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This may not be historical because it's a contemporary event. However, it's been going on for a while. Suharto said, "No to your aids" (or something like that).

For instance. Say US gives aid to Pakistan.

Does that mean: 1. US write a $1 billion check to Pakistan?

  1. US lend $1 billion check to Pakistan at some rate?

  2. US sells weapon to Pakistan?

Which one is correct?

The same goes to Israel, arabs, etc. If it's the number 2, why is it called aid? It looks the same as usual to me.

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This might be different depending on the country and the aid being given, Pakistan gets military aid while Israel might get some other kind of aid like loan guarantees. Other countries get aid from such as medical supplies, grain or something else. Aid is probably a nice term for something to be given, and probably sounds better than handout or something similar. – MichaelF Feb 9 '12 at 13:33
@MichaelF - IIRC, a vast majority of aid to Israel is weapons payments (e.g. the money they are required to spend on US weapons). Don't have any sources handy now, so just a comment – DVK Feb 15 '12 at 18:03
@DVK They might, I think some other countries get that, but in the past Israel did get loan guarantees for construction or something but I don't remember all the details. My main point is aid takes different forms for different countries. – MichaelF Feb 15 '12 at 20:08

3 Answers

up vote 6 down vote accepted

It depends entirely on circumstances. It can be any of the following:

  • Grants (You get money)

  • Prior loan forgiveness.

    This is EXTRA big deal since when you forgive a loan, it's not just the monetary value of the loan+interest that the recipient country essentially gets for free.

    The country also removes the risk of defaulting on that loan which - if it happened - would have ruined your credit rating and made it extremely more costly to borrow in the future.

  • Regular loans (You borrow money you have to repay later with interest).

    This is mostly business as usual, EXCEPT that they frequently go to countries that wouldn't have been able to borrow money on capital markets AT ALL due to high risk of default.

  • Low interest loans (You borrow money you have to repay later but at ABSURDLY low interest rates compared to the rates you'd be paying had you tried to borrow the money yourself given your lack of collateral and low credit rating).

    In essence, you are gifted the interest you did NOT have to pay for free, which is a very large amount.

  • Investment into local economy.

  • Equipment grant. Either civilian or military.

Also, any of the above methods may have different strings attached:

  • No string attached.

  • Some strings attached as far as how you distribute the money

  • Some strings attached as far as what you SPEND the money on (e.g. "no weapons" or "food only" or "weapons from US only")

  • Some strings attached as far as your behavior. Usually means enacting some sort of economic or political reforms (eliminate corruption, privatization etc...).

    As an example, Israeli defense industry was forced (By USA) to cancel many extremely lucrative weapons contracts with other countries (e.g. China) with US military aid being used as a leverage. The reasons ranged from US not wanting specific technologies going to China, to US wanting to get a competing military-industrial industry out of a market.

    As totally unrelated example, a lot of Western aid is predicated on passing "anti-corruption" laws etc...

  • Quid Pro Quo. You get money, you vote for my interests in UN etc...

    China seems to be doing some of that, especially in Africa.

"I mean if it's the latter 2, why it's called aid? It looks like bizs as usual to me"

As noted above, loans are usually on extremely good conditions. As in, if you count interest, you could be getting 2x-10x more money compared to obtaining that loan on capital markets.

As for weapons, it's part business as usual.

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+1 . this seems to be a better answer though all answers are awesome. – Jim Thio Feb 19 '12 at 14:12
up vote 4 down vote

Aid takes many forms. And yes sometimes it's money, sometimes it's equipment worth $X, etc. Sometimes there are so many strings attached it's not really very beneficial (but sorta better than nothing), sometimes it's bad for the country overall, but good for some people, etc.

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+1 I still don't know the answer. Aid seems like an act of altruism. Loan is just business. That sort of thing. – Jim Thio Feb 13 '12 at 8:13
A loan at a very low rate, or at very favourable rate is still a act of kindness, since you are helping people out. – Rory Feb 13 '12 at 12:30
No. Thanks to capitalism, as you know, rates are already low. Market rate is only 4% now. I think rate is dropping to 2%. Japan has "free money" with 0% rate. So a loan at low rate is no longer altruism. It's just business. Not to mention corruption happen to it. Altruism itself is not good. If out of selfishness we can get good outcome for every body why count on altruism? – Jim Thio Feb 14 '12 at 2:35
@JimThio - No, it IS altruism for 2 reasons: (1) If you have no collateral/bad credit rating NOBODY will lend you at low rates, not Japanese, not anyone. A random Joe on the street has to borrow at MUCH higher rates (say, mid double digits). Same for random country. (2) If you lend someone money X that you could invest for Y% return instead, you effectively lost opportunity to make X*Y in returns (as a small scale example, if I have $1000 and give you $1000 for 1% for a year, I get back $1010 assuming you pay. If I bought Apple stock, i'd have gotten $1200-$1300 at the end. – DVK Feb 15 '12 at 18:05
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@JimThio - you are correct of course on the second point - doing something "for altruism" usually makes stuff work a lot worse than "for profit". For altruism your aid gets stolen by corrupt officials ~100% of the time. For profit, you make sure you build a sustainable industry employing locals and improving their economy. – DVK Feb 15 '12 at 18:09
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up vote 2 down vote

Sometimes it means: US lend $1 billion check to Pakistan at some rate. But Pakistan must buy US weapon for these money, must hire US consultants to use it for its own money, at prices set by US, do this-and-this on the borders, arrest such and such people and so on.

Usually the agreement is not so blatant, but they are only plans. Reality is much worse. I had once seen the ways of Humanity Help from Germany to Germans in USSR in 1990. All money went to local authorities in places where USSR Germans lived and to the civil servants from Germany. The sum was about $200 mill. Not a single normal citizen got anything. I was acquainted with one factory owner from Germany who was outraged with this situation (he gave a large sum in this help fund personally) and promised me ( I was in the counsil of the Moscow German Society then) to do something or at least to get some info or raise a scandal. Result=0.

The corruption in the world is on such level, that I am afraid, sums under 1000 mill. simply disappear in the pockets of the civil servants on both sides. While returning the Russian debt to Czechs in 2001 2/3 of it ($1200mill) disappeared. Officially.

Of course, while it is known, that all the aid will be stolen, the giver could demand something on the civil servants of the state-taker. And somethin will be get. But not much. They love to steal, but they hate to pay.

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+1 . Now I see why most of my libertarian friends hate aids so much. And western countries are not helping anyone. They just help corruption. The only thing good I can think of out of aids are that it's better than war. – Jim Thio Feb 13 '12 at 8:17
@JimThio I have read of cases, where the food aid given to towns ruined farmers and thus caused long-term hunger in the country. It is very difficult to act wisely even in the own country. In a foreign and unknown it is almost impossible. – Gangnus Feb 13 '12 at 20:14
Perhaps the point is never to help, but another excuse to control money by politicians. Simple greed masked as altruism presented to population that don't really care. – Jim Thio Feb 19 '12 at 14:08
If you really need to help, the first thing is to understand. The problem is that politics hardly understand the needs of their own people, let alone the needs of some foreigners. So, the help of even an honest politic (oximoron?) is useless (or something worse) – Gangnus Feb 19 '12 at 21:21

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