"The Geopolitics of International Development Aid: A Critical Analysis"

Introduction

In this essay, I argue that international development programs are built by the political interests of donor countries presented as humanitarian missions. This case study also shows how FDI, supported by loans through regional development banks, limits the ability of national governments to design and implement programs and projects that might better serve the needs of some of their citizens. The rich donor countries here, commonly used as? Global North, create a capitalist establishment using their aid policies. Some aid policies explicitly request recipient countries adjust their monetary and trade policies so that aid recipient countries finally integrate into a global market; this later creates development policies that adversely impact societies' environmental and social fabric, for example, losing traditional cultures and practices due to the influx of cheap goods. Because of these factors, local communities see international development aid as a neo-colonial political force, creating a situation where a recipient country politically, economically, and socially depends on the donor countries. This dependency phenomenon was explained by early structuralist theorist Raúl Prebisch, who categorized two types of countries: rich countries as a core country, which are the dominant and powerful countries, and developing countries as peripheral ones that depend on the core countries’ technologies and more robust capitals. Aid dependency is one of the primary debates in the international development field, and many development aid agencies are trying to advocate a “localization agenda” where local communities have a more potent political power to provide feedback on aid projects.

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Origin of international development programs – UK and US

?Britain, a colonial power, has a more extended history of development aid than other colonial powers. Until 1920, the British government believed that all the colonial administrations should use their local tax money for their respective development. However, in 1929, Britain started to provide development aid under the Colonial Development Act; the law aimed to reduce unemployment in the United Kingdom by promoting industry and trade from the colonized countries and territories (Barder, 2005). In 1964, the United Kingdom (UK) established a Ministry of Overseas Development (ODM), and the department has two objectives: aid based on moral duty and the long-term interest of the UK. In 1997, the Department for International Development (DFID) was created, and a member of the Cabinet headed the agency. The goal of this department was poverty reduction and policy coherence, which was still in line with the previous policy of moral duty and UK interests. ?However, This policy explicitly mentioned that development could only be achieved through economic growth and liberalization of the market (Barder, 2005).

USAID

Another example of the creation of bilateral aid is the United States' involvement in international development after World War II. After World War II, major international development organizations were established to rebuild European nations, devastated by wars since 1945 ?(USAID, 2021).? The plan to rebuild European nations was implemented under George C. Marshall, the Secretary of State, from 1947 to 1949, also known as the Marshall Plan. The Marshall Plan was a significant initiative that aided Western Europe, aiming to rebuild the region's economy and prevent the spread of communism. Under President John F Kennedy, with the new Foreign Assistance Act of 1961, several US agencies were regrouped as the United States Agency for International Development (USAID), the world's most significant development aid agency. Since the beginning of its operation, the USAID has been part of a government foreign policy. The USAID in 1980 explicitly asked for a “free market” economy of recipient countries, and in the 1990s, the agency focused on the democratic transition of recipient countries. All these historical analyses have confirmed that the development aid was created to serve donor countries’ interest in the global capitalist economy. The system also ensures that the recipient countries have little power to negotiate in the decision-making process; in some cases, the recipient countries cannot say “no” to the development aid.

Bilateral to Multilateral Organizations

In addition to these country-based bilateral aid agencies of the global North, colonized rich countries created a unified force called the Organization for Economic Cooperation and Development (OECD) in 1961. Under the OCED, the Development Assistance Committee (DAC) synergizes development assistance through multilateral partners such as UN agencies, the World Bank, and the Asian Development Bank; DAC has become a platform for donor countries to intensify their global dominance on trade and stability through democratic norms and capitalist economy. The DAC has also pressured multilateral organizations to work for the interests of the member countries, which aims to make economic and structural adjustments towards recipient countries. For example, in 2004, the UK contributed nearly half of its development aid through multilateral partners; the UK government pressured multilateral organizations to improve the efficiency of their money using UK standards and framework (UK Aid, 2013). This further consolidates their power through multilateral organizations. ?The multilateral organizations in this assessment include global and regional development banks, UN organizations, Global Funds for Education, health, and Climate Change, and European Commissions. The DAC and its platforms have been criticized as an exclusive club of rich countries that lack representation from developing worlds (Verschaeve & Orbie, 2016), such as voting power. ??

The proliferation of regional banks

The regional multilateral development banks are created out of dissatisfaction with the World Bank and international financial institutions, which have a global presence and are mainly influenced by the US. The Inter-American Development Bank (created in1959), African Development Bank (created in 1963) and Asian Development Bank (created in 1966), Asian Infrastructure Investment Bank (created in 2016) are some of the regional banks in competition with the global and the regional development banks.

In this essay, I will discuss two regional banks: the Asian Development Bank (ADB), led by Japan and later the US, and the Asian Infrastructure Development Bank (AIIB), as these are newer multilateral banks set up.

Case Study of Asia Regional Bank led by Japan and later US – Asian Development Bank

To counteract the global development aid coming from the US and developed worlds through global financial institutions such as the World Bank and International Momentary Fund, the Economic Commission for Asia, and the Far East (ECAFE), now becoming the Economic and Social Commission for Asia and the Pacific (ESCAP) proposed a regional development bank in Asia in 1963. In March 1965, the ECAFE passed resolution 62, endorsing the form of the ADB Asian Development Bank?(Kaya & Salah, 2022). Japan led the whole process to envision the regional development bank as a mechanism for growing Japanese leadership and prestige. However, Japanese politicians also ensured that the Americans supported this plan. At the onset, the Americans were unsupportive of the ADB. Instead, Americans developed detailed plans for the Southeast Asian Development Association (SEADA). Walt Rostow, the Counselor of the Department of State, explained in a 1965 memo that SEADA’s “major political purposes” were to “overstate the seriousness of the U.S. long-term commitment to Asian development.” However, because of the pushback from the regional members and the UN Secretary-General U Thant, a Burmese national, the ADB was established with the majority shareholders of the USA and Japan; both countries have roughly 17% of the voting power. The ADB has more than $130 billion in?outstanding loans, with China and India as its largest borrowers, followed by Pakistan and Bangladesh?(Gold, 2022).

Takehiko Nakao, the President of the Asian Development Bank (ADB) from April 2013 to January 2020 and the Chairperson of ADB's Board of Directors, in his article, recommended several structural adjustment programs for the regional countries that ADB served. However, these recommended structural adjustment programs would only lead to an upper-middle-income status (Nakao, 2017).?These historical analyses show how the US tries to influence the global South through aid and development policy. Christopher Kilby's study on the Asian Development Bank loan system discovered that the US and Japan's political interest in international trade determines how ADB will provide loans?(Kilby, 2005). For example, the recipient country receives a considerable increase in aid money when countries become more democratic, open to global trade, and sell fewer goods to the US. This trend also alarms that countries with export ambitions might not receive the support they need from the multilateral banks if they are not following democratic governance.

Chinese Multilateral Bank – AIIB Asian Infrastructure Investment Bank

In addition to ADB as a regional development bank, the Chinese government created a new multilateral bank to serve their growing interest and political power. On?June 29, 2015, China signed an agreement to establish a $100 billion worth of multilateral development bank, the Asian Infrastructure Investment Bank AIIB, together with 50 other countries in Beijing, the capital of China. The Chinese government has the majority share in the bank equity, around 30 percent, followed by India and Russia, 8.5 and 6.7 percent, respectively. Western countries like Germany, France, and the United Kingdom join the AIIB, while the US and Japan do not participate in the bank. At the time of the AIIB setup, the US president, Obama, warned that the Chinese government would use this development aid to meet their strategic political goals (Aiyar, 2015). China has created this new multilateral development bank to shift the power from the traditional Western-dominated financial institutions. China wants to play a more significant role in the international political economy (Zhu, 2015). This initiative also exhibits Chinese “hard power” (coercion and economic influence), “soft power” (attraction and persuasion), and “smart power” (agenda-setting), building a Chinese superpower?(Morris, 2021). ?

The other reason for creating the multilateral bank is to support the Chinese government's strategy to create a “One Belt, One Road” OBOR initiative that needs a global financing mechanism to improve the inland and overseas transportation hubs to connect the Chinese global trade routes. These initiatives faced many challenges: the US and Japan not committed to the alliances, the security of long highways to build in armed conflict regions, poor credit performance of many recipient countries, and competing interests from the US-led Trans-Pacific Partnership and regional banks like ADB.

Environmental Focus of Multilateral Banks (analysis on the World Bank, ADB, and AIIB)

The Chinese banks have a position different from that of other regional development banks regarding carbon emissions and coal-power plants. The World Bank 2010 mentioned that the bank only finances coal in scarce circumstances where there is no alternative to provide basic human needs. The Asian Development Bank has financed no coal-fired power plants since 2013. The China-led Asian Infrastructure Investment Bank (AIIB) approved a new energy sector strategy 2017 that “transitions toward a low-carbon energy mix, including lower carbon emissions from fossil fuels. While the WB and ADB have stopped financing coal power plants, the AIIB has financed coal power plants in many Asian countries, including Indonesia, India, Vietnam, Pakistan, and Bangladesh” ?(Gallagher et al., 2021). According to Gallagher et al., not only the AIIB but also many Chinese development banks, such as the China Development Bank (CDB), China Export-Import Bank (Chexim), China Export-Import Credit Insurance Association (Sinosure), and the Silk Road Fund, are financing coal-fired power plants.

The social and economic impact of multilateral banks’ loans can currently be seen in two regions of Asia: Sri Lanka and Myanmar.

Sri Lanka Debt Crisis

One of the impacts of foreign debts through multilateral organizations is a recent event in Sri Lanka, in which the government could not provide necessary commodities such as petrol and medicine through the global exchange system because their foreign currency was dried. The country was in chaos, and the president had to leave due to a protest at the presidential palace. One of the most vivid debates is the principal port of Hambantota, which was built upon the evaluation of the Canadian firm SNC-Lavalin under the Canadian International Development Agency and Danish engineering firm Ramboll. These firm’s feasibility studies approved the building of this expensive port facility. Then, the China Exim Bank offered a $307 million loan, together with the first sovereign international bond, with?an interest rate of 8.25 percent, sold by the Sri Lankan government.? This port has become part of the story of the foreign debt Sri Lanka’s government must pay creditors of $4.5 billion in 2017. However, the government has a significant debt to several foreign countries, as only 5 percent?of the debt was due to Hambantota Port (Brautigam & Rithmire, 2021). Subhash also highlighted that Sri Lanka's debt crisis was a failure of the Chinese loan and other multilateral loans, “Sri?Lanka?is not the only nation caught in a vicious cycle of Chinese in infrastructure investment in low-return projects resulting in a cycle of?debt.” This case study highlighted that multinational corporations and development aid are adjusting themselves through their business and political risk; however, the industries are not taking the risk of millions of Sri Lankan people, where people lost their lives due to insufficient social protection system.

Nearly six million Sri Lankans are suffering from food insecurity and facing an 80% inflation rate for food. However, the government has recognized food shortages as a critical priority in its strategic plans, but debt repayment and other structural adjustment might delay purchasing goods.? According to UNICEF United Nations Children Fund estimates, over two million children in Sri Lanka require humanitarian assistance and food donations. In addition, the citizens protesting food shortages, medicine, and other essentials have faced violent crackdowns by the state?(Bandara & Alwis, 2022).

The Chinese government's response to this crisis was their unsatisfactory relationship with the Sri Lanka government when the government went ahead with the IMF and decided to default together. In March 2022, the Chinese government also rejected a request made by the Sri Lankan government to reschedule its loans, instead offering a refinancing of a $1 billion new loan to help repay part of the existing loans (Aquilah Latiff, 2022). Ultimately, the Sri Lankan government received an emergency loan from the IMF. The institution has recommended Sir Lanka’s structural adjustment program as follows: tax reforms to raise government revenue, pricing for fuel and electricity, an increase in social spending and improvement in the coverage and targeting of social safety nets, monetary policy, fiscal consolidation, and substantial central bank autonomy to restore price stability, Restoring the market-determined and flexible exchange rate to restore foreign exchange reserves?(Bhowmick, 2022).

The IMF and many economists recommended a hegemonic idea of increasing the country's economic growth policies, reimagining structural adjustment programs, and creating an export-oriented monetary policy. Sri Lanka, however, initiated sustainable organic farming in the country, but many economists see the initiative as a problem of the current debt crisis. This is evidence that there is tension between structural adjustment and sustainable development.

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Debt Trap Warnings in Myanmar

Myanmar signed a 15-point MOU with China in February 2018, which includes construction, manufacturing, agriculture, transport, finance, human resources development, telecommunications, and research and technologies, as part of the One Belt One Road (OBOR) initiative, which is also called Belt and Road Initiative (BRI)?(Lwin, 2018). However, in 2020, before the military coup, Myanmar’s auditor general warned lawmakers and government ministers of increasing indebtedness?to China, which has higher interest rates than those from the International Monetary Fund (IMF) or the World Bank (WB). The interest rate of Chinese loans is roughly 4.5%, the highest rate among all the other loans (Litner, 2019). At that time,?about 40%?of Myanmar’s foreign debt of US$10 billion was owed to China, putting Myanmar into a compromised position with China. The debt came from the earlier military governments when the foreign lending usually came from China, as Western sanctions did not allow military governments to lend from the IMF and WB?(Tun & Aung, 2020). The government of Myanmar understands that over-reliance on one country state has serious negative consequences; however, Kobayashi and King pointed out that a small country state like Myanmar has various vulnerabilities, such as political crises, ethnic armed conflict, and poverty, to hedge effectively to a more significant state like China. Here, hedging is defined as a small state like Myanmar using various diplomatic and economic strategies to balance against a great power like China?(Kobayashi & King, 2022). In small countries like Myanmar, saying “no” to aid or development programs is complex.

When Myanmar liberalized the economy and attracted foreign direct investment (FDI) in late 2010, using services from the multilateral bank, there was an increasing trend in constructing infrastructure and exporting natural resources, including deforestation. Without legal and structural protection for vulnerable populations, the population suffered extensive land grabbing, cutting the forest that local people depended on; later, the local people depended on fertilizer and chemical industries, shifting from traditional farming to industrialized farming. ?

In addition to this exploitation by large corporations, the risk of militarization due to unhealthy development projects has intensified, while Myanmar has the most extended history of civil wars. There are several armed resistances across Myanmar due to the military coup—some of them target Chinese development projects due to long-standing Myanmar military regimes tied with China. The failure to protect the development projects funded by international loans can increase militarization risk, especially in special economic zones and infrastructure projects funded by the Chinese government. If there is a need to protect Chinese infrastructure projects, the Chinese government could send their military to these areas of concern. Unlike the US, China currently has no military bases outside its territory. However, this could change if Chinese companies heavily invested in war-torn places like the Rakhine state in Myanmar?(Farrugia & Ravn, 2022). The authors have created a long list of social risks that Chinese development aid has posed in Myanmar; the Myanmar army and local armed resistance groups are trying to control the geographical access to development projects, which have intensified armed conflict, civil instabilities, and ethno-nationalist cleavages. ?These poorly managed and secretive projects, without full participation from local people during project proposals, have destroyed the natural ecosystem. In addition to this considerable cooperation exploitations, the military coup in 2021 also created an anti-Chinese sentiment because of the military's long-standing relationship with China. This anti-Chinese sentiment is also fueled by social media, generating security threats and opposition to Chinese investment projects.?

According to Linter, the debt load ultimately aims to create a Chinese influence on Myanmar, including a high-speed railroad connecting China’s landlocked southern region to a deep-sea port at Kyaukphyu that opens to the Indian Ocean (Litner, 2019). When the National League for Democracy came to power in 2016 as a quasi-civilian government, Myanmar tried diversifying its development assistance sources to mitigate its past dependence on China. In particular, the government has turned to Japan and its Asian Development Bank, which offer lower interest rates and more favorable repayment terms than China. However, these diversifying initiatives were not relevant to the military coup in 2021; the military government now needs to rely on Russia and China to help the country’s economy.

Conclusion

In conclusion, looking back to these two case studies, developing countries cannot say “no” to the agenda set by superpowers. The only reasonable action they could take is to diversify their dependence on core rich countries. In addition, all development projects are created based on donor countries' long-term interest and their association with the global North; therefore, creating a sustainable, independent future for developing worlds is challenging.

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