International aid

What is international aid?

International aid (foreign aid) is the transfer of money, goods, technical knowledge or services from one country or institution to another, usually for development, relief or welfare. When it is given by governments for development on concessional terms, it is called Official Development Assistance (ODA). In 1970 the UN set a target for rich countries to give 0.7% of their gross national income as ODA, though few countries meet it.

Forms of aid

• Bilateral aid: from one government to another, often through agencies such as USAID (USA) or JICA (Japan).
• Multilateral aid: through international organisations funded by many countries.
• Grants (no repayment) and concessional loans (low interest, long repayment).
• Humanitarian or emergency aid after disasters, and project aid versus programme aid.
• Technical assistance: experts, training and technology.

Major aid agencies

• World Bank Group: the IBRD (set up after the 1944 Bretton Woods conference) gives loans to middle-income countries; the IDA (1960) gives soft loans and grants to the poorest countries.
• IMF: supports countries with balance-of-payments problems, often with conditions.
• UNDP, UNEP, FAO, WHO and UNICEF in the UN system.
• Asian Development Bank (1966, Manila).
• Global Environment Facility (GEF) (1991): funds projects on biodiversity, climate change, international waters and land degradation, and acts as a financial mechanism for several environmental conventions.

Tied and untied aid

• Tied aid must be spent on goods and services from the donor country, or on projects chosen by the donor. It helps the donor's exporters but reduces the value of aid to the recipient, because goods may cost more than on the open market and may not suit local needs.
• Untied aid can be spent on goods and services from any country, allowing the recipient to buy at the best price. It is generally considered more effective.

Conditionality means aid or loans are given only if the recipient adopts certain policies, such as structural adjustment reforms. Critics argue that aid can create dependence and that some aid-funded projects, such as large dams, caused environmental damage and displacement.

Key points

• ODA target: 0.7% of donor GNI.
• Bilateral = government to government; multilateral = through international bodies.
• Tied aid must be spent in the donor country; untied aid can be spent anywhere.
• GEF funds global environmental projects.

Common mistakes

• Thinking all aid is a free grant; much of it is in the form of loans.
• Mixing up IDA (soft loans to poorest) with IBRD (loans to middle-income countries).