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IMPORTANCE OF FOREIGN AID

written by ANTONY MBITHI on 11-05-2011

The Development Assistance Committee (DAC) of the Organization for Economic Cooperation and Development (OECD) defines foreign aid as financial flows, technical assistance and commodities that are designed to promote economic development and welfare as their main objective and are provided as either grants or subsidized loans.

Official development assistance (ODA) is the largest, consisting of aid provided by donor governments to low- and middle- income countries. Official assistance (OA) is aid provided by governments to richer countries with per capita incomes higher than approximately $9,000 for example Bahamas, Cyprus, Israel and Singapore and to countries that were formerly part of the Soviet Union or its satellites. Private Voluntary Assistance includes grants from no-government organizations, religious groups, charities, foundations, and private companies.



In 2002, World Bank President James Wolfensohn said, “rich countries must recognize that with action on trade or agricultural subsidies, there is still a fundamental need to boost resources for developing countries. We estimate that it will take on the order of an additional $40 to $60 billion a year to reach the Millennium Development Goals- roughly a doubling of current aid flows- to roughly 0.5 percent of GNP, still well below the 0.7 target agreed to by global leader’s years ago… Does anybody really believe that the goal of halving absolute poverty by 2015 is not worth this investment?” (J. Wolfensohn: 2002)



In the gap model, output depends upon the investment rate and on the productivity of the investment. Investment is financed by the savings and in open economy total savings equal the sum of domestic and foreign savings. A savings gap is said to arise if domestic savings alone are insufficient to finance the investment required to attain a target of growth which is evident in many developing countries and thus foreign aid comes to fill the gap.



Based on the assumption that not all investment goods can be produced domestically, hence a certain level of imports is required to attain a desired growth rate. The import bill is financed either from export earnings o foreign capital inflows. If exports are not sufficient to cover the bill the availability of foreign exchange to purchase imported capital goods may become the binding constraint on growth, hence there is a financing or trade gap.



The two gap model argues that growth will be constrained by the larger of the two gaps. If aid is insufficient to fill the larger of these gaps, then the desired growth rate cannot be attained and aid does simultaneously fill both gaps by paying for imported capital equipment. This relaxes both the savings and the foreign exchange constraints.

Summing up the models

Over the years, a number of other gaps have been proposed, such as the technology gaps, the food gaps, the gender gap and the environment gap. All these gaps are readily present in many developing countries and can only be closed by foreign aid.

In summing up, the gap models show the positive roles played by foreign aid whereby it supplements domestic savings, export earnings and government revenue, hence increasing investments, imports and government revenue and thereby economic growth.

Private voluntary assistance

Churches and individuals

Various church bodies have set up development services- for example, Catholic Relief, the American Friends Service Committee, the Unitarian Service Committee, and the Inter denomination Church World Service- that are not involved in evangelizing activities.

These bodies have become the instruments for distributing substantial amounts of their large quantities of surplus food stocks and thus shape public opinion on foreign assistance issues. The great attention given by the media to problems of hunger, disease, social unrest and refugee calamities in foreign lands help sensitize people to the plight of the less fortunate in the developing world. The conquest of world hunger has been raised high as a political goal by government officials.

Their forcing aid has helped in drought stricken areas- for example, in the mid 1970’s severe drought in the Sahel region of West Africa caused extensive hunger and human suffering. This came to the attention of a group of Church members who were affiliated with a Methodist conference in Kansas. At the same time, they heard of an experimental farm irrigation project being developed under private auspices on the banks of the Niger River in a onetime French colony. Now the independent Republic of Niger already drawing from funds raised by Africare, based in Washington D.C and by World Vision, based in Monrovia, the irrigation program was in no way related to any church denomination and certainly not to the rural Methodists of Kansas, yet these Kansas Methodist’s sent a delegation to visit the Niger experimental farm and when the group came back with a favorable report, they promptly raised $250,000 to help alleviate the hunger.



The Rockefeller foundation

This foundation has had more profound effects upon the lives of more people in the Third World Countries where problems of dieses, poverty and illiteracy have cried out for attention. The foundation has focused on promoting the well being of mankind by controlling diseases that had taken toll on million of people lives- for example, yellow fever, malaria, hook worm, tuberculosis had become chronic, deadly and crippling plagues.

Their efforts have seen them bring hook worm under control and helped restore to health millions for sufferers in places such as China, Brazil , Australia, British Guiana, India, Africa and the Fiji Islands.

The foundation has also been known for its research and development work in improving strains of rice. Corn, wheat and other staple crops, thus expanding food supplies for a hungry world. In 1963, they initiated a major new program called University Development, with the intention of hoping to create a group of strong universities. This has led to a critical mass of scholars and teachers that have been instruments for broad national development in each of he countries.

The ford foundation

Founded in 1936 and has made significant contribution to world peace and the establishment of a world order of law and bad justice through alleviating suffering among people who have fled form authoritarians countries. They have also provided assistance to many foreign national governments for either planning. Strengthening admistrative capabilities, research and the establishment of pilot projects e.g. in Bangladesh they established the Bangladesh they established the Bangladesh Bank, the Cholera research laboratory and the Bangladesh Academy for Rural Development

Importance of Foreign Aid to the Donors

Foreign aid has been used a tool by donor countries to instill their values to the recipients and especially in Third world countries where is no democracy, accountability and good governance. Countries that have democratized or are in the process have received a surge in their foreign aid. In the Philippines the overthrow of the Marcos regime was followed by a large increase in aid. Some to Bolivia and Peru increasing efforts to protect human rights and encourage democracy. Ties between states and have also been strengthened leading to trade liberalization and mutual trust and interdependence in the international system.



Bibliography

1. J. Wolfensohn, “A partnership for development and peace”, in World Bank (2002), A case for Aid,

2. H. White,(1993) ‘Aid and Government: Dynamic Model of Aid, Income

3. And Fiscal Behavior’, journal of International Development.



4. S. Robert “Towards the Well – Being of Mankind: Fifty Years of the Rockefeller Foundation”

5. Doubleday and Company, Garden city, New York (1964)

Author: ANTONY MBITHI
Date Submited: 11-05-2011

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