96
Week Five Notes: Development Aid and Cooperation Industry
Reading Notes
Reading 1: The International Aid System
SOURCE: T.J. Moss and D. Resnick, ch. 8 “The International Aid System” in African Development:
Making Sense of Issues and Actors, Rienner (2017) pp. 131-167.
SUMMARY:
The International Aid System
● Interaction between the developed and developing worlds is intimately shaped by the financial
and political relationships surrounding the transfer of money.
○ Billions of dollars flow each way
● The international aid system is deeply dysfunctional and full of contradictions and (unintended)
consequences.
● Development however is about much more than aid.
○ Evidence that rich countries can do much more than aid to reduce poverty in developing
countries such as trade, migrations, technology, private finance…
Origins of the International Aid System
● WWII → European reconstructions
● The major Allies met in Bretton Woods in 1944 to help create a more stable international
economic system after the war.
○ The outcome: Bretton Woods Institutions → The International Monetary Fund (IMF)
and the International Bank for Reconstruction and Development (IBRD - the main
component of the World Bank)
○ IMF purpose: to help coordinate rules about policies toward money and exchange
rates and to create an organization that could make short-term loans to countries
following a temporary crisis.
○ IBRD/WB purpose: was to act like a bank and make long-term loans to finance the
reconstruction of the roads, bridges, and other things destroyed during the war.
● The US also had its own assistance plan for Europe → The Marshall Plan, given to Western
European countries from 1948-1951. Half to Britain and France
○ Successful
● The US also gave aid to Greece and Turkey as a part of a counter-communist expansion.
○ As the Cold War became more intense the use of foreign aid accelerated.
● In 1961: the US Congress passed the Foreign Assistance Act and created the US Agency for
International development (USAID).
● In addition to geostrategic concerns, decolonization was another driving force behind the initial
growth of foreign aid.
○ For former colonial powers, this was originally “aimed at smoothing the transition to
independence” - however soon took on strategic purposes; preventing Soviet influence
or promoting continued European influence on the continent.
○ More recently poverty reduction is the primary rationale for aid to africa
■ “Moral” or “humanitarian” reasons and also for a new security agenda.
○ Economic interests
, 97
Various Types of Aid
Distinction by donor: - Private aid (individuals, churches, charities, nongovernmental
groups)
- Official aid
- Bilateral aid (from single governments)
- Multilateral aid (form institutions owned by many
governments; WB or African Development Bank)
Distinction by recipient: - Channeled to governments (eg government of Benin)
- Private organizations (eg Nigeria's Society for Women and AIDS
in Africa)
Distinction by - Project (Building schools in Nairobi)
objective: - Sector (Malawian Health Care)
- Budget Support
Distinction by form: - Cash
- Surplus grain
- Technical assistance and training
Official Development Assistance (ODA)
● Official aid given for nonmilitary purposes is either a grant (an outright gift) or a soft loan (a
loan with low-interest rates and often with long repayment periods).
● ODA is usually reported in net terms, which subtracts principal repayments from past loans
that flow in the other direction (which is why some countries could receive negative net ODA if
their repayments of old loans are larger than new aid).
● The data for ODA comes from the Development Assistance Committee (DAC) of the
Organization for Economic Cooperation and Development (OECD).
○ Much of what counts as ODA is spent on “technical assistance” (mainly consultants),
administrative budgets for aid agencies, etc.
○ The numbers also do not include many new “emerging donors” such as Brazil, China,
India, or Saudi Arabia.
Major Donors: The Bilaterals
● Most common donor group: DAC (30 members)
● Not necessarily all coordinated
USAID
● More than 24 US gov agencies are involved in some sort of ODA
● USAID handles half of the total US ODA
○ USAID is technically part of the State Department but does not have cabinet-level
representation.
○ The head of the agency reports to the secretary of state and the budget is controlled by
a special department in the State Department
○ The US congress plays an active role in setting the foreign aid agenda.
○ Many other cabinet departments also have their own foreign aid programs.
○ Even non cabinet agencies such as the CDC, NIH, and OPIC, are included in ODA
figures.
, 98
DFID
● The British use a completely different model, whereby the vast majority of aid is organized via
one large agency → the Department for International Development (DFID)
● Every change in government brought a new organization of British aid:
○ Previously aid was handled by individual colonial offices
○ 1962: ‘Department of Technical Cooperation’
○ 1979: Thatcher → ‘Overseas Development Administrations’ under the Foreign Office
○ 1997: Blair → created DFID, promoting the secretary to the cabinet-level
■ The British parliament helps shape aid policy but does not have the same
influence as the US congress over what gets spent, where, or how.
Major Donors: The Multilaterals
● Central and dominant actors in global efforts to promote African development
○ Able to generate substantial amounts of money
○ Multilateral states which gives extra influence and global reach
● Most important for Africa are the WB, the IMF, the African Development Bank (AfDB), and
the various UN agencies.
The World Bank Group
● Most important global institutions shaping the development agenda
○ Among the largest donors to Africa
○ Influence and presence
● 184 member countries, based in Washing DC with offices in more than 100 countries
● It borrows money in private markets and then relends it to governments.
○ Provides advice to borrowing govs and has a research department that does analysis of
development issues and trends.
● Several organizations under one WBG.
Two main components:
1. The International Bank for Reconstruction and Development (IBRD)
- Lends money to middle-income countries, currently, those that are considered “upper
middle income”. GNI pc range: $3,956-12,235
- Countries such as: Botswana, SA, Gabon, Namibia, or Mauritius are eligible for the
IBRD
- They pay close to commercial interest rates tho
2. International Development Association (IDA)
- Set up in 1960 for low-income countries, to borrow money at cheap, fixed interest
rates. Forty-year loans at 0.75% with a ten-year grace period.
- Increasingly using more grants
- The shareholders give IDA money every three years as a subsidy. “IDA replenishment”
- The vast majority of African countries are IDA members
Other affiliate components:
- International Finance Corporation (IFC)
- Loans to private companies in developing countries.
- Dual mandate: both to promote development and to make profits, part of which it shares
with IDA.
- Multilateral Investment Guarantee Agency (MIGA)
Week Five Notes: Development Aid and Cooperation Industry
Reading Notes
Reading 1: The International Aid System
SOURCE: T.J. Moss and D. Resnick, ch. 8 “The International Aid System” in African Development:
Making Sense of Issues and Actors, Rienner (2017) pp. 131-167.
SUMMARY:
The International Aid System
● Interaction between the developed and developing worlds is intimately shaped by the financial
and political relationships surrounding the transfer of money.
○ Billions of dollars flow each way
● The international aid system is deeply dysfunctional and full of contradictions and (unintended)
consequences.
● Development however is about much more than aid.
○ Evidence that rich countries can do much more than aid to reduce poverty in developing
countries such as trade, migrations, technology, private finance…
Origins of the International Aid System
● WWII → European reconstructions
● The major Allies met in Bretton Woods in 1944 to help create a more stable international
economic system after the war.
○ The outcome: Bretton Woods Institutions → The International Monetary Fund (IMF)
and the International Bank for Reconstruction and Development (IBRD - the main
component of the World Bank)
○ IMF purpose: to help coordinate rules about policies toward money and exchange
rates and to create an organization that could make short-term loans to countries
following a temporary crisis.
○ IBRD/WB purpose: was to act like a bank and make long-term loans to finance the
reconstruction of the roads, bridges, and other things destroyed during the war.
● The US also had its own assistance plan for Europe → The Marshall Plan, given to Western
European countries from 1948-1951. Half to Britain and France
○ Successful
● The US also gave aid to Greece and Turkey as a part of a counter-communist expansion.
○ As the Cold War became more intense the use of foreign aid accelerated.
● In 1961: the US Congress passed the Foreign Assistance Act and created the US Agency for
International development (USAID).
● In addition to geostrategic concerns, decolonization was another driving force behind the initial
growth of foreign aid.
○ For former colonial powers, this was originally “aimed at smoothing the transition to
independence” - however soon took on strategic purposes; preventing Soviet influence
or promoting continued European influence on the continent.
○ More recently poverty reduction is the primary rationale for aid to africa
■ “Moral” or “humanitarian” reasons and also for a new security agenda.
○ Economic interests
, 97
Various Types of Aid
Distinction by donor: - Private aid (individuals, churches, charities, nongovernmental
groups)
- Official aid
- Bilateral aid (from single governments)
- Multilateral aid (form institutions owned by many
governments; WB or African Development Bank)
Distinction by recipient: - Channeled to governments (eg government of Benin)
- Private organizations (eg Nigeria's Society for Women and AIDS
in Africa)
Distinction by - Project (Building schools in Nairobi)
objective: - Sector (Malawian Health Care)
- Budget Support
Distinction by form: - Cash
- Surplus grain
- Technical assistance and training
Official Development Assistance (ODA)
● Official aid given for nonmilitary purposes is either a grant (an outright gift) or a soft loan (a
loan with low-interest rates and often with long repayment periods).
● ODA is usually reported in net terms, which subtracts principal repayments from past loans
that flow in the other direction (which is why some countries could receive negative net ODA if
their repayments of old loans are larger than new aid).
● The data for ODA comes from the Development Assistance Committee (DAC) of the
Organization for Economic Cooperation and Development (OECD).
○ Much of what counts as ODA is spent on “technical assistance” (mainly consultants),
administrative budgets for aid agencies, etc.
○ The numbers also do not include many new “emerging donors” such as Brazil, China,
India, or Saudi Arabia.
Major Donors: The Bilaterals
● Most common donor group: DAC (30 members)
● Not necessarily all coordinated
USAID
● More than 24 US gov agencies are involved in some sort of ODA
● USAID handles half of the total US ODA
○ USAID is technically part of the State Department but does not have cabinet-level
representation.
○ The head of the agency reports to the secretary of state and the budget is controlled by
a special department in the State Department
○ The US congress plays an active role in setting the foreign aid agenda.
○ Many other cabinet departments also have their own foreign aid programs.
○ Even non cabinet agencies such as the CDC, NIH, and OPIC, are included in ODA
figures.
, 98
DFID
● The British use a completely different model, whereby the vast majority of aid is organized via
one large agency → the Department for International Development (DFID)
● Every change in government brought a new organization of British aid:
○ Previously aid was handled by individual colonial offices
○ 1962: ‘Department of Technical Cooperation’
○ 1979: Thatcher → ‘Overseas Development Administrations’ under the Foreign Office
○ 1997: Blair → created DFID, promoting the secretary to the cabinet-level
■ The British parliament helps shape aid policy but does not have the same
influence as the US congress over what gets spent, where, or how.
Major Donors: The Multilaterals
● Central and dominant actors in global efforts to promote African development
○ Able to generate substantial amounts of money
○ Multilateral states which gives extra influence and global reach
● Most important for Africa are the WB, the IMF, the African Development Bank (AfDB), and
the various UN agencies.
The World Bank Group
● Most important global institutions shaping the development agenda
○ Among the largest donors to Africa
○ Influence and presence
● 184 member countries, based in Washing DC with offices in more than 100 countries
● It borrows money in private markets and then relends it to governments.
○ Provides advice to borrowing govs and has a research department that does analysis of
development issues and trends.
● Several organizations under one WBG.
Two main components:
1. The International Bank for Reconstruction and Development (IBRD)
- Lends money to middle-income countries, currently, those that are considered “upper
middle income”. GNI pc range: $3,956-12,235
- Countries such as: Botswana, SA, Gabon, Namibia, or Mauritius are eligible for the
IBRD
- They pay close to commercial interest rates tho
2. International Development Association (IDA)
- Set up in 1960 for low-income countries, to borrow money at cheap, fixed interest
rates. Forty-year loans at 0.75% with a ten-year grace period.
- Increasingly using more grants
- The shareholders give IDA money every three years as a subsidy. “IDA replenishment”
- The vast majority of African countries are IDA members
Other affiliate components:
- International Finance Corporation (IFC)
- Loans to private companies in developing countries.
- Dual mandate: both to promote development and to make profits, part of which it shares
with IDA.
- Multilateral Investment Guarantee Agency (MIGA)
