A notable trend in external finance to developing countries is the declining share of Overseas Development Assistance (ODA), as the OECD countries have consciously cut back their concessional grants since the early 1990s. Most developed countries have failed to meet the UN’s suggested aid target of 0.7 percent of GNP in 1970. This foreign aid dilemma can be attributed to a combination of factors, including the changes to the global political environment, removal of the political motivation for aid due to the end of the Cold War, the desire on the part of donors to reduce fiscal deficits, and a general perception that aid has been ineffective at encouraging economic growth and reducing poverty.
While there still remains a great deal of aid pessimism, there is also increasing evidence of the effectiveness of foreign aid in many poor countries, where it can be effective at reducing poverty when combined with good domestic economic policy and institutions. Accordingly, it is important to focus on increasing both the magnitude and the effectiveness of ODA. The need to encourage creditor countries in the Asia-Pacific to raise their regional aid commitments is particularly acute given concerns that aid from the United States and other donors may increasingly be influenced by strategic and political considerations—the war on terrorism, financing the reconstruction in Afghanistan and Iraq, etc.—rather than pure development and economic considerations. […] |
