Research Of The Politicization Of Foreign Aid
If the goal of foreign aid is to carry out the same function of developmental, economic or humanitarian assistance, why do countries, under certain situations, then prefer to take the bilateral route rather than a more transparent and widely consulted multilateral route? This paper tries to draw comparisons between the motives behind different donors opting for offering multilateral or bilateral aid and tries to assess the strengths and weaknesses of either of the two conduits. The paper also tries to draw attention to the level of politicization that either of the two mechanisms carry. In the realm of political economy, bilateral foreign aid is known to be more politicized, as it not only needs to cater to the needs of the recipient nation, but also needs an approval from voters in the donor state. Another point to be noted is that in either of the two varieties of aid distribution, often, aid beneficiaries have no strong communicative channels to display dissatisfaction to aid agencies. Thus, the dependent variable on which the hypothesis will be tested shall be the politicization of foreign aid, while the type of aid (multilateral or bilateral) would be the independent variable. The selectivity of recipients, as sub-indicator can be used as a determinant of politicization this includes, low-income countries, free countries (based on democracy scores), and less corrupt governments.
Donors as well as recipients are usually concerned about the accountability and efficiency of aid that is disbursed. The history of politics can also show how, despite the presence of multilateral arrangements to grant loans and provide aid to countries, bilateral mechanisms were preferred as they helped preface a political message. “Despite the existence of multilateral programs, even the emergence of the Soviet Aid Program (Comecon) in 1956, the 1950s may be described as a decade of US hegemony in aid distribution, as it alone accounted for two-thirds of total aid in that decade”. Obviously, this aid was only tangled to countries where there was a threat of proliferation of a ‘communist mind-set’ and worked loosely under the auspices of the Marshall Plan. Of course, strategic geopolitical or ideological interests are kept at the forefront while granting of any bilateral funds. A set of political analysts, also believe that sometimes donor nations are desperate for funds, especially LDCs, and they are often in sensitive positions to accept aid without forecasting the implicit or explicit implications it might have on the domestic affairs. The current funnelling of bilateral aid into Yemen from the United States and Saudi Arabia, does not have a top down approach and keeps falling into the laps of rebel groups that keep the civil strife smouldering.
As a contrast to this mode of conduct, alternatively, multilateral aid is more transparent and seemingly less biased. Global fiscal institutes such as the International Monetary fund and the World Bank are known to promote structural management and suggest policy overhaul in recipient countries, alongside/in exchange of granting loans and delivering aid packages. However, some critics also contend that because of the increasing clout that the global North has in multilateral financial institutions, these institutions hold a partisan viewpoint albeit, not as unabashedly as a bilateral forum does. It has been noted by former-US Treasury Secretary Nicholas Brady that “for every dollar provided multilateral banks, the U.S. economy gets back $9 in U.S. procurements”. According to a research carried out by Peter Boone, approximately 25% of aid today is multilateral, while the remaining 75% is bilateral. This ratio, does not only reflect the pattern of aid distribution but also portrays the behaviour of donor nations.
As Pakistan and China have begun to enjoy increasingly cordial relations by moving towards a diversified bilateral agreement under the China-Pakistan Economic Corridor, a staggering amount of an estimated 46 billion USD is being invested by the Chinese into development of ports, construction of railway tracks, highways, coal mines and pipelines. The CPEC, under the BRI is very strategic in its multidimensional diplomatic approach, as it is targeting highly underdeveloped zones in Pakistan, such as the Gwadar port, that are in dire need to investment at the moment. One of the most considerable economic gains that China will make out of the investment in Pakistan, will be the expansion of its export market, as Pakistan provides the shortest route to China‘s linkage with Middle Eastern and African markets. This will also lead to promotion of the Renminbi as an international currency. In certain politically instable countries, with a paucity of the rule of law, China asserts its largesse as a means to derive robust political gains. As per the 2018 findings of Transparency International, Pakistan received an unsavory score of 33/100 on the corruption index where a score of 0 indicates very high corruption levels. The second political objective is trying to achieve via CPEC is, political stabilization of Xinjianng province by exposing it to intermingling with trade opportunities. Xinjiang borders Afghanistan and Pakistan, and the Chinese government is concerned about separatism carried out by an outfit called the, ‘East Turkistan Islamic Movement’ and accuses them of bringing unrest to the region. “Beijing regime believes in the eradication of terrorism from region through the economic emancipation for bringing it into the mainstream politics”.
The New Development Bank of the BRICS exercises a multilateral and democratic approach in terms of shareholding and and voting rights. Shares are distributed equally with each member state amounting to 20% of the shareholding, voting rights are fragmented in a similar fashion, with each country inheriting 20% of it. While, all United Nations’ member states are welcome to join the Bank, the agreement states that the total share of voting by all BRICS members will stand at 55%, come what may. The biggest reason that emerges an explanation of this clause, is the gradual shift of global power and the desire of rising economies to counter long standing Western dominance of financial institutions. Since 2000, the share of the BRICS in the world’s (nominal) GDP has grown from 8 per cent to 22 per cent. However, with the headquarters of not only the New Development Bank, but also the Asian Infrastructure Investment Bank in China, contention has been raised in the domicile of the headquarters. In fact, Chinese Finance Minister Lou Jiwei even commented on the creation of these regional development banks by saying that, “This is China assuming more international responsibility for the development of the Asian and global economies”. The NDB was proposed by India’s Prime Minister Manmohan Singh and received overwhelming support by all BRICS members and was ultimately established in 2014. The AIIB, however, was a unilateral initiative by China and is different in scale. The voting rights in the AIIB are significantly tied up with the amount of capital investment and shareholding. “As of June 2018, China holds 26.65 per cent of the total votes followed by India with 7.66 per cent and Russia with 6.04 per cent”. Some decisions require a supreme vote to pass, and China’s voting sharing will then tantamount a veto power. Despite this internal politicization of decision making, the AIIB is known to be more transparent than the NDB.
While it is difficult to asses the extent of politicization of foreign aid by looking at one single form of measurement, it is clear that there is political gain expected from any kind of money offering made. Such kind of political gain is more avaricious in bilateral agreements. Despite the transparency offered in multilateral aid agencies, such as the Asian Infrastructural Investment Bank and the New Development Bank, there is a tendency for the banks to be politicized due to greater dominance of a powerful nation. There can be display of interdependence between member states, but more often than not, a more powerful nation will try to have more clout in its hands. Due to politics being relative to each nation’s specific interests, its economic strength, and geopolitical position it is difficult to describe politicization uniformly.
