Foreign aid is the international transfer of capital, goods, or services from a country or international organization for the benefit of the recipient country or its population. Aid can be economic, military, or emergency humanitarian (e.g. aid that was given following natural disasters). Foreign aid can involve a transfer of financial resources or commodities (e.g. food or military equipment) or technical advice and training. The resources can be in the form of grants or concessional credits (also known as soft loans). Meaning these loans are below-market interest rate and oftentimes offer flexible or lenient terms of repayment. These kinds of loans are granted by government agencies and sometimes can be channeled through international organizations and nongovernmental organizations (NGOs) few examples are International Monetary Fund and the World Bank.
ODA or the Official Development Assistance is the common type of foreign aid granted to combat poverty and promote the recipient country’s development.
Country-donors (usually members of OECD – Organization for Economic Cooperation and Development through its committee called DAC or Development Assistance Committee) often provide foreign aid to enhance their own security as well. Thus, economic assistance may be used to prevent friendly governments from falling under the influence of unfriendly ones or as payment for the right to establish or use military bases on foreign soil. Foreign aid also may be used to achieve a country’s diplomatic goals, enabling it to gain diplomatic recognition, to garner support for its propositions in international organizations, or to increase its diplomats’ access to foreign officials.
Other purposes of foreign aid include promoting a country’s exports (e.g. through programs that require the recipient country to use the aid to purchase the donor country’s goods – export credits) and spreading its language, culture, or religion. Countries also provide aid to relieve suffering caused by natural or man-made disasters such as famine, disease, and war, to promote economic development, to help establish or strengthen political institutions, and to address a variety of transitional problems including disease, terrorism and other crimes, and destruction of the environment. Because most foreign aid programs are designed to serve several of these purposes simultaneously, it is difficult to identify any one of them as most important. Sources: Wikipedia, Britannica, and Business Dictionary.
Based on introduction above, it’s not that hard to misuse foreign aid because of its “flexibility.” Flexible enough for conflict of interests, long enough to pass the responsibility to the next administration, and cheap enough to exhaust one or few programs (could be a sector or department as well) to pay the loan. Private sectors are always there to fill the gaps anyway as these entities fulfill their interests too.
Overlapping conflict of interests making things so disorganized until such time that nobody knows what’s really happening; people are just gonna mind their own businesses; people don’t see enough improvements (making them hard to believe paying the right taxes and end up paying extra cash to whoever, in order to get things done); and because the government doesn’t have enough tax collections, eventually will rely again on foreign aid to fund its projects. This might not be the case anymore as we move forward following the Freedom of Information Law. Government activities will be transparent enough through their websites, or we can begin here for more data. It will be there, for us to be informed. Our responsibility is to allocate some time to understand it; ask, if there’s something we don’t understand; or collaborate as we seek for more answers. In this way, at least we know what we’re engaging. We’ll know what’s going on; thus it will help filter out those Fake News!
Below are the updates concerning foreign assistance that we can find so far…
- ODA Loans Disbursement Continues Improvement in Q2 2015.
- FaiTH or the Foreign Aid Transparency Hub is the Philippine Government’s online information portal for international calamity aid and assistance.
- Philippines – Italy Debt for Development Swap Program. Background: Under the agreement, the Philippines’ debt obligation amounting to €2,916,919.45 (about Php 160 million) was converted to be a Grant (which are not expected to be repaid) for the implementation of development projects focused on…(for more)
The charts below present gross disbursements of Official Development Assistance (ODA) in 2015 from DAC donors and from multilateral organizations to the Philippines.
Whether ODA will support a particular program, or from national to a provincial (maybe up to municipal level) government support scheme, this approach from Nancy Birdsall of Center for Global Development might help. Cash on Delivery (COD) is an approach to foreign aid that focuses on results, encourage innovation, and strengthens government accountability to citizens rather than donors. Under COD Aid, donors would pay for measurable and verifiable progress on specific outcomes, such as $100 for every child above baseline expectations who complete primary school and takes a test. – cgdev.org | watch details in this video below.
It’s not surprising that there has been a lot of criticisms about Foreign Aid. A widespread concern from the donor countries and independent think tanks is its effectiveness. Given the fact that the amount of Foreign Aid set by the United Nations to achieve 0.7% of Gross National Income (of donor countries) is not always met yet sometimes being exceeded (DAC and non-DAC), whichever angle we want to view it, it is still money lent (almost free money actually) to countries like us instead of using it domestically for their own benefit.
As we put it in personal terms (or let’s just say from the point of view of a rational ordinary citizen), if we’re going to provide an aid to someone, it would be nice to see that someone is improving or at least doing his best to succeed for the sake of SUSTAINABILITY (unless however there are other “hidden agendas” involved). Because better individuals are productive individuals; and better individuals would have a sense of having that moral obligation to help those who are in need effectively. In the first place, we can’t expect someone who would always be there to help us; therefore we should help ourselves as well. More productive individuals mean more knowledgeable voters who would know other better individuals; build something better so that eventually, we’ll be strong enough to help other nations and increase our participation in TRADE or donors of aid, not as a recipient of AID.
This is one of the moral ideologies why foreign aid exists; because these donor countries are smart enough to know that eventually, they can’t just rely on themselves driving global growth, it has to come from somewhere as well. During an advent of synchronicity of global slowdown, citizens of recipient countries can at least have the capacity to take care of themselves. Therefore these recipient countries (or former recipients) would get an incentive to cushion themselves when businesses have major struggles. Also, because these donor countries are convinced that foreign aid is well-utilized due to recipient countries’ better conditions, they would consider options to invest in those recipient countries whose businesses haven’t reached its peak (referring to its cycle – before contraction yet. And again, supports the concept of Trade, not Aid. It looked like more of creating trade opportunities through fostering economic development rather than moral (as in referring to proper conduct, goodness, or by being righteous) because economic development has its essential moral factor. Plus, an assumption of “better conditions” include like:
- High human development (according to human development index).
- Better roads and infrastructures to keep its citizens safe.
- Individuals have easy access to clean water.
- Providing routine vaccines and better access to prescription drugs.
- Stable policies where there’s a proper implementation of the rule of law.
- Food security to keep its citizens well-nourished.
- Creating national parks to encourage exercise and social gatherings or playgrounds to keep children safe instead of loitering or playing on the roads.
- Help its citizens to have access or afford basic housing to provide privacy or dignity (will help boost morale), help nourish the development of a family (as the basic unit of society), helps smooth implementation of infrastructure projects, and help maintain a sanitary environment.
These few achievements stated above are basic. It mainly supports the holistic wellness of a citizen to grow as an individual (set aside those economic opportunities first). Because at the end of the day, once most (if not all) of these factors that make “better conditions” are met, citizens are going to start to earn a living. This is where economic development begins to be more apparent. This means they’re going to end up working (as an employee, a small business owner, an independent contractor, a self-employed professional, etc.) and pay taxes. Collections from the taxes will be used to sustain, improve, and add programs or projects for the benefit of its citizens while fulfilling other national obligations such as paying its debt from the foreign aid it received. And as we imperfectly sustain stability, neighboring countries would eventually discover that, and invest in us. More investments would help create more jobs; increase economic activity; and generate more revenue from tax collections.
Inclusive growth comes with an increase in human development. Good governance supports to achieve economic prosperity as its ROI (Return On Investment), and tax collections as its dividends.
Reliance on foreign aid has a significant potential to encourage dependency. And as we know, this dependency would put us into all sorts of disadvantages which obviously includes fighting for our reasonable interests – Actually, it already did.
AID our way to win Foreign Direct Investments (FDI)
FDI is an investment made by a company or individual in one country in business interests in another country, in the form of either establishing business operations or acquiring business assets in the other country, such as ownership or controlling stake in a foreign company. – Investopedia | watch it here for more discussions.
What would really help us economically as a nation are investments, because as we challenge ourselves to keep up according to what was agreed return of investments to stakeholders is an incentive:
- For us to be productive. Finish these tasks, then another one later, and keep up with the deadline. It’s like providing us some sort of a structure to start with.
- For us to continue learning. As business trends evolve, markets in general are consistently changing. If staying competitive is a luxury, then cut some slack by at least remaining relevant in the marketplace. As we continue learning, we can also apply what we’ve learned from our job to our personal lives or to our next career as well.
- For us to be responsible for our lives. Keeping ourselves healthy and out of trouble, so that we can keep up for the next days to come. Of course, we don’t want to end up working all the time; we want to experience life! We won’t be able to have fun while we’re ill or in trouble. We have to keep up fulfilling our duties and responsibilities for us to have means to live and plenty enough reasons to have fun.
- For us to manage our resources. We’re the boss of our own resources. Manage them wisely because our physical health wears off eventually, and a hardworking, smart individual deserves an early retirement.
- For us to boost our morale. As we earn a living and manage our resources well, we also carry the positivity facing the future because we proved to ourselves we’re not empty; we have something to contribute but, mature enough to ask for help. We enjoy reading during morning weekends, we improve our civilization, and we know the importance of taking care of our environment. As we continue believing we have something to contribute; we start creating; we start inventing; we become part of the solution; we showed to the world that investing in the Philippines was one of the best decisions they’ve made; we earned their trust and; they’ll invest more. We take pride in that (which would help support our integrity as well). Due to improved civilization, most likely we’ll end up “paying it forward.”
- For us to practice integrity. “Trust makes the world function better. Commerce without trust is very awkward” – Warren Buffet
The problem is, no matter how much we’re willing to do the job right, investors (including foreign governments through state-owned companies) are not going to invest ’til the country itself is not conducive enough for its residents (us) to do the job properly, which in general is one of the weighting factors on how we measure the probability of return on investments. A good example is our infrastructure, no matter how willing the citizens to work hard and do their jobs right, goals aren’t just feasible enough if the roads aren’t safe or there’s just not enough reasonable flow of traffic. Another is disease prevention (clean water, and accessible health care); no matter how willing the citizens accomplish the assigned tasks, obviously there’s just not enough capacity to achieve it if they’re suffering from an illness.
Charts below tell us how FDI impacts our economy.
Since we’re talking about jobs as well, we decided to compare the charts: FDI and unemployment rate. Based on this chart, significant increases of FDI every 4th quarter since 2009 to 4Q of 2013 has gradually brought the unemployment rate down, with its steep drop since the 1st quarter of 2014.
Coupled with the United States’ Quantitative Easing Program (an intervention to stimulate the economy, which helped ended the recession); it looks like our PSE picked up investors’ confidence as well. FYI: Cheaper borrowing through lower interest rates also added to fund managers’ risk appetite.
CAUTION: Borrowing enormous amount of money to invest in equities like stocks is not recommended for retail investors, especially for the novice ones. It could be a mistake that would cost the rest of someone’s life. If things go south (↓), a person could be at high risk for suicide due to burnt out paying debts and excessive drama in life! Boredom should spark finding someone’s passion, and hopefully, that passion is not borrowing money!
Before any financial investment decisions take place, it would be prudent enough to hear first from your investment adviser or financial planner.
And above all, our younger and abundant population attract foreign investors as well. So if we let incompetence, criminality, and corruption take over our system, our essential human capital will be put to waste. Talents and workforce, which are supposed to contribute to any sorts of improvements will be put to waste. Failing to address this issue of having a “good condition” would result going back to square one that Philippines only deserves an aid. – “just keep these Filipinos alive, and hope tomorrow they get a chance to improve.”
It’s acceptable receiving foreign aid for now as long as we’re utilizing it well. Transparency is essential allowing us to be more informed; not just for each of us to know how to act on it, but would also help aspiring leaders out there formulating ideas for possible solutions before having a seat in the public office or doing business with the government.
J. Letre
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