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Foreign Aid
2. Non-concessional lending
Same terms as in the commercial banking systems
3. Private investment
Purposes
Humanitarian aid Debt relief Development assistance: Financial support to sectors Financial support for specific projects Technical assistance (doctors, teachers, agronomists).
Donor motives
1. Political & strategic motives. Use of aid to support regimes considered to be friendly to the interests of the donor governments. 2. Economic motives. Assistance to countries with strong economic ties, such as Japan, with aid directed to neighbouring countries with trade and investment links. Tied aid: recipients must spent a portion of the borrowed funds on the purchase of g+s from the donor country.
Factors limiting the effectiveness of aid 1. Tied aid. In the context of bilateral aid:
recipients must spend part of the borrowed funds on g+s from the donor country.
Higher import costs. Purchase of inappropriate capital intensive technologies & development and use of skills inappropriate to local developing country conditions.
a. Policies towards market orientation. b. Acceptance of projects decided by donors. c. Detailed reporting on spending, timetables, priorities.
interests. Recipient countrys gov may not be committed to poverty alleviation or lack expertise to design a poverty alleviation strategy.
Success of East Asian countries: intal trade contributes to growth and development. BUT: on the condition that DCs eliminate their trade barriers and protection of their agricultures.
focusing on the most disadvantaged groups. 4. ...for growth. Aid makes possible increased investment and consumption levels.
Mozambique, Tanzania, Uganda, which rely heavily on aid, have achieved high growth rates.
countries reduce their debt burden and releases resources that can be used for poverty reduction and economic growth and development.
communities: no access to markets, urban centres or to ports unable to compete in international markets.
Investments in communications and transportation are necessary to benefit from trade aid can provide the resources.
Institutional constraints:
High transport costs due to poor transport networks Limited access to credit Poor power supplies higher production costs High administrative costs (border procedures) Lack of capacity to meet technical and sanitary standards
integrated. The aid for trade would be in addition to and not a replacement for ODA. Efforts to address institutional constraints to trade should also focus on middle income developing countries, which do not qualify for ODA funds.