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1- AVIATION: NEW AIRLINES
2-
NATIONAL STOCK EXCHANGE
3- IMPACT OF PRUDENTIAL REGULATIONS
4- FOREIGN AID AND DEVELOPMENT

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FOREIGN AID AND DEVELOPMENT

 

There is also an increasingly growing feeling that free supply of food can discourage development of local agriculture

 


By BEHRAM TARIQ
Dec 08 - 14, 2003
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The criticism of international aid is even more widespread in the developing world today than ever before. This is not surprising at all, considering the relationship between the donors and the recipient countries, involving economic, political and social interaction between 197 countries of the world. Besides, there is also an increasingly growing feeling in the developing countries that free supply of food can discourage development of local agriculture and similarly, facilitating imports of manufactured goods can hinder the establishment of local industry in these countries. In fact, it is not the wisdom of aid that is now in doubt but its character. it has become more and more commercialized over the past decades and has been thus less and less satisfactory to the majority of receiving nations. Aid has been so directed by former colonial powers that it has helped preserve long established economic, political and cultural ties.

In Pakistan the generous foreign assistance which came our way in the fifties and sixties and again in the eighties was used mostly to finance our security needs rather than in improving the economic fundamentals and expanding our social physical infrastructural capacities. The wheat received under PL-480 and other commodity assistance while providing the government with the much needed budgetary support through their sales proceeds in the domestic market, had the effect of killing the incentive to grow food domestically, thus seriously damaging our agriculture and enhancing our dependence on foreign aid for food. This we could overcome only after the so-called free-launch was stopped in the 1990's. And since the budgetary support was coming the easy way, the successive governments carefully avoided applying themselves hard to the difficult task collecting revenues, thus prolonging and enhancing the country's dependence on aid and assistance. The approach also prevented the growth of a healthy tax culture in the country. Tied loans destroyed our shipping industry and undermined significantly our ability to establish a vibrant value-added export sector.

The orthodox economic theory that the import of foreign aid and investment supplements a country's domestic savings, raises rate of investment, results in a faster rate of economic growth and reduction of poverty has been also falsified in recent years. It has been observed that while equity, justice and fair play demanded that foreign capital should flow to the poor countries, irrespective of market mechanisms, in actual practice it was linked with per capita incomes of the recipient countries. Similarly official aid should at least discriminate strongly in favour of the poorest countries. Unfortunately, in actual practice, this never occurred with the obvious result that instead of having it reduced, foreign aid even further accentuated international inequality among the developing countries of the world. Besides, foreign resources inflow also did not have any positive effect on the growth performance of these countries. In fact, foreign aid has contributed very little to accelerate growth rate or reduce income inequalities, of incomes hunger and poverty in the developing countries.

Serious doubts have been also expressed in these countries about the theory that capital imports are complementary to domestic savings because it was observed that in some cases only a small proportion of foreign capital was used for additional investment. The rest went to increased expenditure on consumption. In fact, in a number of cases there turned out to be an inverse relationship between larger capital inflows and lower domestic savings which implies that domestic savings ratio also registered a downward trend instead of an increase. It has been further observed that foreign aid often distorts the pattern of investment in such a way that the productivity of investment falls. The primary reasons for this is that the basic motive of aid donors is to promote their own political and economic interests, rather than to increase efficiency and growth in recipient countries.

 

 

Above-all foreign aid is always tied aid and as certain strings attached to it. The recipient countries are not at liberty to use it in the sectors or the projects they deem more appropriate. Such aid biases investment towards highly capital intensive projects which have little direct impact on betterment of the poor classes. Nor does it take into consideration the sensitivity of the donor recipient relationship involving economic, social and political interaction between 197 countries.

A more widely held view in these countries is that aid should better be replaced by trade. A consensus is also emerging to the effect that a large and profitable volume of exports would encourage production within the developing country and also provide the necessary foreign exchange permit accumulation of capital from profits and also reward and encourage commercial innovation. The exports of these countries however, still rely on a small number of primary commodities. Unstable prices of these in the world market discourage capital investment, forward planning and the introduction of commercial cropping among subsistence peasants.

It is indeed ironic that poor countries like Pakistan now live under a perpetual dictatorship of foreign debt, which is becoming harsher day by day. Addiction to loans, coupled with the new world trade order, has not only brought unparalleled misery and poverty to much of humanity but has also widened the gap between the rich and the poor.

 

 

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