Development Aid

Make no mistake; most international development literature has made clear that developmental aid is rather ineffective. There are many obstacles to development that can render massive amounts of monetary aid ineffectual. International aid faces problems with governments that are not fully committed to development goals, infrastructural problems that prevent money from reaching the people who need it most, and even issues when it comes to determining the best way to combat poverty. However, it has been shown that appropriately allocated developmental aid can be successful in bettering the lives of the bottom billion. For example, within the healthcare sector, aid has helped to increase life expectancy in developing countries over the last four decades by 20 years. In addition, over the past 30 years we have seen a 50% reduction in illiteracy rates and an increase in quality education due in part to aid. Furthermore, we have seen a decrease in the number of people living on less than a dollar a day. Lastly, a study showed that per capita economic growth was higher in countries that received more aid than in the countries that received less aid. This growth provided an incentive for more investment into these developing nations and lowered poverty rates as a result.

Therefore, international aid plays a role in the improvement of quality of life in many regions all over the world. Collectively, “the West,” has spent around $2.3 trillion dollars on developmental aid in the last five decades. The United States government alone spends around $22 billion dollars on foreign aid where about $10 billion dollars more are contributed by private citizens. However, as donor countries face economic turmoil in the global recession, there will be a drop in aid because they will not be able to afford to give away the same percentage of their GDP that they did in more prosperous times. It is speculated that official aid to developing countries might fall by around $20 billion dollars this year due to the economic meltdown. Perhaps more importantly commodity prices will fall during this economic recession, and countries that depend on exporting will be hurt.

Suzanne Freidberg, Assistant Professor of Geography at Dartmouth College, notes that historically, economic recessions have negatively affected developing exporting countries, citing the bankruptcy of Upper Volta (now Burkina Faso) during the Great Depression. The economic recession will therefore lead to undermined growth and decreased aid for the world’s poor. Yet Freidberg warns not to take a simplistic view of this crises by reminding us, “…falling commodity prices can be bad for countries that are dependent on exporting… cotton or copper or whatever, but the extent of the price of the goods they need falls as well, like [fuel]. That may balance it out.” She goes on to warn us about an over exaggeration of the affects of this economic crisis on the third-world poor, because “many members of that bottom billion have never really benefitted from the aid in the first place.” So if the international development community wants to really help the third-world poor, they must provide safety nets to protect the poor in developing nations during times of crisis, economic or otherwise, because they are the ones most hurt.

Since 1949, the United States has devoted itself to, in Truman’s words, “aid the efforts of economically underdeveloped areas to develop their resources and improve their living
conditions.” The International Monetary Fund was founded upon these words, to be an institution that helped countries grow economically and reduce poverty around the world. The IMF provides loans to countries on conditional terms, so that the countries can grow economically under global guidance. The World Bank also provides loans, credit and grants for developing countries to grow. In the past however, their system of aid and loans have hurt the developing world as much if not more than they have helped it. Freidberg notes that during the “economic recession of the 1980’s… the difficulties were compounded by the structural adjustment policies that were imposed by the World Bank and IMF.” And in the wake of this economic crisis, both NGOs are working to speed the recovery, but their post-crisis actions cannot necessarily save the world’s poor from being unduly hurt by the global recession. Furthermore, considering the relatively slow recovery process of developing countries from economic shocks, post-recession measures will do little for the world’s poor, whereas protection against economic crises would go a lot further in helping. The world’s poor need insurance against these global crises that start in the developed world and trickle down.

Due to the economic crisis, world trade is expected to drop by more than 13%, which has detrimental affects to the developing world. That fact coupled with the decreased levels of aid will exponentially affect the poorest countries due to magnification. The global recession has hurt NGOs like World Neighbors, a 60-year old international developmental organization that helps around 500,000 people a year. The organization’s budget has dropped from $10 million, ten months ago, to $6 million today. This is a substantial loss in aid available to give for development and will result in many programs for the world’s poor being undermined and scaled back. “If international aid does fall dramatically, then certainly people who are dependent on certain kinds of programs will be hurt by it,” says Freidberg.

The question of how we can protect the world’s poorest people from feeling the magnified effects of this time of economic hardship and falling international aid is one that has many answers. One answer is for the international development community to shift into promoting lower risk activities that will make it harder for the developing area to be adversely affected by the economic recession. However, a shift into low risk activities also leads to lower returns on investment. This is a problem, because the rapid economic growth we all would like to see in the developing world cannot come from low-risk activities. According to Freidberg, economic recessions heavily affect the formal economy of developing nations, because they are more dependent on world markets. So in this time of global recession, a movement away from supporting these kinds of businesses that are particularly sensitive to world markets would not hurt.

A simple way to insure the world’s poorest from the problems that arise as a result of economic turmoil is to make sure the programs implemented by the international development community provide as many different protections of the poor as possible. In 2005, an estimated one in six people raised themselves above the $2-a-day poverty line, yet due to this economic crisis an estimated 65 million people will fall below that $2-a-day poverty line this year alone. Thus, it is imperative that developmental programs provide their beneficiaries with as many safeguards as possible. For example, the NGO KickStart that sells micro- irrigation technologies, such as pumps, to poor farmers to increase their crop yield offers a one-year replacement guarantee for their product. They also test every single one of their products before they sell them to the risk-averse farmers. If a product the farmers buy fails them, then that could be the difference between life and death. So it is imperative that the international development communities try to shield the poor from shocks like the economic meltdown we are seeing today or more direct shocks like those disasters due to weather.

In developing countries there are also informal risk-sharing networks, through one’s family or tribe that protect people from crises. It would help to formalize these institutions and ideally create a kind of collective insurance system for poor communities so they could shield themselves from times when, the world economy is bad or when there is drought.

Another way the international development community can protect the poor is by teaching and encouraging saving techniques amongst them. If the poorest people have savings, they will be able to survive even in times of crisis. They will have insurance to continue their lives and invest in low risk activities that could lead to steady economic growth. That with the coupling of access to credit…

An effective insurance model, but one that would be hard to institute, would be an insurance net that protected the world’s poor. Now, this kind of safety would be impractical for the governments of developing regions to implement because it would not be cost effective for these generally inefficient governments to set up such a system. It would have to be implemented by the NGOs operating in the developing countries. Micro-insurance, that could protect the poor from economic shocks, environmental shocks etc. would be a feasible way to provide a safety net. The model would be a slight variation from the micro-credit programs that have already been implemented in developing regions all over the world. On micro-insurance, Freidberg states “think micro-insurance is something that would be…I mean insurance in general, be useful, regardless of the state of the global economy, because micro-insurance for small farmers for example. For a lot of small farmers the more perennial concern is the weather. And that’s something that they need insurance for.” It is easy to think that a fall in international development aid will have cataclysmic effects on the third-world poor, yet in reality the truth is that the global poor have a history of survival. They are people avoiding destitution, and the creation of the informal economy is a testament to the sophisticated ways in which they have managed to survive. Freidberg expresses this notion by saying that, “people [in third world countries] have been coping with crisis for years.” So we should not fall prey to the dire predictions of extreme poverty in the third-world due to this economic crisis, because there always has been extreme poverty in these nations and the poor have always found ways of surviving. Instead of post-crises measures, the international development community should focus on protecting the poor from crises in the future. Working to teach savings techniques, offering micro-insurance, and putting in place safeguards for development programs will all help the bottom billion immensely during times of crisis.