The Human Journey

Creating a Sustainable Future

Bilateral Aid

When is aid transferred from one single state to another it is termed bilateral aid. Since it accounts for 75% of the total aid it has an enormous influence.

Donor countries tend to give bilaterally through their own international agencies, to states known to them, or of economic and strategic interest. For example, the British and French prefer to give aid to their ex-colonies. Studies show that since the end of the Cold War security-driven goals have become less critical to the United States and ideological goals more important, prompting to the US to increasingly reward fledgling democratic states with foreign aid. The understanding is that not only are they are more likely to equitably distribute it, creating greater opportunities and benefits for the recipient society as a whole, but that the existence of civil rights and freedoms also correlate with less corruption and patronage.

Additionally, recipients of bilateral aid may be selected in response to pressures at home from political or business lobbyists; from ethnic groups who wish to support recipient countries; or from a public outcry, for example, at times of humanitarian disasters.

49 Least Developed Countries
In November 2014 48 countries were designated by the UN as “least developed countries” (LDCs). Since the category was defined forty years ago, only four countries have graduated from LDC status: Botswana in December 1994; Cape Verde in December 2007; Maldives in January 2011; and Samoa in January 2014. 
According to the UNCTAD the LDCs are “trapped in a vicious circle of economic and human underdevelopment,” and real economic progress depends on reversing this. Economic growth must be accompanied by structural transformation and the creation of decent jobs in higher-productivity activities.

Bilateral aid has a positive influence on the growth and development of the least developed countries, though the majority of them still do not have democratic rights, and thus in aggregate terms, aid is prone not to benefit recipients significantly. About 30% of foreign aid is “tied aid” which requires the recipient to spend a portion of the funds on goods and services from the donor nation. Obviously this benefits the donor country, creating jobs and an increase in exports; but it adversely affects the recipient country by preventing domestic manufacture of those products and services, and is very costly. The United States, Canada and Spain have been the greatest donors of tied aid.


Haiti map

Obviously, aid is a complex phenomenon, and understanding the real situation from the outside appears almost impossible. In general though it seems clear that countries which are too far-gone politically and economically, cannot benefit from IMF involvement. Yet the IMF and World Bank have repeatedly given loans to countries with bad economic policies. Thirty-six countries in sub-Saharan Africa have received at least 10% of their income from aid for 30 years or more. For some, foreign aid has exceeded 75% of government expenditures, making them almost entirely dependent on it. Haiti has known only 5 years of democracy since it gained independence in 1804, and, according to Easterly, it has had “almost two hundred coups, revolutions, insurrections, and civil wars since its independence.” In spite of this, from 1957 to 1986 Haiti received twenty-two loans from the IMF. Over this period, the Haitian government, mostly under the infamous Duvaliers, used poverty and ignorance to stay in power so much so that the average income declined, political institutions failed to build, finance and support schools, and economic institutions failed to create incentives for parents to educate their children, so school enrollment remained static at 50 percent.

The number of aid agencies has also grown enormously, with about 225 bilateral and 242 multilateral agencies funding more than 35,000 activities each year. A survey by the Organisation for Economic Co-operation and Development revealed that in 2007 there were 15,229 donor missions to 54 countries – more than 800 to Vietnam alone. In 2010 The World Bank and the IMF’s Global Monitoring Report advised that a major problem to efficiency in providing aid was fragmentation; and that it was essential to reduce this and to strengthen coordination between aid organizations. Nevertheless, according to a recent report from William Easterly and Claudia R. Williamson, both organizations continued to fragment aid to many countries. The share going to corrupt countries, which increased from the mid-1990’s through 2002, has stayed around that level since then. Their study found these agencies had made no change: “the increase was due almost entirely to the fact that the same corrupt aid recipients had increased their corruption.”

They looked into bilateral agencies at the country level, multilateral agencies and UN agencies, using the same criteria that Easterly and his colleague Pfutze established in 2008. In addition to fragmentation and allocation of funds, they reviewed transparency, minimal overhead costs, and delivery to more effective channels. The study found that the aid data in both multilateral and bilateral agencies is “of extremely poor quality and coverage, and what data is available shows very poor practices.” Both are signs, they say, of a fundamental lack of accountability of the official aid system to any kind of independent monitoring. “14 bilaterals have lower overhead costs than multilaterals, who in turn have lower cost ratios than UN agencies. The most extreme among the latter are UNDP and UNFPA, who actually spend more on administrative costs than aid disbursements (129% and 125%, respectively). UNDP also ranks last across all agencies recording the highest salary/aid ratio at 100 percent. The United States has the highest administrative costs of the bilaterals, plausibly reflecting the much-noted phenomenon that Congress has imposed many earmarks and other multiple and conflicting mandates on USAID.” (See Rhetoric versus Reality: The Best and Worst of Aid Agency Practices, William Easterly & Claudia R. Williamson.)

Aid organizations use global poverty estimates that are dependent on purchasing power parity (PPP) which is the exchange rate from one currency into another that would give the same purchasing power in both places. This is currently the equivalent of the purchasing power of $1.25 a day according to the World Bank. The numbers are unreliable and change whenever PPP rates are revised; but they are highly influential, as Deaton says "Changes can have real effects if international organizations or NGOs shift their efforts to the places where they ‘see’ the highest poverty rates. ... Much of the recent focus on African poverty postdates the 1993 revision and was arguably influenced by it.”

As Angus Deaton and others have pointed out, donor governments don’t experience the effects of aid first-hand and in any case, because of cronyism, corruption and political affiliations, it’s rarely in their interest to withhold it. They prefer to give to countries, rather than people, and to give to as many countries as possible. As a result, small countries tend to receive more aid than large countries even though most of the worlds’ poor live in large countries. To satisfy their own donors, aid agencies can place a heavy administrative burden on the recipient government officials, taking them away from tasks that are more important. Such diversions can have serious consequences, particularly in small countries.

Because governments can’t monitor the efforts of their aid agencies whose wide-ranging goals, such as poverty reduction, depend on so many factors, they rely on reports. These agencies exist to do something about global poverty, they work to approved budgets and plans, so not only do they lack the incentive to cut back if the aid is ineffective or even doing harm, their organizational inflexibility makes it virtually impossible. More often than not, they employ bureaucrats in offices miles away from the country involved, who decide which goods and services to provide, with little feedback from recipients. In the absence of results, they publicize how much they have spent and focus on writing those reports and setting new goals, instead of running in-country research in to what interventions would help the poor and how to go about implementing them in a way that would work.

In 2000 the world leaders of 189 countries entered into a global commitment to achieve eight goals by the end of 2015. Called the Millennium Development Goals (MDGs), these were:

  1. Eradicate Extreme Poverty and Hunger
  2. Achieve Universal Primary Education
  3. Promote Gender Equality and Empower Women
  4. Reduce Child Mortality
  5. Improve Maternal Health
  6. Combat HIV/AIDS Malaria and other diseases
  7. Ensure Environmental Sustainability
  8. Develop a Global Partnerships for Development

The UN Millennium Goals Report 2015 states that while improvements were made in all areas:

Ban Ki-moon
Ban Ki-moon
UN Secretary General 2015

“Experiences and evidence from the efforts to achieve the MDGs demonstrate that we know what to do. But further progress will require an unswerving political will, and collective, long-term effort. We need to tackle root causes and do more to integrate the economic, social and environmental dimensions of sustainable development. The emerging post-2015 development agenda, including the set of Sustainable Development Goals, strives to reflect these lessons, build on our successes and put all countries, together, firmly on track towards a more prosperous, sustainable and equitable world.”