New Internationalist

Foreign Aid - the facts

December 1979

The reasons for giving foreign aid are usually couched in humanitarian language. Our governments contribute food, technical advice, cash loans and grants because they are ostensibly interested in improving the lot of the world’s poor. But the actual impulses behind foreign aid are far more complex. Here the New Internationalist cuts through the jargon of aid and comments briefly on the aid policies of some of the more important donor nations.


BILATERAL OR MULTILATERAL - Aid givers decide whether their assistance should go on a govern­ment-to-government basis (bilateral) or be channelled through international agencies like the World Bank, the Food and Agricultural Organization or the regional development banks (multilateral). Aid has increasingly been disbursed multilaterally - 16% in 1970 and nearly 30% in 1977.

PRIVATE INVESTMENT - Investment by private corporations is a major part of total resource flows to the Third World. But private investment is not geared so much to human needs as to a profitable return. Of the $36 billion in total resource flows to the Third World in 1976, over $20 billion was from private sources. Some countries like France continue to include private investment in their total aid figures.

VOLUNTARY ORGANIZATIONS - Aid from private voluntary development agencies like Oxfam, Community Aid Abroad or Development and Peace is the smallest component of total aid - $1.3 billion in 1976 - although it is widely claimed to be the most effective.

TIED OR UNTIED - Bilateral aid is given often on the condition that it must be spent on goods and services from the donor country. This ‘tied’ aid really amounts to subsidizing Western manufacturers. Poor countries dislike tied aid because it means higher prices than on the world market and sometimes goods of lower quality. Tied aid has increased from 35% of total aid in 1972 to 53% in 1977, despite pledges from the rich countries to untie aid,

GRANTS OR LOANS - Aid can be in the form of grants - which are often tied - or loans which have to be repaid with interest. Aid loans are given at ‘concessional’ rates below the rates of private loans. Nearly two-thirds of all aid is now in grant form.


Mushrooming debt is a serious problem for under­developed countries. It has been rising by 16% since 1976 and will approach $300 billion by 1980. Although loans from private banks are increasing in importance,debt on past aid still accounts for the bulk of Third World debt. In 1977, 95% of the debt of the 29 poorest countries was official debt to other governments. Some countries - Canada, Britain, Sweden - have written off past debts to the poorest nations. Loans from multilateral sources like the World Bank and the International Monetary Fund and from private banks will be necessary as long as poor countries receive insufficient income from their exports and require more capital from outside.



Total Official Aid - $4.15 billion.
% GNP - 0.22%
Major recipients - Egypt, Israel, India, Pakistan, Jordan.

The U.S. is near the bottom of the list of Western aid donors in percentage GNP terms. U.S. aid has been and continues to be overtly political - intended to reward allies and pay off anti-communist governments. About 75% of all U.S. aid is spent on American goods and services. Half of all U.S. aid goes to only ten countries. Egypt, Israel, and Jordan get as much aid as all other countries in Asia, Africa and Latin America combined. About 70% of U.S. aid is bilateral. Nearly half of all aid falls under the Security Assistance Program to promote ‘political and economic stability’ and 90% of this goes to the Middle East.


Total Official Aid - $1.1 billion.
% GNP - 0.50%
Major recipients - Bangladesh, Pakistan, India, Tanzania, Malawi.

Committed on paper to directing more aid to the poorest countries and to untying bilateral aid, Canadian aid is under strong attack from the new Conservative government. The new Finance Minister recently told the Third World, ‘Our obligation is to our own people - the people who elected us.’ More than 80% of Canadian aid is tied and the push for greater exports is likely to keep the tied portion high. More than a quarter of Canadian aid in the form of food. Canada has taken the initiative in debt cancellation to the least developed countries and at least 90% of total bilateral aid is directed towards low and middle­income countries.


Total Official Aid - $260 million.
% GNP - 0.03%
Major recipients - Egypt, India, North Korea, Cuba, Vietnam.

Considering its economic power, Russia is the skinflint of the international community. Soviet aid is miniscule, but highly concentrated on ideological allies - Cuba, Vietnam, Afghani­stan, Mozambique. Most loans are on harder terms than the West, while the grant portion continues to decline below half. Virtually all Russian aid is tied to purchasing Soviet speciali­ties - electrical generating equipment, steel mills and the like. Russia refuses to reschedule the debt of its three main aid recipients. India now pays back more every year than it receives in new aid. Excluding Cuba and Vietnam, the USSR now gets back more in interest and capital repayments than it gives out every year.


Total Official Aid - $914 million.
% GNP - 0.37%
Major recipients - India, Bangladesh, Zambia, Kenya, Jamaica.

U.K. aid as a percentage of GNP has declined steadily for more than 10 years to one of the lowest levels in the West. Main recipi­ents are former colonies in Asia and Africa. Like the U.S., but to a lesser degree, British aid is also an arm of foreign policy. Indeed, the Conservatives have now re-absorbed the Aid Ministry into the Foreign Office. Aid is concentrated on the poorest nations in grant form, albeit mostly tied. Multilateral contribu­tions are about 40% of total aid. Britain has also written-off some loans to Poorer countries.


Total Official Aid - $427 million
% GNP - 0.45%
Major recipients - Papua New Guinea, Indonesia, Philippines.

Like most Western powers, Australia’s aid agency the Development Assistance Bureau (ADAB) is responsible to the Depart­ment of Foreign Affairs. Australia’s geographical priorities are with its Third World neighbours in the South Pacific. Over 80% of it is bilateral. Papua New Guinea receives the lion’s share, about 56%, Domestic economic problems mean Australia will likely remain a low-profile aid donor.


Total Official Aid - $52 million,
% GNP - 0.39%
Major recipients - Cook Islands, Indonesia, Fiji, Western Samoa.

Like Australia, New Zealand aid is directed primarily to the South Pacific and South-East Asia - over 70%. The emphasis is on rural development and agriculture. Bilateral aid is usually tied and New Zealand continues to be the only country to tie a major portion of its multilateral aid to the purchase of local goods and technical advice.


Total Official Aid - $6.7 billion.
% GNP - 2.65%
Major recipients - Pakistan, India, Syria, Jordan, Sudan.

Oil producing nations have become major aid givers since the 1973 oil price increases. The Organization of Petroleum Export­ing Countries (OPEC) now supplies more than 25% of all aid to the Third World. Most of it is untied and more than 75% goes to non-Arab states. Qatar and the United Arab Emirates give more than 10% of their GNP in aid. Saudi Arabia commits about 5% and Kuwait 7%. OPEC members have also set up two multi­lateral development banks and appear likely to become major forces in bilateral aid. However, since 1975 although oil prices continue to rise, the total amount of OPEC aid has steadily declined.

Source - Organisation for Economic Co-operation and Development

This feature was published in the December 1979 issue of New Internationalist. To read more, buy this issue or subscribe.

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New Internationalist Magazine Issue 436

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