU), and United Nations Development Program (UNDP) etc.

There are other forms of aid:

a) Aids provided by the Non-Governmental Organizations – the NGOs are funded privately by donations and they campaign for certain causes like Human Rights, Animal Rights, Climate Change, and Refugee Rights etc. Amnesty International fights for the human rights all over the world. It raises the issues like the voilation of basic human rights by individuals, politicians, or even sovereign nations. The Universal Declaration of Human Rights are mentioned in 30 paragraph and the countries throughout the world are ought to respect that which includes the freedom of speech, freedom of press, freedom of religion etc. Amnesty International for example sponsors initiatives to improve human rights in certain countries or to sign petitions against any government or a particular person. Greenpeace in the other hand fights for Climate Justice. It trains people to be environment friendly. it brings the issues in mainstream politics and fights to create an environmentally friendly world.

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¹ http://www.who.int/trade/glossary/story016/en/index.html