Foreign Aid Final

8/8/2019 Foreign Aid Final

1/11

FOREIGN AID

Projected Submitted to: Sir Zubair Faisal Abasi

Prepared By: Haider Khan

Syed Sajjad ShahTalha HaqFaheem Ali


2/11

ContentsContents ..................................................................................................................... 2

Introduction ................................................................................................................ 3

Types of Foreign Aid ................................................................................................... 4

Humanitarian Purpose ............................................................................................ 4

Developmental Purpose .......................................................................................... 4

Commercial Purpose ................................................................................................ 5

Diplomatic Purpose ................................................................................................. 5

Military purpose ....................................................................................................... 5

Technical Assistance ............................................................................................... 5

Cultural Purpose ...................................................................................................... 5

History of Aid .............................................................................................................. 6

Foreign Aid to Pakistan ............................................................................................... 6

Cold War Period ....................................................................................................... 6

Post Cold War Period ............................................................................................... 7

Post 9/11 Period ...................................................................................................... 7

Key Factors Evaluating Foreign Aid ............................................................................ 8

Purposes for Provision of Aid ...................................................................................... 8

Distribution of Aid in Pakistan ..................................................................................... 9

Trends & Composition of Aid .................................................................................... 10

References ................................................................................................................ 11


3/11

IntroductionThe word Foreign Aid is a term which we heard very often usually in Television News or in

the newspaper. But very few people analytically know what does word Foreign Aid means and

its logical reason behind giving foreign aid.

Foreign Aid is defined as a voluntary transfer of public resources, from a government to another

independent government, to an NGO, or to an international organization (such as the world bank

or the UN Development Program) with at least a 25 percent grant element, one goal of which is

to better human condition in the country receiving the aid. (Source: Foreign Aid by Carol

Lancaster, Pg 9).

Usually before the Second World War countries used to help other countries on the humanitarian

basis especially when there occurred through natural calamity. Marxist scholars considered

foreign aid as a tool of dominant states at the center of world capitalism to help them to control

and exploit developing countries. While the constructivism scholars argue that it is a norm that

rich countries should provide assistance to the poor countries to help the latter improve the

quality of lives of their people.

Although some may consider the foreign aid as a mean of suppressing the developing countries

while others consider it as humanitarian relief. But there is one point missing that is the impact of

domestic politics on aid giving. Foreign aid constitutes of public expenditure of huge size of the

domestic government which is given regularly. The foreign aid is also reviewed by the

parliament and the legislative departments of the aid giving country which try to put condition

for the aid. The aid which is given by the donor country is actually the tax payers money of its

people. If the total aid is given freely to the recipient government on the basis of humanitarian

relief, the people of the aid giving country will turn against its government because it is actually

their money. They dont want their money to be wasted. They want it to be utilized for the usefulpurpose. Although America is facing budget deficit every year but it is the largest contributor of

foreign aid. It is utilizing its aid for useful purpose and also getting a vast return which may be of

tangible or intangible nature. According to IMF, the developed countries should give 0.7% of its

GDP as aid to underdeveloped countries. Foreign aid is today and will remain as an instrument

of political power


4/11

Types of Foreign AidForeign Aid is usually given for different purpose:

1. Humanitarian purpose

2. Developmental purpose

3. Commercial purpose

4. Diplomatic purpose

5. Military Purpose

6. Technical Assistance

7. Cultural Purposes

Also there are Bilateral Aid and Multilateral Aid. Bilateral aid is given by one country directly to

another. Multilateral Aid is given through the intermediacy of an international organization, such

as the World Bank, which pools donations from several countries, governments and then

distributes them to the recipients.

Humanitarian Purpose

Most of the aid given to LDC countries before Second World War was usually given for

humanitarian purpose. It is the least controversial of all aid purposes. Usually natural and

manmade crises often leave a large number of victims, sometimes displacing a large number of

people at home or abroad. The governments of LDC usually lack the resources to accommodate

the needs of victims of disasters. So usually the NGOs or highly developed countries provide

assistance. Such type of aid is for humanitarian purpose.

Developmental Purpose

It is similar to the humanitarian aid. Before the 1980s it also meant to better the lives of those

living abroad but after the 80s it only emphasized on economic development including debt

relief. It also includes providing aid with incentives for governments to undertake economicpolicy reforms. It contributes to good governance and poverty reduction in the recipient country.


5/11

Commercial Purpose

Its main objective is the expansion of donorcountrys exports and securing excess to needed

raw material imports. This usually refers to providing financial incentives to foreign

underdeveloped government to import goods and services from the donor country. Another form

of this can be to tie the procurement of goods and services funded by aid to purchases in the aid

giving country. It is also known as Tied aid.

Diplomatic Purpose

Diplomatic purposes involve international security, international political goals and the

management of relations between governments. The two examples can be of U.S and France.

The U.S funded different governments like Afghanistan and Pakistan during the cold war

conflict in which the U.S used Afg-Pak as weapon against USSR in which the USSR wasdismantled into different independent states.

Military purpose

Sometimes the governments of better off countries use aid for military purpose. Actually the

donor country has conflicts with the other countries. The donor country gives aid on the

condition that the aid will be used against the rival. The example of military aid can be the aid

received through CENTO and SEATO pacts. Aid received by recipient countries by U.S during

cold war conflict is also a kind of military aid.

Technical Assistance

Technical Assistance is a form of aid given to the LDC for literary purposes. This includes

educating economists, engineers, doctors, financial analysts in the prestigious universities abroad

which are funded by donor country so that they may prove more beneficial for their own country.

Cultural Purpose

The last purpose of aid is cultural purpose. The developed countries give aid to theunderdeveloped countries to implement its culture abroad. Usually the aspects of culture to be

promoted in foreign lands are language and religion. This type of aid is usually given by ex-

colonial powers to their former colonies to influence them to accept the latters culture.Another

form of this aid can be the aid provided by governments to support their religion.


6/11

History of AidThe form of foreign aid which we see started after Second World War due to the cold war

conflict. There were two blogs formed after the world war which were America and USSR. Both

had the intentions of defeating other. For this purpose they started giving aid to their allies. The

socialist blog aid went to North Korea, North Vietnam, Cuba and Mongolia to stabilize their

economies. It also went to few of the non communist countries like India, Egypt and Syria. The

U.S also provided aids in this respect it provided aid first to Greece and Turkish government to

ally it with them. After that it provided aid according to Marshall Plan in which it provided $13

Billion to war affected Europe with the name of European recovery plan. The U.S which

presents it as a pioneer in providing aid to the LDC would have never provided aid have there

been no cold war conflict. After the world war, most of the aid was provided either for

diplomatic or commercial purpose. If we analyze we will see that the foreign aid whether

provided by US or USSR was provided by the donor countries to get their motives get fulfilled

and the other point is that the aid was usually provided by the donor to the strategic allies who

can be proved as beneficial for the aid giving country. After that it pressurized other

governments to give aid to underdeveloped countries. The provision of aid started. Many other

countries started giving aid such as U.K, France, Germany, Japan and also Nordic countries

which include Denmark, Sweden and Norway. Although a country may starts giving aid to

underdeveloped countries under the definition of Humanitarian aid but gradually it starts to

dominate that country as it continues to provide aid and in this way the donor country tries to

influence the recipient country in different ways.

Foreign Aid to Pakistan

Cold War Period

After Pakistan came into being it faced different hardships as it had a lot of population but did

not had sufficient resources at that time. Pakistan applied to U.S for strategic and economic

assistance but America was not willing to give aid to Pakistan in 1950. As a result Pakistan tried

to ally itself with Soviet Union. Keeping in view the national interest, America convinced

Pakistan to be its ally. To start the friendly relations, America sold military equipment to

Pakistan. In 1953 Pakistan received aid for the first time from U.S and this continued until mid


7/11

sixties. The US persuaded Pakistan to join SEATO (1954) and CENTO (1955) which is also

known as Baghdad Pact. And in this way U.S was allowed to use military bases of Pakistan to fly

over Soviet Union. In return U.S gave $700 million to Pakistan from 1955-1965. These

relationships suffered due to arms embargo imposed by U.S in 1965. The embargo was lifted in

1975. Because of the imposing of embargo Pakistan separated itself from the defense pacts

SEATO and CENTO. The relationships again suffered a setback when U.S suspended aid to

Pakistan in 1979 due to Pakistans secret involvement in nuclear enrichment. There was again

revival in relations as Pak-U.S relation when Pakistan stood against the Soviet invasion of

Afghanistan.

In 1980 America offered nearly $400 million which Pakistan rejected and considered it as too

little. In 1981 Reagan administration offered economic and military aid of $3.2 billion to

Pakistan on five year plan. In return of this reward Pakistan had to supplies U.S arms to

Afghanistan and to home 3 million refugees of war. U.S national interest was resolved with end

of Soviet Union.

Post Cold War Period

Several events occurred in 1990s which decreased the economic assistance to Pakistan. These

events included the tensions between India and Pakistan and sacking of democratically elected

governments. In 1995 U.S lifted ban on economic and military aid but Pakistan couldnt get the

28 F-16 fighters for which it had paid in 1990. In the late 90s two important events occurred one

was the small scale war between Pakistan and India on Kargil issue and the other one was the

nuclear tests which Pakistan carried out on 28 th April 1998. After this many countries imposed

sanctions on Pakistan including U.S and they even imposed ban on humanitarian aid.

Post 9/11 Period

The 9/11 attacks changed the destiny of Pakistan. U.S lifted all the sanctions on Pakistan just

after the 9/11 attacks Pakistan became the main ally of U.S in war against terrorism. In

November 2001, U.S gave $1 billion to Pakistan on very soft terms. The U.S aid to Pakistan

from 2001-2008 was approximately $1.8 billion annually. After the forming of PPP government

another deal is about to struck, in which U.S will give $1.5 billion to Pakistan for the next five

years. This bill was proposed by two U.S Senators named as Senator John Kerry and Senator

Richard Lugar. The bill is known as Kerry Lugar Bill. Many political parties in Pakistan are


8/11

opposing the aid which will come through the Kerry Lugar bill agreement between the two

countries Pakistan and U.S. They are opposing because according to them the conditions set by

the American on aid are against the national interest of Pakistan. Although the conditions put by

Americans are not that much hardening as considered by political parties.

Key Factors Evaluating Foreign Aid1. The overall amount of the aid.

2. The countries and organizations receiving it.

3. How much aid each of those countries and organizations receives?

4. What the aid is used for?

5. The conditions and terms of aid.

6. The percentage of aid tied to purchases in the donor country.

Purposes for Provision of AidAlthough a donor country provide aid to the recipient country for its economic and social

development but there are many hidden national interests of donor country involved in providing

aid. According to USAID US foreign assistance has always had the twofold purpose of

furthering Americas foreign policy interests in expanding democracy and free markets while

improving the lives of citizens of the developing world. As it is mentioned above that America

supported for expanding democracy but such support was not true in Pakistans scenario.

Because the major foreign aid given to Pakistan was given either in the General Zias regime or

General Musharrafs regime. When there occurred earthquake in northern areas of Pakistan, it

needed a huge amount of aid for earthquake victims.

For this cause senator Joseph Biden also advocated. He argued that, There is a desperate need

for more assistance and that void is being filled by groups hostile to American interest and to

prove that America is not engaged in a crusade against Islam, the US must do more. Our moral

duty and our national security interests are one (Biden 2005). According to our view America

should emphasize on giving aid to Pakistan especially when there occurs any calamity or natural

disaster. It should not only focus on national interests but also on humanitarian issues because

the humanitarian aid also serves the purpose of foreign influence.


9/11

Distribution of Aid in PakistanPakistan mainly got economic and military aid. The large amounts of military and economic aid

packages which Pakistan got were during 1980s and after 9/11(war against terrorism). The

humanitarian and development aid which is given to Pakistan through international or UN

institutions or state institutions. These institutions include UN, UNDP, FAO, IMF, World Bank,

UNESCO, USAID, ADB and many others which also include aid from different ministries of

various countries. In the same way military aid was given directly to defense ministries or

through USAID as the military aid was given mainly by US. These aids were given to different

ministries of Pakistan which was utilized for the economic and social development of Pakistan.


10/11

Trends & Composition of Aid


11/11

References

Economic Development by M.P Todaro & S.C Smith

Foreign Aid by Carol Lancaster

Impact of Foreign Aid on Economic Development in Pakistan [1960-2002] by Ghulam

Mohey-ud-din

Economic Survey of Pakistan

Strategic US foreign Assistance by Rhonda l. Callaway & Elizabeth G. Mathewss

Documents

Foreign Aid Final