PCDForum Article #13, Release Date May 15, 1995

by David C. Korten

Foreign aid is one of the many targets of the slash and burn spending cuts being proposed by Newt Gingrich and his Republican colleagues in the U.S. Congress. Though the Republican initiative is a crude and mean spirited attack on programs for the poor in order to give tax breaks to the wealthy, it is entirely within our means to dramatically cut foreign aid spending and benefit the poor and the environment in the process.

Countless progressive groups deeply concerned about the plight of the poor have presented tale after documented tale of how foreign aid has been actively harmful from the structural adjustment programs of the World Bank that turn over national economies to foreign creditors to food aid programs that undermine small local farmers. There is almost no one with the possible exception of agencies directly dependent on the aid system prepared to argue that more than a tiny fraction of current foreign aid actually benefits the poor.

Saying that foreign aid is on balance harmful or useless is not the same as saying rich countries have no obligation to help poor countries. That obligation is substantial. However, we do no service to the poor and the environment by defending the whole aid system in the belief that this is necessary to protect the small pieces of it that may be doing good.

Bread for the World has been taking a hard look at foreign aid allocations for several years. They note that of the total U.S. foreign aid budget of $15.2 billion for FY1994, only $8.3 billion makes even a pretense of being for development. The remainder is a combination of military aid, security related economic aid, export promotion, and other forms of nondevelopmental economic spending. The bias toward military security is evident in the listing of the top ten recipients of U.S. foreign aid between 1982 and 1991. They are in order of the total billions of dollars received: Israel ($29.9), Egypt ($23.2), Turkey ($6.9), Pakistan ($5.4), El Salvador ($4.0), Greece ($3.7), Philippines ($3.5), Spain ($1.9), Honduras ($1.9), and India ($1.7).

We must bear in mind that the political impetus for foreign aid came from the cold war. Stable dictatorships were favored so long as they professed to be anti-communist. The majority of U.S. assistance was earmarked for military assistance and economic payoffs for political favors such as military base rights. The cold war is over and these categories of aid have properly declined as a percentage of the total. Yet such forms of aid continue including to repressive regimes.

The Bread for the World study dissaggregates the remaining $8.3 billion of aid to identify those portions that might arguably be devoted to addressing long-term causes of poverty, hunger, and environmental deterioration. It classifies these as sustainable development expenditures. Using highly generous criteria, it finds that at most $2.6 billion of the FY1994 aid budget (17 percent of the total) supports sustainable development. The deepest Republican cuts are likely to be from these items. An additional $1.7 billion is allocated to migration, refugees, disaster assistance and food aid humanitarian aid which may help the poor, but without addressing the underlying causes of their plight.

Revealing as the budget numbers are they do not take us to the heart of foreign aid's problem the fact that it is based on flawed premises. For example:

The presumed goal of aid continues to be to bring poor countries up to an American standard of material consumption by accelerating economic growth notwithstanding evidence that the current American standard is unsustainable even for Americans and that economic growth often enriches the already wealthy at the expense of the poor. Indeed, much of our aid continues to be channeled to the rich and powerful on the discredited trickle down theory that this will ultimately benefit the poor. The fact that poverty is deeply imbedded in institutional structures is actively ignored.

Aid implicitly assumes that development is advanced by increasing external economic dependence. Foreign aid provides a country with unearned foreign exchange to buy more things from abroad. Countries that want to keep their military weaponry up to date and provide their wealthy elites with the latest in brand name consumer goods need to orient their economies to the needs and goods of the global economy. However, where the primary goal is to create societies able to provide adequate food, clothing, shelter, basic health care, and education for everyone based on their own resources, then foreign purchases and thereby foreign aid have a more limited role.

A substantial portion of assistance has been loan funded. Debt service payments on public foreign debt from both official and commercial sources have placed poor countries in virtual debt bondage to their creditors and allowed the World Bank and IMF to impose structural adjustment programs that have stifled poverty alleviation efforts all around the world. It is time to reverse this process, recognizing that for most poor countries the elimination of foreign debt would free far more foreign exchange to meet necessary and appropriate import needs than would be provided even by significant increases in development assistance.

The following are actions the United States should consider if we are serious about advancing economic justice, environmental sustainability, and political participation in low income countries.

  • Transform our own inequitable and unsustainable economy to provide the world a new model for sustainable lifestyles and economic justice.
  • Convene an international conference to eliminate the foreign debts of Southern countries by: 1) creating a new democratically accountable agency under the United Nations with a mandate to support Southern countries in legally repudiating odious debts; and 2) introducing a 5 percent tax on international financial transactions to finance the pay down of remaining Southern international debt under agreements that preclude recreating it. If our concern is to help the poor and the environment, eliminating their international debts should be a top priority. Currently, the main positive function of foreign aid is to help finance debt service payments on international indebtedness that the foreign aid system had a major role in creating. While eliminating aid without eliminating this debt would be unconscionable, eliminating the debt would eliminate the major need for the aid system.
  • Phase out the multilateral banks the World Bank, the IMF, and the regional development banks. By their nature as lending institutions, they add to the debts of Southern countries with nearly every action they take. It is not evident they have useful roles in creating just and sustainable societies.
  • Eliminate $11.0 billion from the current foreign aid budget of $15.2 billion. Allocate $2.4 billion of the remaining funds among: 1) qualified UN agencies dealing with critical global issues such as UNIFEM and UNFPA; and 2) public development foundations such as the existing Latin American, African and Asian regional development foundations and Appropriate Technology International that support civic engagement in addressing structural issues relating to the creation of just, democratic, and sustainable societies. Allocate the remaining $1.8 billion to a fund for humanitarian assistance programs implemented through the United Nations and qualified NGOs. Eliminate the remaining programs now funded under the foreign aid account.
  • Eliminate military and security related economic assistance and initiate negotiations on an international convention to end the global arms trade.

One of the major goals of reforms called for here is to correct or reverse the enormous damage that the present thoroughly discredited aid system has already caused. It is well within our means to replace this system with forms of international cooperation and mutual self-help that work for the creation of a just and sustainable world for all people. The longer we wait, the worse the mess we will eventually face.

David C. Korten is president of the People-Centered Development Forum and author of When Corporations Rule the World. He worked for nearly thirty years in the aid system.

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