Foreign aid, which is significant for developing economic and other aspects in less developed and developing countries, is given to different countries. Less developed and developing countries usually receive such aid from more developing and developed countries and international organizations including the World Bank, Islamic Development Bank and Asian Development Bank.
Foreign aid, which can be of different sorts including loans, debt relief, military aid and humanitarian assistance, is given with or without any conditions. Varied conditions attached to foreign aid, which was massively started to be given after the Second World War, mainly aim to support security and the improvement of the economic, social, and political development of recipient countries and their people. Donor countries or organizations provide funds to the government and specific projects for targeted outcomes in economic, social and some other aspects and provide direct humanitarian assistance.
Of course, conditions attached to foreign aid that can influence behavior, secure effective use of funds, improve outcomes, and increase the chance that the aid will achieve its ultimate intended goal, are given in economic, good governance, human rights and other important terms.
In economic terms, conditions that mainly aim at improved economic growth or capacity may involve some specific economic indicators including fiscal deficit and inflation. Sometimes, loans require changes in the economic policies of the receiving countries to improve the problem that compels them to receive foreign loans or aid. Moreover, conditions include the improvement of the underlying situations such as improvement of good governance, reduction of corruption and improvement of efficiency with training to a certain level so that the funds are used effectively and the recipient country moves on to a self-sustaining economic path.
The improvement of good governance is sometimes attached to foreign aid for improving the effective use of funds. Of course, conditions include some other important aspects including the improvement of health situations, securing environmental sustainability, improvement of political situations, and enrichment of human rights situations.
But an important question can be raised on whether conditions attached to foreign aid bring desired impacts or are effective in bringing expected outcomes to the receiving countries. Of course, there are positive impacts or the impacts are more positive than negative, but there are controversies too on the effectiveness/outcomes of conditionality in academic and political circles.
Proponents of conditionality that was started to be increasingly included with foreign aid a few decades ago usually say that the conditionality of foreign aid is important as it helps improve economic capacity, reduce poverty, increase economic growth, the amount of investment and capital stock, develop human resources, improve the ability to import capital goods and technologies, increase the productivity, create more jobs, improve health conditions and bring many other beneficial impacts to the receiving countries.
On the contrary, opponents of the conditionality of foreign aid usually argue that there are no significant long-term benefits of conditional foreign aid and conditions sometimes affect the planned development of the receiving countries negatively. Opponents frequently criticize that conditions-based loans and other forms of conditional foreign aid do not improve the economy in a sustainable manner (rather these sometimes lead to a decline in economic growth) and do not reduce income disparity and improve conditions of the vulnerable groups.
Furthermore, the burden placed on the debt servicing often becomes too overwhelming for the receiving countries. As is further criticized, different conditions attached with foreign aid, especially loan or economic assistance, sometimes undermine the capacity of the receiving countries to grow their economies on their own.
As it appears on the grounds, by the analysis of 97 studies, Doucouliagos and Paldam concluded in 2008 and 2009 that there was a small positive but statistically insignificant relationship between official foreign aid and economic growth. Such a conclusion was also reached by others including Rajan and Subramanian in 2008 who indicated that there was no clear relation between foreign aid and faster growth. This is found even in countries with better policy environments and stronger institutions. As their studies are based on inconclusive data and treating all aid as homogeneous is misleading, many are unwilling to accept these.
For instance, Collier suggests that over the last 30 years official assistance helped accelerate the GDP growth rate among the poorest nations including some African counties by approximately 1 percent annually. Also, conditional aid creates more jobs, increases the income of diverse groups, improves economic performance and enhances some other economic conditions, directly and indirectly, through a wide variety of channels in receiving countries.
Of course, the effectiveness of conditional foreign aid is mostly seen from the economic perspective. But, in addition to this viewpoint, conditionality leads to the improvement of overall living conditions, even if these are not as is expected. Indeed, there are enormous positive impacts of conditional foreign aid in education, environment, health, policymaking and some other aspects, even though all receiving countries do not experience similar impacts. As it appears, educational attainment was improved in many developing countries with the support of conditional foreign aid.
Also, it improved the health sector and reduced the infant mortality rate to a significant extent in many recipient countries. In some contexts, it improved diverse sorts of human rights conditions including strengthened civil society organizations. Also, conditional foreign aid led to the improvement in the rule of law and good governance practices in many countries including some Asian countries.
Given the huge amount of money given to different countries each year, another important question can be raised: Why does foreign aid not lead to the desired outcomes then? Of course, conditions alone are not responsible for the failure to bring the expected outcomes. There are many other reasons too. Diverse reasons may be explained from two viewpoints such as donor-based and recipient country-based.
There are many donor-based reasons for the failure of foreign aid to be effective enough including the insufficient amount of funds, a lack of adjustment with local needs, imposition of external development policies, scant focus on the recipient’s ownership approach, and a lack of adequate monitoring.
Contrarily, there are many recipient country-based reasons such as management of the fund in an inefficient manner, a lack of planned approach to ensure maximum use of foreign funds, the tyrannical political system that does not want to enormously develop human resources and ensure sustainable economic growth, a tendency to continuously receive foreign aid, a lack of an effective system of development and corruption in the usage of foreign aid.
To improve the economic and other situations of the recipient countries, miscellaneous donor-based and receiving country-based reasons for the ineffectiveness of foreign aid need to be well-addressed. Of course, conditions of foreign aid that genuinely help improve economic situations and reduce poverty are needed but such conditions are usually more emphasized in economic terms.
To me, foreign aid can also increasingly be used as a means of improving other aspects such as the environment, political, civil and other human rights, and rule of law. Notably, economic sanctions are sometimes used as an important tool to correct a wide range of undesired behaviors and improve political, civil and other human situations in many countries. Instead, foreign aid, including bilateral and multilateral, may increasingly be used to improve such conditions especially in some contexts where these are lacking.
But some conditions are not desirable, though those conditions that foster economic growth and bring other expected outcomes are desirable. Conditions that obstruct the autonomy of the recipient countries, make development or development projects less sustainable and hamper good socio-political and cultural practices in the genuine sense do not seem desirable. As is criticized, overly paternalistic conditions cause an undue burden on the autonomy of the recipient countries.
For instance, bilateral foreign aid is sometimes given with direct or indirect conditions such as refraining from making bilateral and multilateral relations with certain countries and/or international organizations, which are not unacceptable. Also, some other conditions including conditions for buying goods and services (even if these are costly and lack desired quality) from donor countries do not seem desirable.
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