“As the wealthiest nation on Earth, I believe the United States has a moral obligation to lead the fight against hunger and malnutrition,

and to partner with others,”

– PRESIDENT BARACK OBAMA

“Foreign aid is taking money from the poor people of a rich country and giving it to the rich people of a poor country,”

– RON PAUL

The policy of giving foreign aid to developing nations has been a tumultuous and perplexing issue on which numerous nations have struggled to develop consistent stances. While some nations may want to intervene and give humanitarian or monetary aid to a developing nation, there will always be others who wish to further prioritize the development of their own economies. Both sides are completely legitimate in their own rights and are both arguable. However the delegates of ECOFIN must keep in mind that the main goal of the ECOFIN committee is to promote sustainable fiscal development in impoverished nations. Because ECOFIN is a General Assembly, one must keep in mind that we do not have the power to strictly enforce policies and we can only make suggestions. This is to ensure that the national sovereignty of each nation is respected and preserved.

The issue of distributing foreign aid is so significant to the ECOFIN because quite often, when governments, non-governmental organizations (NGOs), or international bodies try to provide monetary aid in the hopes of helping the people within that developing country, the money donated or received can be hoarded by corrupt governments, embezzled by corporations, or become lost in the inconsistencies of a protectionist market. This, coupled with the high chance of money laundering, leads to troubling situations that ECOFIN must face to further our agenda.

President Truman signs the Economic Recovery Act of 1949 (Later known as the Marshall Plan1)

President Truman creates the Point Four Program, an assistance program designed to share technical expertise rather than economic aid

United States of America’s Foreign Assistance Act is enacted to unify military and nonmilitary forms of aid

Organisation of Economic Co-operation and Development is founded

By executive order, President John F. Kennedy creates the United States Agency for International Development (USAID)

United Nations Millennium Summit begins to discuss the 0.7% target

International Monetary Fund (IMF) publishes article titled "Aid Will Not Lift Growth in Africa." weeks before the G8 conference.2

Ex Malawi President Bakili Muluzi is charged with embezzling aid money worth $12 million.3

1 "Marshall Plan (1948)." Our Documents - Marshall Plan (1948). Our Documents, n.d. Web. 12 Dec.

2016. 2 Moyo, Dambisa. "Why Foreign Aid Is Hurting Africa." The Wall Street Journal. Dow Jones & Company,

21 Mar. 2009. Web. 12 Dec. 2016. 3 "Ex-Malawi Leader on Theft Charges." BBC News. BBC, 27 Feb. 2009. Web. 12 Dec. 2016.

To look at this situation from a historical perspective, we must understand why these countries are in need of aid in the first place. Once the causes are established, we can relate them to the feasible methods different nations and international bodies have considered.

One could say that globalization and, by that effect, foreign monetary aid started during the later stages of the European colonial era. Because European nation and nation-states were implementing the practice of imperialism, they amassed as many colonies as they could to obtain profits for their home country. From these colonies they could receive benefits that included food supplies, clothing supplies, exports and imports, as well as soldiers when needed. It should be said, however, that many of these areas needed economic reform or stimulation to be made fit for European control; this led to vast amounts of money being invested in developing these colonies into westernized ports and cities. One could argue that this is where a significant amount of the problems in developing nations have spawned.

During the 19th century, there were numerous acts that tried to remediate the negative affects of colonialism on developing nations. Examples of such acts are President Truman’s Marshall Plan, The Four Point Program, the United States Foreign Assistance Act, and the United Nations Millennium Summit. While these all had their unique traits tailored to their respective mandates, they all had the basic idea of providing aid, including monetary aid, to financially struggling and infrastructure lacking countries. This historical presence and progression of foreign monetary aid in the past 60 years or so is particularly important because this implies that there has already been enough time for politicians and world leaders to work out policy regarding it. The current result is quite polarized, with numerous stances and their respective deviations being thrown into the political field.

As mentioned before, the current situation has primarily divided into an pro-isolationist and pro-globalization stances when it comes to the policy of giving foreign monetary aid. In this part of the backgrounder, we will explore different case studies and discuss problems that are happening in the status quo.

One of the biggest reasons for Britain's exit from the European Union was the amount of money that was being donated through the EU to developing nations. In 2014, which was before the referendum, Britain contributed $16.3 billion USD to the

EU.4 While this amount was balanced out by the subsidies, freedom of movement benefits, and the already established discount by former Prime Minister Margaret Thatcher, the British people in the end, voted to leave. It is important to understand the actual policy that Britain may adopt when it comes to contributing fiscally to developing nations; from the current trends, it seems that Britain will gravitate more towards not giving as much foreign aid,

“There was the idea that countries had to catch up, that Western Europe and countries like Australia, Canada and North America were

developed... they were the goal that everybody else had to reach,”

– ROSALIN EYBEN, SOCIAL SCIENTIST

One of main ideologies when it comes to current foreign aid involves a focus on economic stimulus and investment. The main tenet of this ideology is that if the economy of a developing nation is stimulated, then the companies that contribute to the economic flow will hire more employees. This increase in economic power and expansion of the workforce/job market will allow people to pay more taxes and contribute back to the economic flow. One could say that this is an adopted form of Reagan’s “trickle-down economics” because it involves the investment of companies to raise the quality of life for the impoverished, unemployed, and disadvantaged citizens. While this policy has its merits, it is important to consider the two main flaws with this argument.

The first is the fact that, in order for an economy to be stimulated and invested in with this theory, there must first be a demand for specific industrialized or even “westernized” jobs in the developing country. This is an issue because in a lot of countries, this demand only occurs because of the foreign investment of big, high earning western companies that seemingly exploit the cheap labour in these developing countries. With the introduction of these alien companies, inconsistencies in the market pertaining to deals made between the company and the local government tend to become more frequent. To simplify, in order to make the most fiscal profit, Western nations implement protectionist policies to ensure that their home-produced products are encouraged wherein goods from other countries may have a tariff or premium placed upon their goods. On the other hand, developing nations are often unable to implement these because they are reliant on the foreign investment in the first place. This inconsistency leads to questions about the viability and fairness of this particular economic plan.

The second flaw is that trickle-down economics and economic stimulus/development were targeted towards a stable first world country, not a developing nation. A lot of the policies are under the assumption that there is a

4 The EU Has Its Own Small Budget to Cover the Cost of Supporting Farmers. "Brexit: How Much Does

the EU Really Cost Britain." CNNMoney. Cable News Network, n.d. Web. 13 Dec. 2016.

certain degree of development to provide a strong foundation for the proper implementation of these policies. Quite often in a developing nation, the people who the UN want to help the most and are in the gravest danger have had their facilities, infrastructures, and security taken away from them. One should keep in mind, however, that developing nations should not be confused with anarchy; they still have some economic, political, and social structures which may support or disprove of this policy.

Overall, while this policy has been originally intended for developed nations, delegates are encouraged to adapt these viable policies to better fit the developing nations ECOFIN is dedicated to assisting.

The second main ideology pertaining to giving foreign aid is that we should be creating, and providing programs to ensure that people in impoverished nations obtain their basic human needs. These programs would include food, water, and shelter. The main argument for this approach is that the people in these countries are starving and are living in substandard living conditions normally deemed unfit for human life. Because of that, in order for any economic growth and sustainability to happen, we need to address the fact that they need basic supplies to survive. Some popular methods that have been used are providing farm tools, airdropping food and water, as well as create basic infrastructure. These actions are in the hopes that people can get back on their feet and stimulate the economy on their own. However, much like the former, there is one inherent flaw with this ideology.

The first point of objection is that terror groups or other harmful organizations can steal the resources that we give to people and use it to supply their own motives. An example of such an appalling situation is when the United Nations attempted to provide humanitarian aid to the citizens that were caught in the war zone of the Somali Civil War. This was a huge scale operation carried alongside:

“six main United Nations organizations at work in Somalia coordinating overall humanitarian efforts: the Food and Agriculture Organization of the United Nations (FAO), the United Nations Development Programme (UNDP), UNICEF, the Office of the United Nations High Commissioner for Refugees (UNHCR), WFP and the World Health Organization (WHO). In addition, more than 30 NGOs were working in Somalia as "implementing partners" of the United Nations. Moreover, ICRC continued to provide assistance under the most difficult of situations. There were also many local NGOs that worked with the United Nations and the international NGOs”5.

At first citizens were able to get supplies, but as the operation continued, militia groups congregated around Mogadishu were able to loot, and steal resources

5 "UNITED NATIONS OPERATION IN SOMALIA I (UNOSOM I) - Background (Full Text)." United

Nations. United Nations, n.d. Web. 16 Dec. 2016.

originally intended for civilians through armed robberies and guerilla warfare. The United Nations Assistance Mission in Somalia (UNSOM) realized that even when vast amounts of supplies were being sent, only a small fraction of those supplies were actually going towards their intended target. The result of this failure is that as many as 3,000 persons a day were dying of starvation,6 while militia controlled warehouses were stockpiled.

For ECOFIN, this means that while giving aid is a viable option to help sustain life, it only works if it actually reaches the people it is trying to save.

Currently, the issue of dependence and the poverty cycle is a particularly prevalent one because it ecompasses both of the discussed approaches and their flaws. To simplify, when developed countries give vast amounts of financial aid to poorer developing countries, it actually disturbs the current economy that is already set in place within their own borders. Nobel Prize winning economist, Angus Deaton, stated that out of all the attempts to stimulate growth in Africa, very few ended up providing a stable economy7. In fact, the provided aid seemed to correlate with lower economic growth.

Regarding the point of dependance, one popular argument is that when nations supply copious amounts of funds, because of the constant flow of money towards the government, it encourages them to adopt policies that depend on foreign aid. This is supported by various facts; if a nation would mostly rely on taxes for revenue, then they have a duty to spend that money on the citizens who are the taxpayers. However, when that money comes from alien sources, the funds are no longer coming from the citizens. This quite often results in irresponsible spending which damages the government’s relationship with the taxpayers. When this happens, the citizens effectively have the power to cut the government off from the taxes due to their basic needs not being met. This relates back to dependence

6 "UNITED NATIONS OPERATION IN SOMALIA I (UNOSOM I) - Background (Full Text)." United

Nations. United Nations, n.d. Web. 16 Dec. 2016. 7 "Angus Deaton - Facts." Angus Deaton - Facts. N.p., n.d. Web. 08 Feb. 2017.

because now that they have lost their home source of income, they must rely once again on a foreign power for a source of income.

Reliance also comes into play when agricultural aid is heavily used in countries with poorly developed local food production.

“Increasing dependency on aid imports disincentives local food production by reducing market demand. This is compounded when declining aid is replaced with commercial imports rather than locally-sourced food, either because of cheaper prices or a lack of recipient country food production capacity because of long-term aid causing agricultural stagnation.”8

Another relevant qualm is the level of corruption in developing countries. Numerous experts believe that because of the corrupt nature of governments to which we give aid, the supplies go to waste. According to the Corruption Perceptions Index (CPI), a ranking system for corruption published by Transparency International, as of 2013, two of the countries ranked highly for corruption “are Somalia which received $168 million and Afghanistan which received $2.3 billion. Together, these two nations received approximately $2.47 billion.”.9 This is important because there is a logical train of thought that would simplify corruption that is applicable today.

Without a doubt, the affair of corruption is something to consider.

To tie in the two topics, foreign aid and money laundering can work hand in hand to disadvantaged citizens. For example, if an unwelcome party intercepts foreign aid, then that money is no longer legally obtained; this means that there is a high chance of the currency being circulated back into the black market. The comparisons are not limited to armed robberies per se; one should consider any misuse of foreign aid as being laundered for a different cause.

8 Shah, Anup. "Food Aid." Food Aid - Global Issues. N.p., n.d. Web. 16 Dec. 2016. 9 Patton, Mike. "Foreign Aid: Money Down a Rat Hole/." Forbes. Forbes Magazine, 28 Jan. 2013. Web. 17

Dec. 2016.

In an attempt to mitigate poverty and create an action plan to reduce it, the United Nations Millennium Project was created in 2012. The purpose of the project was to find solutions for hunger, disease, and poverty within developing countries by 2015 by reaching the project’s 8 main goals. Although the project recommendations have not been implemented on an adequate scale, in turn leaving one sixth of the population in poverty, the other entwined strategies include making the project's goals a minimum policy target in developing countries. The project's goals revolve around countries developing a system in which they can identify what interventions need to be in place in order to reach the project's objective. At this stage, 16 out of 22 countries have either met or agreed to meet the pledge of contributing 0.7% of their GDP towards these millennium goals by 2015; however many countries have not developed a sufficient timetable to reach the projected targets. The percentage of GDP would go towards the direct development of roads, teachers, health centers, wells, medicines, and many foundational needs.

There are many unique and viable solutions that every country can apply but in this backgrounder, two potential solutions will be addressed; transparency and the breaking of the poverty cycle.

Increased transparency is an essential element of a solution for the current problem. Too often are deals made with unfair consequences for the receiving nation wherein the people are the ones that pay the biggest price. As mentioned in the current situation part of the backgrounder, this could be by a corrupt government, armed robberies, and dependency. It’s not fair to assume that transparency will immediately solve every problem regarding foreign aid but if governments and international bodies know where the aid is going, it would benefit the citizens much more. This could also potentially aid governments in cracking down on corruption. There are many ways to attain transparency; one of which would to send advisors to investigate the levels of government and how they operate to scout for possible areas of corruption. These advisors would have to be sent only if the country in need allows them to, however; otherwise, it would be a breach of national sovereignty. What this potential solution hopes to solve is the lack of effective communication between the aid-givers and the aid-receivers. Ideally, both parties can negotiate an agreement with proper steps put in place to ensure that the aid is properly given and put to good use. (Image 1 below10)

10 "Poverty Cycle." Poverty Cycle | Like Success. N.p., n.d. Web. 27 Feb. 2017.

The poverty cycle is something ECOFIN is committed to breaking. One way to do this is by promoting and providing education for those that do not have access to it. This way, people can attain the knowledge they need to succeed and the qualifications necessary to get well paying jobs. However, one should remember that providing education will not simply solve the poverty cycle. This needs to be equally met by opportunities to apply those skills and the basic needs to fuel everyday activity. There are programs and NGOs put in place such as Teachers Without Borders but, as a committee, it is our job to create highly versatile solutions to support and modify the methods that are already established. How this is specifically achieved is up to the delegates to decide during committee session.

The largest donors in 2015 consisted of the United States, United Kingdom, France and Germany. Furthermore, the European Union has contributed significantly in terms of monetary aid to developing countries through over 87 billion dollars in aid in 2015. Along with this, the United States alone has contributed over 31 billion dollars in promotion of economic development and welfare within the Development Assistance Committee. One should keep in mind, however, that now that the UK has separated from the EU, there is ambiguity regarding their stance on providing foreign aid seeing that one of their main reasons for leaving was because of the misuse of foreign aid. Delegates of this bloc would most likely focus on how to create new methods to introduce aid and how to ensure that the current ones are changed to be sustainable.

Countries within this bloc should not be labelled as “negligent”. Nations such as Russia, Cuba, Venezuela, and China do implement their own form of aid in developing nations but also recognize the importance of promoting home economics and industry. Delegates from this bloc should be aware that their respective countries may very well trade with developing nations but would not necessarily agree with all the policies proposed by their interventionist counterparts. This does not mean, however, that nations from this bloc do not have their own ideals on how to implement foreign aid.

In many cases, countries located within the African region are in the most urgent need of financial aid. Many African countries are unable to contribute towards giving financial aid since they are the ones who need it the most in order to build up their country's foundation. There are many areas that suffer from lack of water, infrastructure, or safety, which are the main pillars that need to be tackled. When receiving aid, African countries face many barriers such as corruption or and dependency. Delegates of this bloc would also like to outline more sustainable solutions and their personal grievances being from afflicted countries.

1. What is your country's stance on foreign aid?

2. What aspects of your country would benefit from foreign aid?

3. How does foreign aid result in increased dependency?

4. Does monetary aid contribute to the poverty cycle? Why/Why not?

5. What are the main problems with financing other countries?

6. What measures can countries take to ensure proper usage of monetary aid?

7. Is there a way to monitor and control corruption?

8. What is your country’s fiscal contributions to foreign monetary aid?

9. How would the citizens of your country react to your respective solutions?

10. Is there anything in the backgrounder that you would disagree with?

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