Arguments Against Foreign Aid

Arguments against Foreign Aid For an under-developed country, desirous of treading the road to development, foreign aid is essential, nay indispensable. But when one is opposed to it, it is on the ground of improduce. Foreign aid such countries must ir

Arguments against Foreign Aid

For an under-developed country, desirous of treading the road to development, foreign aid is essential, nay indispensable. But when one is opposed to it, it is on the ground of improduce. Foreign aid such countries must irk and accept but they must remain within limits of prudence. Prudence is required to be exercised on the quantum of foreign aid, the terms on which it is taken and the period for which it is taken or is continued. Foreign aid may be opposed if the amount is excessive and an optimum use cannot be made of it. if the rate of interest is too high or if there are economic or political strings attached to it so that the country's economic and political freedom is not endangered or its future is not mortgaged.


The following general arguments against foreign aid may be noted: —

(1) Political Freedom Endangered. It is argued that by accepting foreign aid. a country is in the danger of losing political freedom. It may not. for instance, be able lo pursue an independent foreign policy. The shadow of the donor country is bound to affect its policies. Sooner or later, it loses its freedom of action and it must toe the line of the lending country. There are bound to be political strings visible or invisible. When we were fighting against Pakistani aggression, the U.S.A. cut off the foreign aid and left us in the lurch. It is said that we had to accept truce under foreign pressure when the tide of the war was turning in our favor.


(2) Loss of Economic Freedom. More subtle than the loss of political freedom is the loss of economic freedom. It is usually stipulated that the amount of foreign aid has to be spent on the purchase of goods, machinery and capital equipment from the lending country; even the rates and the quality may compare unfavorably with those in other countries. Such aid is known as the 'tied' aid.This makes us dependent on a particular country for essential goods like machinery, capital equipment, raw materials, etc. which means mortgaging our future.


(3) Generates Sense of Complacency. A country which is able to secure foreign aid without much difficulty and on easy terms becomes complacement. It ceases to make effort to raise domestic resources even to the extent that it can. 'Easy won, easy lost'. The nation becomes soft and continues to depend on foreign props which are like crutches so that it does not learn to stand on its own legs. This is against national honor and prestige. Foreign aid should be a supplement and not a substitute. Also, foreign aid may come to used for increasing consumption rather than increasing productive investment. There can be no solid foundation for economic growth in a country in the absence of increase in domestic saving and investment. Thus foreign aid may prove to be anti-growth.


(4) Weakens Export Promotion and Import Substitution Effort. A country seeking to quicken the growth process must make strenuous effort in the direction of (a) export promotion and (b) import substitution. But if foreign aid is easily available and on easy terms, such efforts become weak. Economic growth will not confer any permanent advantage if a country cannot become independent of foreign imports through import substitution and earn sufficient foreign exchange through export promotion.


(5) Crippling Burden of Foreign Debt. It is the experience of certain countries that the burden of interest charges and debt services continues to swell from year to year. The result is that the bulk of foreign exchange earnings are consumed by debt/interest payments. The burden of interest charges increases at such a rate that the net foreign aid actually received goes on diminishing even to a vanishing point. In 1981 82 India had to pay Rs. 915 crores on account of external debt servicing, as against Rs. 1968 crores of total external assistance actually drawn: the order of debt servicing charges is indeed crippling.

(6) Economic Inequalities Accentuated. Most of the foreign aid is used in building up heavy or large-scale industry and the decentralized sector or the small-scale sector is neglected. Similarly, it is utilized in big irrigation projects hugely benefiting the big landlords. In this way, the rich become richer and the poor become poorer so that economic inequalities are accentuated. The fruits of economic development in India have largely gone to the upper strata of the people, the privileged class driving the weaker sections to the wall.


As would appear from the above arguments, the case against foreign aid is heavily tilted, but as we said at the outset, foreign aid is indispensable. No foreign aid would mean no development. All that we can do is to exercise utmost care, prudence and foresight in entering into foreign aid agreements so that the dangers are minimized and the benefits enlarged. It cannot be denied that in spite of political pressures exercised and economic strings attached by the donor countries, foreign aid has certainly accelerated the economic growth of the developing countries so as to confer permanent benefits on them. What these countries ought to do is to exercise all possible discrimination at the time of getting aid and utilize it optimally so that it is not frittered away in senseless projects.


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