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Tuesday, April 26, 2005 

Plugging the Leaks in the Foreign Aid Bucket

Billions of dollars of financial aid are being spent each year in developing nations. Billions of dollars are also squandered by the same recipient nations. When the King of Swaziland asked for aid to help his poor country, he saw fit to spend money on a presidential plane while his citizens are in dire need of food aid and dying of AIDS. Many other governments siphon off the money to buy themselves luxury cars, new houses, expensive vacations instead of applying it directly to the needs of their poor populations.

Up to $6 billion has been given to Indonesia to counter the damage caused by the tsunami which destroyed much of their country in December, 2004. I wonder how much will actually be put to good use to help rebuild the towns and villages completely obliterated by the catastrophe. It remains to be seen but I’m not all that optomistic.

Greece, which has been a major recipient of EU funding, hosted a $10 billion party in the form of the Summer Olympics last year. Ask any Greek and he’ll tell you that the money would have been better spent on schools, health and the computerization of the Civil Service behomoth which sucks millions of dollars a year out of the country’s coffers. We didn’t need fancy new sports stadiums which, so far, are still empty and costing $85 million a year to maintain.

To prevent the misuse of financial aid, should we cut it off funding altogether? Personally, I don’t think this is the answer. If these countries get no money whatsoever, then we can never expect to stem the flow of refugees and immigrants from these countries. They need to be given hope for their future so they can remain in their own countries to rebuild them.

Rather than cut off funding altogether, I believe the answer is in method and monitoring of disbursements. The holes in the bucket must be plugged before more water is poured into it. That means that the governments must take active measures to pass and enforce laws to combat the rampant corruption, human rights violations and racism which plague so many developing countries.Only when there has been a marked improvement in these areas, then the issue of financial aid can be discussed.

The second step can begin. Instead of giving these countries lump sum amounts to spend as they see fit, the money should be given in installments and then closely monitored with regards to the application of the funds. If the money is spent wisely then more money can be disbursed.

The way to do this is by treating the recipient countries as businesses rather than charity cases. If a country wants $5 billion to restructure their country, then they must provide a sound and detailed business plan to the lending authority. If the plan is in order then the lender can approve the loan to be paid in installments as each project (building of a road/school/hospital etc.) is successfully completed. If, at any point during the completion of a project, it becomes delayed or is in danger of massive cost overruns, then the lending authority can take complete control of the project...even if that project happens to be the rebuilding of the government itself.

The third step is the constant monitoring of the allocation of all funds and projects by the lending authorities. It will take a lot of resources and manpower but I feel it’s the only way for developed nations to honour their moral, ethical and financial obligations to the people of the poorest nations. It is our obligations as taxpayers to demand accountability from the lending institutions to ensure our hard earned money is spent wisely.

It seems like a very good idea, but this part could start a lot of conspiracy theories about imperialism, "If, at any point during the completion of a project, it becomes delayed or is in danger of massive cost overruns, then the lending authority can take complete control of the project...even if that project happens to be the rebuilding of the government itself."

And why would that be such a bad idea? By treating these countries as businesses rather than charity cases then the same rules of standard business practices can be applied to them. Businesses go into receivership all the time. The receiver takes control of the company for the good of both the company, the employees and the receiver. Why can't the same rule apply to countries whose loans are constantly in default?

I did not say it was bad, per se, I am saying that it will be used as part of someone's theory as to the designs of the loaner.

Congrats on your blog. I discovered it by chance and am impressed with your writing. Choosing Greece as the place to live and work tells me you are a brave person. I wish you would post more often.

Ted Laskaris from the Phylax blog

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