What is politics of foreign aid? Brief History of Aid Dependence of BangladeshCritically explain the impact of foreign aid to the Bangladesh.IntroductionThe history of the aid dependence of Bangladesh is unlike other recipients in the developing world in the sense that the country’s aid dependence reflects an inherited structural weakness. Bangladesh was a part of Pakistan since 1947 and became independent only after a long bloody liberation war in 1971. Although Pakistan began to receive foreign aid in as early as the sixties, after independence Bangladesh received little compensatory benefits from this aid flow, and at the outset of liberation, had a large external resource gap. Moreover, Bangladesh subsequently had to accept an inherited debt liability of US$483 million against the projects that were completed before independence and physically located on the territory of the erstwhile East Pakistan which is now Bangladesh.A Brief History of Foreign AidForeign aid has played an important role in the economic development of many countries across the world through different periods of history. Some of these countries even belong to the present day industrially advanced and prosperous group. For instance, II. The the United Kingdom received aid from the Netherlands in the 17th and 18th centuries. The United States, now one of the leading donor countries, was assisted by the United Kingdom in the middle of the 19th century. There was also some exchange of aid between the USA and the UK during World War linkage between aid and development has thus a fairly long history (Haq and Abrar, 1999). However, it was in the post-World War II era that foreign aid assumed a new dimension and emerged as a worldwide phenomenon. Foreign aid was globally viewed as a critical component of the growth paradigm which for nearly half a century influenced development concepts, plans and strategies.As Haq and Abrar (1999) point out, the end of World War II and eventually of the Cold War brought about two epoch-making developments:a) The world witnessed a phenomenal transformation in its political map as a result of the emergence of newly independent countries in Asia, Africa and Latin America most of whom were colonies; andb) A worldwide movement for development was noticed in these countries known as the developing world that comprises two-thirds of the world population but commands only one-fifth of the world resources. Their urge for rapid progress in raising the quality of life of their people was reflected in their commitment to planned development. The resulting national plans are unique as blueprints of the most exciting socioeconomic experiments ever undertaken in the history of human Endeavour.A Brief History of Aid Dependence of BangladeshBangladesh’s aid dependence reflects an inherited structural weakness. Long before the birth ofBangladesh, Pakistan began to receive US aid on a substantial scale from the late fifties. Whilst initially the United States remained Pakistan’s principal donor, aid was also received from the OECD and socialist countries. But due to the systematic drainage of resources of Bangladesh, then the eastern part of Pakistan, through the mechanisms of national and international exploitation,Bangladesh received fewer compensatory benefits from this foreign aid flow and, at the outset ofChapter Three: Historical Background of Aid Dependence of Bangladesh 39 liberation had a large external resource gap. However, after independence in December 1971,

Bangladesh subsequently had to accept an inherited debt liability of US$483 million against the projects that were completed before independence and physically located on the territory of the erstwhile East Pakistan which is now Bangladesh (Sobhan, 1985).When aid initially started to flow into Bangladesh after independence, it was primarily used for relief, rehabilitation and repairing damages incurred during the liberation war. The assistance provided to Bangladesh at that time was, at the bilateral level, largely contributed by India andRussia whilst most other aid was largely coordinated by the United Nations Relief Operations inBangladesh (UNROB). However, once the immediate post-war threat of economic attrition was over and the worst damage repaired, foreign aid became the fundamental component of development of the country. As the first five-year plan was launched in 1973, the inadequacy of domestic resources available to the economy persuaded the Bangladesh government to accept foreign aid in order to sustain some level of development activities. 10 percent of the GDP and 100 percent of the ADP were financed with foreign aid till the end of the eighties (Sobhan, 1990).Bangladesh’s dependence on the mobilisation and influx of foreign funds into the country for financing development projects under various plans, as well as for financing the import of food items and other essential commodities, became more institutionalised.Sobhan (1990) points out that although the quantum of external aid pledged to Bangladesh is considered an indicator of the success of Bangladesh’s foreign policy and diplomacy, the benefits of aid do not reach the poor constituting the vast majority of population in Bangladesh. Much of it is siphoned off by influential interest-groups creating in the process in Bangladesh a new rich class and hundreds of import-export agencies and consultancy firms. They work in close cooperation with interest-groups in donor countries. According to Akash (1997), aid dependence has also fostered anti-development attitudes. Quite often, the utilisation of foreign aid disregards the priority objectives of national development. For instance, a project aided by a foreign donor may be technically implemented but its impact on priority objectives may be negative, nil or marginal.Definition of Foreign AidThe use of the term “foreign aid” in international relations is quite diverse and complicated. The term “Foreign aid” is used interchangeably with “aid,” “foreign assistance,” “economic assistance,” “economic aid,” “development aid,” “development assistance,” “development cooperation,” or “economic cooperation” and so on (OECD, 1999).To evade confusions from the diverse uses of the term and misunderstanding of it, this thesis follows the definition of foreign aid established by DAC (Development Assistance Committee), which is one of the subcommittees under OECD (Organization for Economic Development and Cooperation). Coining the term “ODA (Official Development Assistance),” which currently has gained international use, referring to and substituting for the term foreign aid, DAC provides a clear definition of foreign aid. According to DAC (OECD, 1999), ODA is defined as those flows to developing countries and multilateral institutions provided by official agencies, including state and local government or by their executive agencies, each transaction of which meets two criteria: a) it is administered with the promotion of the economic development and welfare of developing countries as its main objective; and b) it is concessional in character and contains a grant element of at least 25 percent.According to the DAC definition, foreign aid is a kind of flow of financial resources to developing countries which has following three characteristics: official resources, developmental purpose, and concessionality. Firstly, to be regarded as ODA, the financial flow should be

originated from official resources such as state or local governments and official agencies. In this sense, ODA is distinguished from private financial flows which include commercial loans, trade credits, direct investments or private humanitarian aid. As mentioned above, contributions to international development organizations, as long as it is originated from official sources, are also included in ODA. The multilateral organizations encompass:a) IDA (International Development Association), which accounts for the largest portion of the multilateral ODA;b) UN organizations, such as UNDP (UN Development Program), UNHCR (UN High Commission for Refugees), and IFAD (International Fund for Agricultural Development); andc) Regional development banks such as ADB (Asian Development Bank), AfDB (AfricanDevelopment Bank), and IDB (Inter-American Development Bank) – ODA through such multilateral organizations is called “multilateral ODA,” while that between a donor country and a recipient country is called “bilateral ODA.”Who are the Donors?The World Bank, the ADB, the IMF, the EC, and the OECD are the leading multilateral donors who provide aid to Bangladesh. Among bilateral donors Canada, Germany, the Netherlands, the UK, and the USA offer tied aid while Japan, Sweden, and Arab countries offer untied aid (Bhattacharya 1990). The World Bank is a leading multilateral donor which frequently describes itself as the Bank. According to Bhattacharya (1990), some 60 percent of aid provided by the Bank takes the form of foreign currency expenditures which lessens pressure on the hard-earned foreign exchange reserves. The World Bank primarily focuses on agriculture, flood control, irrigation, primary education, electric power and energy, population control, roads and highways, and inland water transportation. The Bank provides more aid than any other single donor and is the coordinator of the aid consortium of Bangladesh. It maintains contact with the civil society of the country and conducts extensive study and research on the Bangladesh economy. According to Temple (2003), the World Bank’s former country director in Bangladesh, the Bank provided the country with US$300 million in commodity and project aid for the fiscal year 2002-2003, and US$550 million, the highest amount all donors, for 2003-2004. The World Bank acts as the moderator of the Bangladesh Development Forum. As Islam (1993) says, all donors have accepted the leading role of the Bank although some have noted that recognizing its coordinating role does not necessarily mean expressing solidarity with all of its policy recommendations. Donors also see the World Bank as a platform where they usually want to donate and observe that it is a very good institution to support (Himenenz, 1999). They maintain close contact with

the Bank to coordinate and monitor aid activities in Bangladesh and to avoid duplication of project recommendations by coming to prior agreements on particular projects.

Foreign Aid to Bangladesh

Bangladesh spends about US$400 million on defence annually. Official figures of military expenditure give a distorted picture. It is common knowledge that many military expenses, such as food, housing, infrastructure, are accounted for under other budgets and therefore are not marked as military expenses. According to unofficial sources, Bangladesh spends an extra $125 million on counter-insurgency in the CHT annually. The USA, Great Britain and China continue to provide training to the Bangladesh armed forces. While Japan, USA, Middle Eastern and European countries continue to be the major aid donors to Bangladesh. The following table shows the amount of financial aid Bangladesh was receiving in 1988-91 when the regime was at the height of genocidal campaign in the CHT, unfortunately the trend still continues.

FOREIGN AID TO BANGLADESH BY PRINCIPAL DONORS(in Million US$)Name of Donor 1988-89 1989-90 1990-91Japan 340 335 345ADB 300 274 290IDA 297 463 334Canada 119 104 112EEC 66 47 53USA 95 100 102FR Germany 57 50 55Netherlands 52 43 27United Kingdom 44 52 31UN (Exclu. UNICEF) 66 58 99UNICEF 25 24 -Sweden 31 37 22Denmark 18 51 33Norway 25 35 20Saudi Arabia 15 8 -

Increasingly donor governments have made human rights an issue in the disbursement of development aid. Up to now, however, donor governments have not been willing to apply the human rights criterion at all strictly. In Bangladesh they have shied away from making aid conditional on the observance of human rights in the country, including the CHT. Donor governments have continued to give huge amounts of aid to Bangladesh while they go no further than expressing ‘concern’ about the situation in the CHT when they meet the Bangladesh government e.g. during the annual Bangladesh Aid Consortium meeting, held in Paris each April. None has considered taking more concrete action such as making continued aid to Bangladesh conditional on a speedy solution to the CHT crisis, or applying cuts in the aid disbursed, despite questions raised in some of their national parliaments. Recently, the European Economic Community (EEC) has expressed its willingness to fund withdrawal programmes of

the Bangladeshi settlers from the CHT, but EEC is fully continuing its other aid programmes in Bangladesh. Such contradictory behaviour raises questions about the donors’ real commitment to human rights in Bangladesh and elsewhere. The donor community continues to dodge its responsibility by ignoring or down-playing the fact that only thanks to their aid, the government of Bangladesh is able to maintain a huge military force in the CHT. After years of serious allegations of human rights violations in the CHT, the donors can no longer plead innocence, nor hide behind the argument that they are not funding development projects in the CHT. Human rights violations are a national problem, and have to be addressed by means of national measures in Bangladesh. Those who fund development programmes in the CHT have allowed themselves to become willing instruments in the hands ofthe Bangladesh government and army, and can be called direct accomplices to the violations. One of these is the Asian Development Bank, which has funded huge schemes in the CHT; others are those governments which give direct support or training to the Bangladesh military.

Apart from the national development programmes the Bangladesh Government often seeks foreign aid for the economic and social development of the indigenous people of the CHT. After receiving the aid the mititary regime uses the money for the military and for the Bangladeshi settlers and not for the local people. For example,

1. USAID (United States Agency for International Development)Financed Kaptai Hydroelectric Dam benefited the outsider Bangladeshi settlers, while dispossesing thousands of Jummas of their arable prime land.

2. SIDA (Swedish International Development Agency)Funded Forest Development Proiect created job opportunities for the Bangladeshis only.

3. UNICEF (United Nations International Children’s Emergency Fund)Aided Drinking Water Supply Scheme benefitted only the army camps, the Bangladeshi settler colonies, urban centres, and concentration camps.

4. WHO (World Health Organization)Organised Malaria Eradication Project has been used to protect the armed forces and the Bangladeshi settlers.

5. ADAB (Australian Development Assistance Bureau)Sponsored Chengi Valley Road Building Project has been used to facilitate military deployment in the remote parts of the CHT and to open up the interior to the Bangladeshi immigration.

6. ADB (Asian Development Bank)Assisted Livestock and Fisheries Programmes have benefited the Bangladeshi settlers only.

7. ADB (Asian Development Bank)Financed Joutha Khamer Projects or Joint Farming Projects are really concentration camps for the Jumma farmers who have been forced to leave their ancestral homes and farmlands to accommodate the Bangladeshi invaders.

The Jumma people and various Humam Rights Groups had appealed to donor countries to stop their aids to Bangladesh. Sweden responded to their appeal by stopping the Forest Development

Project on the grounds that the Bangladesh Government refused to employ the Jumma people in the project. Australia, similarly, pulled out of the road building project because the road helped the military and the Bangladeshi settlers to move deep into the Jumma homeland.

All development programmes in the CHT are controlled by the military and are part of the counter-insurgency programme. The CHT Development Board, the only government development agency in the CHT, is still chaired by the GOC (General Officer in Command), the highest army commander in the region. The Anti-Slavery Society ‘recommends to the international funding agencies and national governments providing development aid for projects in the Chittagong Hill Tracts that they withdraw support where such projects are against the wishes and interests of the indigenous population and that all future projects are carried out only after consultation with indigenous people’s representatives. So far donor governments and international donor organisations have chosen to sit on the fence. They have been unwilling to develop alternatives to the present aid policy or make a positive contribution to a solution of the CHT conflict. One such possibility would be to fund the resettlement of Bangladeshi settlers outside the CHT.

http://www.chtbd.net/foreign-aid-to-bangladesh.html 18-12-12

In October 1974, the Bangladesh Aid Group was established under the aegis of the World Bank, with twenty-six participating governments and institutions. Commitments of the aid group were US$551 million in FY 1974 and US$1.2 billion the following year. Aid to Bangladesh has remained at a high level since the consortium came into existence, although with substantial fluctuations in new commitments from year to year. After the high initial commitments, the figure fell to US$964 million in FY 1976 and to US$744 million the following year, before turning upward again. Fiscal year 1979 was another breakthrough period, with new commitments of nearly US$1.8 billion, a figure surpassed 3 years later when the level reached US$1.9 billion, the all-time high through FY 1987 (see table 10, Appendix).

In the 1980s, the value of food aid declined to around 11 to 18 percent of new aid commitments, most of it given on a grant basis. Commodity aid--about 25 percent of aid commitments to Bangladesh -- included key items for increasing productivity, such as fertilizer, cement, steel, pumps, and other equipment. Project assistance accounted for more than 50 percent of new commitments. This form of aid was preferred by the largest donors because their funds are put to work in well-defined ways that can be related to policy objectives. From the beginning, the Bangladesh government has been unable to use project funds at the same rate as they are authorized. As a result, a pipeline of authorized but undisbursed project funds has grown bigger every year. The undisbursed project assistance pipeline was expected to exceed US$5 billion in 1988 and to continue to grow after that. Not until the 1990s at the earliest could Bangladesh hope to begin reducing the backlog of undisbursed funds.

Disbursement figures did not account for Bangladeshi repayments of principal and interest on previous loans. In FY 1986, for example, Bangladesh paid out US$117 million against principal and US$72 million in interest in connection with earlier aid disbursements. Thus the gross US$1.3 billion in disbursement of foreign aid that year netted an inflow of US$1.1 billion. Although these funds were equal to almost 10 percent of Bangladesh's GDP, they averaged only

about US$12 per person, hardly a scale to bring about dramatic improvement in the economy's performance.

Foreign Aid As a WeaponIf we would all just listen to Bono, from the pop band U2, he tells us that what the countries suffering from poverty really need is money.   This popular idea in North America, that if we send money over to third world countries we will be able to end poverty, is simply ignorant. After all isn't the saying,   "Give a man a fish; you have fed him for today. Teach a man to fish; and you have fed him for a lifetime."   Simply giving money in the form of foreign aid may feed someone for a day, but it is simply a band-aid solution. There are many groups that think we can stop world hunger by either giving foreign aid to third world countries, or establishing the same farming techniques that first world countries use.   Foreign aid creates a dependency on first world countries, and forces our culture onto them.   Foreign aid in the form of food, is often grains that the government gives to third world countries so that there is less on the market, therefore keeping the price higher.   The types of grains grown in North America are very different than what is grown in Africa due to environmental conditions.   By pumping these products into third world countries it creates a want for these countries because they create a ‘want' for a country.   This want is for the taste of North American foods, which they can barely afford, but it creates more business for North American farmers. Instead of eating grains grown by small independent farmers in their own country, they eat the grains from North America, such as wheat, which can be less nutritious than what they are accustomed to eating.   This forces small farmers off their land, because they cannot afford to feed themselves, driving them to the already overpopulated cities.Many modernists argue that competition is what drives our economy.   If competition is the solution to the problems of economies in third world countries than foreign aid is being very destructive, as local farmers cannot compete (2005, 11).

Foreign Aid as a Weapon. StudyMode.com. Retrieved 11, 2005, from http://www.studymode.com/essays/Foreign-Aid-Weapon-71673.html

The: extent and nature of all)Dependence:I t would be misleading, however, to see aid serving solely as a prop of the bourgeoisie in Bangladesh. Within the present social framework, aid has now become central to the expectations and conditions of life of a much wider segment of the urban and even riiral populations of Bangladesh. Some of the main social classes who are directly or indirectly dependent on aid for their subsistence consumption and livelihood are drawn from the following social groups: rural poor, urban population of six major cities. Government employees, workers in public enterprises and in large-scale manufacturing enterprises, school teachers in state educational institutions, college and university students resident in hostels, the armed forces and other instruments of state power. The nature of this dependency may be reviewed in relation to the rural and urban segments of the population.

The food crisis of 1972A nine-month long guerrilla warfare, which led to the liberation of Bangladesh in December 1972, literally ravaged the country’s economy. The liberation war had ‘imposed an almost total hiatus on the economy’, the Sailer Report (1972) of the United Nations remarked, describing the post-liberation economic situation as ‘worse than at any time in the past history of the country’.All economic activities came to a grinding halt; however, the worst hit was agriculture, the mainstay of the economy.The production of all three major crops of the country – rice, jute and tea – suffered a severe decline during the war. War dislocations, along with critical shortages of agricultural ingredients – seeds, fertilizer and irrigation– prevented the proper planting of crops.The consequent food crisis worsened further with a precipitous decline in food production in the immediate aftermath of the war. In 1971–1972, as Table 1 shows, the production of rice crops –Aus aman and boro-totalled 9.78 million tons, 20 per cent below the level of 1969–1970, the last normal year when the country produced 11.81 million tons. The production of the main rice crop – aman – fell to 5.70 million tons in1971–1972, compared with 6.95 million tons in 1969– 1970. As a result, per capita food availability declined to 332 lbs in 1971–1972 compared with 388 lbs in 1969–1970, substantially inflating the country’s food import requirements.Although more than 60 per cent of the population worked in agriculture, Bangladesh had been a net food importer for a long time. Even in the decade prior to the country’s independence in 1971, the country imported more than one million tons of food annually (see World Bank 1972b, 1976). On top of that, a rapidly growing population contributed to the deepening food crisis. In1972, Bangladesh was the eighth largest nation in the world with a population of 750 million – over 1,400 persons per square mile. The country’s gross national product was US$4.5 billion, with a per capita income of around US$60 (World Bank, 1972a). Over 90 per cent of the population lived in rural areas, where the top passengers and cargoes of the riverine country were also paralysed, because of the damage to boats and vessels as well as incessant rains and floods. In addition, the country had not a single ocean-going vessel with which to ship its imports.The emerging situation was so desperate that many national and international observers predicted the inevitability of famine, and the Sailer Report (1972), for example, warned that any delay in emergency international assistance might lead to a famine. Despite the unprecedented scale and magnitude of the food shortages and the extraordinary problems associated with the imports as well as the distribution of food, the Mujib regime succeeded, however, in averting an impending famine in 1972. Nearly one million tons of food – 947,000 tons to be precise – were imported within the first six months of the war, an overwhelming 624,000 tons of which came from India alone (Wright, 1988:128–129). In the initial months, because there were no operational ports and airports, most of the international food supplies entered Bangladesh through Indian roads and railways. Soon, however, other bilateral and multilateral donors joined the effort as the country’s ports were reopened with swift international help, and as a result, food arrival increased from 98,000 tons in March to a staggering 372,000 tons in the month of June, 1972 (World Bank, 1972b). Caf Dowlah, City University of New York, Queensborough College, 2006222-05 56th Avenue, Bayside, New York 11364–1497, USA

Food Aid Effect on National Economic Development (Poverty Reduction)One of the earliest justifications of programme food aid is its potential for serving as a source of balance of payments and foreign exchange support for recipient countries.Food aid could be a tool of economic development and poverty reduction in food-deficit and foreign exchange-constrained developing nations (Shaw and Clay, 1993). Monetisedfood aid could potentially serve as a key source of income for the recipient government and help relax budgetary and balance of payments constraints. The domestic sale of food aid provides additional resources that could be used by the recipient government to reduce the taxation of its agricultural sector and increase investment in the agricultural sector (Colding and Pinstrup-Andersen, 2000: p. 202). In spite of the argument for programme food aid above, this form of aid is seldom used today because it has been widely discredited by many analysts and is now viewed as an ineffective means of reducing food insecurity in poor countries. Several scholars argue thatprogramme food aid (monetised food aid in general) has not been very effective in achieving sustainable economic development and poverty alleviation goals. For example,Clay et al. (1996) assessed the contributions of EU’s programme food aid and concluded that EU food aid donations have been ineffective in alleviating food security concerns in recipient countries. They found that the recipient nation’s domestic food assistance and subsidy programmes funded through counterpart funds from programme food aid tend to be anti-poor. Such programmes often target the urban ‘middle class’ population in these countries and they are relatively inaccessible to the poorer groups who live in rural communities.Furthermore, McClelland (1998) conducted a comprehensive evaluation of the impact of US PL480 food aid allocations to various developing countries and concluded thatprogramme food aid has not been very effective in fighting poverty in recipient nations.This conclusion about the relative ineffectiveness of programme food aid is one of the reasons for the recent decline in the volume of this form of food aid donations (Clay et al.,1998). the landscape of food aid donations has gradually shifted from development to emergency relief (Clay, 2003).

FOOD AID IMPACTS ON RECIPIENT DEVELOPING COUNTRIES: A REVIEW OFEMPIRICAL METHODS AND EVIDENCE TITUS O. AWOKUSE*2010University of Delaware, Newark, USA

Food Aid to BangladeshIt has been noted in Section 8.2 that food aid has a direct poverty alleviation impact on Bangladesh.The two main poverty-alleviation effects of food aid to Bangladesh have been identified as: (1) Prevention of famine in the early days when Bangladesh had food grain deficit of about 3 million tons; and (2) Filling the supply-demand gap in the food market. Food aid also helps to keep foodgrain price low enough to prevent large-scale entitlement failure of the poor.13Table 8.12 on p.159 presents the trend of aided food imports, commercial food grain imports and the supply from the net inventory to fill up the food gap in Bangladesh for the period from 1990 to 2001 for which the data is available. The table shows clearly the decreasing importance of food aid in fulfilling the food gap. In absolute term, it came down from 1.54 million tons in 1991 to only .54 million ton in 1998. However, in 1999 it suddenly increased due to the extraordinary situation caused by a severe flood in that year. But even then at that time, the government mainly

depended on commercial imports to fill up the gap, and thanks to the emergency policy support to the agricultural sector, the overall food gap at the end of the year turned out to be 27 percent less than that of the preceding year. And thenceforth, Bangladesh was able to produce a food-grain surplus over and above its requirements (Centre for Policy Dialogue, 2001). Obaydullah, M,2007

Aid situation in Bangladesh

Monday, 28 December 2009 18:04 Ahmed Swapan, VOICE Aid, in the case of Bangladesh, has put an end to the possibility for sustained economic growth by driving local producers, particularly farmers, out of business. Instead of providing assistance, aid contributes to the rise of corruption. As a result, in Bangladesh, despite receiving almost 20 billion US dollars in aid since its independence in 1971, the country remains one of the poorest and most corrupt nations of the world.

Bangladesh Aid Group was formed in October 1974, under the direct supervision of the World Bank, comprising 26 donor agencies as well as countries that made the commitment of providing US$551 million in aid in FY1974. Aid to Bangladesh has remained at a high level since the consortium came into existence, although with substantial fluctuations in new commitments from year to year. After the high initial commitments, the figure fell to US$ 964 million in FY 1976 and to US$ 744 million the following year, before turning upward again. Fiscal year 1979 was another breakthrough period, with new commitments of nearly US$1.8 billion, a figure surpassed 3 years later when the level reached US$1.9 billion, the all-time high through FY 1987.

Unfortunately, since the beginning, independent Bangladesh has been regarded as a test case for development by economists, policymakers, and program administrators of donor countries and international financial institutions.

Forms of aid

Aid in Bangladesh can be categorized into four. These are food aid, commodity aid, project aid, and technical assistance. Food aid is being provided either in kind or in loan or grants to procure food as well as to cover relevant food cost. Commodity aid includes programme credit, grants or credit for financing of the acquisition of raw materials and imports. Project aid, on the other hand, are grants or loan for project financing while technical assistance are grants meant for human resource development, institutional capacity building and technology transfer.

It is worth pointing out that a major portion of the aid provided earlier came in the form of food aid, followed by commodity aid, project aid and technical assistance, with the total process taking a u-turn within a decade. But since the national development programmers have been designed so far with a view to pleasing the donor groups, keeping peoples’ participation and say in these matters aside, a self-sufficient economic framework proper could not be built.

Aid trend

Over the years, Bangladesh has been able to depend less on foreign aid which amounted to 5.95% of GDP in 1991 and only 2.8% in 2003 and onward. Also important to note is the fact that each year Bangladeshis working in different countries of the world send more than three times higher as the foreign aid as remittance. A reality is that the poor people for whom the aid is meant receive only one-fourth of it, with a considerable portion going back to the donor countries in the name of consultation fees and other relevant expenses, the rest being devoured by the middlemen.

Aid is now in decreasing trend from the national budget. A report published in June 2005 shows that foreign aid to Bangladesh decreased from 1585 million dollar to 1033.4 million dollar in 2003. In 2004-05 fiscal years, donors were committed to donate 715.2 million dollar which is less than 21.7% from past fiscal year.

Though the aid dependency in Bangladesh is decreasing, donors are putting much more conditions with the aid money. According to finance ministry, the amount of foreign aid Bangladesh got in 1991 equals to 5.9 per cent of the GDP. In 2003 it becomes 2.8 per cent of GDP. In 1972 the per capita debt burden was only Taka 67, while in 2004 it reaches to Taka 7200. In 1991 per capita overseas loan was 119 dollars that now stands at 122 dollars. Though the overall dependency on aid is decreasing, but some of the projects in different sectors dominantly dependent on foreign aid. The projects of health, population and family welfare sectors still bear the dependency rate of 74 per cent, public administration sector 73 per cent, oil, gas and natural resources sectors 46 per cent, and, media sector 43 percent. The aid dependency on our ADP is decreasing gradually. The dependency rate of our ADP on aid in 1991 was 87 per cent, but in the financial year 2003-2004 it is only 42 per cent.

Donors are more interested in providing loans than grants. Out of total foreign aid of the last 30 years, 52 percent were loans and 48 percent were grants. Comparatively the ratio of debt has increased over the period of time while the ratio of grant decreased. During the fiscal year 1971/72, total foreign debt was about 10 percent and foreign grant was about 90 percent, however, in the fiscal year 1998/99, foreign debt became 57 percent. Such a trend clearly shows that although the foreign donors started providing support through grant they were more interested in loans afterwards. Not only have that different types of conditionality and obligations been imposing on Bangladesh to receive foreign loans.

World Bank and IMF presence in Bangladesh

Bangladesh, the third largest debtor country of the World Bank (WB), has been provided with credit assistance totaling nearly $20 billion by the International Development Assitance (IDA) since 1973, the year the country joined the WB. The WB provides most of its loans for a specific project or for one which is based on one or another particular strategic policy such as Structural Adjustment Programmes or SAPs the main policies of which have been:

Massive privatization of industries and major utilities, e.g., water, electricity, gas, railway, ports, etc.;

The blanket application of the ‘free market policy’ which actually means a unilateral canceling of all tariff and non-tariff restrictions by the country on the receiving end of the loans;

Withdrawal of all types of subsidies for the sake of ‘efficiency’; and

Drastic cuts in government spending in order to ensure so-called ‘macro-stability’ of the economy.

In the mid-eighties, when Bangladesh was under a military regime, the SAPs started to be introduced, resulting in the disintegration of a number of industries including Adamji Jute Mills. Bangladesh Petroleum Corporation (BPC) has still been under tremendous pressure of being privatized, and so has been the Chittagong Port, the purpose of all this bein g putting the oil and gas sector of the country at the mercy of the large multinational companies.

The loans provided by the IMF, like those of WB, are accompanied by ‘conditions’ that often go against the debtor countries in question. In most of the cases, the conditions are not relevant to the causes or the management of the crisis that the countries face, with many of these conditions (privatization, trade liberalization, increasing bank interest rate as well as the price of fuel and electricity, tariff cuts and producing PRSPs, etc.) coming in conditionality package under the pressure of major IMF shareholders for their own interests. Between 1995 and 2000, IMF attached with each of its loans sanctioned, on an average, 41 conditions, which they reduced as a result of tremendous protests coming from different countries concerned. In 2002, IMF released a guideline of its conditionality policy, which was the modified version of its imposed conditions. Though the new guideline was dubbed ‘positive’ by IMF, different countries have been subjected to these conditions– particularly while availing Poverty Reduction and Growth facilities (PRGF) loans– that they view as ‘severe’ and ‘excessive’.

In June, 2003, Bangladesh has been provided by IMF with a loan worth US$501,500,000 which was to be released in three years in three installments, some of the conditions being the renovation of government Banks, privatization of Rupali Bank, reducing the interest rate of Sanchay Patras (savings scheme), raising the price of gas and oil, among others. It is the IMF that has been imposing structural adjustment programmes on different countries; and in the macroeconomic level Bangladesh has got the IMF as its main consultant the directives of which played a major role in fixing the national salary structure (article 4 missions). This raised the exchange rates of the dollar against taka, led to increases in the price of gas, fuel, and electricity resulting in the tragedy of Kansat in Chanpainababganj, Rajshahi that claimed this year the lives of 19 farmers who, along with many others, protested against the price hike.Aid conditionalityAccording to the donors, the conditionality’s that come along the aid programmes are meant to ensure the effective use of the aid money for the stated purposes. And these stipulations have now grown more important than they were in any previous time, with IMF imposing two types of policy conditions, namely quantitative and structural. Quantitative conditions are imposed at the macroeconomic level of the poor countries, while the structural ones are for institutional and legislative policy reforms. All of these prove to be unfair, undemocratic, ineffective, and inappropriate mainly because they undermine democratic accountability within countries and deprive the poor of the access to the services (education, health, etc) at a low cost. And what is

alarming, the WB instruction to stop appointing to different vacant posts resulted in raising the unemployment rate to 40% in Bangladesh in the year 2005.

Bangladesh Government has already started bank sector reform. The project name is “Industry Development and Bank Modernization”. Another project also in hand is named “Central Bank Strengthening Project”. The loan amount is estimated as 38 core 83 lacks 90 thousand USD and 4 core 61 lacks 30 thousand respectively, for the above projects. Donors have imposed a tag of bank privatization with these loans. A lion’s share of this project money is ready to be spent as consultancy fee. According to ERD, more than 15 to 20 percent money had always been spent for consultants.

Some of the conditions commonly implemented are: Cutting social expenditures, also known as austerity; Implementing user fees in basic services such as education and health;

Focusing economic output on direct export and resource extraction;

Devaluation of overvalued currencies;

Trade liberalization, or lifting import and export restrictions;

Increasing the stability of investment (by supplementing foreign direct investment with the opening of domestic stock markets);

Balancing budgets and not overspending;

Removing price controls and state subsidies;

Privatization, or divestiture of all or part of state-owned enterprises; and

Enhancing the rights of foreign investors vis-a-vis national laws.

 Conclusion

Aid programmes are in need of restructuring in order to be more effective. A good account keeping, effective administration and determining the exact volume of loan and aid, and coordination among the donors are the measures to be adapted to this end. Most importantly, donors need to realize that they have moral obligations to help poor nations, but have no right to attach conditions to the aid that they provide. Therefore, for aid to be effective no conditions are acceptable at all - be it in aid, loans or grants. As committed, discussion in parliament on overseas assistance is necessary for public participation. Non-interventions of the IMF and WB in the allocation of financial and technical assistance, cancellation of PRSP, domestic resource mobilization and preparation of a central plan to make the donor agencies and government accountable to be accountable to the people are the prerequisites to ensure aid effectiveness

http://edm.iboninternational.org/component/content/article/363-features-on-aid/162-aid-situation-in-bangladesh