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New Foreign Policy Agenda:  Resetting the Aid policy beyond 21st Century

By Srimal Fernando and  Saber Salem

1 January 2020

Recognising the new global realities in a changing landscape in the international arena, global superpowers and emerging powers would require refashioning its foreign policies to protect their long-term interests. In the past, military might was the sole instrument that states used to colonise weaker nations.  Besides trade and defense cooperation, aid diplomacy has been hailed as an effective foreign policy tool, which can effectively promote state interests and sphere of influence.

From an analytical standpoint, the richest countries in the world granted over US$ 3.98 trillion in foreign aid to developing nations from 1962 to 2012 ( OECD 2019).  Aid, trade, investment, and governance through democracy have been valued core traits of the United States and Western foreign policy priorities. In the immediate aftermath of the Second World War, the US initiated its foreign aid policy to rebuild the war-shattered Western Europe and Japan.

The logic was to expand the North Atlantic Treaty Organization (NATO’) s reach eastwards and to prevent the spread of communism in its zone. During this period, the US foreign assistance predominately focused on east European countries. On the other hand for the newly independent third world nations, Soviet Union (USSR) leadership was overwhelmingly crucial for welfare style governance in the global south.

However, the turn of the 21st century heralded a new era of aid competition between traditional donors in the global north and emerging donors in the global south. This aid competition transformed the landscape of the aid regime once and for all. With the “rise of the rest” where BRICS countries (Brazil, Russia, India, China, South Africa) entered into the aid world, the lead role that traditional donors once played has diminished significantly. Foreign aid has always been used as a tool to serve foreign policy objectives, especially in today’s increasingly globalized set up. The unfolding analysis gives an indication as to why donor nations need a far-sighted external policy outreach going beyond its customary foreign aid policy that serves as a diplomatic instrument to protect allies around the world.

Looking at foreign relations, today the US and European Union are the largest aid partners around the world.  Despite the complexity of overlapping policies the western influence not only saw a deep trade and aid impact on the global south, but it also saw a political transformation to democracies in developing nations through Western trade and aid philosophy.

Over the last five decades, the United States Agency for International Development (USAID) has a worldwide footprint with operations in over 120 countries, functions in some 30 different program areas with an annual budget of around US$ 17 billion (USAID 2016).  Hence, it had done a lot more than alleviating poverty in poorer countries, but had been the main driver of economic progress and well-being in many developing nations. In taking forward US-led aid diplomacy beyond the Soviet era, the  European Union (EU) member states re-examined a wide range of policy options in response to calling for a new strategy in dealing with Official development assistance (ODA).

In addition, the EU is the largest contributor to international aid in the world, providing over € 50 billion a year, providing with over 50 percent  of all global development aid ( European Commission,2019). The EU's Generalised System of Preferences (GSP) allows developing countries to have vital access to the EU market through reduced or zero taxes on exports.  In fact, the EU temporarily withdraws Generalised System of Preferences (GSP) plus benefits to certain developing economies due to allegations of human rights abuse.

Apart from the US and the EU, developing nations commenced massive development projects mostly through borrowings and has been leasing out its vital assets to external powers. This raises an important question about debt-trap diplomacy. Therefore, it is important for developed nations to help cash-strapped countries, to get out of the debt trap.  

For the political stability of developing nations, it is important to have a robust foreign policy doctrine along with well-aligned and sound domestic policies to prevent uncertainties created by conditional foreign aid disbursement policies.  Hence developing nations are being advised by the International Monetary Fund (IMF)  and the World Bank to promote development by trade rather than by aid.

In order to bring developing nations, especially in the global south, closer towards developed nations in the global north, mutually beneficial soft diplomacy strategies must be implemented for closer diplomatic collaborations. Therefore, on the whole, it is vital that steps are taken by policymakers to ensure the free flow of ideas and information on conditional foreign aid benefits. For the next stages of new foreign policy shift strong political commitment and farsighted vision is required to re-examine conditional aid effectiveness.

(Srimal Fernando is a Doctoral Fellow at Jindal School of International Affairs (JSIA), India and a Global Editor of The Diplomatic Society for South Africa. He won the 2018/2019 Best Journalist of the year award in South Africa. Saber Salem, is aDoctoral Research Fellow with Jindal School of International Affairs (JSIA ) and is a former UN employee)




February/March 2020








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