foreign aid

The Columbia Encyclopedia, 6th ed.

foreign aid

foreign aid, economic, military, technical, and financial assistance given on an international, and usually intergovernmental level. U.S. foreign aid programs have included at least three different objectives: rehabilitating the economies of war-devastated countries, strengthening the military defenses of allies and friends of the United States, and promoting economic growth in underdeveloped areas. Aid may be given as a grant, with no repayment obligation, or a loan, and often comes with conditions that require that the recipient nation purchase goods or services with the aid from the donor nation.

During and after World War II

Foreign aid, as an integral part of U.S. foreign policy, began (1941) during World War II with lend-lease. In planning for the postwar world, the United States hoped that after a brief relief program, the international balance would gradually be restored, and long-term reconstruction projects would be financed by loans from the International Bank for Reconstruction and Development (IRBD; also known as the World Bank) and the International Monetary Fund (IMF). Therefore U.S. foreign aid was chiefly in the form of emergency grants without any kind of central organization. Initially, the United States provided a large proportion of the funds of the international cost-sharing organization, the United Nations Relief and Rehabilitation Administration (UNRRA), established in 1943 by the Allied governments to provide a broad range of services to the war-devastated Allies. UNRRA spent $4 billion, but the actual dimensions of postwar reconstruction had been greatly underestimated. Conditions in Western Europe, which, unlike Southern and Eastern Europe, had received little UNRRA aid, became desperate, and in June, 1947, the Marshall Plan was announced by Secretary of State George C. Marshall. Known formally as the European Recovery Program, it distributed (1948–51) over $12 billion through the Organization for European Economic Cooperation (the predecessor of the Organization for Economic Cooperation and Development).

During the Cold War

The Truman Doctrine of the same year provided aid to Greece in its struggle against Communist guerrillas, and to Turkey, which was under pressure from the Soviet Union. Later, with the escalation of the cold war, U.S. foreign aid to Western Europe shifted from economic to military assistance to members of North Atlantic Treaty Organization. Concurrently, the increasing needs of the underdeveloped nations led to President Truman's Point Four program. From the time of the Korean War, defense became the umbrella for most forms of U.S. foreign assistance. The administration of aid was centralized under the Mutual Security Agency, an executive agency in the office of the President. During the early 1950s surplus agricultural commodities, accumulated under domestic price-support programs, became available as an additional source of aid: the Food for Peace program. In 1955 responsibility for foreign aid was returned to the Dept. of State when the International Cooperation Administration was established. Military aid was administered by the Dept. of Defense.

Aid, as administered under Presidents Reagan and G. H. W. Bush, was increasingly used to promote American investment, national interests, and market economies, but its main impetus was to protect other nations from Communist influence. In the early 1950s the Soviet Union began a program of technical and economic aid to the underdeveloped nations. Soviet aid, over $6 billion by 1966, was generally low-interest loans, industrial equipment on credit with technical assistance, and long-term commodity purchase agreements. Begun in 1955, it was discontinued with the collapse of the Soviet Union. Since then, the American rationale for foreign aid has become politically more vulnerable.

In Recent Years

Although military aid continues to be provided, largely on a grant basis, economic development aid is provided increasingly as loans through the Agency for International Development and the Export-Import Bank, which finances the export of U.S. capital goods and agricultural products. A large proportion of U.S. aid goes to Israel, Egypt, and developing countries. In 2000, U.S. foreign aid amounted to $10 billion (less than 0.6% of the federal budget); the share of the gross domestic product (GDP) for foreign aid dropped from 2.75% in 1949 to 0.1% in 2000. In 2004 the United States began the Millennium Challenge aid program, which is intended to target aid toward poorer nations with good governance and open economies; the program places fewer restrictions on how participating nations use the aid.

Many nations in Europe and some in the Middle East and E Asia also have significant aid programs; in the mid and late 1990s, Japan was the world's largest foreign aid donor, followed by United States, France, and Germany. Great Britain, generally on a smaller scale, has provided aid to former colonies. Beginning in 2001, the United States passed Japan as the world's largest donor as a result of Japanese cutbacks in foreign aid. About 15% of foreign aid is provided by international bodies. These include the International Bank for Reconstruction and Development and its affiliates, the International Development Association, and the International Finance Corporation; regional development banks; the European Development Fund; the UN Development Program; and specialized agencies of the United Nations, such as the Food and Agriculture Organization.

Bibliography

R. F. Mikesell, The Economics of Foreign Aid (1983); W. W. Rostow, Eisenhower, Kennedy and Foreign Aid (1985); R. E. Wood, From Marshall Plan to Debt Crisis (1986); P. Mosely, Foreign Aid: Its Defense and Reform (1987); R. C. Riddell, Foreign Aid Reconsidered (1987); N. Eberstadt, Foreign Aid and American Purpose (1989); D. Germidis, Financial Systems and Development (1991); S. Payaslian, U.S. Foreign Economic and Military Aid: The Reagan and Bush Administrations (1996).

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