We were talking last week about aid effectiveness. I think a key distinction to make is between multilateral aid - aid delivered through organizations such as the World Bank, Asian Development Bank etc., and bilateral aid - aid delivered country-to-country. Bilateral aid is a contract between two countries, hence has the potential to be used by the donor in a favorable way - whether to support domestic production by tying the aid to the purchase of goods and services from the donor country, or perhaps by gaining political support from the recipient country. Multilateral aid, on the other hand, is less able to aid individual strategic relationships, as the aid is given on behalf of many member countries.
Here is a link to an op-ed article discussing some possible side effects of countries such as China giving large sources of foreign aid, effectively outbidding multilateral aid agencies at their own game. The article gives the example of a World Bank project in Nigeria, where the WB had identified significant corruption, and so money to develop the railway was coming attached to stringent anti-corruption measures. However, nearing completion of the negotiations the Chinese offered a much larger no-strings attached package, outstaging the WB offer. So, Nigeria gets more money to built railways, but without addressing corruption, just how effective will this money be? And what may be expected in return of Nigeria on the world political stage?
Other more explicit examples of bilateral aid being used for political influence include the
admission by the head of Japan's Fishery Agency that Japanese foreign aid was used to influence countries to help overturn commercial bans on whaling, but further that this is a legitimate use of a political tool such as aid:
Japanese means is simply diplomatic communication and ODAs... So, in order to get appreciation over Japan's position, of course you know that is natural that we must resort on those two major tools , so I think there is nothing wrong.
And, of course, bilateral aid can be 'tied' to the purchase of goods and services from the donor country, so while is not providing political benefit is providing direct economic benefit. However, this may not be the most effective use of these resources in terms of development - perhaps purchasing from the recipient country and aiding local industry and employment would be more effective. Again, this benefit to the donor country is lost if the aid is delivered through multilateral channels.
I think that it is idealistic to assume that countries are acting entirely entirely benevolently with international aid - like any political act, I think there is a degree of "we'll scratch your back if you'll scratch ours". However, while such aid may be effective in achieving political goals, it may be less effective in achieving development goals. Aid delivered through multilateral aid agencies such as the WB, ADB, may be one way around this problem. However, such aid may also be less palatable domestically precisely for this reason - by distributing through a multilateral agency the country is giving up the political influence aid can yield.
(NB: I just tried to find breakdown of aid into multilateral/bilateral by country but had no luck finding aggregated tables- does anyone have # for this? I did find this
PhD student who is currently writing on aid effectiveness, especially this multilateral vs bilateral difference - we can check back after August to see if it's complete and discuss then).
