Debates of Foreign Aid

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in this case, the donor and the recipient were both developed nations, so it raised some debates about the role of development assistance (AFPC, 1992).

During the Cold War, foreign aid was exercised by the U.S. to contain the spread of communism. From then on, it has often been linked to the intended political interests of the donors. Despite its popularity, some experts cast doubts on this perception.

Political interests may not be fulfilled because it is the recipient government that aid flows to (Friedman, 1958). Instead of curbing the spread of communism, aid may be exercised through the government to further cement its authority. Some even

criticized the mistake the U.S. made in the after-war period. US administrations offered money to countries which claimed as anti-communist regardless of their terrible government system and notorious human rights condition. Consequently, the financial assistance allowed the bad governments to stay firmly in power and made their citizens continued to suffer (Kiely, 2001).

2.1.4 Debates of Foreign Aid

While discussing foreign aid, the commonly asked questions are "Does aid work?"

and "Does aid lead to development and growth?" The former is associated to the concept of aid effectiveness, and the latter underlines the role of aid in a country’s economic growth. There has long been a tug of war between "aid optimists" and "aid pessimists." Aid seems to work better under certain conditions (Svensson, 1999). It is more likely to have a positive effect in democratic countries. The government

behavior of the recipient does play a big role due to two facts. First, aid has high fungibility. Second, the donors usually have limited influence on how the recipients handle the development aid. Therefore, aid can be effective and contribute to growth

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when a nice political environment is involved (Kosack, 2003). Generally speaking, aid given to democracies has a better chance of improving life quality than that in autocracies. That explains why some scholars argued that aid donors should target aid to countries of democracy because autocrats are inclined to divert aid to the military sector, which may turn out to be economically unproductive (Kono and Montinola, 2012).

In general, political democratic counties have several key features, so they tend to have a higher quality of life (Frey and Stutzer, 2000). First, competitive elections can be incentives for political leaders to be accountable to the citizens. Meanwhile, diverse groups are engaged and different voices are heard in case that the decision-making process is dominated by the elites. Second, the spirit of overall political participation allows every citizen to express his or her needs. Therefore, the political leaders understand the preferences and try to distribute resources according to public wills. Third, a free press offers a platform to voice for the ordinary people and inspect those who are in power. So, officials are forced to attend to problems and seek solutions. Finally, the existence of opposition parties functions as watch-dogs of the state, in a similar way to the free press. With them, the ruling party must be under mounting pressure to meet citizens' expectations.

And for those who express the negative perceptions toward foreign aid, most of them are concerned about the issue of aid effectiveness. In a survey of foreign-aid history, Howard (2000) coined a term "aid fatigue" to show a new phenomenon highlighting the growing discontent over the aid programs in the U.S. during the mid-fifties. At that time, some people demanded there should be an equal sharing of aid burden

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between the aid donor and recipient considering the fact that the benefits generated from the aid machinery did go to both of them. Between 1960 and 2015, OECD members had given poor countries more than $146 billion in development aid. Even so, the result is a bit disappointing. For every one official success, there are at least ten failures. Billions of dollars have been spent on projects and programs that never achieved their intended objectives (Hyden, 1986). The truth is that there are indeed some requisites for the success of foreign aid.

The core of the problem of economic development assistance is the issue of whether or not indigenous economic policies will permit the development of a market economy. If the indigenous policies will do so, then economic

assistance can facilitate the process of policy reform by supporting internal policy adjustment during the transition to market policies. Another key factor in determining the success or failure of an assistance program is the political institutional milieu into which assistance is introduced. (AFPC, 1992).

United Nations' Millennium Development Goals (MDGs) listed eradicating extreme poverty as the first target. Through a measure of absolute poverty in the developing world from 1981 to 2004, contrary to what was expected, Chen and Ravallion (2007) concluded that the bad situation for the poor living under $1 each day could be hardly improved in spite of the achievement of halving the 1990 poverty rate. In comparison with trade, aid is an economic rent with negative effects, and it does damage

developing countries (Hughes, 2003). It is very similar to mineral rents, resulting in careless expenditures and corruption. Moreover, he thought to suspend aid flow is a great way to help developing economies to reform. U.S. curtailment of aid to South

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Korea and Taiwan allowed them to set forth on a journey of self-reform and became the "Asian dragons." And one of the most convincing reasons for failed aid is that the recipients do not use aid in accordance with its intended purpose. Foreign aid was found to be indeed fungible in many cases. Thus, it is better to assign adequate resources to crucial sectors considering that governments may often shift aid resources to other uses (Feyzioglu, Swaroop, and Zhu 1998).