Who aids who?

The notion of international aid is often imbued with a sense of benevolence, or else with varied shades of realist or holistic assertions. For instance, some view aid as the means for righting the wrongs of historical exploitation, when colonial powers enriched themselves by extracting resources and forced labour from much of the developing world. Others see aid as the carrot used by powerful states to compel resource constraint countries to do their bidding. The need for international aid is also championed because evident problems of deprivation fuelled insecurities in poorer countries can end up creating more problems for an increasingly integrated world.

All the above interpretations of the role of international aid however assume that richer countries do a lot to help poorer countries in today’s world. However, recent calculations made by a team of global experts working with the US-based Global Financial Integrity and the Centre for Applied Research at the Norwegian School of Economics suggests a much more insidious relationship continues to exist between developing and developed countries.

A report titled “Financial Flows and Tax Havens: Combining to Limit the Lives of Billions of People,” published by the above entities has calculated that all developing countries received a total of $1.3 trillion in 2012, this amount included aid, investment and income from abroad. However, during the same year nearly $3.3 trillion flowed out of these very same developing countries. Thus, developing countries sent out $2 trillion more than they received.

This estimation, which has been described by several prominent analysts as one of the most comprehensive and accurate assessment of resource transfers ever undertaken, demonstrates that developing countries have large outflows going to rich countries, since decades. A long termed calculation to illustrate this lopsided relationship is how developing countries have sent over $4.2trillion in interest payments alone since 1980, which is a much greater amount than the aid they received during the same period. Also think of all the profits that multinational corporations extract from resource rich developing countries with the support of the local elites, while the rest of the populace continues to suffer from gross neglect. In fact, the biggest chunk of outflows has to do with unrecorded and illicit capital flight, which according to the above study, is estimated at over $16 trillion of losses. The study claims that major multinational companies lie on their trade invoices, and current WTO rules in their zeal to encourage free trade, make it very difficult to curb such illicit outflows. Illegal capital flight is also enabled by tax havens, not only located on remote islands, but in the heart of Europe and the US itself.

Much improved statistical compilation and reporting is required in order to have a more adequate picture of global financial flows. This is a task which has to be undertaken collaboratively. The International Monetary Fund, World Bank, United Nations, Organisation of Economic Cooperation and Development must step up to the task of ensuring greater transparency in domestic and global financial systems. It is also the duty of these major international development organisations to come up with effective solutions to prevent misuse of tax havens, being used by big businesses as well as corrupt politicians in rich and poorer countries to hide their wealth.

One does not need to be a macro-economist, nor an international trade or business expert, to understand how the increasingly large net outflows from the developing world has evident detrimental impacts on economic growth rates in developing countries. This ongoing resources leakage also implies immense social costs, the brunt of which is being borne by the marginalised populace of developing countries across the world, which meagre aid doles cannot adequately address.

Published in The Express Tribune, February 10^th, 2017.

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