Aid? What aid?

While poor countries provide exploitable source of cheap labour or desirable commodities, in the long run the corrosive effects of the imbalance create suffering, resentment, and a powerful motive for revenge. Moreover the imbalance creates migration which, however one regards it, is disruptive to social order at both ends of the route, while the primal survival instinct encourages a shadow economy in which those, denied access to the formal markets of the globe, are further exploited. Aid, the way it is given by the western world, is not the solution. This article will deal with the matter a little later.

Readers of this paper will appreciate that trade is the great moderator, facilitating development at a pace that is usually more or less acceptable to all parties, provided that it is fair, which a great deal of it is not. Multinational companies threaten to pervert this ancient intercourse between people but, historically, trade smoothes differences and builds up commercial interdependence, understanding, and tolerance. There are always winners and losers, but it is by way of trade that we have come this far from the dark caves of our remote ancestors. Trade is better than aid, and fair trade must be allowed to flourish.

Aid is supposed to be a stimulant for both the donor country as well as the recipient country. For the donor country it is a source of investment where it will get back the capital in due time, in most cases with profit or interest. In some cases it provides the donor the opportunity to sell goods and services and thereby maintain the momentum of its industrial growth. However, in recent days it has more or less become a stimulant for the donor country alone. The matter will become clear when I discuss the mode of operation of three different types of aid.

Sadly, we know to our cost, that injections of cash aid, so easily siphoned off by the opportunist politicians and corrupt dictators, achieves little other than fuelling small wars. It promises a bloody century where the western world sells its weapons. In the past we supported many brutal regimes so long it served our global interest.

Apart from cash aid, aid in the form of total grant is given. This is certainly a good humanitarian gesture. There is no harm for the donor to insist that the aid be utilised for procurement of goods and services from the donor country. However, the donor country must ask for transparency. All procurement must be through open competition in the donor country. The recipient country may utilise such grant for betterment of public services and infrastructures. Education and health are perhaps the two best sectors for utilisation of grants. I tried to link up these two sectors with total grant because there is nothing to pay back. Health and education may not generate any fund but make valuable long term contribution to the economic growth of the country.

Now we shall deal with the repayable aid. This could be with interest or without interest. The recipient country has to utilise the aid in a sector that will directly generate funds to repay the loan. Transport and communication within the public sector is vital for stimulating economic activities. State owned industries could also be considered for modernisation and growth but in no way sick industries should be given any state subsidy from such aid. This is all about the recipient country.

Now I shall focus on the more important aspect. It is unfortunate to note that the donor country sometimes insists on procuring goods and services from their country. I feel it is wrong. If the recipient country has to repay the money then they should have the right to make the best deal available (globally) without any restriction. In some cases the conditions attached to such loan/ aid includes:

a) feasibility study by consultant of the donor country;

b) procurement of goods and services from the donor;

c) spares and servicing (tied up with the procurement of goods) for several years from the donor;

d) shipping on flagged/owned or managed vessel; and in some cases even

e) appointment of consultant from the donor country to oversee the project; and

f) training of personnel in centres in the donor country.

What are we giving them? Maybe only 30 to 40 percent of the figure shown on papers and we want them to return 100 percent and that also in some cases with interest. Not only those, we sometime dump and flood their market with our surplus agricultural produce, destroying their own potentials. No wonder we are contributing to widening the gap between the rich and the poor.

If the western world talks of genuine aid then it should be given for genuine purpose with no string attached. Any evaluation, monitoring, and audit of the project must be done on the account of the donor. Do not snatch it from their basket. We must give it to the countries with democratic values and good governance where the government will be accountable to their people through the parliament. The government of the donor country should also be accountable to relevant parliamentary committee in its own country.

According to Article 1 of its charter, the International Monetary Fund has been created to: a) promote international monetary co-operation; b) facilitate the expansion and balanced growth of international trade; c) promote exchange stability; d) contribute to establishing a multi-lateral payment system; and e) place the general resources of the institution at the disposition of the member countries with balance of payment difficulties.

When the IMF intervenes in the economic process of a country in crisis or where one is developing, it does so by implementing a formula that it has applied to several emerging economies. First, it advises to raise interest rates to avoid capital flight. Then public spending must be decreased so as to convert it into budget savings. And finally, but no less important, taxes must be raised in order to increase revenues.

Theoretically, and explained in this manner, these appear to be the best options for alleviating the economic problems of a nation; in practice, the story is quite different. High interest rates have catastrophic consequences for companies with debt, generating defaulting and bankruptcy. Reduction of public spending weakens the economy in general.

The case has been clearly laid out for the developing countries to take into consideration all relevant factors before they get into the "aid" trap. Do not get addicted to aid. Accept aid only for genuine needs and on your own terms. Make sure it is utilised the right way so that it can not only be paid back but make a difference. Try best to achieve trade balance, if not surplus. Do not depend much on invisible income. Attach more importance to production sector than the service sector. Balance the budget and try not to indulge in public borrowing (budget deficit).

With respect to direct foreign investment, it is necessary to have democracy, human rights, and stability. Investors will hesitate in climate of uncertainty. There should be abundance of labour force with middle grade technical skill. Financial, industrial, environmental, and labour laws must be clear. Finally, bureaucracy and corruption must be under control. One simple theory should always be kept in mind -- more requirements of control, permit, and licence will automatically lead to more bureaucracy and corruption. This must be avoided.

The young generation in countries like Afghanistan, Cambodia, Somalia, Liberia, and Haiti have only seen violence. They have been deprived of education. A nation cannot prosper without education. The world community should come forward with lots of assistance in the field of education.

Countries like Myanmar, Cambodia, Iraq, Nigeria, Liberia, Ivory Coast, Sierra Leone, Kenya, and Madagascar have no lack of resources. They need democracy and good governance. Let us help them develop appropriate institutions to manage their own affairs. For once, at least we should write off and wipe out all debts and give them a chance to start afresh. Give them their fair share of the trade and they will come up.

The author, a freelance contributor to The Daily Star, writes from London, UK.