Aid is the giving of resources of resources by one country, or organisation, to another country. The resources may be in form of money, goods, food, technology or people.
Its basic aim is to help poorer countries to develop their economy and services in order to improve their standard of living and quality of life.
Why do Countries Need Aid?
Large and increasing trade deficits. Countries need to borrow money in order to buy goods from the richer MEDCs. By borrowing money these countries fall further into debt.
Aid is often needed to improve their standard of living. This could involve borrowing money for large schemes such as building an international airport or constructing a huge dam. These schemes do not often benefit the majority of the population.
Many countries are prone to natural disasters such as drought, flooding or earthquake. They may also suffer as a result of human-induced disasters such as civil war or genocide.
Types of Aid
1) Bilateral Aid This is a type of aid between two countries. It is a 'strings attached' aid which means that the recipient country has terms and conditions imposed on them by the donor country.
2) Multilateral Aid This is when richer countries give money to international organisations such as the World Bank and the IMF. These organisations then redistribute the money to poorer countries. Theoretically, there should be no political ties. - The Global Fund to Fight Aids, TB and Malaria (GFATM) is a global public/private partnership that raises and disburses funds to prevent and treat HIV/Aids, tuberculosis (consumption) and malaria. In 2013 the UK gave 1 billion to the GFATM.
3) Voluntary Aid Oxfam, Save the Children, Christian Aid, Cafod etc. There are no political ties and the projects are usually on a smaller scale and use appropriate technology. These organisations are generally the first to provide food, clothing and shelter following a major disaster.
Aid or Trade?
Arguments in Favour of Aid:
Aid can go directly to where it is needed, while trade can distribute resources inefficiently. The benefit of trade is mostly confined to an elite group of people within the country.
Aid is not always provided in the form of money, and is sometimes provided in the form of expert advisers. A country needs a good infrastructure for it to prosper through trade - it is very difficult for developing countries to maintain a good infrastructure.
Aid allows for money given to a country to be allocated well against need.
Exposing fragile developing countries to free trade is very risky.
Trade requires investment first.
Trade does not necessarily mean fair trade.
Arguments in Favour of Trade:
Trade makes a developing country more independent of the aid-giving countries. Aid budgets can always be cut.
Trade helps developing countries to maintain their dignity, whilst aid can be seen as a form of charity.
Trade establishes a strong impression on the international market.
Trade improves the economic performence of a country whilst aid money can be misused. Aid can lead to corruption.
Loans and their Impacts
Loans are sums of money (often borrowed from other countries or international banks) that have to be paid back with interest some time in the future.Brazil borrowed huge sums of money in the '70s to build factories, manufacturing goods for export to make a profit. The loans were repaid from the profit and the policy was mainly successful. However, things often do not go to plan and the country defaults on debt, which has to be paid back over a longer period. People in the debtor country have to work hard to produce goods for export to fund the interest on the load. Standard of living and level of development simply cannot improve.
Debt Relief and Abolition
Poorer countries can be helped by debt relief, which means reducing the interest rate or amount on the loan.
Sometimes debts can even be abolished or written off.
Debtor nations benefit hugely as they can begin to improve life for their citizens.
In the UK, the Midland Bank wrote off some debts owed by countries at lesser stages of development in the 1980s, but found its own finances suffered so much it was taken over by HSBC.
In the 21st Century, there is a move from wealthier governments, like those in the G7 economic group. to write off all the debts of the poorest countries.
Loan Solutions
Micro-enterprises may be the way forward.
Non-profit groups in the USA have been lending money to individuals in poor countries.
For example, Sara Garcia in Lima, Peru borrowed $1,845 in 1984. She invested in equipment to make patterned handkerchiefs. She hired extra workers and family members to help. Output has risen from 20 to 500 items per day. She made her repayments on time. The technology used was appropriate, allowing the business to become sustainable and successful.
Today, this system has expanded greatly. Small business is the basis of any economy and it employs a surprising number of people and supports their families. It is an important way forward and everyone gains.
The Grameen Bank
The Grameen Bank is an example of microfinance.
It gives out small loans with no interest.
It was initially aimed at women.
It's set up of very small 'companies' that earn income to raise their standard of living.
Examples are: purchasing mobile phones and charging local people to use them, or buying small flocks of chickens to sell eggs, remove insects and get natural fertiliser.
Conservation Swaps
In their attempt to develop, poor countries tend to use every resource that is available to them, even if it is something valuable whose loss will result in future difficulties for the country itself and sometimes the rest of the world.
Some richer countries have realised that, although conservation of valuable resources and landscapes are important, the poorer countries should not lose out on developed opportunities.
Conservation swaps are agreements whereby a proportion of a country's debt are written off in exchange for a promise by the debtor country to undertake environmental conservation projects.
Usually, areas of valuable land are set apart for protection, especially tropical rainforest.
These were first set up by environment groups in the 1980s to reduce the debt problems of poor countries and to promote the conservation of important environments.
Between 1987 and 2001, 50 countries took part.
The first swap occurred in Bolivia, South America, where a North American conservation group took over $650,000 of Bolivia's national debt in return for the Bolivian government setting aside a large area of rainforest as a nature reserve.
Other countries that have taken part in such schemes include Guatemala, Peru, Ecuador, Costa Rica and Poland.
Usually, areas of valuable land are set apart for protection, especially tropical rainforest.
Fair Trade
Fair trade is an international movement ensuring producers in poor countries get a fair deal.
They receive a minimum wage guaranteed price for their crop, with provides them with a living wage, long-term contracts for security and skills to develop their business.
The volume of goods produced increased by 150% in 2006/7 alone.
Global sales of Fair Trade goods were £1.6 billion.
Around 7 million farmers, farm workers and their families in 58 poorer countries benefit from the improved trading conditions brought by fair trade.
Recognition of the Fair Trade mark has grown rapidly in the 21st century - as of 2009, almost 60% of adults in the UK know what it means.