Global Policy Forum

Why Recent Increases in Development Aid Fail to Help the Poor

By Pekka Hirvonen

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Generous or Not?

At a news conference on December 27, 2004, UN Under Secretary General for Humanitarian Affairs Jan Egeland called for a major international response to the Asian tsunami disaster. In his comments, Egeland lamented that donor countries, despite their unprecedented wealth, generally provide so little in international aid. Calling rich governments "stingy," Egeland expressed his astonishment over the fact that donors used to be more generous when they were less rich.(1)

Egeland's remarks provoked a strong reaction, particularly from the US. Andrew Natsios, head of the US Agency for International Development (USAID), publicly refuted the view that the US was being tightfisted when it comes to assisting poor countries. "The notion that the United States is not generous is simply not true, factually. We've had one of the largest increases [in aid] of any country in the world," Natsios said. President George W. Bush in turn dismissed Egeland's comments by calling him "very misguided and ill-informed."(2)

However, Egeland never singled out the United States. He was referring to donors – the rich countries – in general. As a whole, were his criticisms justified, or was he just ill-informed? Are rich countries, not only the US, but also the EU, Japan, Australia, and others, really that stingy?

On the surface, it appears as if Egeland was wrong. In recent years, aid amounts have been on a constant rise. In 2004, official development assistance to poor countries reached its highest level ever. The United States alone provided almost $19 billion in aid – more than ever before.(3)

But the recent increases do not tell the whole truth about rich countries' generosity, or the lack of it. Measured as a proportion of gross national income (GNI), aid lags far behind the 0.7 percent target the United Nations set 35 years ago. Moreover, development assistance is often of dubious quality. In many cases, aid is primarily designed to serve the strategic and economic interests of the donor countries or to benefit powerful domestic interest groups. Aid systems based on the interests of donors instead of the needs of recipients' make development assistance inefficient. Too little aid reaches countries that most desperately need it, and, all too often, aid is wasted on overpriced goods and services from donor countries.

This paper presents an overview on the volumes, targeting and geographical allocation of development assistance over the past five years. It analyzes various features in rich countries' development assistance policies that make aid both insufficient and inefficient – despite the recent increases in nominal aid amounts that make rich nations seem generous.

The Elusive 0.7 Percent Target

Thirty-five years have passed since the United Nations General Assembly adopted a resolution in 1970, affirming that rich countries should progressively increase their official development assistance (ODA) spending. According to the resolution, donor nations were to "exert their best efforts" to reach the aid target of 0.7 percent of their gross national product(4) by the middle of the decade. By 1975, only two countries, the Netherlands and Sweden, had succeeded in living up to that promise.

Since then, rich nations have reaffirmed the 0.7 percent target on various occasions, most recently at the 2002 Financing for Development Conference in Monterrey, Mexico. But the results have been meager. After 35 years of promises, only five of the 22 Development Assistance Committee (DAC) member countries – Denmark, Luxembourg, the Netherlands, Norway and Sweden – have reached the goal.(5)

In retrospect, the five-year timetable set in 1970 looks overly optimistic, even naí¯ve. But in 1970, the 0.7 target seemed far more realistic than it does today. Through most of the 1960s, aid volumes had been at a level of 0.4–0.5 percent of rich countries' GNI, in some years even above that. Even after some decreases in development aid in the late 1960s, the level stood at 0.33 percent in 1970. There was still some reason for optimism.

But disappointingly, aid volumes remained virtually unchanged through the 1970s and 1980s, if measured as a proportion of the donor countries' national incomes. While assistance measured in dollars increased, aid budgets only just kept up with general economic growth. Thus in 1990, rich countries contributed exactly the same proportion of their national income – 0.33 percent – to development assistance they did twenty ears earlier in 1970.

The real setback, however, came in the 1990s when aid volumes began falling – not only measured in proportion to GNI but also in dollar terms. Students of development policy have suggested that the end of Cold War played a crucial role in governments' eagerness to cut aid budgets. During the Cold War, Western countries – particularly the US – had used development aid to support geopolitical goals, and the Soviet Union had similar systems in place to aid its own allies. When the Soviet Union collapsed, the underlying Cold War rationale for development assistance disappeared, and governments lost much of th