FOREIGN AID

Projected Submitted to: Sir Zubair Faisal Abasi

Prepared By: Haider Khan

Syed Sajjad Shah
Talha Haq
Faheem Ali
Contents
Contents..................................................................................................................... 2

Introduction................................................................................................................ 3

Types of Foreign Aid...................................................................................................4

Humanitarian Purpose ............................................................................................4

Developmental Purpose..........................................................................................4

Commercial Purpose................................................................................................5

Diplomatic Purpose.................................................................................................5

Military purpose.......................................................................................................5

Technical Assistance...............................................................................................5

Cultural Purpose...................................................................................................... 5

History of Aid..............................................................................................................6

Foreign Aid to Pakistan...............................................................................................6

Cold War Period.......................................................................................................6

Post Cold War Period...............................................................................................7

Post 9/11 Period......................................................................................................7

Key Factors Evaluating Foreign Aid............................................................................8

Purposes for Provision of Aid......................................................................................8

Distribution of Aid in Pakistan.....................................................................................9

Trends & Composition of Aid....................................................................................10

References................................................................................................................11
Introduction
The word “Foreign Aid” is a term which we heard very often usually in Television News or in
the newspaper. But very few people analytically know what does word Foreign Aid means and
its logical reason behind giving foreign aid.

Foreign Aid is defined as “a voluntary transfer of public resources, from a government to another
independent government, to an NGO, or to an international organization (such as the world bank
or the UN Development Program) with at least a 25 percent grant element, one goal of which is
to better human condition in the country receiving the aid.” (Source: Foreign Aid by Carol
Lancaster, Pg 9).

Usually before the Second World War countries used to help other countries on the humanitarian
basis especially when there occurred through natural calamity. Marxist scholars considered
foreign aid as a tool of dominant states at the center of world capitalism to help them to control
and exploit developing countries. While the “constructivism” scholars argue that it is a norm that
rich countries should provide assistance to the poor countries to help the latter improve the
quality of lives of their people.
Although some may consider the foreign aid as a mean of suppressing the developing countries
while others consider it as humanitarian relief. But there is one point missing that is the impact of
domestic politics on aid giving. Foreign aid constitutes of public expenditure of huge size of the
domestic government which is given regularly. The foreign aid is also reviewed by the
parliament and the legislative departments of the aid giving country which try to put condition
for the aid. The aid which is given by the donor country is actually the ‘tax payers’ money of its
people. If the total aid is given freely to the recipient government on the basis of humanitarian
relief, the people of the aid giving country will turn against its government because it is actually
their money. They don’t want their money to be wasted. They want it to be utilized for the useful
purpose. Although America is facing budget deficit every year but it is the largest contributor of
foreign aid. It is utilizing its aid for useful purpose and also getting a vast return which may be of
tangible or intangible nature. According to IMF, the developed countries should give 0.7% of its
GDP as aid to underdeveloped countries. Foreign aid is today and will remain as an instrument
of political power
Types of Foreign Aid
Foreign Aid is usually given for different purpose:
1. Humanitarian purpose
2. Developmental purpose
3. Commercial purpose
4. Diplomatic purpose
5. Military Purpose
6. Technical Assistance
7. Cultural Purposes

Also there are Bilateral Aid and Multilateral Aid. Bilateral aid is given by one country directly to
another. Multilateral Aid is given through the intermediacy of an international organization, such
as the World Bank, which pools donations from several countries, governments and then
distributes them to the recipients.

Humanitarian Purpose
Most of the aid given to LDC countries before Second World War was usually given for
humanitarian purpose. It is the least controversial of all aid purposes. Usually natural and
manmade crises often leave a large number of victims, sometimes displacing a large number of
people at home or abroad. The governments of LDC usually lack the resources to accommodate
the needs of victims of disasters. So usually the NGO’s or highly developed countries provide
assistance. Such type of aid is for humanitarian purpose.

Developmental Purpose
It is similar to the humanitarian aid. Before the 1980’s it also meant to better the lives of those
living abroad but after the 80’s it only emphasized on economic development including debt
relief. It also includes providing aid with incentives for governments to undertake economic
policy reforms. It contributes to good governance and poverty reduction in the recipient country.
Commercial Purpose
Its main objective is the expansion of donor country’s exports and securing excess to needed
raw material imports. This usually refers to providing financial incentives to foreign
underdeveloped government to import goods and services from the donor country. Another form
of this can be to tie the procurement of goods and services funded by aid to purchases in the aid
giving country. It is also known as “Tied aid”.

Diplomatic Purpose
Diplomatic purposes involve international security, international political goals and the
management of relations between governments. The two examples can be of U.S and France.
The U.S funded different governments like Afghanistan and Pakistan during the cold war
conflict in which the U.S used Afg-Pak as weapon against USSR in which the USSR was
dismantled into different independent states.

Military purpose
Sometimes the governments of better off countries use aid for military purpose. Actually the
donor country has conflicts with the other countries. The donor country gives aid on the
condition that the aid will be used against the rival. The example of military aid can be the aid
received through CENTO and SEATO pacts. Aid received by recipient countries by U.S during
cold war conflict is also a kind of military aid.

Technical Assistance
Technical Assistance is a form of aid given to the LDC for literary purposes. This includes
educating economists, engineers, doctors, financial analysts in the prestigious universities abroad
which are funded by donor country so that they may prove more beneficial for their own country.

Cultural Purpose
The last purpose of aid is cultural purpose. The developed countries give aid to the
underdeveloped countries to implement its culture abroad. Usually the aspects of culture to be
promoted in foreign lands are language and religion. This type of aid is usually given by ex-
colonial powers to their former colonies to influence them to accept the latter’s culture. Another
form of this aid can be the aid provided by governments to support their religion.
History of Aid
The form of foreign aid which we see started after Second World War due to the cold war
conflict. There were two blogs formed after the world war which were America and USSR. Both
had the intentions of defeating other. For this purpose they started giving aid to their allies. The
socialist blog aid went to North Korea, North Vietnam, Cuba and Mongolia to stabilize their
economies. It also went to few of the non communist countries like India, Egypt and Syria. The
U.S also provided aids in this respect it provided aid first to Greece and Turkish government to
ally it with them. After that it provided aid according to Marshall Plan in which it provided $13
Billion to war affected Europe with the name of European recovery plan. The U.S which
presents it as a pioneer in providing aid to the LDC would have never provided aid have there
been no cold war conflict. After the world war, most of the aid was provided either for
diplomatic or commercial purpose. If we analyze we will see that the foreign aid whether
provided by US or USSR was provided by the donor countries to get their motives get fulfilled
and the other point is that the aid was usually provided by the donor to the strategic allies who
can be proved as beneficial for the aid giving country. After that it pressurized other
governments to give aid to underdeveloped countries. The provision of aid started. Many other
countries started giving aid such as U.K, France, Germany, Japan and also Nordic countries
which include Denmark, Sweden and Norway. Although a country may starts giving aid to
underdeveloped countries under the definition of Humanitarian aid but gradually it starts to
dominate that country as it continues to provide aid and in this way the donor country tries to
influence the recipient country in different ways.

Foreign Aid to Pakistan

Cold War Period
After Pakistan came into being it faced different hardships as it had a lot of population but did
not had sufficient resources at that time. Pakistan applied to U.S for strategic and economic
assistance but America was not willing to give aid to Pakistan in 1950. As a result Pakistan tried
to ally itself with Soviet Union. Keeping in view the national interest, America convinced
Pakistan to be its ally. To start the friendly relations, America sold military equipment to
Pakistan. In 1953 Pakistan received aid for the first time from U.S and this continued until mid
sixties. The US persuaded Pakistan to join SEATO (1954) and CENTO (1955) which is also
known as Baghdad Pact. And in this way U.S was allowed to use military bases of Pakistan to fly
over Soviet Union. In return U.S gave $700 million to Pakistan from 1955-1965. These
relationships suffered due to arms embargo imposed by U.S in 1965. The embargo was lifted in
1975. Because of the imposing of embargo Pakistan separated itself from the defense pacts
SEATO and CENTO. The relationships again suffered a setback when U.S suspended aid to
Pakistan in 1979 due to Pakistan’s secret involvement in nuclear enrichment. There was again
revival in relations as Pak-U.S relation when Pakistan stood against the Soviet invasion of
Afghanistan.
In 1980 America offered nearly $400 million which Pakistan rejected and considered it as too
little. In 1981 Reagan administration offered economic and military aid of $3.2 billion to
Pakistan on five year plan. In return of this reward Pakistan had to supplies U.S arms to
Afghanistan and to home 3 million refugees of war. U.S national interest was resolved with end
of Soviet Union.

Post Cold War Period

Several events occurred in 1990’s which decreased the economic assistance to Pakistan. These
events included the tensions between India and Pakistan and sacking of democratically elected
governments. In 1995 U.S lifted ban on economic and military aid but Pakistan couldn’t get the
28 F-16 fighters for which it had paid in 1990. In the late 90’s two important events occurred one
was the small scale war between Pakistan and India on Kargil issue and the other one was the
nuclear tests which Pakistan carried out on 28th April 1998. After this many countries imposed
sanctions on Pakistan including U.S and they even imposed ban on humanitarian aid.

Post 9/11 Period

The 9/11 attacks changed the destiny of Pakistan. U.S lifted all the sanctions on Pakistan just
after the 9/11 attacks Pakistan became the main ally of U.S in war against terrorism. In
November 2001, U.S gave $1 billion to Pakistan on very soft terms. The U.S aid to Pakistan
from 2001-2008 was approximately $1.8 billion annually. After the forming of PPP government
another deal is about to struck, in which U.S will give $1.5 billion to Pakistan for the next five
years. This bill was proposed by two U.S Senators named as Senator John Kerry and Senator
Richard Lugar. The bill is known as Kerry Lugar Bill. Many political parties in Pakistan are
opposing the aid which will come through the Kerry Lugar bill agreement between the two
countries Pakistan and U.S. They are opposing because according to them the conditions set by
the American on aid are against the national interest of Pakistan. Although the conditions put by
Americans are not that much hardening as considered by political parties.

Key Factors Evaluating Foreign Aid

1. The overall amount of the aid.
2. The countries and organizations receiving it.
3. How much aid each of those countries and organizations receives?
4. What the aid is used for?
5. The conditions and terms of aid.
6. The percentage of aid tied to purchases in the donor country.

Purposes for Provision of Aid

Although a donor country provide aid to the recipient country for its economic and social
development but there are many hidden national interests of donor country involved in providing
aid. According to USAID “US foreign assistance has always had the twofold purpose of
furthering America’s foreign policy interests in expanding democracy and free markets while
improving the lives of citizens of the developing world”. As it is mentioned above that America
supported for expanding democracy but such support was not true in Pakistan’s scenario.
Because the major foreign aid given to Pakistan was given either in the General Zia’s regime or
General Musharraf’s regime. When there occurred earthquake in northern areas of Pakistan, it
needed a huge amount of aid for earthquake victims.
For this cause senator Joseph Biden also advocated. He argued that, “There is a desperate need
for more assistance and that void is being filled by groups hostile to American interest and to
prove that America is not engaged in a crusade against Islam, the US must do more. Our moral
duty and our national security interests are one” (Biden 2005). According to our view America
should emphasize on giving aid to Pakistan especially when there occurs any calamity or natural
disaster. It should not only focus on national interests but also on humanitarian issues because
the humanitarian aid also serves the purpose of foreign influence.
Distribution of Aid in Pakistan
Pakistan mainly got economic and military aid. The large amounts of military and economic aid
packages which Pakistan got were during 1980’s and after 9/11(war against terrorism). The
humanitarian and development aid which is given to Pakistan through international or UN
institutions or state institutions. These institutions include UN, UNDP, FAO, IMF, World Bank,
UNESCO, USAID, ADB and many others which also include aid from different ministries of
various countries. In the same way military aid was given directly to defense ministries or
through USAID as the military aid was given mainly by US. These aids were given to different
ministries of Pakistan which was utilized for the economic and social development of Pakistan.
Trends & Composition of Aid
References
 Economic Development by M.P Todaro & S.C Smith

 Foreign Aid by Carol Lancaster

 Impact of Foreign Aid on Economic Development in Pakistan [1960-2002] by Ghulam

Mohey-ud-din

 Economic Survey of Pakistan

 Strategic US foreign Assistance by Rhonda l. Callaway & Elizabeth G. Mathewss