Economists see aid to poor nations as ineffective

[GaryC 7]

I think the argument has come full circle - first capitalism (implied through regime change) is the solution, now no solutions are viable. But providing economic aid is still somehow worse.

No, my solution is capitalism. But without the host country's willingness to allow that then there isn't much else we can do. Giving money to a corrupt government in the name of economic aid is just a feel good solution. If it were me running things I would tie continuing aid to government reforms. I would start out giving as the first step but tie any long term aid to improvements in the government. It's a lot less messy than a coup or a change of government through force of arms. If they don't want to change then they are on their own.

[Trumplestiltskin 5,791]

I guess that would call for an end to the age-old practice of selling weapons to dictators, then having the people pay it back through taxation - years after the dictator who blew it all on hookers and solid gold toilets has left power?

As I said there's a bit more to it than signing a blank cheque for the likes of Idi-Amin, Pol Pot and Saddam Hussein to have a "christmas come early" shopping bonanza.

There's a study on it here.

Edited July 19, 2007 by Number 6

[GaryC 7]

I guess that would call for an end to the age-old practice of selling weapons to dictators, then having the people pay it back through taxation - years after the dictator who blew it all on hookers and solid gold toilets has left power?

As I said there's a bit more to it than signing a blank cheque for the likes of Idi-Amin, Pol Pot and Saddam Hussein to have a "christmas come early" shopping bonanza.

There's a study on it here.

Selling weapons to dictators and economic aid are two different things. I don't like selling weapons to them either. But just straight economic aid should be tied to improving the root cause of the poverty in the first place. Unless they are dealing with a natural disastar or a war then the most common reason is an oppressive government. That is what needs to be addressed before long term aid should be given.

[Trumplestiltskin 5,791]

The issue is that many 3rd world countries are saddled with massive debts to the World bank and to 1st world, developed nations, which stunts their economic growth. Given the diverse nature of the various aid projects (ranging from building schools, hospitals etc) to simply ensuring clean supplies of drinking water - its no surprise that the economists in that article didn't find it to make much 'economic difference'. Indeed the article makes no mention of developing world debt, which is a surprising omission - certainly for a lay-person.

Aid is related to that in that its not always 'free' - for instance, take these examples (unverified, from Wikipedia)

Sri Lanka, still recovering from the December 2004 Tsunami, has a debt of more than $8 billion, and an annual debt service bill of $493 million. Though payments have been deferred on some debts by the Paris Club after the Tsunami, Sri Lanka must continue to service its multilateral debt while 29% of its children are malnourished. Likewise, Indonesia, the nation hit hardest by the 2004 Tsunami, has debt of more than $132 billion (much contracted under the dictator Suharto) (PDF), of which $28.4 billion is to multilateral creditors. Debt service payments to the World Bank amounted to $1.9 billion last year while 40% of Indonesians live on less than $2 per day.

Edited July 19, 2007 by Number 6

[GaryC 7]

The issue is that many 3rd world countries are saddled with massive debts to the World bank and to 1st world, developed nations, which stunts their economic growth. Given the diverse nature of the various aid projects (ranging from building schools, hospitals etc) to simply ensuring clean supplies of drinking water - its no surprise that the economists in that article didn't find it to make much 'economic difference'. Indeed the article makes no mention of developing world debt, which is a surprising omission - certainly for a lay-person.

Aid is related to that in that its not always 'free' - for instance, take these examples (unverified, from Wikipedia)

Sri Lanka, still recovering from the December 2004 Tsunami, has a debt of more than $8 billion, and an annual debt service bill of $493 million. Though payments have been deferred on some debts by the Paris Club after the Tsunami, Sri Lanka must continue to service its multilateral debt while 29% of its children are malnourished. Likewise, Indonesia, the nation hit hardest by the 2004 Tsunami, has debt of more than $132 billion (much contracted under the dictator Suharto) (PDF), of which $28.4 billion is to multilateral creditors. Debt service payments to the World Bank amounted to $1.9 billion last year while 40% of Indonesians live on less than $2 per day.

This debt, like our national debt will probably never be repaid. If the Indonesians owe 132 billion and have only paid 1.9 billion back last year that is the same as not paying it back. It will not even cover the interest. Most of these countries that have massive debts never pay them back. They will eventually be written off. It isn't a reason for their continuing poverty.

[Trumplestiltskin 5,791]

The issue is that many 3rd world countries are saddled with massive debts to the World bank and to 1st world, developed nations, which stunts their economic growth. Given the diverse nature of the various aid projects (ranging from building schools, hospitals etc) to simply ensuring clean supplies of drinking water - its no surprise that the economists in that article didn't find it to make much 'economic difference'. Indeed the article makes no mention of developing world debt, which is a surprising omission - certainly for a lay-person.

Aid is related to that in that its not always 'free' - for instance, take these examples (unverified, from Wikipedia)

Sri Lanka, still recovering from the December 2004 Tsunami, has a debt of more than $8 billion, and an annual debt service bill of $493 million. Though payments have been deferred on some debts by the Paris Club after the Tsunami, Sri Lanka must continue to service its multilateral debt while 29% of its children are malnourished. Likewise, Indonesia, the nation hit hardest by the 2004 Tsunami, has debt of more than $132 billion (much contracted under the dictator Suharto) (PDF), of which $28.4 billion is to multilateral creditors. Debt service payments to the World Bank amounted to $1.9 billion last year while 40% of Indonesians live on less than $2 per day.

This debt, like our national debt will probably never be repaid. If the Indonesians owe 132 billion and have only paid 1.9 billion back last year that is the same as not paying it back. It will not even cover the interest. Most of these countries that have massive debts never pay them back. They will eventually be written off. It isn't a reason for their continuing poverty.

Really? From the same page:

A 2004 World Bank/IMF study found that in countries receiving debt relief, poverty reduction initiatives doubled between 1999 and 2004. Tanzania used savings to eliminate school fees, hire more teachers, and build more schools. Burkina Faso drastically reduced the cost of life-saving drugs and increased access to clean water. Uganda more than doubled school enrollment. [9]

In 2005, Live 8 concerts paralleling the G8 Summit in Scotland brought the issue of debt once again to the attention of the media and world leaders. Debt cancellation for the 18 countries qualifying under this new initiative has also brought impressive results. For example, Zambia has used savings to drastically increase its investment in health, education, and rural infrastructure. [10]

For the most part the debt hasn't been written off - and you still have countries which can't afford to be making these payments ($453,000,000) in Sri Lanka (which BTW is 6%). What do you think the annual debt service payment on $132 billion might be?

BTW - Cancelling 3rd world debt is a campaign that has been going on for years.

On that other point about democracy - Indonesia has been a democratic republic since 1998.

[mawilson 2,133]

Of course it doesn't work. Who would want to work when you're given free handouts?

[mawilson 2,133]

Capitalism isn't the answer in countries which are being or have been destroyed by war or genocide; or indeed if there's ####### all there... like Afghanistan. What sort of businesses do you see setting up there? Can't do business without a viable infrastructure.

You need a viable infrastructure to distribute food and aid money as well, unless you want it

to end up in the hands of a few corrupt government officials and dictators.

[GaryC 7]

The issue is that many 3rd world countries are saddled with massive debts to the World bank and to 1st world, developed nations, which stunts their economic growth. Given the diverse nature of the various aid projects (ranging from building schools, hospitals etc) to simply ensuring clean supplies of drinking water - its no surprise that the economists in that article didn't find it to make much 'economic difference'. Indeed the article makes no mention of developing world debt, which is a surprising omission - certainly for a lay-person.

Aid is related to that in that its not always 'free' - for instance, take these examples (unverified, from Wikipedia)

Sri Lanka, still recovering from the December 2004 Tsunami, has a debt of more than $8 billion, and an annual debt service bill of $493 million. Though payments have been deferred on some debts by the Paris Club after the Tsunami, Sri Lanka must continue to service its multilateral debt while 29% of its children are malnourished. Likewise, Indonesia, the nation hit hardest by the 2004 Tsunami, has debt of more than $132 billion (much contracted under the dictator Suharto) (PDF), of which $28.4 billion is to multilateral creditors. Debt service payments to the World Bank amounted to $1.9 billion last year while 40% of Indonesians live on less than $2 per day.

This debt, like our national debt will probably never be repaid. If the Indonesians owe 132 billion and have only paid 1.9 billion back last year that is the same as not paying it back. It will not even cover the interest. Most of these countries that have massive debts never pay them back. They will eventually be written off. It isn't a reason for their continuing poverty.

Really? From the same page:

A 2004 World Bank/IMF study found that in countries receiving debt relief, poverty reduction initiatives doubled between 1999 and 2004. Tanzania used savings to eliminate school fees, hire more teachers, and build more schools. Burkina Faso drastically reduced the cost of life-saving drugs and increased access to clean water. Uganda more than doubled school enrollment. [9]

In 2005, Live 8 concerts paralleling the G8 Summit in Scotland brought the issue of debt once again to the attention of the media and world leaders. Debt cancellation for the 18 countries qualifying under this new initiative has also brought impressive results. For example, Zambia has used savings to drastically increase its investment in health, education, and rural infrastructure. [10]

For the most part the debt hasn't been written off - and you still have countries which can't afford to be making these payments ($453,000,000) in Sri Lanka (which BTW is 6%). What do you think the annual debt service payment on $132 billion might be?

BTW - Cancelling 3rd world debt is a campaign that has been going on for years.

On that other point about democracy - Indonesia has been a democratic republic since 1998.

I have been to Indonesia several times. They have democracy by riot. It may be a democracy in name but in practice it's not very good. And at the same time as a third world countries go it isn't as bad as some in Africa. That is the point. The better the democracy the better off the people are. That is what we should insist on if they want our money.

[Heracles 417]

Gary your point is proven. Keep in mind this is not aid but capitalism at its best.

http://en.wikipedia.org/wiki/Microcredit

Microcredit is the extension of very small loans (microloans) to the unemployed, to poor entrepreneurs and to others living in poverty who are not considered bankable. These individuals lack collateral, steady employment and a verifiable credit history and therefore cannot meet even the most minimal qualifications to gain access to traditional credit. Microcredit is a part of microfinance, which is the provision of financial services to the very poor; apart from loans, it includes savings, microinsurance and other financial innovations.

Microcredit is a financial innovation which originated in developing countries where it has successfully enabled extremely impoverished people to engage in self-employment projects that allow them to generate an income and, in many cases, begin to build wealth and exit poverty. Due to the success of microcredit, many in the traditional banking industry have begun to realize that these microcredit borrowers should more correctly be categorized as pre-bankable; thus, microcredit is increasingly gaining credibility in the mainstream finance industry and many traditional large finance organizations are contemplating microcredit projects as a source of future growth. Although almost everyone in larger development organizations discounted the likelihood of success of microcredit when it was begun in its modern incarnation as pilot projects with ACCION and Muhammad Yunus in the mid-1970s, the United Nations declared 2005 the International Year of Microcredit.

The World Bank estimates that there are now more than 7,000 microfinance institutions, serving some 16 million poor people in developing countries. CGAP experts estimate that 500 million households benefit from these small loans.

2006: Microcredit awarded Nobel Peace Prize

Edited July 19, 2007 by Boo-Yah!

[Trumplestiltskin 5,791]

The issue is that many 3rd world countries are saddled with massive debts to the World bank and to 1st world, developed nations, which stunts their economic growth. Given the diverse nature of the various aid projects (ranging from building schools, hospitals etc) to simply ensuring clean supplies of drinking water - its no surprise that the economists in that article didn't find it to make much 'economic difference'. Indeed the article makes no mention of developing world debt, which is a surprising omission - certainly for a lay-person.

Aid is related to that in that its not always 'free' - for instance, take these examples (unverified, from Wikipedia)

Sri Lanka, still recovering from the December 2004 Tsunami, has a debt of more than $8 billion, and an annual debt service bill of $493 million. Though payments have been deferred on some debts by the Paris Club after the Tsunami, Sri Lanka must continue to service its multilateral debt while 29% of its children are malnourished. Likewise, Indonesia, the nation hit hardest by the 2004 Tsunami, has debt of more than $132 billion (much contracted under the dictator Suharto) (PDF), of which $28.4 billion is to multilateral creditors. Debt service payments to the World Bank amounted to $1.9 billion last year while 40% of Indonesians live on less than $2 per day.

This debt, like our national debt will probably never be repaid. If the Indonesians owe 132 billion and have only paid 1.9 billion back last year that is the same as not paying it back. It will not even cover the interest. Most of these countries that have massive debts never pay them back. They will eventually be written off. It isn't a reason for their continuing poverty.

Really? From the same page:

A 2004 World Bank/IMF study found that in countries receiving debt relief, poverty reduction initiatives doubled between 1999 and 2004. Tanzania used savings to eliminate school fees, hire more teachers, and build more schools. Burkina Faso drastically reduced the cost of life-saving drugs and increased access to clean water. Uganda more than doubled school enrollment. [9]

In 2005, Live 8 concerts paralleling the G8 Summit in Scotland brought the issue of debt once again to the attention of the media and world leaders. Debt cancellation for the 18 countries qualifying under this new initiative has also brought impressive results. For example, Zambia has used savings to drastically increase its investment in health, education, and rural infrastructure. [10]

For the most part the debt hasn't been written off - and you still have countries which can't afford to be making these payments ($453,000,000) in Sri Lanka (which BTW is 6%). What do you think the annual debt service payment on $132 billion might be?

BTW - Cancelling 3rd world debt is a campaign that has been going on for years.

On that other point about democracy - Indonesia has been a democratic republic since 1998.

I have been to Indonesia several times. They have democracy by riot. It may be a democracy in name but in practice it's not very good. And at the same time as a third world countries go it isn't as bad as some in Africa. That is the point. The better the democracy the better off the people are. That is what we should insist on if they want our money.

But doesn't that present a problem - say, if there is a military takeover or the like? The people who would need some sort of help would be essentially screwed because their government is no longer considered desirable. Again - I think a distinction needs to be made between "humanitarian aid" and that intended for "developmental projects". Again its not a case of signing a blank check - there is such a thing as lending expertise...

Still - I think debt relief is one of the biggest issues facing developing countries. That debt should be written off IMO - and without condition.

[Trumplestiltskin 5,791]

Capitalism isn't the answer in countries which are being or have been destroyed by war or genocide; or indeed if there's ####### all there... like Afghanistan. What sort of businesses do you see setting up there? Can't do business without a viable infrastructure.

You need a viable infrastructure to distribute food and aid money as well, unless you want it

to end up in the hands of a few corrupt government officials and dictators.

Some aid projects involve building infrastructure – for example digging wells, establishing sanitation systems and ensuring reliable supplies of potable water. You also have group expeditions teaching agricultural methods for people to be better able to produce subsistence crops. By itself this probably wouldn’t improve economic infrastructure in any dramatic way – but again that isn’t really surprising.

That the article doesn’t seem to mention 3rd world debt as a constraining factor on those countries economic development is a surprising omission IMO.

[Cassie 8]

I would like to add my two cents here. One of the humanitarian causes I support is a group in Ghana. The money raised by the group and their branches in North America does not go to the government, but stays in the community that they are concentrating on. First they dig wells to provide safe drinking water and the potential to irrigate crops. Then the local men and women are taught better agricultural practises that fit their climate/soil and local economy. for example, there was a special project for women (especially those who were widowed with families) to show them how to grow tomatoes for the local market,and also how to sew clothing. The money they earn has helped to support their families. Then schools are built to provide a safe place for children to learn, and so on. This program has been very successful and implemented in at least two areas in rural Ghana that need it. The key is to give people the knowledge and the helping hand to assist them towards self-sufficiency.

Throwing money at a government without a plan never works.

[Trumplestiltskin 5,791]

I agree with that. Moreover, the study I posted the link to on one of the previous pages actually mentions that one of the biggest problems with financial aid going awry and being ‘ineffective’ is in the way it is awarded and dispersed.

As you point out – a lot can be achieved with less, when it is targeted to a local community; and does not involve just signing a blank cheque for the country’s government.

[homesick_american 1]

I've thought for years that aid to some of these countries only serves to prop up the corrupt regimes who helped to screw things up in the first place.