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The causes of financial aid failures

Extract from an article published in Le Figaro (French daily newspaper) on January, 1st, 2001

(The whole version in English is available online: http://www.imf.org/external/np/vc/2001/010101.HTM)

« There is a striking contrast in the global economy. Living standards and the quality of life are steadily on the rise in the industrial countries, as well as in a number of emerging economies. But both are stagnating in a number of the poorest countries, in particular in Africa. Some African countries are even regressing. The income gap between the rich and the poor has never been so great. (...)

The IMF has analyzed the reasons behind the failure of the many countries that have not taken advantage of the last half-century's prosperity. These reasons are complex:

  • economic mistakes

  • institutional shortcomings

  • political instability

  • chronic civil disturbances or armed conflict.

And we must also take into account external factors such as:

  • sudden changes in the terms of trade

  • the recent spike in oil prices

  • or the short supply of foreign capital.

Nor is the ineffectiveness of the financial assistance provided by the wealthy countries, especially during the Cold War, alien to this situation. External assistance surely did play a key role in increasing life expectancy, benefiting the poorest as well as others. But all too often, the generous aid proffered year after year on highly concessional terms was not enough to put these countries on the path of sustainable growth. Why not?

There are three possible explanations:

  1. The absence of associated measures essential to the viability of public and private investment projects;

  2. The tendency of donor countries to favor projects more in keeping with their own exporters' interests than with the needs of the countries receiving aid;

  3. The propensity of recipient countries to give precedence to military spending or wasteful projects and, all too often as well, shortcomings in public administration or corruption.

The poorest countries are frequently described as being left behind by globalization. They receive little investment or private capital from abroad. They appear to be unable to withstand the ever more intense competition on export markets.

The most outspoken critics tend instead to come from the most advanced countries, and dub themselves defenders of the poor countries' interests. (...)

Most economists maintain instead that technical progress and differences in education are much more at the root of the income gaps and unemployment problems in the industrial countries. (...)

We must act to ensure that globalization benefits all, and particularly the poorest. (...) »

Extract from an article from Flemming Larsen, Director of the IMF European Bureau.


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