FOREIGN AID

an international transfer of capital, goods, or services for the benefit of other nations and their citizens. Official foreign aid is offered in two major forms: (1) capital transfers, in cash or kind, either as grants or loans, and (2) technical assistance and training, usually as grants in the form of human resources and technical equipment. The rationale of economic aid assumes that when a country reaches a stage of sustained economic growth, foreign aid can be reduced and cut off. Military assistancein the form of either equipment or training advisershas been an extremely important type of aid. Foreign aid as an instrument of national policy dates from the 18th century, when Frederick the Great of Prussia subsidized certain allies to assure their military support and effectiveness. This practice continued intermittently in Europe during the 19th century. In World War I the United States made substantial loans to its European allies that became, in effect, grants when the allies defaulted on their repayments at the outset of the Great Depression. Because of this experience, U.S. aid during World War II was offered in the form of lend-lease: the United States provided its allies with essential equipment and supplies, and in return the allies equipped and supplied U.S. troops stationed abroad. The establishment of the United Nations Relief and Rehabilitation Administration (UNRRA), which operated from 1943 to 1946, marked an important, although largely unwitting, transition from the older conception of aid as a subsidy to a new conception of foreign aid as an institutional element of policy. UNRRA demonstrated that rich nations, notably the United States, which supplied most of the funds, were beginning to view official international aid as an essential element of postwar reconstruction. The economic and humanitarian motives for promoting large-scale reconstruction after World War II were catalyzed by political considerationsthe West's fear of Soviet expansion into western Europe. The first foreign-aid response was U.S. President Harry Truman's decision in March 1947 to provide military and economic aid to Greece and Turkey, which were faced by military aggression from Communist forces based in Yugoslavia. In June 1947 U.S. Secretary of State George Marshall proposed a European Recovery Program of aid to western Europe with a much heavier emphasis on economic reconstruction. During the four-year life of the Marshall Plan, western Europe was provided with about $12 billion in U.S. government aid. The Marshall Plan is generally considered to have achieved its twin goals of promoting European reconstruction and preventing the westward spread of Soviet power. During the 1950s it became apparent in both the United States and the Soviet Union that direct conflict between the two powers was unlikely and that there would be a struggle for the allegiance of developing countries of the Third World. Thus, the communist-bloc countries and the West competed for favours in developing nations. As that rivalry clearly demonstrated, seldom (if ever) are the motives of donor nations straightforward or entirely altruistic. The extension of foreign aid is typically designed to provide some advantagewhether economic, political, military, or otherto the donor. In some cases, aid and development assistance have exploited and harmed the nations to which they have been offered. One disadvantage of foreign aid is that the donor normally requires the recipient to buy the donor's products. This tied aid creates special problems for recipients because the prices of donors' goods may be higher than world market prices. In effect, this aid imposes hidden interest charges on the borrower. Multilateral programs have grown steadily. The major agency is the International Bank for Reconstruction and Development (the World Bank), which began in 1946 as an independent specialized agency of the United Nations. There are also several regional development banks, each lending funds to developing countries in its region. The oldest and largest is the Inter-American Development Bank, founded in 1959, which lends to Latin-American countries. The African Development Bank, founded in 1964, has had relatively little success in attracting large amounts of capital. The Asian Development Bank, founded in 1965, has been more successful. European countries have established two institutions for multilateral aidthe European Development Fund and the European Investment Bank. Both are organs of the European Community (EC). The United Nations finances a number of economic-aid programs through grants awarded by specialized agencies, notably by UNESCO, the World Health Organization, and the Food and Agriculture Organization. The work of economic development has been discovered to be far more difficult than the rebuilding of Europe because it requires the transformation of entire societies and not simply their reconstruction. This task, it is now recognized, is the work of generations. From the standpoint of the donor countries, foreign aid has often been politically unrewarding. The governments of new nations, with their colonial heritage, are naturally suspicious of the motives of industrial nations and are concerned with demonstrating their independence. The donor government may find itself tied to the fortunes of its client, often at considerable financial, military, and political cost. Aid-receiving nations naturally attempt to pursue what they perceive to be their own interests, which may conflict with the interests of the donor countries. The frequent inability of foreign aid to stimulate rapid economic development in poor countries has led to considerable skepticism in parliaments and among the populations of the donor countries as to the economic merits of foreign aid. Economic aid is manifestly only one element in the complex of factors required to bring about economic development.