Thursday, August 19, 2010


Economic aid from developed countries are intended to help the recipient countries to implement targeted developmental projects and upgrade the living standards of people. Billions of dollars have been channeled through the aid route by the rich nations, though it is a debatable point whether these "loans and grants" have achieved the desired results. One aspect of such aids is that these are "tied" to purchase of goods from the donor countries giving very little scope for local skill development. The desire of the donors to derive some benefits for their own industry through such assistance is understandable. A similar situation exists in the domestic policies also as exemplified by the recent revelation in the US about the stipulation by the government that a sizable portion of aid materials to be supplied to the recipient countries must be sent through US registered vessels. Domestic critics point out to the fact that such a policy is skewed because the shipping costs are much higher compared to international rates. Probably in a country where protectionism is predominantly practiced the increased out go towards the freight may be justified as subsidizing the domestic shipping industry.

"The source of this controversy boils down to USAID's policy of requiring at least 75% of food aid to be sent via U.S.-registered ships, regardless of how much more expensive that option might be. As it stands, though, the policy is not only expensive, it's not even a particularly effective way to subsidize the shipping industry. Most of the vessels used, the report asserts, may be U.S.-registered, but they're actually foreign-owned. As Te-Ping's written here before, it's very difficult to defend this policy, which requires taxpayers to spend twice as much as they would if aid was delivered as in-kind, according to authors Christopher Barett and Daniel Maxwell. Development experts have long criticized the way the U.S. delivers its food aid. While most countries have moved away from giving direct food supplies (in favor of cash or vouchers), the United States still remains mired in an outdated form of aid that ends up benefiting the donor country more than the recipient. It's a failure that's all the more significant, because more than half of the world's food aid comes from the U.S. But while the need for reforms is clear, opposition from the agriculture and shipping industry has made it difficult to move such changes forward".

What is intriguing is the fact that most of the ships used are not Us-registered, the benefit of "subsidization" goes to some monopoly shipping companies owned by outsiders and the policy has not been reviewed so far perpetuating the drain on the exchequer. With the debt burden increasing to unparalleled levels and the economy moving towards stagnation, is this country justified in squandering its money in such a manner? Probably wiser counsel may prevail when the policy comes under review in future.


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