Foreign aid may be given as a signal of diplomatic approval, or to strengthen a military ally. Other reasons to give foreign aid include to rewarding a government for behavior desired by the donor, to extend the donor’s cultural influence, to provide the infrastructure needed by the donor for resource extraction from the recipient country, or to gain other kinds of commercial access.
A high proportion of foreign aid is in the form of loans, which cripple developing countries through the accumulation of debt. Many rich nations receive more in interest payments from recipient countries than they give in “aid”. Especially since the 2008 financial crash, western governments have exploited their ability to borrow money at low rates by setting up aid programs lending to poor countries at much higher rates, minting money on the backs of the poor. This is not aid, it’s a scandal.
Aid not only boosts the economies of rich countries but also promotes their foreign policy aims. As a 2014 report by the US Congressional Research Service put it, aid “can act as both carrot and stick and is a means of influencing events, solving specific problems and projecting US values”. During the cold war, western states used aid to buttress anti-communist governments. Since 9/11, it has become a vital instrument in the war on terror. It’s not just western countries that act in this fashion. China, now a major player in the global aid industry, similarly views aid as a means of leveraging political influence. And it, too, ties much of its aid to the purchase of Chinese goods and services.
Some problems regarding foreign aid are pointed bellow-
- According to critics, foreign aid does not promote faster growth but may hold it back by substituting for domestic savings and investment.
- The growth of the modern sector is the focus of aid. As a result, it increases the gap in living standards between the rich and the poor in Third World countries.
- If the aid given is concerned with unproductive fields or old technology, it will have the effect of increasing inflation in the country.
The most prominent objection is that donor countries interfere with the economic and political activities of the recipient country.