' T-

V./ Bo/kin

UlE/TEftfl

Progress Publishers Moscow

Translated from the Russian by Galina Sdobnikova Designed by Alexei Ostfomentsky

B. C. EacKMH

Sanafla: MMCJJ H

CONTENTS

Author's Note.................................. 5

© H3A3Te/ibCTBo ``HayKa'', 1982 English translation © Progress Publishers 1985 Printed in the Union of Soviet Socialist Republics _E0604010000-246 _{40 85} 014(01)-85

Chapter One. Aid as a New Form of Economic Relations Between

the West and the Developing World .................... 7

Aid and Development Problems Facing Newly Independent Countries ..................................... 7

Aid as a Peculiar Form of Capital Export................ 13

Tied Aid................................... 24

The Economic Impact of Tied Aid on the Creditor and Recipient Countries.................................. 30

Chapter Two. The Structure and Real Volume of External Resources .......................................

39

Capital Export to the Developing Countries. Hierarchy of Credit

Sources...................................

46

Policy of Aid to Africa by the Leading Creditor States........

63

Multilateral Financing...........................

72

Main Categories of Recipient Countries.................

76

Funds on Market Terms..........................

80

Chapter Three. Economic Aid........................ 85

Aid Mechanism............................... 87

Economic Appraisal of Aid-Financed Projects............. 94

Chapter Four. Food and Agricultural Aid................107

The Food Problem in the Developing Countries............107

Food Aid.................................109

Assistance to Agricultural Development.................116

Chapter Five. Technical Assistance.....................

122

The DCs' Need for Technical Assistance.................

122

Assistance to General and Technical Education ............

126

Foreign Experts in the DCs........................

132

Chapter Six. Aid and the External Debt Problem ...........

145

Two Approaches to the External Debt Problem............

145

The Present State of the DCs' Indebtedness...............

148

Real Flow of Resources to the DCs...................

159

The Problem of Debt Relief........................

169

Conclusion....................................175

Author's Note

The problems of further ways of political, economic and social development facing the states that freed themselves from colonial dependence no more than two or three decades ago are among the key problems of our day. In their quest for true economic independence, these states should overcome their socio-economic backwardness and develop a modern industry and agriculture so as to bring about a radical improvement in the living standards of the masses. But their efforts to attain economic equality and change the unjust economic relations with the West run into fierce resistance of the imperialist forces. These seek to preserve the present relations, which enable them to make immense profits by exploiting the natural and manpower resources of the young states. They would also like to gear the latter's socioeconomic development to these purposes. Since the newly independent countries need a massive influx of external financial resources, modern technology andknowhow, Western countries have been urging them to adopt development models based on intensive investments of foreign private capital.

``Development aid" has a major place in the system of such neocolonialist measures. Over the past 25-30 years, Western countries have given the developing world tens of billions of dollars worth of such ``aid'' in the form of easy credits or even free of charge.

Why such generosity? Could it be that imperialism has changed its substance and that, according to Western claims, the relations of oppression and exploitation have given way to "equal partnership" and "mutual concern for development''?

In this book, I analyse the mechanism, the concrete

forms and methods of the ``aid'' given by the major capitalist donors and international credit institutions, seeking to show its substance and impact on the socio-economic processes in the recipient countries. In contrast to Western studies on this topic, I try to bring out the true substance of ``aid'' from a new and fundamentally different angle, to show the ways and forms of the recipients' struggle for easier terms and more efficient use of ``aid'' in the national interests of the young states.

V. Baskin

Chapter One

AID AS A NEW FORM

OF ECONOMIC RELATIONS BETWEEN

THE WEST AND THE DEVELOPING WORLD

Aid and Development Problems Facing Newly Independent Countries

After the Second World War, especially in the latter 1950s, and early 1960s, the national liberation movement of colonial and dependent peoples gained unprecedented scope. As a result the colonial system of imperialism collapsed and dozens of politically independent states sprang up from the ruins.

The Great October Socialist Revolution in Russia and the formation of the world's first socialist state had a powerful influence on the development of the national liberation movement. The rise and strengthening of the world socialist system marked a new stage in the historical crisis of the capitalist mode of production. As a number of countries fell away from capitalism, it lost some important spheres of capital investment, commodity markets and sources of raw materials, and the sphere of exploitation narrowed down. Politically, the losses suffered by imperialism were perhaps even greater. The profound social and economic transformations in the" socialist countries had a powerful revolutionising impact on the proletariat of capitalist states and on the masses in the economically backward and exploited countries of the capitalist outskirts.

Imperialism's loss of its direct political control over the peoples of dozens of countries is a new and major factor in world politics and economics. As the years go by, the newly independent states defend their sovereignty with ever greater resolve. Having started out in the political sphere, they take an ever more determined stand in the economic sphere as well.

In accordance with the logic of struggle against imperialism and for economic independence, the young states have come to realise the need to limit and then to eliminate the sway of foreign capital in their countries. Having first start-

ed in the sphere of circulation, they have been putting pressure on foreign capital in the production sphere as well. With the nationalisation of property belonging to big foreign monopolies, the latter's positions in the developing countries (DCs) have been seriously undermined, and the young states' efforts to strengthen their sovereignty over their natural resources have filled their successes in the anti-- imperialist struggle with real content.

Economic and technical cooperation with countries of the world socialist system is of great importance for the developing states not only as a major material factor of socioeconomic transformations in these states, but also as a powerful instrument in the struggle to restructure the whole system of their economic relations with the West.

The successful development of the socialist states is a weighty argument for the newly independent countries in exposing the political, economic and ideological views being thrust upon them by imperialism. There is a growing conviction in many DCs that the capitalist way holds no prospects. Some of them have been following a firm line to build a socialist society. Their policy, aimed at eliminating exploitive relations and social inequality, developing the state sector and expanding economic, technical and cultural cooperation with the socialist countries, has a serious positive effect on other developing countries.

What is specific about the position of the young states in the present-day world is that while they have turned into an independent political force, they remain dependent on the world capitalist economy. The external economic ties of most of them are largely oriented towards industrially developed capitalist countries, and foreign monopoly capital is still powerful in the domestic economy of many of them.

All these factors are conducive to the strategy of neo-- colonialism, whose point is to impose on the developing countries a system of economic, political, military, ideological and other relations which would enable imperialism to preserve and expand the conditions for their exploitation on the basis of their inequitable, dependent position in the world capitalist economy. In our day, however, the DCs are putting up ever stronger resistance to that strategy, going over from the separate anti-imperialist moves of the past decades to coordinated collective action. Their demands have assumed a global character and are aimed at a serious

reconstruction of the whole system of their economic relations with the West and the establishment of an international order which would rule out domination and exploitation.

The socialist states play an important role in the struggle to restructure international economic relations on a just, democratic basis. Throughout their history, they have followed a steady policy of all-round assistance to and cooperation with oppressed countries and peoples. It was Lenin who formulated the basic principles of that policy. He pointed out that socialism creates "completely different international relations which make it possible for all oppressed peoples to rid themselves of the imperialist yoke".^^1^^

The need to accelerate economic development in the newly independent countries raises the imperative question of accumulation sources. The idea that internal accumulation sources should play the main role in overcoming economic backwardness has been gaining recognition in the DCs. Many of them have realised the need to form and develop a state sector and stimulate government investments in production and the infrastructure. In their struggle against imperialist exploitation, the young states have proclaimed a policy of collective self-sufficiency, which envisages efficient use of national resources and all-out efforts to develop mutually advantageous division of labour in various regions of the developing world.

But most DCs still lack the internal accumulations to ensure the necessary rate of economic development. The material form of accumulation is also important. The national production of most young states cannot meet their demand for modern industrial technology necessary to transform their backward economy. Hence the importance of external sources of material assets, which can in many instances also raise the level of consumption among the poorest sections of the people.

The developing countries' need for wider external financing is seen by the imperialist powers as an opportunity to preserve and strengthen their dependence on the world capitalist economy. The West has been using such financing to expand and consolidate the positions of its transnational

!y. I. Lenin, Collected Works,Vo\. 31, Progress Publishers, Moscow, 1982, p. 477.

corporations in the developing countries. In view of the economic crisis in the leading imperialist countries, the USA above all, the chaos in international monetary relations in the capitalist world, and the spiralling inflation, the West has been trying to solve its problems, at least in part, at the expense of the developing countries.

The ever more pronounced ``overaccumulation'' of capital in the main imperialist countries, as it cannot be invested profitably enough in their domestic economy, has led to a sharp increase in the volume of international lending. Over the past two decades, the export of capital in the form of loans and credits from the industrial capitalist countries to the developing world has reached a vast scale. The evolution of state-monopoly capitalism and the deepening crisis in its relations with the former colonial outskirts have largely contributed to the emergence of a peculiar form of capital export, known as aid to the DCs by industrialised capitalist

countries.

In their policy of exporting capital to the newly independent countries, the imperialist powers now seek not only to make big profits, but also to solve a number of long-term strategic problems. Particular importance is attached to integration between young states and industrial Western countries. Since they cannot thwart the newly independent countries' striving for economic development, the Western powers have been trying to exploit that striving, to create and strengthen new facets of dependence on a higher material and technical level while retaining access to the developing countries' natural and manpower resources.

The need for large volumes of external financing in the developing countries is mostly due to their inequitable position in the world capitalist economy. At the same time, the world capitalist economy does not create conditions which would help them expand and stabilise their export earnings to make it easier for them to repay loans and credits, so that over the past few years their foreign debt has reached an astronomical figure. The grave foreign-debt problem facing many developing states is seen by imperialism as a new and most effective instrument in tightening their dependence on the world capitalist market and creating conditions for siphoning off more of their national wealth into the vaults of

Western monopolies.

That is why it is very important for the developing coun-

tries thoroughly to assess the degree of acceptability of each type of financial resources offered them by the West, taking due account of the terms on which these can be obtained, and also of the economic and social consequences of their use.

The negative attitude of many developing countries to using foreign private capital is well-grounded. As a result, a tide of nationalisation of foreign property has swept across dozens of developing countries. At the same time, however, many of them are still very much in need of foreign resources. The main point here is to ensure that the terms of their use and spheres of application are in line with the country's national development strategy and do not jeopardise its independent development.

Bearing in mind many adverse consequences of private foreign investments, the developing countries attach paramount importance to state (government) aid from the Western countries. That form of international economic relations began to spread in the late 1950s and the 1960s as the former colonies and dependent countries gained political independence. Under "official development assistance" programmes, capitalist states began providing the DCs with various resources (in the form of commodities, money or services) on easy terms or even without repayment, whereas in the past such relations were an exception.

The concept of ``aid'' should be seen as a dialectical unity of the two aspects of that phenomenon. For the capitalist donor state, ``aid'' is an instrument of expansion, whose purpose is to achieve various political and economic goals with new means, primarily to help their industrial and trade monopolies to penetrate into the developing countries. So, with regard to countries exporting state capital, the concept of aid can be used only tentatively, as a purely working term.^^1^^ At the same time, where a developing country follows a line towards independent socio-economic development,

1 Some liberally minded Western researchers often take a negative view of the very concept of aid. Thus, David Wightman writes in a publication sponsored by the United Nations: "If public policy could be prosecuted for misleading advertising, the label 'foreign aid' would be an obvious case for the courts." (David Wightman, The Economic Interest of Industrial Countries in the Development of the Third World, United Nations, New York, 1971, p. 30.)

Western aid, obtained on the most advantageous terms, could help to increase the production assets, the volume of consumer goods, and the scientific and technical potential of the recipient country. Here is what New Africa wrote in this context: "Paradoxical as it may seem, Africa wants to make itself free from the West mainly at the expense of Western aid. And the latter seeks to use this aid with the diametrically opposed purpose: to preserve and consolidate its positions. Aid represents a kind of pronged lever on which the two antagonistic forces are bearing down.''^^1^^

There are also conceptual distinctions in the approach to the problem of aid between the West and the developing countries. In the theoretical works and practical activity of agencies that shape the capitalist countries' aid policy and in reports by international commissions that claim to be unbiased in their opinions, the quantitative approach is usually seen as the main yardstick in assessing aid and other financial resources. Such an approach is meant to create an illusion that the developing countries can solve their gravest socioeconomic problems solely by expanding the use of foreign funds, without any deep-going progressive socio-economic transformations in these countries and without a fundamental reconstruction of the whole system of their external economic ties with the West. In effect, that approach is meant to maintain and develop socio-economic processes in the recipient countries that would promote capitalist relation, reproduce and entrench their inequitable and subordinate position with respect to the capitalist centres.

The developing countries have recently been paying more attention to the qualitative aspect of foreign aid, while urging an increase in its volume. More and more people in these countries are beginning to realise that fundamental and progressive socio-economic transformations are the only way to achieve real progress and eliminate backwardness. Hence, the yardstick for assessing the importance and effectiveness of foreign aid is how well it corresponds to these goals.

In the approach to the problem of aid, in our opinion, one should bring out two groups of questions. On the one hand, one should analyse the instruments of aid and, on the other, its orientation and influence on the economy of the recipient country. So, this book can be subdivided into two

~^^1^^ New Africa, London, Vol. 6, No. 7, July 1964, p. 11.

parts: the first deals with the substance of aid, its role in the economic expansion of the capitalist powers, its main types and financial terms, and the policies of the principal donor countries, and the second, with the economic consequences of its use and the shortcomings of various types of aid. Such an analysis makes it possible to substantiate the legitimate demands of the developing countries for an improvement in the terms of Western aid.

The USSR and the other socialist countries believe that it is objectively possible to use that aid in the interests of the newly independent states and their development, and so support their demands for more aid on better financial and other terms.

The socialist countries maintain that aid by the capitalist powers should at least to some extent compensate the DCs for the colossal damage inflicted on them by the colonial exploitation and oppression of the past and the economic crises, monetary instability and inflation in the present-day capitalist world.

Aid as a Peculiar Form of Capital Export

Since the Second World War, a number of new phenomena have emerged in the economies and policies of the imperialist powers. At the present stage in the development of the productive forces, which are becoming ever more international, there has been a marked deepening of the international division of labour. Export of capital and international trade have reached an unprecedented scale. New types of international socio-economic relations have emerged: export of state and state-guaranteed private capital, tourism, trade in patents, licenses and knowhow, the "brain drain", technical assistance, international migration of manpower, and so on.

As the role of external economic factors in the socio-- economic processes of the capitalist countries increases, the inter-imperialist contradictions and struggle inevitably intensify. There is a struggle both among individual imperialist competitors, within integrated sections of the capitalist economy, and among groups of capitalist states constituting economic blocs. The emergence of dozens of sovereign states seeking to end their dependence gave rise to a new

set of contradictions in the system of the world capitalist economy.

The formation and development of the socialist community considerably limited the possibilities for the imperialist exploitation of the developing countries.

Such was the general background to the emergence in the 1950s of imperialist aid to developing countries as a peculiar form of international economic relations. All the leading industrial capitalist states gradually joined the ranks of the creditor countries. At first glance, the relatively favourable, low-interest and long-term credits and sizable free grarits do not fit into the conventional practice of the capitalist market. Hence the imperative need to get to the root of Western politico-economic aid, analyse its goals and methods, its interconnections with other forms of capital export, and its role in imperialism's political and economic expansion in the developing countries.

The substance of the aid phenomenon can be brought out with due regard to Lenin's doctrine of imperialism and his idea that the export of capital is one of the most essential features of imperialism. Capital export is a historical phenomenon, and its forms and concrete mechanism keep modifying, reflecting the historical changes both within the imperialist system itself and in the external conditions of its existence.

But whatever these changes, capital export remains the main form of international economic relations under imperialism. The special importance of capital export to the developing countries is due to the fact that in our epoch that form of imperialist expansion makes it possible to exploit the peoples of the economically less developed countries in a flexible and covert way. Now that the latter are politically independent, capital export is the main foundation, the economic basis for all the other relations of the imperialist powers with the developing countries.

The conclusion that aid is a new and peculiar form of capital export, its modification in our day, is important in several respects. It helps to understand the role of aid in the present strategy of imperialism, its place among the other forms of capital export, and its significance in providing material and non-material external conditions for capitalist reproduction both on a global scale and within the framework of individual capitalist countries. The material conditions of

reproduction can be ensured by helping imperialist monopolies to market their products in the developing countries or to obtain valuable raw materials from these. Non-material conditions are a set of measures aimed at developing the social base of capitalist relations in these countries and create conditions for perpetuating and increasing their dependence on the imperialist powers.

That conclusion can also help the young states to take a principled stand on Western aid policy. Such a stand is of particular importance in our day, when imperialism has stepped up its expansion in the developing countries, and when US-led imperialist circles have been urging them to adopt the principles of private capitalist enterprise.

The specifics of aid as a peculiar form of capital export is that it is largely motivated by non-economic considerations, while the profit motive is often secondary. A considerable part of the aid consists of subsidies and free grants, that is, types of resources which, far from yielding any profit, are not meant to be repayed at all. Another part consists of lowinterest or interest-free loans. Hence the question: can resources which do not constitute a self-expanding value be described as capital?

To answer that question, one should turn to Marx's doctrine of productive and nonproductive labour under capitalist relations of production. According to Marx, productive labour is that "labour which produces surplus-value or serves capital as agency for the creation of surplus-value, and hence for manifesting itself as capital, as self-expanding value". 1 Here and elsewhere, Marx emphasises that one should distinguish two aspects in the category of capital, one of which expresses its ability to manifest itself as a selfexpanding value, and the other, its ability to create conditions necessary for its own functioning. That is why labour which does not directly create surplus value, but which is conducive to its extraction is productive, and the outlays on its remuneration should be seen as capital. So, all the nonproductive costs of capitalist production, like outlays on the formation of an industrial and social infrastructure necessary to ensure general conditions for exploitation and to protect the capitalist system a sizable part of which is financed

Karl Marx, Theories of Surplus-Value (Volume IV of Capital ), Part I, Progress Publishers, Moscow, 1975, p. 393.

from aid funds, are capital. These are just as necessary for the existence of capitalism as the outlays on the purchase of means of production and labour-power.

All of that directly applies to the export of capital, where the two functions noted above are in dialectical unity. The first of these is the self-expansion of value, which is expressed in the form of profits from entrepreneurial capital invested abroad or interest on credits. In aid-giving, that function is of subordinate importance, while the second function---creation of conditions for such self-- expansionis the main goal of capitalist aid policy. The latter function is not necessarily constructive, that is, intended to develop the productive forces of the recipient country, but can also be destructive, raising obstacles in the way of such development, if foreign private capital finds this desirable. Thus, capitalist aid often hinders the development of the productive branches of the national industry in the young states, especially in the state sector of the economy, fearing its competition with the industry of imperialist states and monopoly affiliates in the DCs.

The export of capital in the form of subsidies mostly consists of food deliveries to the developing countries and services in the framework of technical assistance. Subsidies for the marketing of foodstuffs help to boost the profits of their producers in the industrialised capitalist countries, and technical assistance plays a dual role: on the one hand, it creates general conditions favouring subsequent exports of goods and capital, and on the other, helps to raise the labour productivity of the work force, enabling them to acquire certain knowledge and master new skills. In this instance, the outlays are productive, for a worker's educational expenses "are productive, for education produces labour-power",^^1^^ and "a schoolmaster is a productive labour-

of the state into a single mechanism whose purpose is to enrich the monopolies, suppress the working-class movement and the national-liberation struggle, save the capitalist system, and launch aggressive wars",^^1^^ the bourgeois state has come to play a much more important role in regulating economic and social processes both at home and on an international scale.

In the epoch of state-monopoly capitalism, productive and relatively nonproductive investments are largely separated from each other depending on who owns the capital. A sizable part of the latter is concentrated in the state sector. In other words, the capitalist state takes upon itself a part of the cost of creating and maintaining the necessary social conditions for extended reproduction.

That is possible owing to the sources of formation of state capital. Since a part of state resources is used as industrial capital, the surplus-value created by the labour of workers at public enterprises is one of the sources of state assets in the developed capitalist countries. A characteristic feature of the state sector in industry is its relative independence from the profit factor, attained through the state's redistributive function. The share of the nation's aggregate product redistributed through the budget is another source of state capital. By taxing the corporations, the state accumulates a share of the surplus-value created in the private sector. But the bulk of state capital comes from the working people's direct and indirect taxation.

The capitalist state's activity on the whole meets the class interests of the bourgeoisie (although the degree of correspondence differs from one of its groups to another). As Lenin put it, the fears of various groups of capitalists caused by state activities are "no more than an expression of the rivalry, so to speak, between two department managers in the same office... State monopoly in capitalist society is merely a means of increasing and guaranteeing the income of millionaires in some branch of industry who are on the verge of bankruptcy.''^^2^^ In our day, the role of state measures, whose purpose now is to protect the whole system of capitalist

1 The Road to Communism, Foreign Languages Publishing House, Moscow, 1961, p. 471.

~^^2^^ V. I. Lenin, Collected Works, Vol. 22, Progress Publishers, Moscow, 1964, p. 218.

er

» 2

A specific feature of resources in the form of aid is that these are provided by the state and thus constitute state capital.

With the development of state-monopoly capitalism which "combines the strength of the monopolies and that

1 Karl Marx, Theories of Surplus- Value, p. 210.

2 Karl Marx, Capital, Vol. I, Progress Publishers, Moscow, 1974, p. 477.

2-404

relations from social upheavals, is ever more important.

Over the past three decades, the external economic functions of the capitalist state have expanded to unprecedented proportions. The state vigorously regulates such traditional forms of international economic ties as foreign trade, movement of private capital, and monetary-financial relations, and promotes new forms like the export of state capital, including "official development assistance''.

In the conditions of the contest between the two opposite socio-economic systems, the bourgeois state's "rescue functions" have reached out well beyond the national borders.

Aid in the strategy of present-day imperialism combines ``traditional'' and new tasks in its global efforts to preserve and consolidate capitalism as a system. Until recently, such a ``traditional'' task of imperialism as that of creating and maintaining conditions for the exploitation of the colonial and dependent outskirts was adequately ensured (apart from numerous instances of non-economic coercion or even armed force) within the framework of purely market relations. At that time, the international movement of private capital and foreign trade were the main instruments in maintaining external conditions for the functioning of the market machinery of capitalist reproduction. Now that the former colonies have won political independence, imperialism can no longer achieve these ends solely through a "free play of market forces". In the external sphere as well, private capital is in ever greater need of state backing. Hence a major function of aid: to stimulate the export of private capital from the imperialist countries, to supplement and sometimes replace it, whenever a sphere of investment is insufficiently profitable.

These tasks are being solved by creating in a developing country a favourable "investment climate" for foreign monopolies. The attractiveness of foreign investment for exporters of capital can be increased by ensuring a division of labour, under which (as in the domestic economy of imperialist states) the creditor state takes upon itself the expenditures connected with unprofitable or insufficiently profitable investments in the target country's economic and social infrastructure.

Such a ``climate'' can also be created with the help of indirect measures. By giving easy credits or free grants to the target country so as to enable the latter to cover its budget

deficit, the capitalist state puts at its disposal instruments of payment that can be used to pay out profits to foreign private capital operating in that country. Such ``aid'' goes straight into the pockets of the monopolies. Finally, aid credits or grants can be used to put political pressure on the target country, inducing it to introduce state legislation encouraging foreign investments.

Another crucial function of Western aid is to ensure markets for the products of the creditor countries. In order to promote the export expansion of the monopolies, government agencies may simply purchase their products and deliver these to developing countries by way of state aid. Tied aid has a similar effect. A country receiving such aid must spend the funds it gets solely to buy products in the creditor country. This often enables the latter's monopolies to sell off uncompetitive products which otherwise could not have been sold on the foreign market at such a price.

Under the new political balance of forces in the world, the export of state capital has developed specific functions reflecting imperialism's economic and political tasks in our day. As in the past, its main task with respect to the economically weaker countries of the capitalist outskirts is to perpetuate their unequal position under the international capitalist division of labour. Such a position is largely due to their continued dependence on the industrial capitalist states in marketing their products (mostly raw materials) and importing the main elements of the production process: capital equipment, technical knowhow and experience.

In these conditions, the imperialist states pursue a subtle neocolonialist policy, seeking to impose development ways and methods which cannot help the target countries to reconstruct their backward socio-economic structure, bring about a meaningful increase in social labour productivity, or boost the overall technical level of production.

Imperialism's cardinal task in our day is to create and consolidate a social base for capitalist relations of production in the developing countries. What makes that task particularly imperative for imperialism is that the young states now have an opportunity to choose the way of their socio-economic development. As an alternative to the development of an antagonistic class society, they now face a real prospect of bypassing capitalism and, with the help of cooperation with the socialist countries,

2*

going over to socialist construction.

In the past, imperialism was not interested in promoting capitalist relations in the colonies and dependent countries, fearing competition on the part of the local bourgeoisie in exploiting their national resources. Today, it seeks to prevent the young states from going over to a socialist-oriented way by promoting the development in these states of a stratum of private entrepreneurs akin to it in class terms with the help of private capital and state aid. The main purpose of imperialism's social policy, however, is still to keep the young states within its sphere of influence as objects of exploitation. That is why it promotes the development of a dependent brand of capitalism, primarily stimulating the formation of a class of small-commodity producers, traders, etc., who cannot jeopardise the positions of foreign private capital, or compradore elements closely connected with it and serving its interests.

Now as in the past, the dependent countries are being exploited in an atmosphere of inter-imperialist contradictions and rivalry. Since the Second World War, the struggle among imperialist states to retain their ``traditional'' spheres of influence or to recarve these (as Lenin put it, "in proportion to capital", "in proportion to strength") has further intensified as a result of the deepening general crisis of capitalism, the shrinking territorial base of imperialist exploitation, and also the strengthening economic positions of the FRG, Japan and some other capitalist states, which have been gaining ground against the old colonial powers, and the USA in regions once seen by the latter as their own preserves for undivided exploitation.

Now as never before, the imperialist states regard their economic relations with the developing countries as an instrument for solving many of their own domestic social and economic problems. The extremely low rates of economic growth in the main capitalist countries, protracted crises, mass unemployment and inflation---all of these grave problems they would have liked, at least in part, to solve at the expense of the developing countries. In their competitive struggle among themselves, it is important for each imperialist state to ensure a stable and guaranteed supply of raw materials, primarily oil, from the developing countries.

The importance of the new channels along which imperialism has been trying to tighten the developing countries'

dependence on the world capitalist economy is now quite obvious. Their striving for rapid economic development makes them resort to large loans from the leading capitalist countries, plunging them deep into foreign debt. And their need for technical and managerial knowhow and experience entails dependence on the imperialist powers through technical aid, and big outlays on the purchase of patents, licenses and technology in the industrial capitalist countries.

All these functions of aid could have been expected to entail its virtually unlimited use as an instrument of imperialism's economic and political expansion in the developing countries. But that is not so. On the whole, aid in real terms has been growing slowly and makes up only a small percentage of government expenditures. At present, aid amounts to no more than 10 per cent of the budget expenditures of the leading capitalist states.

The fairly limited volume of resources set aside by the capitalist states as "official aid" is primarily due to their urge to give unconditional priority to the market mechanism in the field of international economic relations. Western states provide aid only insofar as it meets the interests of private capital. Its volume does not reflect the developing countries' actual need for foreign financing. Here is what an official OECD review has to say on the correlation between the functions of state and private capital in financing the economic development of young states: "Official development assistance is directed to countries---and for needs---where normal market incentives and risk-taking in the movement of capital and trade cannot be expected to respond.''^^1^^ The creditor countries always assume that any transfer of resources to another state on concessional, rather than market terms in principle violates the ``sacred'' principles of the market economy and is admissible only where and when it promotes the development of such an economy and does not in any way threaten to narrow down its sphere of action. Although the volume of Western aid has, on the whole, been growing, "concessional transfers are small relative to the financial and trade markets of capital-exporting countries". Moreover, "procurement and delivery of aid goods and ser-

1 Development Co-operation. Efforts and Policies of the Members of the Development Assistance Committee, 1976 Review, OECD, Paris, p. 29.

vices is through normal commercial channels". Hence the blurring effect of development aid on the operation of the market forces is negligible. "...Relative 'market efficiency' is preserved.''^^1^^

The volume of aid to this or that country is determined in an atmosphere of sharp contradictions within the donor country. State credits to the developing countries stimulate only those branches of the donor country's economy and ensure big profits for those companies which are awarded contracts for supplying goods under these credits. That is why it is not the whole capitalist class of the donor country that is directly interested in expanding aid and ensuring its certain structure, but only those of its strata which stand to gain from such a policy. Among the various social strata in the capitalist states, there are many opponents of aid to the developing countries in its present forms and areas.

The extreme reactionary circles, which criticise aid from the right, want it to be closely tied in with the aggressive aspirations of the monopolies, its direct subordination to imperialism's military-strategic and anti-communist tasks.

Other circles call for a cutback or even complete cessation of aid, pointing to the multitude of grave social and economic problems that need solving in the donor country itself: unemployment, widespread poverty, social security problems, and so on, and saying that these, rather than aid, should be the main concern of the donor countries' ruling circles. Bourgeois parliamentarians try to use such sentiments for their own purposes. When aid funds are being allocated in the legislative organs of the capitalist countries, there is a constant struggle among various bourgeois groupings, making wide use of social demagogy.

As for the actual volume of aid, in the past few years it has tended to decline. An influential British magazine noted the sharp decline in US outlays on aid: in 1979, "Americans spent more on potted plants and flowers (over $5 billion) than they did on aid to the third world ($4.6 billion)".~^^2^^

In the early 1960s, the United Nations passed a resolution urging the capitalist countries to increase by the mid1970s the proportion of government assistance to the DCs

~^^1^^ Ibid.

2 The Economist, London, Vol. 276, No. 7150, September 13, 1980, p. 26.

to 0.7 per cent of their gross domestic product (GDP). Over the 1960s, per head GDP in the leading capitalist countries went up by 41 per cent, while the share of aid resources declined from 0.5 to 0.3 per cent of their GDP.

Cessation of the arms race would be a real source of greater assistance to the developing countries. If the leading capitalist states had supported the Soviet proposal put forward at the 28th session of the UN General Assembly in September 1973---to cut the military budgets of the Security Council's permanent member states by 10 per cent and use a part of the funds so released as aid to the developing countries---the latter could have received billions of dollars worth of additional aid.

It would be wrong to conclude, however, that the recipient countries have nothing to gain from aid policy. Capitalist aid is a deeply contradictory phenomenon. While being, even if indirectly, a vehicle of exploitive relations in the international sphere, it also reflects the fundamental changes in the international position of the former colonies and dependent countries and the weakening positions of the imperialist powers. In that sense, aid is a concession wrested from the capitalist states.

That makes it possible to consider the question of using aid in the interests of the developing countries. For that reason, the USSR and the other socialist countries support the demands of Asian, African and Latin American developing states for more aid on better terms, which do not cut across their line for independent development.

Together with the developing countries, the socialist states regard capitalist aid as far from adequate compensation for the damage that was done and is still being done to these countries by the long years of colonial and neocolonial exploitation, the activities of the transnationals, and the monetary system in which the developing countries have inferior status. At the same time, the socialist states resolutely reject the attempts by some circles to divide the world into a "rich North" and a "poor South" and so to equate the socialist and the capitalist countries, to blot out the fundamental difference between the sources of their national wealth.

The socialist states regard with deep sympathy the economic and monetary-financial difficulties experienced by most developing countries and share their demands for a reconstruction of the system of international economic relations

on a just and democratic basis. But the socialist states cannot share the responsibility and material costs of eliminating the consequences of colonialism and neocolonialism, of the trade and monetary crises in the capitalist economy, for which they are not to blame.

suit of tying policies. Experts being sent to a developing country under an agreement on technical assistance have usually been educated in the creditor country and are used to work with definite technology and standards of equipment accepted at home. That is why they will instinctively recommend machinery and technology to which they are accustomed. As a result, the recipient will order these from the country that has been giving it technical assistance even when the credits are not formally tied.

In the 1960s, the channels for the free movement of state capital from the industrial capitalist states to the DCs markedly narrowed down as ever greater volumes of state resources were subjected to various limitations in the course of their use by the recipient states.

In spite of repeated negotiations among the DAC^^1^^ countries on ways to untie aid, 48.6 per cent of the total resources given as aid under bilateral agreements in 1981 were fully tied to the donor country, and 9.7 per cent were partially tied. So, only 41.7 per cent of the total aid was formally not tied.^^2^^

The main reason for the emergence of tied aid lies in the urge of the major imperialist powers to channel their commodity exports to markets in the developing countries. Estimates show that $1 million of untied aid given by the US government creates opportunities for the marketing of roughly $360,000 worth of goods, and when strings are attached the figure goes up to $760,000.

But the ruling circles of capitalist countries do not want to admit, especially in documents meant for the general public, that aid-giving serves the interests of the monopolies. That is why creditor states, the USA above all, usually try to present conditioning as a measure primarily designed to support their balance of payments and, consequently, as a forced measure.

The tying of credits to imports from the lending country undoubtedly reduces the outflow of monetary resources,

~^^1^^ DAC---Development Assistance Committee under the OECD. Deals with matters of aid to the developing countries, compiles, and puts out statistical reviews on the export of resources to these countries.

2 Author's estimates from Development Co-operation..., 1982 Review, p. 227.

Tied Aid

One of the most essential features of present-day capitalist ``aid'' to the developing countries is that it is usually conditioned, or ``tied''. This means that the recipient country undertakes to buy from the creditor country a certain volume of goods or services, or to use the credits for specified purposes. So, in some instances aid is tied to the lending source, and in others to specific uses. Sometimes, both types of strings are attached.

Agreements on credits usually stipulate how the funds are to be used. The recipient is not necessarily pledged to spend the whole amount in the creditor country but may sometimes spend a part of it in third countries. Still, the amounts and the range of countries are stipulated in advance.

Virtually all technical assistance is tied. As a rule, it is given to developing countries for definite purposes, if the creditor has the required specialists. Its resources are sometimes used to pay for the services of specialists from the creditor country engaged in building or operating projects within the framework of the creditor country's economic aid. Credit agreements often specify that specialists from third countries cannot be hired.

Aid can be conditioned by the donor even without any formal limitations on its use. Such conditioning, ensured by the recipient's lasting and durable economic dependence on the creditor, is often just as effective. The creditor country's banks and private firms which have been supplying the recipient with equipment and spare parts over a long period create such steady channels for the movement of goods and services that no official limitations are necessary as regards the use of the funds obtained, for these are bound to be spent on imports from the donor country.

Technical assistance is also most instrumental in the pur-

which are made up for by a corresponding increase in the export of goods. Through wide use of tying, the USA has not only been able to stop the drain of its currency to other countries under aid programmes, but, with due account for the fairly large funds it receives from the developing states in repayment of earlier credits, even to run up a balance-of-payments surplus on its aid items. At the same time, tying has a wider purpose than just an improvement of the balance of payments, and this is reaffirmed by the fact that it is being widely used by countries with a steady balance-of-payments surplus, like the FRG and Japan.

A major function of aid-tying is to help load the production capacities in those sectors of the economy in the capitalist states which are hardest hit by the crisis and are on the whole insufficiently competitive in the inter-imperialist struggle. All of that explains why, in spite of repeated attempts to negotiate a cessation or a more or less tangible curtailment of tied aid, it is still being actively used by the leading imperialist states.

The USA has been making the widest use of conditioned aid. Since 1959, it has been tying its aid ever closer to the export of its own goods. Moreover, AID^ missions in other countries were instructed to urge the recipients of US aid to undertake ``voluntary'' commitments to spend the aid funds in the USA even when no official strings were attached. As a result, the share of aid used to buy American products has rapidly increased. In 1976, for instance, only $25 million of the $671 million distributed through AID channels (or 3.7 per cent of the total) went to buy goods or services outside the USA.^^2^^

Then there are also the food supplies under Public Law 480, which are fully tied.

At the same time, the US government seeks to create the impression that tying does not infringe upon the interests of the developing countries. With that aim in view, legislation was passed in September 1970 allowing the use of AID-sup-

1 Agency for International Development---US agency in charge of

aid programmes.

2 Foreign Assistance and Related Agencies Appropriations for 1978. Hearings before a Subcommittee of the Committee on Appropriations. House of Representatives. 95th Congress, 1st Session, Part 2, US Government Printing Office, Washington, 1977, p. 233.

plied funds to buy goods in some developing countries. That permission, however, was also hedged with reservations: cars and some types of equipment were excluded from the list of goods; the import content of the total value of the products supplied by these developing countries was not to exceed 50 per cent. That was done to prevent the USA's industrial competitor states from using that concession to expand their own exports to these countries. Moreover, the list of these developing countries was confined to those with per head incomes of under $1,000 and the goods supplied by these countries had to be lower-priced than similar goods on the US market. In 1976, for instance, only $23 million worth of goods met these requirements, and only a few relatively developed recipient countries (South Korea, Taiwan, the Philippines and Brazil) were able to import these.

Before the Second World War and in the early postwar years, Britain's insignificant financial aid to its colonies and dependent territories was largely used to buy goods in the metropolitan country. The credits were not formally conditioned, but in actual fact the use of aid funds outside the metropolitan country was virtually ruled out as a result of the recipient countries' political dependence on Britain.

When most British colonies won their independence and joined the Commonwealth as independent members, Britain was obliged to resort to formal tying of credits.

In 1963, the British government took steps to minimise the outflow of currency under aid programmes. When a developing country wanted to spend the aid funds on imports from third countries, it had to apply to the Foreign and Commonwealth Office, which allowed such imports only when they made sure that the required goods and services could not be obtained from Britain on "reasonable competitive terms". But since the expression is so vague and includes, alongside prices, such factors as delivery deadlines, subsequent servicing, etc., Britain has been able to manoeuvre and make it most difficult for the developing countries to refuse to buy goods or services from the former metropolitan country.

Another widespread measure is the tying of aid to concrete projects. In giving credits, Britain sought to ensure that these primarily went to finance the building of projects in the developing countries which would help to load industrial capacities in Britain. As a result, the proportion of ac-

tually tied British aid has in recent years markedly increased. Today, loans extended by Britain's Department of Trade under the export guarantees act are fully tied, just as most of the loans and grants handled by the ministry of Overseas Development. When repayment of loans and credits by the developing countries is deferred, refunding is seen as tied non-project aid, for the new funds are used exclusively to repay British credits. All technical assistance is also conditioned. In 1981, 78 per cent of Britain's bilateral aid was fully tied.^^1^^ Credits and subsidies to numerous small dependent territories in the Pacific, Atlantic and Indian oceans, and also to the "less developed countries" of the Commonwealth (Malawi, Botswana, Lesotho) are partially conditioned. Estimates show that even when aid is not formally tied, 60 per cent of the funds return to Britain to buy British goods. The figure is roughly similar for loans extended to other countries by the Commonwealth Development Corporation, and also for its investments in private share capital. Pensions and other types of compensation paid to former British officials of the colonial administration living in developing countries are formally not tied but, beyond any doubt, a share of these resources is also transferred to Britain.

The Federal Republic of Germany has increasingly resorted to tied aid. Up to 1962, only about 9 per cent of its aid to the developing countries had any formal strings, and most of the aid was given in the form of loans from the Kreditanstalt fur Wiederaufbau bank. Since 1963, in spite of its favourable economic and financial situation, the FRG has been active in tying its foreign credits.

The urge to strengthen its positions in the competitive struggle for markets in the DCs induced the FRG to tie more and more of its credits. Only under pressure from other industrial capitalist states, which began to face additional difficulties as a result of the FRG's moves, it somewhat backed down. According to the Development Assistance Committee, officially tied credits in 1981 made up only 25.7 per cent of the FRG's total bilateral aid.^^2^^ That figure, however, does not in the least reflect the actual scale of aidtying, for the use of many credits is subjected to indirect lim-

1 Calculated from Development Co-operation..., 1982 Review, p. 227.

2 Ibid.

itations, notably, through a careful choice of projects.

West German politicians have repeatedly pointed out that 80 per cent of bilateral aid is in effect repatriated in the form of orders to West German firms. Thus, speaking in the Bundestag in 1975, the then Economic Cooperation Minister Egon Bahr tried to persuade the opposition that West German aid was not just a waste of money. He said: "Roughly 80 per cent of the aid funds are repatriated in the form of orders to West German firms, and with respect to funds provided on a multilateral basis, the figure is 200 per cent or more" (that is, the volume of orders is two or more times higher than the total amount of credits).^^1^^ So, the aid-tying phenomenon goes beyond ``concern'' for the balance of payments of individual donor states, but is an integral part of the inter-imperialist struggle.

Nominally, the proportion of fully^tied French aid (47.9 per cent in 1981) is lower than that of other leading capitalist creditors except the FRG. In actual fact, however, the peculiarities of France's economic and political links with its former colonies enable it to tie its aid on a scale which possibly matches that of the USA. Subsidies make up more than 85 per cent of French bilateral aid to the developing countries, the rest being loans. Many subsidies are provided in the form of financial support for the state budgets of recipient countries and for covering local expenses. Under the mechanism of the Franc Area, the budget of each of its countries is connected with funds in hard currency (French francs) deposited on that country's account at the State Bank of France. That is why support for the budget of a developing country amounts to a transfer of a certain sum in French francs to that country's account. Such an operation does not entail an outflow of currency from France or have ari adverse effect an its balance of payments.

Formally not tied subsidies for covering local expenses and meeting other needs of the developing countries have a similar effect. The bulk of France's aid goes to its former colonies, which still depend on it in foreign trade and in general economic terms. On average, the countries of the Franc Area get more than two-thirds of their commodity imports from

1 Manager-Magazin, Hamburg, No. 9, 1975, p. 12.

2 Calculated from Development Co-operation..., 1982 Review, p. 227.

France. Most of them have a trade deficit with France, and a large part of French aid goes to cover this deficit.

For states outside the Franc Area, the use of aid funds to buy goods in third countries is strictly limited. In giving preferential loans to such states, France obliges them to sign contracts for the import of French goods and services, while those from other countries outside the Franc Area can be imported only when the deal has been approved by the French Commission for Export Credit Guarantees. Exceptions can be made only when it is officially recognised that French firms cannot supply the financed project with the necessary equipment, but these exceptions should not exceed 10 per cent of the credit.

or from third countries, or else to increase its foreign-- exchange reserves. So, even when 100 per cent of the aid is tied, the recipient country has some room for manoeuvre. For the donor country, this means that even total tying does not lead to a 100 per cent positive influence on its balance of payments.

The extent to which commercial imports are replaced with aid-financed imports primarily depends on the scale of the trade links between the two countries. The more extensive these are and the greater the role of the donor state in those of the recipient country's imports which meet its most essential requirements, the more opportunities the latter has to choose those goods from the overall flow of imports which it finds most convenient to receive through aid channels. The composition of the imported commodity supply and the economic significance of its various items for the consumer country is naturally very important, enabling it to obtain on concessional terms those it needs most of all.

So, the volume and extent of the replacement of commercial exports with deliveries under aid programmes depend on the specifics of trade links between the two countries and are characterised by a "substitution coefficient", or the portion of the total volume of aid-financed deliveries which represents the replacement of commercial exports to the recipient country.

But the goal of capitalist ``aid'' is not to supply the developing countries with material values on terms that are most acceptable to them, but to ensure markets for the donor's own goods. That is why the higher the "substitution coefficient", the less instrumental is aid in expanding the creditor country's foreign market and the greater its adverse influence on the balance of payments owing to a loss of exchange earnings.

At the same time, the policy of tying credits entails phenomena with an opposite effect. Close and large-scale economic ties between the donor and recipient, which result in a high "substitution coefficient", simultaneously mean that a significant part of the foreign currency saved will be spent anyway on additional imports from the industrially developed creditor country. Assuming that a developing country will not use the currency saved to increase its foreignexchange reserves, but will use it to expand its imports,

The Economic Impact of Tied Aid on the Creditor and Recipient Countries

The purpose of tying is to ensure that the flow of currency from the donor country is compensated to the utmost through the export of goods. So, tying has a beneficial influence on the creditor country's balance of payments, and that is usually one of the main arguments in defence of tied aid. Here is how one-time Secretary of State Dean Rusk formulated that function of aid-tying: "...AID is in the business of exporting US goods and services, not US dollars.''^^1^^

Since other capitalist creditor states have also adopted similar policies with respect to the developing countries, most foreign aid now amounts to deliveries of goods and services rather than a transfer of monetary resources. That is naturally bound to have a considerable influence on the balance of payments of both the creditors and the recipients.

One of the advantages of concessional foreign credits and subsidies is that the recipient country can use these to buy some of its traditional import goods (usually bought through commercial channels from the existing foreign-exchange reserves) in the creditor country. Such a switch enables the recipient to save some of its foreign currency, which it can use either to import more goods from the creditor country

1 Foreign Assistance, 1966. Hearings before the Committee on F0- reign Relations, US Senate, 89th Congress, 2nd Session, US Government Printing Office, Washington, 1966, p. 97.

these additional imports will usually come from the countries which traditionally supply its imports in proportion to the importance of these countries in the trade of the recipient country. So, the greater the importance of an industrial country in a DC's imports, the greater will be the proportion of the currency saved by the recipient country that goes back to the industrial donor.

In order to increase the effect from tying and reduce the developing countries' opportunities to manoeuvre with aid deliveries, in the mid-1960s the USA began to make active use of a clause on the need to make such deliveries `` supplementary'' with regard to commercial imports. On its insistence, many credit agreements included a clause demanding that aid funds should be used solely to import goods over and above the country's usual requirements, and the Treasury and the Department of Commerce of the USA strictly monitored its observance. That clause was often decisive in the choice of aid-funded projects in the developing countries. It was specially noted that the construction and running of such projects entailed subsequent deliveries of spare parts and other materials from the USA, and also depended on the services of US specialists. As for deliveries of goods other than complete plant and equipment, in 1967 the USA introduced ``positive'' and ``negative'' lists. The former listed goods which could be obtained within the framework of aid, and the latter ruled out the possibility of obtaining some categories of goods.

The close links of aid-tying with the need to market relatively uncompetitive US products in the developing countries and with the selfish interests of the monopolies have been repeatedly emphasised at meetings of various congressional committees. Thus, AID Administrator William S. Gaud told Congress: "For the most part ... positive lists are made up of commodities in which the United States is relatively less competitive, and which we would otherwise be unlikely to export in any great volume...''^^1^^

Clarence D. Long, who was later to become Chairman of the Subcommittee on Foreign Operations and Related Agencies, was even more outspoken. He said: "There are a lot of business firms in the country who make a lot of money out

1 Quoted in Judith Tendler, Inside Foreign Aid, The Johns Hopkins University Press, Baltimore, 1975, p. 46.

of selling this stuff abroad. They can't sell it in this country at the prices they want. They can sell it abroad at the American taxpayer's expense.

``There are a lot of elite types in this country who have made vast sums of money out of foreign aid. It hasn't gone to the poor people but it has enriched the well-to-do.''^^1^^

The limiting clause is also meant to help US exporters in their struggle against foreign competitors. "If AID credits are to be covered fully by additional US exports, part of a host country's imports must be diverted from foreign sources of supply to the United States ... through import and exchange controls," said William S. Gaud.^^2^^ So, while posing as champions of free trade and a free play of market forces, the US ruling circles simultaneously pursue a line of unabashed protectionism, pressing the weaker partner into buying useless or overpriced goods. "In several instances AID positive lists have been so limited that countries could not draw down available funds at a reasonable pace, and put them to use for development. Importers were simply reluctant to use AID funds to purchase goods subject to our procedures and at higher prices.''^^3^^ It often took months of negotiations, Gaud said, to induce the developing countries to make concessions and ensure conditions benefitting the USA.

Similar rules are applied in food aid, the need for which in African and other developing countries has recently become most acute. A special clause [401(a)] of Public Law 480 says that food can be given as aid only if this will not lead to a decline of commercial food exports to the recipient country. In other words, unless a developing country imports a US-specified minimum of food through commercial channels, it is not entitled to receive US food aid.

Here is an example. In the late 1970s, Egypt's economic situation became very diffucult. The balance of payments was permanently in the red, and the country's foreign debt as of September 30,1976, amounted to $5,700 million (apart from the debt related to foreign deliveries). Its overdue pay-

1 Foreign Assistance and Related Agencies Appropriations for 1977. Hearings before a Subcommittee of the Committee on Appropriations. House of Representatives, 94th Congress, 2nd Session, Part 2, US Government Printing Office, Washington, 1976, p. 570.

2 Judith Tendler, Op. cit, p. 119.

3 Ibid., pp. 119-120.

3-404

ments alone totalled $257 million. In 1977, the country was due to pay out $1,600 million in debt service. In spite of all that, the USA and the Common Market countries raised Egypt's obligatory quota of commercial wheat imports for 1976-1977 form 2.2 to 2.6 million tons, although the Egyptian government tried to persuade its ``donors'' to reduce that quota to 1.6 million tons.^

Another way to make aid deliveries supplementary is to tie credits to the building of a certain project.

Most developing countries, especially in Africa, have never before built many types of industrial projects. They do not have sufficient funds to buy the required capital equipment in third countries and are consequently obliged to turn to foreign aid, even if such aid can be obtained only to finance a definite project, whose building will primarily go to benefit the donor country. For the latter, such an application by s developing country almost always means the opening of a new export market protected against competition from other suppliers and so extremely profitable. For the recipient, such aid sharply aggravates the problem of financing internal expenditures, which often reach one-half or even a greater share of the project's total cost. The possibility for a developing country to use local materials and the availability of sufficient funds for hiring manpower are important factors in reducing construction costs and are sometimes crucial for the future of the whole project. But the capitalist creditor, in his urge to maximise the import component of the building costs, usually refuses to finance the recipient's local expenses, while an independent increase of the internal component in the total construction outlays is often beyond the power of many developing countries. Most of them, especially in Africa, have very limited opportunities for mobilising internal resources for such financing. So, in some instances, host governments are obliged to give up such projects altogether, and in others, they have to choose designs with the greatest import expenditures or even deliberately to increase the import component of the expenditures by planning cutbacks in the use of local materials and manpower. Such a

1 Egypt's Capacity to Absorb and Use Economic Assistance Effectively. Report of the Comptroller General of the United States, US General Accounting Office, Washington, 1977, pp. 32, 20.

decision not only leads to big increases in the construction costs, but also has an adverse effect on the national economy, aggravating the employment problem, obstructing the development of local industry, and so on.

Many DCs have objective possibilities for meeting the internal share of the outlays on the construction of this or that project, but a shortage of capital makes it difficult for them to muster the necessary resources. Thus, operations like the building of access routes, installation of equipment, and haulage are often hindered by a shortage of machinery, equipment and transport facilities, on the one hand, and of consumer goods in the country, on the other. The growing demand for such goods is connected with a recruitment of additional manpower for work in production.

For many developing countries, imports are the only sources of both capital goods and consumer goods. But the tying of foreign credits to specific projects, and also the creditors' apprehension that aid-financed purchases of general means of production and consumer goods could reduce the opportunities for marketing these through conventional commercial channels may hinder the use of credits already obtained. In looking for a way out, some developing countries are obliged to buy the goods they need at the expense of their scanty foreign-exchange reserves or short-term loans. As a result, their balance of payments and overall financial situation continue to worsen.

The creditor states' policy of offering financial assistance for projects which particularly suit their own industrial firms often violates the proportions of industrial development in the host countries. Projects are often built which at that moment they need least of all. When the list of priorities is disregarded and projects of secondary importance are built, this always entails losses for the recipient country.

For the capitalist creditors aid-tying brings considerable advantages, whereas the developing countries lose a great deal. Some of these losses can be pinpointed and assessed more or less accurately, while others become evident only much later.

For the buyer country, limits on its freedom to choose its foreign suppliers inevitably result in monopoly price hikes and other factors which inflate the prices of goods bought from aid funds. That is primarily because the suppliers (the USA above all) sell such goods at prices prevailing on the

domestic market. These prices, often propped up by high protectionist duties, are usually far above the corresponding world prices. In dealing on the foreign market, US industrial corporations always have to reckon with competition from foreign suppliers, but when goods are sold under tied-aid programmes, there is no such competition, and prices are bound to go up.

The recipient countries often suffer additional losses from irrational transportation of goods tied to sources of financing. Thus, freightage to Africa from the USA is much more expensive than from Western Europe, especially for bulk and low-priced goods. For instance, in importing reinforcing bars under a US aid programme, Tunisia had to pay almost $17 more per 1 ton of freightage as compared with imports from Western Europe (or 10-13 per cent of the c.i.f. price).^^1^^

High prices of the goods and services provided under tied credits are a typical feature of that type of aid. British authors I.M.D. Little and J.M. Clifford write: "...It should be remembered that the whole point of aid-tying is precisely that the recipients should not buy in the cheapest market."*

The overpricing of goods and services markedly reduces the real economic effect from capitalist aid for the developing countries and increases the burden of its use. According to a commission chaired by Lester B. Pearson, in 1967, when only 16 per cent of capitalist aid had no strings attached, its true effectiveness was at least 20 per cent below the official figures.^^3^^

The gap between the prices of goods sold under tied-aid programmes and world prices makes it impossible to compare such credits with conventional commercial credits. Estimates show that when a 20-year tied-aid credit is extended to a developing country at an annual interest rate

1 Proceedings of the United Nations Conference on Trade find Development. Second Session. New Delhi, 1 February-29 March 1968,

Vol. IV, United Nations, New York, 1968, p. 101.

2 I.M.D. Little and J. M. Clifford, International Aid. A Discussion of the Flow of Public Resources from Rich to Poor Countries with Particular Reference to British Policy, George Allen and Unwin Ltd., London, 1965, p. 165.

3 Partners in Development. Report of the Commission on International Development. Chairman: Lester B. Pearson, Pall Mall Press, London, 1970, p. 77.

of 3 per cent for the purchase of certain goods, and when these goods are overpriced by 30 per cent as compared with those offered by suppliers from other countries (and such price gaps are usual in tied aid), the interest rate is in effect doubled. In other words, such overpricing virtually nullifies the widely advertised ``liberalisation'' of state aid claimed by the capitalist countries. Where the actual interest on aid credits runs to 6 per cent a year, such credits are nearly as onerous as commercial ones.

A comparison of direct value indicators relating to deliveries under tied-aid programmes and through other channels does not show all the losses for the recipient, because conditioned deliveries often have various side-effects further reducing the advantages of such deliveries or putting up their price in various indirect ways. One of the factors whose impact may at first be hidden from the consumer is the high cost of spare parts and high operation costs.

A work analysing tied economic aid to Tunisia in 1965 contains examples of how additional expenses can be incurred in the running of a project or equipment. Thus, 85 US buses bought under an AID credit were not only 30 per cent more expensive than similar European buses but had numerous design faults and had to be repaired more often, while the price of spare parts, which also had to be imported from the USA, was 30-50 per cent above the European price. What makes it worse is the long delays in the delivery of spare parts, for the suppliers of goods bought under aid programmes usually devote much less attention to subsequent servicing of these goods than in conventional commercial deals',' realising that the recipient of aid is not free to choose his supplier.

Under pressure from the developing countries, the UN General Assembly and its Conference on Trade and Development (UNCTAD) passed a number of resolutions urging some relaxation of the restrictions on the use of credits extended to the developing countries. Some attempts have been made along these lines. Back in 1965, the DAC recommended its member countries to make joint and individual efforts to reduce the amount of tied aid on an increasing scale. Talks to elaborate an agreement abolishing tied aid were carried on in 1970, in early and late 1971, in the autumn of 1973, and in mid-1974, but the only result was an agreement to exempt from tying financial contributions

to international credit agencies. But that was merely a recognition of existing practices. Ten of the DAC's 17 members decided to allow the developing countries to use a part of bilateral-aid credits to buy goods in other developing states. But such major creditor countries as France and Britain did not support that decision. Britain agreed to do so only with regard to the 'least developed countries", whose gross domestic product does not exceed $200 per head of population. But the production potentialities of such countries are extremely limited, so the concession is virtually meaningless.

The main reason for continued aid-tying is that the imperialist monopolies have a stake in it, making vast superprofits in conditions that protect them against mutual competition, while the burdens of that wasteful policy of boosting exports are borne, on the one hand, by the taxpayers of the creditor countries and, on the other, by the peoples of the developing states, whose debts have been mounting while the effectiveness of the aid they receive is markedly reduced as a result of tying.

Chapter Two

THE STRUCTURE AND REAL VOLUME OF EXTERNAL RESOURCES

The structure of these resources and the terms on which they are given are most diverse, ranging from grants and longterm low-interest loans to export and bank credits repayable over 3 to 5 years at an annual interest rate of more than 17 per cent, and also the export of private entrepreneurial capital, whose terms and economic consequences for the developing countries are even graver.

The role and effectiveness of foreign resources from the standpoint of the recipient's interests largely depend on their constituent elements, primarily on the correlation between the volume of resources obtained on concessional terms and those received on market or near-market terms. It is also extremely important to distinguish between the nominal and the real volume of resources. Meanwhile, it may be very difficult to determine the volume of aid. Each industrialised capitalist state seeks to present its aid to the newly independent countries in as favourable a light as possible, often counting in the export of private capital, commercial credits along private and state lines, and also state-monopoly assistance to private capital exports expressed in value terms (like various state guarantees against financial losses resulting from nationalisation or social conflicts in the recipient countries).

Attempts by the capitalist countries to identify aid with the export of private capital raise essential objections.

Resolutions adopted by the First and Second UN Conferences on Trade and Development (UNCTAD) urging the industrial capitalist countries to allocate to the DCs financial resources amounting to at least 1 per cent of their GDP played a certain role in this identification.

Although one of the resolutions subsequently specified that 0.7 per cent of the aid should be provided through state channels, the fact that state and private resources were put under a single head enabled some industrial capitalist countries, which have been stepping up their economic expansion to the DCs through a sharp increase in the export of private capital, to declare that their aid is very close to the UN target.

The OECD Observer and other statistical publications by the OECD often include state and private capitals under one head. But that is not justified: thus, a part of state aid representing grants of material values and services cannot be compared with credits whose financial and other terms largely correspond to those prevailing on the private capital market.

Only a very small part of the aid goes to the developing countries in the form of currency or other international means of payment, while the bulk of it is made up of deliveries of goods in kind and non-material types of aid (services and technical assistance). Hence the problem of expressing these resources in value terms. The conversion of national currencies into US dollars on the strength of official exchange rates and current prices, as accepted in DAC statistics, eventually leads to a considerable gap between the nominal dollar value of aid resources and their real material content as a result of changes in exchange rates and price increases.

In its fullest and most detailed form, DAC statistics shows the flow of resources from 17 capitalist member states (state by state) to all the developing countries. All these resources are divided into four categories: official development assistance (ODA), other official flows (OOF), private flows on market terms, and grants by private voluntary agencies.

As we see, the first and second categories relate to state sources, and the third and fourth, to private sources. The last category has been taken into account by DAC statistics only since 1970. Each of the two types of state resources is subdivided into two groups: resources transferred under bilateral interstate agreements, and contributions to international credit agencies. Official military aid and other expenditures by capitalist states directly related to the military needs of developing countries are

not taken into account, except where such aid, in the opinion of the creditor countries, promotes economic development.

The section on private flows on market terms includes direct and portfolio investments, long-term private loans, and various export credits. So, it covers the main items of the balance of payments under the "capital account" section. Assessments of the flow of private resources, the DAC itself admits, are far from full.

The principle of assessing the net flow of resources from the creditor countries is a major specific feature of DAC statistics, which shows all types of financial resources as net resources. With regard to state funds, for instance, this means that the sums going to repay the principal of earlier credits (amortisation payments) are subtracted from the total volume of aid resources, and with regard to private resources on market terms, this applies to repatriation of capital. So-called factor cost payments (interest, profit and dividends) are not taken into account in any direct way. Receipt of interest on state credits is shown only in footnotes to the main tables. That is being done on the pretext of ensuring the greatest degree of correspondence between DAC statistics and the principles of drawing up balances of payments adopted in the capitalist countries, which clearly distinguish between "balance on capital account" and "balance on current account". Payments for goods and services are included in the latter, and in accordance with the principles of bourgeois political economy, payment of interest by the debtor on the credit he obtained and receipt of income by the investor on the capital he invested are but different forms of payment for the ``service'' of using capital as a "factor of production''.

So, the net flow of resources from the industrialised Western countries to the developing countries, as shown by DAC statistics, considerably overstates the actual volume of resources that reach the latter. This volume can be determined only when the annual interest payments on earlier credits are subtracted from the net figures.

At the same time, net flow figures do not show the total, gross volume of resources provided by each donor country, notably, the annual budget appropriations by their legislative bodies. The gross volume of resources can be estimated if repayment of principal to the creditor

countries is added to the net flow figures.

Similarly, DAC statistics exaggerates the export of private capital, for it does not take into account the profits on direct investments and the interest on invested portfolio capital (entrepreneurial and loan).

In 1969, DAC statistics singled out so-called official (state) development assistance (ODA) from the general official flow of resources. At first cautiously, in a footnote, and then in the context of a general explanation of terms and concepts, the publishers of the official review of DAC activities in the field of cooperation with the developing countries had to point out that only ODA could be regarded as aid.

ODA includes resources channelled to the developing countries or international credit agencies by official state institutions of the creditor countries and meeting two conditions. They should:

a) promote the recipient country's economic development and prosperity, and

b) be concessional (include a "grant element"^^1^^ of no less than 25 per cent).

ODA includes grants or subsidies, the part of state resources which does not have to be repayed or compensated by the recipient. Under bilateral state aid, these may take the form of free money grants for economic development or for covering budget deficits, free deliveries of manufactures or consumer goods to promote economic and social development or by way of emergency aid ( natural disasters, consequences of wars, and so on), and also remuneration paid by the creditor countries for the services of specialists under technical assistance programmes. Developing countries' debts written off by the creditors are also regarded as a subsidy.

A part of the free aid is channelled through international agencies, largely in the form of contributions to UN agencies and some financial institutions (like the European Development Fund) which extend subsidies to the developing countries.

``Grant-like contributions" are a specific form of resources given on easy terms. These include loans to developing countries which can be repaid in local currency, and a

1 This concept is considered below.

part of the funds in local currency (equivalent funds) accumulated in the DCs from the domestic marketing of goods received as aid. Such funds are equated to grants because they do not entail a debt obliging the recipient to transfer foreign hard currency to the donor country. Resources equivalent to grants usually take the form of consumer goods in kind (mostly food).

Some food deliveries can be seen as grants in their own right, notably, when equivalent assets pass into the full possession of the recipient government. But that is not always so. Much of the food aid (like US aid under section one of Public Law 480) is being given on terms according to which the funds in local currency from the sale of goods should belong to the creditor state, which can use them as it sees fit. A part of the equivalent assets could be used to meet some of the donor country's local needs (to pay local personnel working at the embassies and aid missions, to rent or build premises for these, meet local transport expenses and postage, etc.). In this way, the creditor country saves some of its own currency. In other words, such operations are, in effect, conventional business deals rather than aid. That is why, strictly speaking, such funds in local currency should be excluded from the volume of aid.

Loans with a "grant element" of more than 25 per cent are the second major type of resources in the category of official assistance. This applies, for instance, to 15-year loans at an annual interest rate of 5 per cent, which is far from easy from the standpoint of the interests and potentialities of many developing countries.

Under that head, DAC statistics includes loans from governments, central financial agencies and other state institutions of the creditor countries repayable over a term of more than one year in the currency of the creditor country or some other convertible currency.

Another specific form of aid is the extension of longterm state loans to help out debtor countries which are unable to meet their external debts and are obliged to default. In some instances, when the two sides reach an agreement to consolidate the debt, that is, to prolong its repayment, the agreed amount (even without any additional loan) is seen by the DAC as a corresponding amount of financial resources extended to the debtor,

and is reflected in aid statistics. Resources given in commodity form (food and consumer goods) and repayable in hard currency are a special form of concessional loans (used mostly by the USA).

Multilateral aid is defined by the DAC as payments by the industrial capitalist countries to international organisations in the form of contributions to their authorised capital, purchase of their securities, and joint loans to third countries. Contributions by the DAC countries to the authorised capital of the International Bank for Reconstruction and Development (IBRD or World Bank), the International Development Association (IDA) and regional development banks (like the Asian Development Bank) are listed by DAC statistics in the category of aid, although all those institutions, except the IDA, usually give out credits on market terms.

Resources which do not fit into ODA are included in "other official flows" (OOF). Among these are official bilateral deals on market or near-market terms, primarily loans by official credit institutions of the capitalist countries (the export-import banks of the USA and Japan, the KfW bank in the FRG, etc.), whose official purpose is to stimulate commodity exports (export credits). This category also includes purchases by the creditor-countries' state agencies of securities issued by international credit institutions, and also shares of companies operating in the developing countries.

As it was pointed out above, most foreign resources reach the developing countries through private channels. The dynamics of capital investment in entrepreneurial form is primarily characterised by figures on the export of capital in the form of direct investments.

Direct investments are those where control over an enterprise is in a foreign investor' s hands, and other such investments are regarded as portfolio.^^1^^ In DAC statistics, however, exports of loan capital are also seen as portfolio investments, without distinction between these two

~^^1^^ The principle of dividing investments into direct and portfolio is most tentative. In the USA, shareholdings of less than 10 per cent are seen as portfolio investments. But even with such a portfolio held by a single investor it is in effect quite possible to control the activity of the enterprise in question.

markedly differing types of investments.

A major element of present-day investment by foreign companies in the DCs is re-investment from retained profit produced in the host country. DAC statistics takes re-investment into account as increasing the assets of foreign companies operating in the developing countries, although it does not involve an influx of new capital from abroad.

Private loans and export credits to government bodies, private and state enterprises in the developing countries are one of the channels of portfolio investment in loan form. Over the past few years, the large foreignexchange accumulations of the OPEC countries have led to a flood of so-called petrodollar bank credits. These are extended both by OPEC's own credit bodies and by West European and US banks, because OPEC countries usually keep their petroleum earnings in the banks of these countries.

As the developing countries' requirements for imported means of production have increased, the competition among the industrial capitalist countries over markets in the DCs has intensified, with a considerable increase in the scale and importance of export crediting. DAC statistics takes into account only medium- and long-term export credits, that is, credits repayable over periods of more than a year. There is no ample reflection of private export credits, except for state-guaranteed credits, which are reflected relatively fully. Attempts were made in the past to determine the nonguaranteed part as well, but today there are no such publications, although this type of crediting has of late markedly increased.

Private loan capital can be exported in the form of bonds and other securities floated on the money markets both by international financial institutions and the governments of developing states.

Application of the principle of the net flow of resources to private export and bank credits considerably distorts their true volume: the actual sums are 2-2.5 times larger than the net figures presented by DAC statistics.

Capital Export to the Developing Countries. Hierarchy of Credit Sources

The multiplicity of financial resources flowing from the West to the developing countries does not at all mean that these countries are free to choose any one they like. In the evolution of imperialist policy towards the former colonies and the fierce competition among the capitalist powers for influence in the young states, a finely spun network of international lending has gradually taken shape. The wide range of credit and financial bodies offering credits on the most diverse terms has two main aims in view: first, to tie in as closely as possible the process of accumulation in the developing countries (especially in the state sector) with the system of international capitalist lending so as to make it dependent on the similar process in the industrial capitalist countries; and second, to ensure unconditional priority of private sources of credit and production investments from Western countries in financing the economic development of newly independent states.

Back in the early period of US aid programme, the then US Secretary of State Dean Acheson spelled out the principle behind aid, which applies not only to the USA, but to all other capitalist states: "In providing assistance for economic development, it would be contrary to our traditions to place our government's public funds in direct and wasteful competition with private funds. Therefore, it will be our policy, in general, not to extend loans of public funds for projects for which private capital is

available.''^^1^^

The present US Administration is faithfully following that principle. Speaking before the Committee on Foreign Affairs of the US Congress on March 19, 1981, AID Administrator M. Peter McPherson formulated the task of his administration as follows: "We must be careful here to facilitate business involvement [in financing---Ed. ] and not to substitute for private capital."2

~^^1^^ Politics and Society, Los Altos, Vol. 10, No. 1, 1980, p. 11.

2 Foreign Assistance Legislation for Fiscal Year 1982 (Part 1). Hearings before the Committee on Foreign Affairs, House of Representatives, Ninety-Seventh Congress, First Session, US Government Printing Office, Washington, 1981, p. 251.

So, aid agencies refuse to extend credits if, in the opinion of their administration, a project can be financed by private capital. If the latter is not interested in such an investment, the donor country can use this refusal as a means of putting pressure on the developing country's government so as to make it change its policy towards investments from abroad and create a more favourable climate for these.

In pursuance of these principles, a specific mechanism has gradually taken shape in the Western countries, pivoted on a hierarchy of credit .sources, whose lower rungs mean the greatest concessions to the borrower countries, with an increasing toughening of financial terms towards the upper end (see Table 1).

The table shows that private national sources of capital in entrepreneurial and loan forms are at the top of the hierarchy. The activities of the International Finance Corporation (IFC), which operates within the IBRD framework, also fall within this category.

Lower down, there are the state credit institutions which directly promote commodity exports from the Western donor countries, and still lower down, we find international credit agencies distributing state and private resources on near-commercial terms (IBRD). Agencies offering resources on soft terms under bilateral agreements, through collective bodies (IDA) or in the form of grants are at the lower rungs of the ladder.

Table 1: External Financing Institutions of the Capitalist Countries and Their Financial Terms

Type of external resources

Financial terms

Institutional examples

Equity investment, private bank credits

Maximum possible profit; guaranteed profit repatriation; market interest rates

International Finance Corporation (IFC), international banks, bond flotations by DC governments

-d S

•

Export credits

Near-market interest rates; credit tied to lending source

US Export-Import Bank and similar institutions in France, FRG, Japan and other capitalist countries

involvement in international credit agencies, hoping to obtain an additional channel for penetrating into the economy of countries that are still within the sphere of influence of the ``old'' imperialist powers.

These powers (France, Britain, to some extent Belgium) in principle prefer their own national sources of capital to international sources. At the same time, they seek to make active use of international agencies catering for various regions of the developing world within their own sphere of influence. France, for instance, has been trying to use its involvement in the EEC's credit bodies---the European Investment Bank (EIB) and the European Development Fund (EDF), whose main target is Africa--- to gain additional economic advantages through the capital of other member states.

The list of priorities in foreign financing reflected in the table also shows the contradictions between the interests of the borrowers and the creditors. A developing country seeking foreign aid is naturally inclined to apply to sources with the softest terms of credit, while the creditor countries' policy is to make it climb the ladder towards tougher sources of credit. Thus, the US Agency for International Development and its Export-Import Bank (Eximbank) have set up an interdepartment development loan committee and a staff liaison group to ensure that AID "does not extend a loan which Eximbank might be willing to finance". So, the aim of these organs is to put the potential borrower in a situation where it has virtually no choice in the matter of credit sources, and where the possibility of obtaining easier credits depends on a decision by upper-rung bodies. The interdepartment committee and liaison group also "ensure that Eximbank has first refusal on any loan application to the United States Government".^^1^^

Financing bodies in the upper echelon also coordinate their activities to ensure the priority of private sources of credit on the hardest terms. Thus, the IFC declares that it will not finance an enterprise if it believes that sufficient capital on reasonable terms can be obtained from other sources.

~^^1^^ Resources for the Developing World. The Flow of Financial Resources to Less-Developed Countries 1962-1968, OECD. Paris, 1970, p. 199.

Medium-interest loans

Intermediate interest rates; untied; grace period

IBRD (World Bank), regional development banks

Low-interest loans

Low interest, but usually tied; grace period; as a rule, loan politically motivated

Service charge only (e.g., 0.25 per cent); untied; long maturity

US AID and other Western bilateral aid agencies

o

c/3

Interest free loans

International Development Association (IDA)

Subsidies or grants No repayment

Bilateral aid agencies, multilateral technical assistance

Source: Politics and Society, Vol. 10, No. 1, 1980, p. 13 (with author's additions).

Such a list of priorities in the credit field most accurately reflects US policy. An official OECD manual on capitalist aid sources says that the Agency for International Development (AID) can only lend when the possibilities of other sources of finance "have been taken into consideration". A potential borrower must therefore consult in succession:

---a private bank;

---the Export-Import Bank, Washington;

---the International Finance Corporation;

---the International Bank for Reconstruction and Development.^^1^^

But the private capital of some capitalist states, like the FRG amd Japan, does not have such strong economic positions in the DCs. These states attach much importance to

1 Manual of Industrial Project Analysis in Developing Countries. Methodology and Case Studies, OECD Development Centre, Paris, 1972, p. 230.

4-404

Then comes the second stage in the workings of external financing: the credit-seeking DC is enabled to descend the resources ladder, that is, to turn to sources of softer credit, but only as creditors offering harder terms "show no interest" in the given project.

Under such a mechanism, the terms and forms of external financing heavily depend on the nature of the proposed investment, and also on the borrower country's creditworthiness. The mechanism is meant to ensure a "division of labour" under which all lucrative, highly profitable investments go to private capital while lowprofit investments are made by aid institutions (naturally, within the limits of state appropriations). The reason here is not only private capital's profit-seeking urge, but also the striving of Western ruling circles to make the process of capital accumulation in the developing countries as dependent as possible on foreign private capital.

In the late 1950s and early 1960s, when most of the former colonies and dependent countries had won political independence, the imbalance in social reproduction in the two zones of the world capitalist economy---the industrial and the developing countries---became more pronounced, taking a particularly sharp turn in the mid-1970s. In view of the lasting deficit of the US balance of payments and the flood of petrodollars on the money market which followed the rise in oil prices, the overaccumulation of capital in the leading capitalist countries sharply aggravated. The difficulty of high-profit investment in the domestic economy of most industrial capitalist countries due to slow economic growth and cyclical and structural crises stimulated the export of capital, primarily and on the largest scale within the zone of the industrial countries themselves, while export of capital to the developing countries increased to a lesser extent and mainly in loan form (loans and credits), for the export of private capital in entrepreneurial form (mostly through direct investments) was held back for fear of nationalisation and various restrictions on its use and repatriation of profits.

But the shaky state of the capitalist monetary system and the inexorable inflation induced capitalists to invest in material values and government securities which guarantee a steady income. This promotes an export of capital to the developing countries.

Table 2: Net Flow of Resources to the Developing Countries, $ million

I Official development assistance 4

,686

,120

,600

34,630

33,820

31,490

including:

bilateral 4

,138

,050

,760

,840

,890

24,040

milti lateral

,070

,840

,790

7,930

7,450

II

Grants by private

voluntary

agencies

• ..

,340

,310'

,020

2,310

III Resources on

market terms 3

,389

,950

,310

56,410

,270

56,630

including:

bilateral 3

,184

,240

,780

,560

,590

49,950

of these:

---direct invest-

ments 1

,969

,690

,360

,540

,130

1 1 ,000

---bank loans

...

,000

,000

22,000

,000

21,000

---portfolio in-

vestments

,380

,000

2,000

---private export

credits

,090

4,420

,120

,330

9,000

---state export

credits

,220

,460

,010

2,450

---other types

of resources

...

2,100

4,060

,120

4,500

multilateral

2,580

4,850

,680

6,680

Total

8,075 18,930 54,960 93,350 105,110 90,430

Sources: Partners in Development..., p. 378; Development Co-- operation..., 1983 Review, p. 51

The latter's rapidly growing requirements for foreign financing were another major reason behind the growth of investments in their economies. These were primarily due to the need to finance faster economic development and provide resources for original accumulations necessary to build up a national industry and an economic and social infrastructure. The instability and relative depreciation of the developing countries' export earnings, fluctuations in the prices of their export products on the

world capitalist market, and the protectionist policy of the industrial Western countries constantly jeopardised the financing of national development plans and necessitated an urgent influx of resources from abroad. Add to that the recent decline in agricultural production and the need to allocate large sums for repayment of foreign debts.

That is why in the 1960s and 1970s capital exports to the developing countries from the main capitalist centres and also from some oil-producing countries markedly increased. Thus, in 1960, the export of capital (both state and private) to the developing countries was $8,100 million in net terms, and by 1970 it had more than doubled, to $18,900 million. In the following decade, the increase was even greater, to the record figure of $105,100 million in 1981.!

Table 2 shows that over the past two decades qualitative changes have also taken place in capital export to the developing countries. In the 1960s, the export of state capital prevailed over that of private capital. The unstable economic and political position of many young developing states and the threat of nationalisation of foreign property reduced the flow of foreign private investments to these countries in entrepreneurial form. In these conditions, the economic and political importance of aid markedly increased.

To make aid more effective from the standpoint of the interests of the industrial capitalist countries, most aid resources at that time were transferred in the form of free subsidies. Thus, technical assistance was fully subsidised, its only initial purpose being to preserve in the once-dependent countries the colonial bureaucracy and teaching personnel who were the vehicles of the political and ideological influence of the former metropolitan countries.

Another major function of aid in that period was to

stimulate investments of monopoly capital in those fields of the developing countries' economy which such capital saw as insufficiently profitable or threatened with nationalisation.

In the mid-1960s, for instance, more than 26 per cent of all aid under bilateral agreements between capitalist and developing countries meant to finance concrete projects (capital project assistance) was earmarked for investment in the mining industry and to a lesser extent in manufacturing. * This aid was mostly used to finance the infrastructural part of the investment in the export branches of industry (access routes, ports, etc. ), often together with private capital. Aid had a very important part to play (44 per cent of the appropriations) in the development of the economic infrastructure, being used to finance capital-intensive projects in power engineering and transport.^^2^^

In contrast to that, assistance to agriculture (10 per cent), which foreign private capital saw as a low-profit area, was at a low level (except for export branches).^^3^^

In the 1970s, the situation markedly changed as the gap between the need of most developing countries for capital necessary to accelerate their socio-economic development and the limited resources at their disposal steadily widened and the role of foreign sources of financing considerably increased.

The nationalisation of the property of foreign monopolies by many African and other developing states in the early 1970s and their ever more pronouced urge to use foreign capital in the interests of national development led to a slowdown in the growth of private capital exports in the form of direct investments. Although nominally the export of entrepreneurial capital increased from $3,690 million in 1970 to 11,000 million in 1982, reaching a peak of $16,130 million in 1981,4 in real terms (i. e., in constant prices) it was only marginally higher at the end of the .1970s than at the beginning. The monopolies preferred states with

~^^1^^ Calculated form Development Assistance. Efforts and Policies of the Members of the Development Assistance Committee, 1969 Review, OECD, Paris, 1969, p. 313.

2 Ibid.

~^^3^^ Ibid.

4 Development Co-operation..., 1983 Review, p. 51.

1 Partners in Development..., p. 378; Development Co-operation.. 1983 Review, p. 51.

``stable political regimes" and also a group of rapidly industrialising countries like Taiwan, South Korea, etc., while the flow of foreign capital to some branches of industry (like mining) in a number of African countries virtually ceased.

The past decade saw a substantial increase in the export of private capital in loan form. In 1980, the latter's share was $35,300 million, or 40.5 per cent of the total export of capital from the West.^^1^^

Since the mid-1970s, there has been greater differentiation among the developing countries by level and rate of economic development and foreign-exchange reserves. A group of petroleum-exporting countries, which set up OPEC, accumulated immense foreign-exchange reserves, some of which they used for economic development, and some for capital investments in industrial and developing countries.

At the other pole there emerged groups of countries "most seriously affected" by the increases in import prices and "least developed" in socio-economic terms, countries which find it most difficult to muster domestic resources and which need foreign sources of accumulation on the easiest terms.

In these conditions, the functions of capitalist aid visibly changed. The slow growth of its real volume and changes in its target directions made it less important for most recipient states as a factor in the development of the production sectors of the economy. To meet the bulk of their financial requirements for the purpose of production investments, African and other developing states had to resort to large loans on commercial terms.

In 1981, the role of official assistance in the development of these sectors of the economy dropped to 6.2. per cent for industry and 20.1 per cent for the economic infrastructure. 2

In the 1960s, the main function of capitalist aid was to stimulate current private investments in the developing countries, to make these more profitable, whereas in the 1970s and 1980s it is to finance spheres of the economy and social development which mostly pave the way for

1 Development Co-operation..., 1983 Review, p. 51.

2 Development Co-operation..., 1982 Review, pp. 229, 231.

such investments in the immediate or more distant future.

In the 1970s, in view of the developing countries' intensifying struggle against the imperialist states, the latter tried to review the strategy of influencing the former's socio-economic development. Under that renewed strategy, formulated in the 1970s, the task is to create and strengthen the social base for developing capitalist relations in the newly independent states.

That tendency was reflected in a significant increase in the importance of technical assistance in the policy of the leading capitalist countries, which see that sphere of investment as an important instrument in strengthening their ideological influence in the developing world. Purely economic interests are also significant. By training national technical personnel on the basis of Western technology, the capitalist states are planning to extend the developing states' technological dependence, and also to stimulate the export of their own commodities.

The renewed strategy of neocolonialism is also aimed at moderating some of the most odious manifestations of imperialist exploitation of developing states and their unequal status in the capitalist economic system. Under pressure from these states, the West increased its aid to the social infrastructure: public health, sanitation, education and housing construction. Lt also began giving more help in tackling the problems of food, clothes, drinking water, and so on.

But the flow of financial resources on hard terms---state and private export credits, bank loans, direct and portfolio investments by private capital---increased much faster. As a result, as one will find from Table 2, the volume of official bilateral assistance and easy credits by international financial institutions, and also by UN and OPEC agencies, while increasing in absolute terms, in relative terms steadily declined.

The structural changes were also bound to affect the average financial terms on which the borrower countries obtained foreign resources. Thus, the average interest rate on loans to countries of Tropical Africa went up from 3.1 per cent in 1967 to 7.9 per cent in 1979. The average maturity of loans in 1979 (16.5 years) was much shorter than in 1967 (21.4 years), and the grace period was

down from 5.4 to 4.6 years. In view of these tendencies, the overall "grant element" in the loans dropped from 45 to 17 per cent.i

To estimate the real volume of Western aid, one should take into account the level of inflation in the capitalist world, the overall increase in the price of goods and services, under aid programmes in particular.

The price indicators (deflators) published in DAG reports show the rise in the prices of the main goods and services paid for from official assistance funds. Consequently, to get an idea of the real volume of aid, one should divide the current figures by the price indexes. In 1980, the price index for ODA as a whole was 269.4 (1970-100). So over the 1970s and the early 1980s, the prices of goods and services delivered under aid programmes on the whole increased nearly 2.7 times, that is, real aid in 1982 amounted to just over one-third of the nominal figure.

Table 3 shows that while the nominal volume of aid to the developing countries for 1970-1982 multiplied

Table 3: Nominal and Real Flow of

``Official Development Assistance" to the Developing Countries, $ million

4.7-fold, its actual volume went up by less than 60 per cent. In that period, nominal aid to Africa increased 6.2- fold, whereas the actual increase was less than 2.3-fold.¹ Figures for the six years from 1977 to 1982 show very well how inflation nullifies the nominal increase in aid.

The real volume of Western aid to the developing countries cannot be fully assessed without subtracting the large sums they have to pay out to the capitalist countries as interest on earlier credits. In 1982, for instance, they paid out $1,200 million worth of interest to Western countries.^^2^^ DAC statistics shows such payments in foot notes to tables on the export of resources to the developing countries, without breaking up the figures into regions. Such payments from African countries could be estimated at around $200 million.

Western aid policy does not correspond, in particular, to UN recommendations. In 1970, in elaborating measures for the Second Development Decade, the UN invited the creditor countries to increase by the middle of the decade (1975) their official development assistance to 0.7 per cent of their GNP. Thirteen industrial capitalist countries of the 17 DAC member-states approved that proposal, but most of them with various reservations. Only four states---Belgium, the Netherlands, Norway and Sweden---adopted that proposal in full. Australia, Denmark, Finland, France and New Zealand pledged to reach the target by 1980, but none of them, except Denmark, actually did so; Australia and New Zealand declared that they could not set a precise deadline for its attainment. Canada, the FRG, Japan and Britain approved the proposal only "in principle", while the USA and Switzerland refused to make any pledge at all. None of the leading capitalist creditor countries agreed to increase aid to the target figure either by the middle of the Second Development Decade or even by its end. Later on, Austria, Canada, Italy and Finland promised to meet the UN target only by the late 1980s, and France, by 1988. At present, far from moving closer to the UN target, these

Assistance

1970 1977 1978 1979 1980 1981 1982

Nominal volume

including

assistance to

African

countries Deflator Real volume

including

assistance to

African

countries

6,521 18,981 22,370 29,542 34,610 33,827 30,624

1,682 7,741 8,601 9,344 10,755 10,512 10,408 100.0 189.2 227.2 259.4 284.7 277.8 269.4 6,521 10,032 9,846 11,386 12,156 12,177 11,367

1,682 3,796 3,611 3,602 3,778 3,784 3,863

Source: Development Co-operation..., 1973-1983 Reviews.

~^^1^^ The World Bank Annual Report 1981, The World Bank, Washington, 1981, p. 143.

1 Ibid.

2 Development Co-operation..., 1983 Review, p. 228.

states are just as far from it as at the beginning of the decade, while the USA, France and Canada have even reduced their contribution (see Table 4).

So, the aid of the leading capitalist creditor countries on the whole amounts to just over one-half of the UN target volume. In 1982, only four countries surpassed the UN target: the Netherlands, Norway, Sweden and Denmark, but they contribute less than 13 per cent of the total aid. At the same time, the two leading capitalist creditor countries---the USA and Britain---and the DAG countries as a whole now have lower figures than in the mid1960s.

As it was shown above, the nominal aid figures published in DAG statistics are much higher than the actual figures. But the qualitative side of the matter is just as important. Each dollar given by the West to the developing countries in the form of a loan or subsidy is dif-

Table 4: "Official Development Assistance"

from DAC Countries, per cent of GNP

ferently weighted depending on the terms on which it is extended. These terms can change the whole value of the flow of foreign resources for the economy of the recipient state. They also largely determine the actual extent of the creditor country's outlays on aid.

In the 1960s, Western researchers began to analyse aid policies. Their main aim was not to determine the real contribution of the industrial capitalist countries to the economic development of the newly independent nations, but a striving for a ``fairer'' distribution of the ``burden'' of aid expenditures as inter-- imperialist contradictions took a sharper turn.

All these researchers saw the various types of aid, including subsidies, food deliveries and technical assistance, as forms of investment and capital export, the only difference among which was their profitability for the donor country.

In time, the DAC countries adopted a method for assessing the costs and benefits of aid suggested by the US economist John. A. Pincus,^^1^^ according to which the profit on each aid dollar is compared with the profit on the investment of one dollar at home. So, dollars given away in grants represent the greatest ``sacrifice'' made by the capitalist country for the sake of the economic development of the "less fortunate countries". Interest-free loans are somewhat less costly for the creditor, and loans on commercial terms are the least cumbersome.

To compare various types of aid, Pincus borrowed a method used in banking to calculate annuities (yearly payments). A loan extended to a developing country is equated to a private bank deposit in order to receive an annuity, payable after a fixed period of time for a certain number of years. To get an annual income of $1,000 for 12 years (a total of $12,000) in 20 years after a deposit is made at an interest rate of 5 per cent, the primary deposit should amount to $3, 507.

Pincus suggested applying the private depositor's logic to relations with the developing countries. Since every loan presupposes receipt of fixed annual amounts by the donor country in amortisation and interest payments, the

1 See Proceedings for the United Nations Conference on Trade and Development. Second Session..., Vol. IV, pp. 111-140.

Country

Average for 1965- 1967

Average for 1970- 1972

Average for 1973- 1975

Average for 1976- 1978

Average for 1979- 1981

Australia

0.56

0.57

0.55

0.46

0.47

0.57

Austria

0.13

0.08

0.20

0.30

0.53

Britain

0.45

0.38

0.38

0.44

0.43

0.37

Belgium

0.49

0.50

0.54

0.51

0.55

0.60

Denmark

0.18

0.42

0.54

0.64

0.75

0.77

Italy

0.15

0.14

0.13

0.12

0.15

0.24

Canada

0.28

0.44

0.48

0.49

0.45

0.42

Netherlands

0.44

0.62

0.64

0.84

1.03

1.08

New Zealand

0.20

0.24

0.37

0.38

0.32

0.28

Norway

0.17

0.36

0.55

0.81

0.87

0.99

USA

0.45

0.31

0.25

0.26

0.22

0.27

Finland

0.04

0.11

0.17

0.16

0.24

0.30

France

0.72

0.66

0.59

0.60

0.66

0.75

FRG

0.38

0.32

0.36

0.35

0.45

0.48

Sweden

0.23

0.43

0.70

0.90

0.86

1.02

Japan

0.29

0.22

0.24

0.21

0.29

0.29

Average for

DAC countries

0.42

0.34

0.33

0.34

0.36

0.38

Source: Compiled from Development Co-operation..., 1976 Review, p. 207; 1977 Review, p. 201; 1980 Review, p. 179; 1983 Review, p. 190.

cost of the loan can be expressed as the capitalised value of these receipts. The investor (be it a private capitalist or the bourgeois state) thus faces the task of calculating the amount of capital he would have had to deposit at a bank in his own country at the current rate of interest in order to receive an income equalling that obtained from the international loan. The higher the interest rate in the creditor country, the smaller is the amount of capital necessary to ensure a given volume of receipts.

Supposing a capitalist country extends a 20-year loan of $ 1 million at 3 per cent per annum and with a five-year grace period, and supposing that the rate of discount in the creditor country itself is 6 per cent, it would take $702,487 to obtain similar results through domestic investments. The capitalised value of a $1 million loan on these terms should amount to just over 70.2 per cent of its nominal size. The difference between the two sums---$297,513, or 29.8 per cent---will constitute the capitalist creditor's ``loss'' in favour of the developing country. These ``losses'' are due to the smaller returns on aid to the developing countries (3 per cent instead of the possible 6 per cent).

Western analysts of aid describe such ``losses'' as a "grant element" which is expressed as a certain percentage of the nominal size of the loan. Such a "grant element" is present in every loan whose terms are more favourable as compared with the rate of discount in the creditor country. The "grant element" is influenced not only by the interest rate, but also by the length of the repayment period and the existence of a grace period free from repayment of principal and sometimes even from interest.

When the rate of discount in the creditor country goes up, the "grant element" increases. For a loan extended at 4 per cent when the rate of discount in the creditor country is 6 per cent (all other conditions being equal), the "grant element" comes to 27.5 per cent of the nominal size of the loan, and when the rate of discount in the creditor country is 8 per cent, the concessional element goes up to 45 per cent.

A longer repayment period has a similar effect, for the longer that period, the smaller is the primary deposit that would have to be made to obtain a similar amount in the future. Thus, the "grant element" for a 10-year loan at 4 per cent per annum (without a grace period)

equals 0.324 (or 32.4 per cent), while for a 20-year loan on similar terms it goes up to 54.4 per cent, for a 30-year loan, to 69.2 per cent, and so on.~^^1^^

DAC and IBRD analysts determine the "grant element" on the basis of a 10 per cent alternative rate of yield on investments, that is, the average rate of yield on private investments. Such an approach in the field of interstate economic relations is unwarranted. As a rule, state investments in the Western countries have a much lower yield. Thus, the rate of yield on federal investments in the USA (as in irrigation projects) was less than 3 per cent in the early 1960s, and 4 per cent in 1969.^^2^^

Since only those material and financial resources that are transferred to the developing countries on concessional terms as compared with conventional market terms can be classified as aid, the volume of the concessions should be seen as the qualitative yardstick of such aid. Calculation of the "grant element" in loans helps to get an idea of these concessions. In 1980, for instance, loans extended by DAC countries under aid agreements had a "grant element" of 59.2 per cent.^^3^^ So, since the DAC countries' lending commitments that year totalled $8,329 million, the actual concession in favour of the developing countries was only $4, 931 million.

The "grant element" in free aid naturally equals 100 per cent, so that in this instance the concession in favour of the recipient country coincides with the nominal value of the aid. In effect, however, the donor states use diverse forms of the recipient's direct or indirect dependence and are thus able to derive considerable benefits from nominally gratuitous aid.

1 For a table showing the "grant element" in loans depending on maturity and the rate of discount see, for instance, Harry G. Johnson, Economic Policies Toward Less Developed Countries, The Brookings Institution, Washington, 1967, p. 225.

2 Economic Development and Cultural Change, Chicago, No. 4, July 1972, pp. 632, 633.

3 Development Co-operation..., 1981 Review, p. 197.

Table 5: Net Flow of Bilateral ODA

to Africa from DAC Countries, $ million

Creditor

annual average

country

1960-

1968-

Australia Austria

0.3 1.3

1.2 1.6

1.3 4.3

7.9 62.9

12.7 81.2

15.7 13.2

22.5 11.5

47.1 98.8

Britain

193.8

139.8

127.6

166.0

233.2

390.3

460.3

455.7

Belgium Denmark

75.8 0.6

72.4 14.1

86.6 18.5

204.9 81.3

246.2 88.3

306.2 117.0

320.7 124.3

259.0 102.9

Italy

38.2

53.6

38.7

14.9

9.8

12.5

35.7

89.2

Canada

5.8

36.1

84.5

151.8

195.8

199.3

218.9

230.4

Netherlands

0.7

8.6

17.0

179.7

203.3

277.8

366.8

330.1

New Zealand

_

_

_

0.6

0.9

9.8

1.3

1.1

Norway

0.6

8.6

9.7

107.2

94.5

112.2

127.8

126.6

Portugal

38.1

46.3

88.4

---

---

---

---

---

USA

444.3

275.7

312.0

765.0

929.0

1,022.0

1,430.0

1,586.0

Finland

_

_

---

20.2

20.2

26.9

35.0

41.4

France

636.1

519.9

560.6

1,012.3

1,185.7

1,329.1

1,736.8

1,875.4

FRG

59.6

117.4

131.6

441.4

651.7

861.4

801.4

705.8

Switzerland

0.9

6.4

4.9

24.7

37.1

34.5

49.8

53.5

Sweden

3.6

24.5

26.1

181.7

180.4

262.5

275.9

255.0

Japan

0.4

20.4

12.8

152.4

283.7

250.2

371.5

314.4

Not grouped by cre-

ditor countries

---

---

---

108.9

381.7

426.8

424.2

276.5

Total

1,500.1

1,346.6

1,524.6

3,683.5

4,835.2

5,758.4

6,814.4

6,857.2

Source: Development Assistance..., 1971 Review, p. 188; Development Co-operation..., 1972 Review, p. 240; author's calculations from Geographical Distribution of Financial Flows to Developing Countries 1977-1980, OECD, Paris, 1981.

Policy of Aid to Africa by the Leading Creditor States

Since most African countries won political independence, the role and importance of individual capitalist states from the standpoint of aid have been changing.

In the early 1970s, the FRG began to play a greater role in the field of aid, and in the mid-1970s, Sweden, the Netherlands, Japan and Canada stepped up their aid effort. Denmark, Norway and Australia increased their assistance to individual countries. From 1974 on, there was a noticeable flow of concessional resources from the oilproducing states. But although at first their bilateral aid rapidly increased, later on there was a steady decline.

Apart from that, the developing countries receive aid from various international organisations, like the UN, the International Bank for Reconstruction and Development, the European Development Fund, etc., and recently also from interstate credit institutions of the OPEC members. All these resources are known as "multilateral aid". In 1980, African countries received $3,132 million worth of such aid.^^1^^

The aid policy of industrial capitalist states has two closely interrelated aspects: political and economic. The first expresses imperialism's urge to keep the developing countries in a dependent, unequal position within the capitalist system and to continue their exploitation, and the second is connected with the reproduction of the capitalist economic system, whose major elements are export of capital and export of commodities.

Western countries regard aid as a major instrument in keeping up their political influence in the developing countries, bolstering the political regimes that suit them, strengthening their military-strategic positions in the region, and so on. Its volume is often determined by the need to create a "demonstration effect" in the recipient country, so that a large part of the aid funds goes to uphold the ruling elite, to preserve archaic social institutions, and build ``demonstration'' projects. With that aim in view, large resources on concessional terms are used for technical

1 Calculated from Development Co-operation..., 1981 Review, pp. 206, 208.

assistance, part of which also goes to back up the elite which is closely connected with the creditor country's monopolies.

``Aid" is an important instrument of economic and political expansion. Hence the inevitable contradictions among individual capitalist countries, the struggle for the most profitable credit projects in the DCs. But that does not rule out a striving to coordinate their actions so as to ensure the common interests of Western countries to the detriment of the DCs. For this purpose, the Development Assistance Committee was set up in London within the OECD framework back in 1961. Today, the DAG has 17 capitalist member countries, which make annual reports to the Committee on the volume, substance and lines of aid both under bilateral agreements and through multinational credit agencies. Upon the founding of the Committee, a Resolution on the Common Aid Effort envisaged, in particular, "a system of shared international responsibility", in effect dividing the developing world into spheres of influence among the leading imperialist powers.^^1^^

In 1969-1971, according to DAC estimates, France channelled $712.5 million, or 80 per cent of its total annual aid of $893.2 million to countries of the Franc Area. About $344 million of British aid (totalling $413.8 million) went to Commonwealth states, and only $1.7 million to countries of the Franc Area. More than onehalf of all US aid ($1.825 million of a total of $2,771 million) went to regions beyond the spheres of influence of the former colonial powers, primarily to South-East Asia and Latin America, while the countries of the Franc Area received only $106 million of US aid. In 1971, $ 428.8 million of a total of $432 million of Japanese aid went to Asia.^^2^^

US aid programmes are particularly expansionist, especially under the Reagan Administration. In a statement before the House Foreign Affairs Committee (House of Representatives, US Congress) on March 2, 1982, the then Secretary of State Alexander Haig described earlier US aid policies as "misplaced philanthropy", and said that the new administration had redirected "to-

1 Development Co-operation..., 1976 Review, p. 16.

~^^2^^ Development Co-operation..., 1972 Review, pp. 240-242.

day's foreign assistance programs ... to specific and vitally important strategic objectives".^^1^^ From then on, aid to concrete countries was to be geared to these objectives tighter than ever before. As Haig put it, "the overwhelming proportion of our [i.e., US---Ed. ] 1983 aid program will go to nations which share our strategic concerns or which are situated to improve our own diplomatic and military capabilities". In the policy of the Reagan Administration, the direct links between Washington's militarist ambitions and foreign aid programmes are reflected more openly than ever in the past. "Our nation's security tomorrow," Haig said, "requires an investment in foreign assistance today.''^^2^^

Africa's role in the USA's global strategy has markedly increased. Growing trade between African countries and the USA reflects their increasing importance for the US economy, especially in supplying the USA with oil. Other types of mineral raw materials, many of which are of military-strategic importance, are also vital for the USA. A London magazine wrote: "The US State Department lists 60 primary materials required to keep the [US---Ed.] economy functioning acceptably during war or other international crises. All of these materials are imported from Africa.''^^3^^

The annual increases in US aid to African countries show the USA's growing interest in Africa. Thus, against the background of a general cutback in aid appropriations to all developing countries carried out by the Reagan Administration in its very first year, aid to Africa (without Egypt) for the 1982 fiscal year was increased by one-third.

In that context, Acting Assistant Secretary of State for Africa Lannon Walker openly declared: "Our bilateral assistance will be increasingly concentrated in areas of strategic and political priority to the United States.''^^4^^

1 Department of State Bulletin, Washington, Vol. 82, No 2061, April 1982, p. 35.

2 Ibid.

3 Africa, London, No. 76, December 1977, p. 21.

4 Foreign Assistance and Related Programs Appropriations for 1982. Hearings before a Subcommittee of the Committee on Appropriations, House of Representatives, 97th Congress, 1st Session, Subcommittee on Foreign Operations and Related Agencies, Part 5, US Government Printing Office, Washington, 1981, p. 301.

5-404

Among these areas he included, in the first place, the countries of Southern and Central Africa, which are rich in mineral resources and where private US investments are largely concentrated.

Aid given by any capitalist country is meant, in particular, to promote its external economic expansion and to back up crisis-stricken or non-competitive branches of the economy.

Whole industries in the USA get substantial support through foreign aid programmes. These include, for instance, ferrous metallurgy, an insufficiently competitive industry with a low rate of profit and largely obsolescent production capacities.

Charles Baker, Vice-President of the giant US Steel Corporation, declared: "...It was largely our foreign aid programme that enabled the steel industry to remain unaffected by the shifting world market patterns. Roughly, 30 per cent of steel exports are now being handled via AID (Agency for International Development)." 1

US shipbuilding and shipping are also in a difficult position. In order to support these industries, Public Law 664 (on preferable cargo) lays down that no less than 50 per cent of AID cargoes should be delivered by US vessels. This entails considerable losses for the recipient country, which has to pay for the freight itself, and US freight rates are sometimes two or more times as high as those of other countries.

Western governments and mass media are usually reluctant to admit that monopoly capital is interested in aid programmes.

In 1971, after the Senate voted down foreign aid legislation (later on, the decision was reversed), the Agency for International Development released data on the importance of aid deliveries for various branches of the US economy. It turned out that funds from the economic assistance portion of the aid programme financed the purchase of commodities from more than 4,000 US firms. In 1971, the US government financed along aid channels 16.4 per cent of all US exports of iron-and-steel-mill products, 25 per cent of its fertiliser exports, 15.7 per cent of railroad equipment exports, 8.5 per cent of basic textile

1 Tribune, Colombo, Vol. 24, No. 50, June 28, 1980, p. 9.

exports, 7.3 per cent of its exports of non-ferrous metals and products thereof, etc. In the second half of the 1960s, the cargo financed under foreign assistance programmes ranged from 22 to 30 per cent of the total cargo moving on US-flag shipping.^^1^^

Apart from that, aid programmes are used to export substantial amounts of farm produce: wheat, corn, rice, soy-beans, fats and oils, etc.

Other Western capitalist states cater to their national business interests.

France's Minister of Cooperation and Development Jean-Pierre Cot urged a significant increase in France's aid to Africa and other developing countries, adding that this is the best way to aid French industry out of the economic crisis.2

Britain's Minister for Overseas Development Harry Neil Marten made a similar statement in the House of Commons. He said: "We believe that it is right at the present time to give greater weight in the allocation of our aid to political, industrial and commercial considerations...''^^3^^

It is usually the big monopolies which benefit from aid to the developing countries. The Nation wrote in July 1981: "Every dollar that US taxpayers pay into the World Bank generates about $10 in procurement contract for US companies. Almost half of the $1 billion-plus AID financial purchases in 1978 went to only twenty-two megacorporations. As one lobbyist for the FMC Corporation, a large international producer of machinery and chemicals, put it, 'We don't see foreign aid as a liberal issue, we see it as part of world trade and we are part of world trade. Clearly, foreign aid is of interest to us.'"^^4^^

``It is reliably estimated," the London West Africa journal writes, "that at least 50 per cent of the CCCE [Caisse Centrale de Co-operation Economique---Ed. ] credits go to the major French companies who have been operating

~^^1^^ Steeve Weissman, The Trojan Horse. A Radical Look at Foreign Aid, Ramparts Press, San Francisco, 1974, pp. 237-239.

2 Africa Confidential, London, Vol. 23, No. 13, June 23, 1982, p. 3.

~^^3^^ New Statesman, London, Vol. 100, December 5, 1980, p. 6.

~^^4^^ The Nation, New York, Vol. 233, No. 2, July 11-18, 1981, p. 43.

in West Africa since the colonial era when they were trading houses.''^^1^^

Having analysed the impact of aid policies on Britain's economy, a team of British economists wrote: "There is thus some evidence to show that the aid programme has been of some support to those industries in Britain which were in relative decline or facing particular difficulties.''~^^2^^ Sometimes, orders under aid programmes have been so large and timely that companies have been able to avoid a crisis.

In 1979, the FRG's development aid of DM 3,200 million enabled German firms to obtain DM 6,200 million worth of orders.

One of the favourite arguments used by Western politicians when they want to convince public opinion in their countries of the need to expand aid appropriations is that such appropriations, through orders to industry, help to create new jobs or prevent redundancies.

The so-called Ventejol Report published in 1982 by France's Ministries of External Relations and Cooperation, shows that between 1973 and 1980, the expansion of France's economic relations with the developing countries, mostly through aid, helped to create on average 37,000 new jobs a year. That is why the report recommended, in the interests of French employment, a " substantial increase in aid".^^4^^

Similar research has shown that aid programmes in 1979 helped Britain to save a total of 54,000 jobs,^^5^^ and the FRG roughly 40,000 jobs.

But in analysing these data one should bear in mind that larger outlays on aid go to benefit not only the working class, but mostly the big bourgeoisie. More jobs at the same time mean exploitation on a larger scale, for capitalists extract additional profit from the labour of every worker involved in production. An important point here is that aid credits primarily support the insufficiently competitive, low-profit branches of the capitalist economy, with underloaded production capacities. An

1 West Africa, London, March 12, 1979, p. 430.

~^^2^^ Intereconomics, Hamburg, No. 1, 1982, p. 23.

~^^3^^ Intereconomics, No. 3, 1981, pp. 123, 124.

4 West Africa, July 5, 1982, p. 1 744.

5 Intereconomics, No. 3, 1981, p. 25.

expansion of these branches usually does not require any new capital investments by their owners and yields additional profit right away.

Credits by the OPEC group of developing countries are a new phenomenon in the field of international lending.

Some oil-producing states (Kuwait, Libya and Saudi Arabia) were helping other developing countries even before the first rise in oil prices in the autumn of 1973, mostly in the form of subsidies to Egypt, Jordan and Syria to help them meet their budget deficits. In 1970-1973, these averaged about $400 million a year. Long-term development aid was fairly small ($40-60 million), exceeding $100 million only in 1973. Apart from Arab countries, small amounts of such aid sometimes went to countries of Tropical Africa.

When oil prices were raised and the foreign-exchange resources of the oil-producing countries sharply increased, most^^1^^ OPEC members (10 out of 13) began to export their capitals, notably on concessional terms. Today, OPEC as a whole is a major supplier of financial resources to the developing countries. In 1978 and 1981, concessional resources alone totalled (net) more than $8,000 million, and in 1980, almost $9,700 million. In 1982, the OPEC countries extended 6,803 million worth of aid.^^1^^ So, that year, the oil-exporting countries supplied 22.2 per cent of the total aid received by the developing nations.

Among the OPEC countries, Saudi Arabia is the biggest exporter of capital, including funds on concessional terms. In 1982, it gave 4,428 million in aid and ranked second among all the creditor countries. That year, Kuwait, the United Arab Emirates (UAE) and Qatar gave $1,295 million, $563 million and $251 million worth of aid, respectively.2 Some African oil-exporting countries (Lybia, Nigeria and Algeria), while receiving Western aid (technical assistance above all), are also among the creditor countries.

In 1980, 64 developing countries were receiving bilateral aid from OPEC. Arab states are among the main recipients, although their share has been declining: in

~^^1^^ Development Co-operation... 1983 Review, pp. 218-219.

2 Ibid.

1980, it was 80 per cent.

Since the members of OPEC are themselves developing states without any sizable commodity resources (except oil), their aid is not pivoted on commercial considerations or intended to increase the marketing of their own products, although in some instances aid can pave the way for this in the future. For the same reason, most of OPEC's aid is not tied. It is also marked by a high share (40 per cent) of credits meant for "general development purposes", that is, for covering balance-of-payments deficits, a form of financing which Western countries are usually reluctant to undertake. A substantial part of the aid is given in the form of easy credits for meeting a share of the developing countries' growing expenditures on oil imports. OPEC's technical assistance is understandably small: as a rule, they are short of highly skilled technical personnel and are themselves in need of technical assistance from more developed states.

In the past few years, the Western powers have increasingly sought to use the foreign-exchange reserves of the oil-exporting countries to fit them tighter into the creditfinancial system of capitalism. In Western states, this tendency takes the form of ``recycling'', that is, inducing oilexporting -countries to re-invest their oil revenues in the credit and, to a lesser extent, the production sphere of the Western countries' economy. As regards the DCs, the Western countries would have liked to use the financial resources of the oil-exporters to step up the marketing of their manufactures in the DCs.

The advantages of ``triangular'' (tripartite) agreements are being vigorously advertised. Under these agreements, Western firms choose the projects to be built, substantiate these in economic terms, provide the technical specifications and, most important of all, deliver the necessary equipment and materials, while the OPEC countries finance the building of a project (in part or in full). In 1978, investments in such triangular projects totalled $7,300 million, with $3,000 million being contributed by the OPEC countries.^^1^^ The OPEC countries are interested in such projects since they are as yet unable to undertake these on their own for lack of specialists and production facilities. OPEC's Special Fund has financed 31 projects.

1 Development Co-operation..., 1978 Review, p. 150.

Table 6: OPEC's Bilateral Aid

to African States, $ million

Recipient

Egypt Mauritania

859.2 37.0

2072.7 24.7

1022.4 126.2

896.1 105.9

508.1 107.3

166.4 68.7

120.1

4.8 100.0

64.5

Sudan

42.6

174.1

224.7

106.0

95.0

293.2

156.4

163.5

165.6

Morocco

9.0

97.9

43.5

80.0

32.4

392.4

454.1

273.7

224.6

Somalia

42.4

72.9

33.3

180.6

100.3

68.6

140.9

46.0

160.5

Tunisia Niger Uganda Angola Cameroon

7.6 1.0 13.1

68.0 14.1 20.0

17.4

11.2 4.1 5.0 20.8 2.0

12.4 2.8 2.9

9.0

23.8 16.1 3.9

3.2

43.6 0.6 0.9

16.2

50.0 1.7 1.4 0.6 21.8

44.4 27.8 0.1

1.5

36.6 84.8 1.1 0.5 2.4

Mali

9.7

25.5

3.0

11.1

3.6

13.3

17.3

9.2

24.7

Algeria Other countries

7.5 106.1

50.0 52.8

1.0 36.1

-4.3 46.0

-4.5 131.3

-2.3 113.1

44.2 183.3

171.5

141.5

Aid not grouped by countries

6.8

8.0

2.4

2.3

5.3

1.9

-

3.1

7.6

Total 1,

142.0

2,698.1

1,535.6

1,456.8

1,025.8

1,176.6

1,191.8

845.6

914.4

All developing countries 3, Share of Af-

015.2

4,946.8

4,531.5

3,941.4

3,247.1

6,962.3

8,732.4

7,612.2

5,507.0

rican coun-

tries, per cent

37.9

54.5

33.9

37.0

31.6

16.9

13.6

11.1

16.6

Source: Development Co-operation..., 1978 Review, pp. 266-267; 1981 Review, pp. 231-232.

Multilateral Financing

Over the past decades, international lending organisations and specialised UN agencies have been playing an ever greater role in financing the economic and social development of newly independent states. In 1970, multilateral aid made up 13.3 per cent of the total aid, and in 1980, 23.0 per cent.

In 1960-1966, all multilateral financial aid to African countries averaged $169 million a year (10.1 per cent of total aid),^^1^^ in 1969 it was up to $382 million (22.7 per cent), in 1974 to $869 million (32.4 per cent), and in 1980 (including the funds of OPEC's collective credit agencies) to $3,131.5 million (31.5 per cent).

The growing importance of Western collective bodies set up to finance the developing countries is due to diverse and often contradictory tendencies.

Thus, to maintain and strengthen their positions in countries and regions that were once a part of their colonial empires, the former metropolitan countries seek to use the material resources of economically stronger capitalist powers, while the latter have been trying to use their economic potential in order to infiltrate and get a foothold in the former preserves of the colonial powers.

The Western tendency to unification is also fed by the idea prevalent in many developing countries that aid from collective credit bodies is preferable to bilateral aid. Some of these international bodies include representatives of developing countries. That is why some think that these bodies are independent of the imperialist powers.

In actual fact, the leading capitalist countries have been trying to use such illusions to pursue their policies in more camouflaged form.

As collective aid bodies extend their activities, they play an ever more active role in promoting the export of private capital to the developing countries, notably, to their state sector. So, these bodies seek to increase the dependence of the state sector in the developing countries on Western monopolies.

1 Development Assistance..., 1971 Review, p. 188; Development Co-operation..., 1978 and 1981 Reviews, pp. 232 and 172 respectively.

The International Bank for Reconstruction and Development is the main collective lending organ of the capitalist countries. In 1981, the total volume of its lending exceeded $5,000 million.

The Bank obtains its credit funds from three sources: the capital contributions of its member countries, borrowings on the markets of loan capital, and bank profits on its own operations.

As of mid-1981, the Bank's authorised capital was $36,600 million. But only 10 per cent of this sum had been paid in, while the remaining 90 per cent, under the Bank's rules, make up a guarantee fund and are subject to call if required to meet obligations.~^^1^^

The World Bank obtains most of its funds from bond flotations on the money markets of the main capitalist states, and also by selling from its portfolio a part of the financial liabilities of the DCs which have received loans from it. So, the Bank acts as as guarantor and middleman for Western private investors who do not want to take the risk of independent investment in the developing countries. Thus, among other things, the Bank finances projects in the developing countries together with private investors.

In mid-1981, the total volume of funds raised by the Bank on the money markets was $27,800 million.^^2^^ Although the Bank has been advertising its ``universal'' nature, pointing out that its bonds circulate in more than 100 capitalist and developing countries, in actual fact the bulk of its resources (72.6 per cent) has been obtained from only four countries: the FRG---23.3 per cent, USA--- 17.2 per cent, Japan---16.3 per cent and Switzerland--- 14.9 per cent. Apart from that, 14.9 per cent of its funds come from the OPEC countries.^

The Bank finances projects in the developing countries on market terms. In 1981, it extended credits at an annual interest rate of 9.6 per cent.

Its lending activities in Africa have been expanding. Thus, in 1960-1966, it extended to developing African countries on average $52.1 million a year (net amount),

~^^1^^ Calculated from The World Bank Annual Report 1981, p. 88.

2 Ibid., p. 86.

~^^3^^ Ibid.

in 1969-1974-$! 13.3 million, and in 1981, its credit commitments only to countries south of the Sahara came to $858.8 million.

Apart from the World Bank, other collective credit bodies extending resources to African countries on commercial terms include the International Finance Corporation (IFC), which is a part of the IBRD group, and the EEC's European Investment Bank (EIB). The OPEC agencies are another source^

For the developing countries, African countries above all, the activities of multilateral lending bodies which extend concessional resources are very important. The International Development Association (IDA), which is a part of the IBRD group, is the leading soft-loan agency. It usually extends credits for a period of 50 years, with a 10-year grace period, at an annual interest rate of 0.75 per cent as a " service charge", plus 0.5 per cent a year on the unused part of the credit. In 1980, IDA credits exceeded $1,500 million, roughly three-quarters of the total going to developing countries with the lowest per head income ($360 a year or less). In 1981, IDA commitments to African countries lying south of the Sahara came to $953.6 million.

But ever since the IDA was instituted in September I960, it has been facing various difficulties. Its formation by the Western countries was a forced concession to the young states, which had demanded the formation of an international credit body for extending financial resources on easy terms.

It took more than a decade of debate at the United Nations and the legislative organs of the leading Western countries to thrash out a decision on the formation of the IDA. The capitalist powers had agreed to that, in particular, in order to counter the DCs' insistent demands for the formation of a Special Economic Development Fund within the UN framework, where the Western countries and the developing states would have equal representation and which could make a tangible contribution to the development of the newly independent nations.

By setting up the IDA as an affiliate of the World Bank, the Western countries, the USA above all, hoped to increase the Bank's influence on the developing states. That influence was beginning to wane, for many developing

states could not afford the Bank's credits in view of the hard financial and other terms, and the actual volume of resources being obtained from the Bank was declining in view of the sharp increase in their debt service payments.

Since the IDA's credits are low-interest and long-term, it cannot apply to the private capital market for fresh funds, and its authorised capital is mostly made up of contributions by industrial capitalist countries.

In 1964, the IDA was already running out of resources, and the problem was where to raise new funds. Since its formation, there have been six fund-raising campaigns, each of which involved much foot-dragging (especially by the USA), which jeopardised the IDA's very existence. During the sixth round, the bitter debates had lasted a whole year before the members finally agreed to contribute $12,000 million to the Association over a period of three years, starting in June 1980. The USA's share in financing the IDA has been shrinking: from 42 per cent at the outset to 31 per cent in the fifth round and 27 per cent in the sixth.

In the EEC, the main body specialising in grants and subsidies is the European Development Fund (EOF). In 1980, its aid exceeded $1,000 million ($900 million of these being subsidies), mostly to African countries.

Over the past decade, OPEC agencies have become a major source of aid. The most important of these is OPEC's Special Fund, set up by its 11 members in early 1976. The Fund's initial capital was $800 million, and later it was doubled. Iran, Saudi Arabia, Venezuela, Kuwait and Nigeria are its leading members. The Fund mostly extends loans for a period of 25 years, including a five-year grace period, with a service charge of 0.5 per cent a year.

OPEC's Special Fund makes loans in support of payments balances and finances various projects. Facing the problem of duplications in the aid efforts of individual OPEC countries and their agencies, and also a shortage of administrative and technical personnel, the OPEC countries have entrusted the Special Fund with the important function of coordinating their aid policies. It seeks to work out a more rational approach to the choice of projects and main lines of aid, methods for assessing the economic advisability of the projects, lending procedures, and the rules for purchasing goods under its credits.

Another organisation offering concessional resources to African countries is the Arab Bank for Economic Development in Africa (ABEDA), instituted in January 1975 with an initial capital of $236 million. The Bank makes 25-year loans with a five-year grace period at 2-6 per cent per annum. The Bank's headquarters are in Khartoum, Sudan. Most of its loans go to finance infrastructural projects in rural areas, primarily with a view to increasing production of farm crops. Most projects are financed jointly with the IBRD or with other Arab funds.

In April 1976, the ABEDA joined the Special Arab Assistance Fund for Africa, founded in January 1972 in financing the African countries' growing expenditures on oil imports. The total capital of these two agencies reaches $812 million, with 30 per cent of the funds being contributed by Saudi Arabia.

In August 1974, 27 Arab and other Moslem countries signed an agreement on the formation of an Islamic Development Bank with its seat in Jidda, Saudi Arabia, and a capital of 750 million ``Islamic'' dinars, or about $900 million. Roughly one-half of the funds allocated by the Bank should go to buy shareholdings in the financed projects, and the other half to make loans. The Bank mostly finances projects together with other capitalist lending agencies.

The Arab Fund for Economic and Social Development (AFESD), operant since 1972, usually finances projects on terms that lie midway between concessional and market: 18-25-year credits with grace periods of three to five years at 4-6 per cent per annum. Egypt, Sudan and Morocco are the main recipients of the Fund's credits.

UN agencies and funds play an important role in assisting developing states, especially in critical situations. Their activities are financed by a wide range of states, including socialist ones. UN assistance is always gratuitous. In 1980, it totalled $2,500 million.

socio-economic factors, which determine the interest shown in each of these by the leading capitalist powers. Roughly one-half of all concessional loans and gratuitous aid goes to countries with the lowest per-head income, narrow markets and fairly undeveloped resources, so that they are of little interest to private investors.

Table 7: Flow of Funds to Various Categories of Recipient Countries (1978)

Per head GNP

Total

under of these

from from

over ($1,000

$400 "least

$400 $1,000

$2,500 million)

devel-

to to

oped"

$1,000 $2,500

Official development assistance (per cent)

Bilateral from DAC countries Multilateral OPEC countries

52.2 73.4 56.0

18.5 25.5 14.8

21.6 19.5 31.3

13.6

5.9

10.0

12.6 1.2 2.8

13.1 5.7 2.5

Other types of funds (per cent)

Bilateral from

DAC countries

5.6

0.6

16.1

60.6

16.6

51.7

Multilateral

21.7

2.2

43.6

33.0

1.7

3.4

OPEC countries

38.1

19.3

29.3

31.3

1.0

1.0

Source: Calculated from Development Co-operation..., 1979 Review,

p. 75

The next major category of aid recipients includes states with a medium-level income (from $400 to $1,000 a year). In countries with higher income levels, official assistance is much less important.

The picture is quite different with regard to "other funds", which are a flow of capital on market or nearmarket terms. The poorest countries cannot make wide use of that type of foreign financing.

Let us consider the flow of Western funds to African states. On the whole, these are among the poorest and economically least developed regions of the world. Most of

Main Categories of Recipient Countries

The developing countries receiving Western aid and other types of financial resources are divided into categories, primarily owing to a combination of political and

them, except a few (mainly oil-producing countries), cannot use foreign capital on market terms to any significant extent. In 1980, developing Africa's share in the total flow of resources from the capitalist countries was 24 per cent, and for aid the figure was 38.6 per cent.

From 1960 to 1981, according to our estimates, African countries received a total of $62,200 million worth of economic and technical assistance from industrial capitalist states only through bilateral channels. In addition, from 1974 to 1981, they received $11,100 million worth of bilateral aid from the OPEC countries. Since these are net figures, that is, minus the annual repayments of principal, whose regional volumes are not published, the gross amounts are even larger.

The main recipients of aid in Africa are fairly developed countries with an adequate capacity to absorb foreign capital and offering relatively more opportunities for efficient, that is, profitable investment of state and subsequently private capital. These countries have large and easily accessible resources of mineral and agricultural raw materials and a relatively capacious domestic market for the products of the donor states. Political considerations are also very important.

In 1981, the countries listed in Table 8 received $3,182 million worth of bilateral aid, or 46.4 per cent of total aid to Africa, and from 1960 to 1980, they received (minus repayments) $30,678 million, or 49.3 per cent of the total aid to Africa.

Of special importance for African countries is aid to the so-called "least developed countries", where GDP per head of population is under $100 a year (in 1968 prices), where manufacturing accounts for less than 10 per cent of the GDP, and where adult literacy is under 20 per cent. Today, 36 developing nations, including 26 African countries, fall within this category. All these countries, whose population makes up 12 per cent of the developing world's total population and about one-third of that of independent African countries, face particular difficulties both in their economic and their social development. Hence their special dependence on foreign aid.

The economic development of Africa's "least developed" countries has been particularly slow. In 1970-1980, their GDP increased on average by 3.1 per cent, or 0.5 per cent

Table 8: Main Recipients of Bilateral ODA from the DAC Countries (net amounts, $ million)

Recipient 1973 1974 1975 1976 1977 1978 1979 1980 1981 Total for

1960-1981

Egypt

1,012

1,187

1,105

,350

Algeria

,723

Tanzania

,331

Zaire

,180

Morocco

,778

Tunisia

,694

Kenya

,304

Senegal

1,828

Cameroon

,554

Ivory Coast 49

,468

Source: Development Co-operation..., 1977 Review.p. 198; Geographical Distribution of Financial Flows to Developing Countries 1978-1981, OECD, Paris, 1982, p. 2.

per head of population, which is far below the average growth rate for Africa as a whole (without the oil-- producing countries): 3.8 per cent. In seven of these countries, including some of the most populous, per head GDP in the 1970s even declined.

Under the Lagos Plan of Action, the African countries set themselves the task of doubling their GDP in the 1980s, and the continent's "least developed" countries are planning to increase their economic development rates to an annual average of 6 per cent.

According to their estimates, this will require large investments amounting to $133,000 million (in 1979 prices). Forty per cent of that sum the African countries are planning to obtain from domestic sources, while the remaining 60 per cent, or $80,000 million,, will have to come from abroad. The possibilities of the "least developed states" to use foreign capital on commercial terms are extremely limited (in 1980, these amounted to $868.5 million, or 20.2 per cent of all foreign funds), so that most of the annually required $8,000 million will have to be obtained from concessional aid.

Wider exports could be most beneficial for the "least developed countries". But here they are also faced with con-

siderable difficulties. According to UNCTAD, from onequarter to one-third of their exports are subject to tariff or non-tariff barriers raised by the industrial capitalist

tries. In the past few years, the African countries have been obliged to resort to such credits on a particularly large scale, and their share in the overall amount of such credits went up from an average of 20.3 per cent in 1969- 1971 to 40.5 per cent in 197t>. As regards their financial terms, private credits are close to state credits, but in actual fact they are much more burdensome for the borrower. When the creditor is also the supplier of goods, he is enabled to raise the price of these goods on the pretext of selling these on credit rather than for cash, so in effect raising the interest rate.

The system of state guarantees operating in the leading capitalist countries can also have extremely adverse consequences for the developing countries. With such a guarantee, the private exporter is in effect not liable for the quality of the equipment he supplies and the efficient work of the projects built with his assistance, for in any case he is bound to get compensation from his own government.

The effectiveness of private export credits for the borrower country is extremely low. In 1966-1969, the net flow of credits came to 30-40 per cent of the gross flow, and in 1982, repayments amounted to almost 72 per cent of the credits obtained. Out of the gross volume of Western export credits to the developing countries ($26,000 million), repayment of principal alone amounted to $18, 700 million.

Then there are also the huge interest payments, whose volume in 1980 (including debt service payments on export credits from DAC governments) amounted to roughly $10,800 million.

In recent years, medium-term bank credits in eurocurrencies have been playing an ever more important role in the flow of financial resources to the DCs. The West European countries accumulated vast credit resources, in particular, as large amounts of US dollars streamed to their banks over a number of years as a result of the USA's chronic balance-of-payments deficit. Since 1973, West European banks have been accumulating considerable amounts in petrodollars.

The industrial capitalist countries are the main borrowers of euro-currency resources, but an ever larger proportion of the credits has been going to the developing coun-

states.

Funds on Market Terms

The proportion of the credits extended to the developing countries on market or near-market terms has been steadily growing. Among these are export credits ( government and private), loans by international banks, and private investments in direct and portfolio form. In 1982, market resources made up 62.6 per cent of the net flow of funds to the developing countries, whereas in 1970 the figure was 57.8 per cent of the total flow. In 1982, the developing countries received $56,600 million worth of such funds as compared with $10,900 million in 1970, that is, the nominal increase was 5.2 times, while concessional funds increased 4.2 times.

Government export credits, and also government loans to the developing countries directly serve the foreign trade interests of the donor countries' monopolies, for these loans and credits are usually tied to deliveries of goods from the donor country.

Apart from that, the capitalist state engages in business activity in the developing countries, buying shares and securities issued by firms and banks operating in the developing countries, notably, in order to raise funds for state business companies, like Britain's Commonwealth Development Corporation or the Kreditanstalt fur Wiederaufbau (KfW) in the FRG. This type of financing has been spreading rapidly since the 1970s. Thus, in 1967- 1969, the capitalist countries' net outlays for these purposes averaged $84.4 million a year, and in 1981 these reached $3,700 million.

The use of private (including export) credits could have even more adverse effects for the developing coun-

1 UNCTAD. Special Measures in Favour of the Least Developed among the Developing Countries. Issues for Consideration by the Intergovernmental Group. Note by the UNCTAD Secretariat, TD/B/AC 17/7, July 10, 1978, p. 11.

6-404

tries. Statistics on deals of that kind are very patchy, being based on officially published data on the agreements signed, which cover roughly one-half of their actual volume.

Net lending to the developing countries (without the oil-exporters) in euro-currencies is estimated to have increased from $4,000 million in 1973 to $20,000 million in 1979 and $22,000 million in 1982. The terms of such lending are very hard. The interest rate is not fixed and is usually adjusted every six months in accordance with the London inter-bank rate (LIBOR) plus an extra charge ; (from 0.5 to 1.5 per cent) depending on the borrower's I creditworthiness. That is why the poorest borrowers, ' including many African countries, receive credits on the hardest terms.

i

The interest rate on euro-currency loans has tended to i grow: from 6.75 per cent in late 1970 to 17.25 per cent i in December 1981. The terms of many deals provide for I a once-off repayment of the whole debt and sometimes ; even allow the lender to recall a loan before it is due. Most ^; African countries cannot resort to loans on such hard i terms. Only Algeria, Nigeria, Morocco and the Ivory Coast f have been able to use these on a relatively large scale, and Liberia, Senegal, Egypt and Gabon, on a smaller scale.

The developing countries' attemps to finance long-term investment through euro-currency loans require constant refunding. The borrower is obliged to apply for new loans every year or even every six months to service the earlier debts. Each time, the interest rate is fixed anew, depending on the outlook on the money market. So, the debtor cannot know in advance what sums he will have to pay out in the immediate future.

Only extreme need and the scarcity of sources of concessional credits oblige many developing countries to resort to currency loans. An attractive aspect of these loans for the developing nations is that they are not tied and are fairly easy to obtain, but the dangers are also considerable: when prices on the world market go down and the borrower country's export earnings are reduced, and also when investments from currency loans fail to yield the expected ; result, debt service payments on these loans become much more difficult.

Private capital in entrepreneurial form remains a major source for increasing the accumulation fund in the Af-

rican countries. Under colonial rule, private foreign investments helped the monopolies to secure key positions in the economy of African countries. Having won political independence, most African countries took the road of eliminating foreign monopoly rule. The early 1970s saw a tide of nationalisations of foreign capitalist property, primarily the biggest companies in the mining industry. From late 1973 through 1974, virtually all foreign enterprises in the field of oil production and transportation in the leading oil-producers (Algeria, Lybia and Nigeria) passed into the hands of the state. In 1975, Mauritania nationalised the property of two big monopolies producing iron and manganese in the country.

In the new conditions, foreign capital has been switching to new methods: setting up joint-stock companies together with the state capital of African host countries, where the foreign investors retain effective control over the activity of the companies; signing long-term contracts for the purchase of raw materials while extending credits to expand their extraction; indirectly financing the mining industry through deposits at local development banks or investment companies, and also through the International Finance Corporation. Traditional methods, like direct and portfolio investments, are also used when there is a favourable "investment climate''.

Table 9: Correlation Between the Flow of Direct Private Investments to the Developing African Countries and Income Outflow, $ million

Average for Average for Average for Average for Total for 1970-1972 1973-1975 1976-1978 1979-1981 1970-1981

Direct private

investments

507.7

765.3

800.0 1,120.3 9,580.0

Outflow

of income

on these

1,477.7

2,010.3

2,535.7

3,951.0 29,924.0

Source: Handbook of International Trade and Development Statistics 1983, United Nations, New York, 1984, pp. 318-319.

A comparison of these two sets of figures shows that African developing countries still have to put up with a large and uncompensated outlow of resources in the form of profits and dividends on foreign investments. The outflow of investment income, which exceeded $29,900 million in 1970-1981, was 3.1 times greater than the flow of direct private investments from abroad for the period.

Chapter three ECONOMIC AID

``Economic aid" is the main type of Western aid to the developing states. It is important because most of the elements of real capital---machinery, equipment, building materials, raw materials, etc.---are delivered to the developing countries within its framework. Economic aid goes to build industrial, transport, power and other projects, so that it is sometimes known as capital assistance. A part of this aid is extended in the form of foreign-exchange contributions to the recipient country's budget.

Most of the economic aid takes the form of "project aid", which goes to build separate, clearly specified economic projects (production and non-production). In 1982, for instance, this category of aid amounted to 53.1 per cent of total bilateral commitments of the DAC countries ( excluding the USA).

The rest is "non-project aid", which consists of various material supplies and transfers of funds not linked to specific aid projects but, rather, meant to help the recipient country meet its general material needs. Thus, some of these deliveries help the recipient to meet certain import requirements which it cannot finance from its own foreign-- exchange resources. They can consist of commodity and raw-material deliveries in kind (like foodstuffs, fuel, manufactures or spare parts) or an extension of credits for buying such commodities and raw materials.

A certain part of non-project aid consists of direct foreignexchange contributions to the budget of the developing country, .which the latter can use to stabilise its balance of payments, to cover its administrative costs and meet current expenses in running economic projects.

The capitalist countries, however, put the main emphasis

on project aid, which suits them primarily because it opens up a ready market for the newly produced manufactures. Project aid also enables them to put pressure on the recipient country for various political purposes. In a work on the efficiency of aid, the well-known US economist Hollis B. Chenery writes: "Since project approval involves a complex of technical and economic judgements, it is quite feasible to increase or decrease aid for political reasons without appearing to do so.''^^1^^

The "project approach" also makes it possible to reduce aid on the pretext that the recipient country cannot suggest a sufficient number of investment projects acceptable to the Western countries.

Since the very nature of the project in this kind of aid is primarily meant to help the aid-giving country expand its commodity exports, large capital-intensive installations with a complete production cycle are the most attractive from the creditor's standpoint. Another major factor is the need to create a "demonstration effect": the project should leave the impression of a tangible and manifest contribution to the host country's economic development without any complicated or in-depth study of its efficiency. Large hydro-- engineering installations, railroads, highways, ports and telecommunications are particularly attractive. This also applies to some irrigation systems, urban water-supply networks, and industrial enterprises. Projects with a lower import content are much less attractive to the creditor.

Agricultural projects, in particular, have a low import content. As a rule, a considerable part of the outlays on these projects goes to maintain a staff of specialists who carry out the agrotechnical measures, with regular expenditures in support of the local farmers. As Kenya's experience shows, the import content of such projects is under 25 per cent, while current expenses make up a considerable part of the total cost. Programmes for the development of education, public health, housing construction, tourism, etc., are also unprofitable from the Western creditor's point of view.

As a result of such an approach to the choice of projects, foreign aid often covers only a very small part of their total

~^^1^^ Developing the Third World, The Experience of the Nineteen-- sixties, edited by Ronald Robinson, Cambridge at the University Press, 1971, p. 217.

construction costs under national development plans. Thus, under Kenya's development plan (1964-1970), such projects accounted for only 30 per cent of the total state expenditures. Meanwhile, local resources could cover only 25 per cent of the planned investments. Hence a substantial shortage of investments.

If, however, certain projects meet the demands of the creditor countries, the latter can even impose their aid, although these projects may be of dubious importance for the host countries themselves.

Aid Mechanism

To ensure the choice of the most profitable aid projects, the donor countries have worked out a special mechanism and appropriate methods. Thus, according to French procedures, the application for economic aid should come from the countries which need it. All of these are invited at one and the same time (once a year) to present the project for which they would like to obtain French credits.

The applications are usually drawn up in accordance with the development plans of the recipient countries, while projects not in elude din these plans are usually rejected by France as "insufficiently worked-up". Considering that the development plans of the former French colonies are still being drawn up with the involvement of French specialists, it goes without saying that the projects included in these plans are on the whole acceptable to France. The complicated additional selection system is intended to bring out the projects that suit France best of all.

French aid missions (MAC) located in the developing countries mark the first stage in the selection of possible projects. After that, the projects are dispatched to France's Ministry of Cooperation, whose experts can reject some of the projects or request changes in these. Projects approved at that stage are submitted for consideration to the Aid and Cooperation Fund (FAC), which is in charge of aid to Africa. At that stage, the Ministry of Finance and other departments could intervene, and some of the remianing projects could be rejected or returned for working-up. So, this procedure spares only those projects which are ``viable'' and sufficiently profitable from the French point of view. Projects

approved by the FAC are to be carried out.

The agreements stipulate the financial outlays on the project and the sum to be disbursed in the first year of its implementation. The agreements also specify what has to be done, so as to ensure that the funds are used in full accord with FAC purposes. It is stipulated that the contracts to be signed under the programme will only include firms of the Franc Area countries, that is, primarily the former metropolitan country itself.

The aid missions follow every stage in the realisation of the project and ensure its strict correspondence to the agreement. It is only upon their favourabel report that the Caisse Centrale de Co-operation Economique (CCCE) remits the necessary amounts to the recipient country's bank.

In the mid-1960s, France went over to a more active aid policy in order to gain tighter control of development processes in Africa. It seeks to ``dovetail'' their national plans as closely as possible with FAC programmes. When a target country begins elaborating its national plan, France's Cooperation Ministry sends over to that country four or five of its own experts, who inform the local government what kind of projects France would agree to finance in the first year of the plan and also in subsequent years (in less definite terms). The recipient country is pressured to alter its development plan in the interests of the creditor country.

The volume of financial resources allocated by France to each African country in principle depends on whether the latter has any projects that meet the demands of the aid institutions. In the past, France used a system of quotas, that is, fixed amounts of aid for each recipient country, but soon gave it up, for such quotas meant certain obligations.

France's Cooperation Ministry naturally draws up a rough estimate of aid for the coming year, country by country. But that is a strictly internal document, which is never published.

In the USA, general aid policies are projected by the Agency for International Development (AID) under the State Department. A major role in elaborating the main lines of aid to individual developing countries and in choosing concrete projects belongs to AID missions in these countries.

These missions have three main functions. The first and most important of these is to maintain steady official and unofficial contacts with representatives of government bodies and business circles in the host countries. The aim here

in official language, is to establish a ``partnership'' between the USA and the aid recipient. The second function is to collect information about the country and work out detailed proposals on the US programme to that country. The third function is to extend technical assistance.

AID missions often put pressure on the local government in order to induce it to adopt an aid programme which, in the USA's view, best meets the recipient country's requirements. The mission's task is facilitated by the fact that AID furnishes both economic and technical assistance and that its activities are closely coordinated with aid programmes through other channels: food aid and the Peace Corps.

. US aid strategy and tactics are usually based on the programme approach. The programming is done on the strength of an annual Country Assistance Program (CAP), a document compiled by the staff of the AID mission in the host country. It formulates the goal of US foreign policy with regard to that country and explains how the Administration's aid effort meets that goal. It also gives a detailed account of the socio-economic situation in the host country and its government's policy. On the basis of such an analysis, conclusions are drawn as regards the direction, volume and nature of US aid.

In the CAP, the USA's current aid activities are grouped under "goal plans", which present measures relating to different sectors of the economy. On the CAP's basis, the mission draws up an application for aid to the host country in the given year, specifying its types and volume, and also the number of additional experts. A summary of all these materials, which shape US aid policy in a particular country on the basis of the CAP, are dispatched to the AID headquarters every April and are known as the Spring Preview. A detailed document containing an analysis of current measures and estimating the requirements for aid appropriations is submitted in the autumn, when the heads of the missions go to Washington to report in person and substantiate their applications. The reviews are summed up by the AID and serve as a point of departure in the protracted annual procedure in which the US Congress drafts and approves the foreign aid bill.

The specifics of West German aid stem from the official standpoint of the FRG government, which maintains that the FRG should not offer its assistance to the developing

states of its own accord. Economic planning, it believes, should also remain a prerogative of the developing countries themselves. While giving priority in its aid to projects closely connected with national development plans, the Federal Government refuses, as a matter of principle, to take part in their elaboration.

The FRG's policy towards the developing countries has several reasons. On the one hand, there is an obvious desire to rebut the charge of neocolonialism or interference in the internal affairs of other states, and an attempt to take advantage of the fact that the FRG has no manifest "spheres of interest". On the other hand, the FRG's links with most developing countries beyond conventional commercial relations and capital export are fairly weak, and it is short of technical specialists well versed in the problems of the developing countries.

The initial request for aid is submitted to the FRG embassy in the requesting country, which looks into it and usually gives its tentative approval before passing it on to the West German Foreign Ministry. The latter directs the request to the appropriate interdepartmental committee, whose task is to elaborate a coordinated aid policy. If the committee approves it, the Federal Government concludes an agreement with the applicant country, stipulating the maximum credit which the Federal Government is prepared to extend and outlining the financed projects and the terms of the credit. Subsequent transactions under the agreement are carried on by the KfW Bank.

The KfW staff studies the economic aspect of the future project, and the techno-economic specifications (TES) of the project are drawn up on its insistence. Additional funds can sometimes be allocated for these purposes by way of technical assistance, but usually these expenses are covered by the recipient country itself.

If the TES meet the demands of the West German side, the KfW sends a mission to the developing country for an indepth study of the question and subsequent negotiations with the local government on the conclusion of a credit

agreement.

Once the credit is extended, the building of the project can be done by West German contractors who tendered for the job or under an individual contract. Nominally, the KfW should exercise constant control over the construction works.

It pays out the necessary amounts either straight to the supplier firm or to the local government as it receives the necessary documents. One flaw of that system is that the supervision is largely done by correspondence, with the KfW demanding regular written reports (usually twice a year), while its own representatives are sent to the construction site only in exceptional cases. Since the KfW has few highly skilled experts on its staff, it has to send over specialists recruited under individual contracts. But such specialists usually have a poor knowledge of the socio-economic specifics of the developing countries and are often unable to correct design mistakes or prevent misuse of resources.

The much-too-close ties of the FRG's aid institutions with German monopoly capital could not go unnoticed by public opinion both in the developing countries and in the FRG itself. The press has been citing instances of unwarranted aid-giving to some countries and the inefficient work of some projects owing to the suppliers' urge to export more of their products and build projects without adequate economic grounds. The Federal Government's frequent refusal to finance projects which the developing countries need, its inflexibility and reluctance to make a positive contribution to their economic development also meet with an unfavourable political response in these countries.

Extension of aid through the International Bank for Reconstruction and Development and the International Development Association should meet a number of conditions. In particular, it has to stimulate foreign private investments. If the potential borrower can obtain a loan "on reasonable terms" on the private capital market, he should not apply to the Bank.

Another major condition is the borrower's "adequate creditworthiness" from the standpoint of the IBRD and IDA. The World Bank extends loans in one of the hard currencies and demands their repayment in the same currency. So, the borrower country's creditworthiness is assessed on the strengh of its reserves of that currency and its overall foreign debt. The Bank attaches much importance to the share of the developing country's debt service payments in its export earnings, and also to the prospects of new foreign investments and aid. Countries with large resources of high-priced exportable raw-materials or with a "demonstrated aptitude

for producing manufactured exports"^^1^^ have the best chance of obtaining loans from the Bank.

The Bank assesses a country's creditworthiness on the strength of its internal accumulations and its government's striving to convert a part of these accumulations into foreign currency, provided that this currency will be used, first and foremost, to repay foreign debts and import only the most vital products. In extending loans, the World Bank gives priority to countries with a higher level of the gross domestic product per head of population, especially where that indicator has shown a steady tendency to increase.

Where all these conditions are met, a country may nevertheless be refused a credit if, in the opinion of the Bank's administration, it has followed an economic policy which can "affect adversely its creditworthiness or its domestic contributions to development".2 The question that arises in such a contingency concerns the nature of the country's economic policy, and any departure from the development patterns advocated by the World Bank could lead to sanctions: refusal or suspension of a loan, or even a demand for advance repayment of a loan.

One of the main aims of periodic IBRD missions being sent to the developing countries is to bring out the main features of the borrower country's economic policy, the "nature of its implementation". In addition to the official materials on various aspects of the potential borrower's economy, the World Bank has arrogated the right to make an independent study of the latter's major social and economic problems. The aim of its economic missions is "to obtain a comprehensive picture of the structure and development prospects of the economy by assessing its agricultural, mineral, industrial, and human resources, its basic facilities, such as transport and electric power, the quality of its public administration and education, its external trade and payments, and its internal finances".^^3^^

On the basis of these data, the Bank's representatives an-

1 Escott Reid, Strengthening the World Bank, The Adlai Stevenson Institute, Chicago, 1973, p. 58.

2 Edward S. Mason, Robert E. Asher, The World Bank since Bretton Woods, The Brookings Institution, Washington, 1973, p. 233.

~^^3^^ Policies and Operations, The World Bank Group, Washington, September, 1974, p. 42.

nounce their opinions on the feasibility and the possible economic efficiency of the recipient country's long-term development plans.

The materials and reports of the World Bank missions enable its administration to formulate conclusions and take decisions on the volume and direction of the lending and to set the priorities in financing concrete projects. So, the Bank's credits are closely tied in with its pre-investment activities.

In deciding whether it is economically advisable to finance a specific project, the Bank follows a three-stage procedure.

The first stage of the analysis is meant to decide whether the branch of the economy in which the investment is to be made is particularly important from the standpoint of the country's overall development, that is, to determine the priority of that sector or line of economic development on a countrywide scale. The World Bank exerts its influence on the economic policy of the applicant state in the course of the work of its missions.

The second stage is meant to decide whether the projected investment will help to develop that branch of the economy, that is, to determine the priority of that particular line of development within the branch. The purpose of the third stage is to find the most effective technical solution of the problem.

The projects for investment are usually indentified in the course of the Bank mission's work in the host country before the signing of an official credit agreement. The missions can introduce changes in the projects prepared by the potential borrower. Where a developing country is itself unable to draw up a well-substantiated proposal on the project of financing, the whole preparatory work can be done by the Bank's experts. Only when the proposed project gets a favourable assessment, the Bank informs the potential borrower of its readiness to start official negotiations concerning a loan. To maintain its prestige, the Bank seeks to iron out beforehand all the contradictions that could arise in the course of official negotiations so as not to be obliged to turn down the country's request for a loan.

But before the negotiations begin, the project goes through three stages. In official IBRD language, these are identifica-

tion, preparation and appraisal of the project (project cycle ).

At the stage of preparation, experts not only assess the technical feasibility of the project, but also suggest organisational and managerial measures, elucidate the commercial and financial aspects of its operation, and even point out ways to change the economic policy of the borrower country.

Nominally, the responsibility for preparing the project lies with the borrower country, but the Bank's own specialists "offer advice" on who could act as consultants in this work. The Bank also requires detailed information on the project, primarily a list of materials and equipment to be purchased under the loan. That condition enables it to influence the nature of the project in the direction it wants.

The third stage of the project cycle is an appraisal of the project's efficiency in two aspects: general economic and financial. The economic analysis is intended to determine the advantages and profitability of the investment in question as compared with alternative projects in the same sector of the economy or even on a countrywide scale. The financial analysis should specify the sources of financing at various stages in the construction and operation of the project, and determine the volume of cash returns as a result of its activity throughout its whole service life. What makes the appraisal period so important is that the Bank takes its final decision to finance the project only if the appraisal (from its point of view) is a positive one.

and circulating capital), and second, the benefits he receives in the form of products. These two flows as such can say very little about the profitability of the project and the investment. The point is to bring out the correlation between the corresponding sums in each successive year throughout the project's entire service life, and also their distribution over that period. In this way, the analyst determines the annual results of the project's operation (in the form of net income or loss), which are then reduced to their present value. If the resultant magnitude is a positive one, this means that a bank deposit equivalent to the investment would yield a smaller profit. In that instance, the project is considered to be economically profitable and is in principle worth carrying out. If it does not meet that criterion, it should be rejected. Such an approach is well in line with the logic of the private investor and the views of bourgeois political economists on capital investments.

The AID, in particular, recommends such a method for assessing the profitability of agricultural projects. The European Development Fund has also been using it in its practice. When this method is used to estimate profitability, the choice of a discount rate is very important, for it has a marked influence on the final result.

In the practice of capitalist credit institutions, the discount rate is usually established on the principle of a " marginal rate of yield", below which, from the standpoint of the private investor, the investment is senseless. That level is determined with a view to the ``price'' of capital on the money market, that is, the interest rate which an industrialist has to pay on a loan from a financial capitalist, or a bank, plus an extra charge for what they regard as "specific conditions" for capital investment in a developing country.

Here is an example to illustrate how profitability can be determined by discounting cash earnings. Supposing a project whose ten-year service period has run out is being sold for demolition at a disposal value of $2,000. The investments in its construction and operation, the value of its output, and the net benefits (that is, the difference between incomes and expenditures) at the end of each of the ten years are shown in Table 10. The disposal value of the project is added to the value of the output produced in the final year. The marginal rate of yield on financial capital is taken to be 10 per cent a year.

Economic Appraisal of Aid-Financed Projects

Commercial profitability is the most important criterion used by the aid institutions of the creditor countries to appraise the advisability of financing this or that project in a developing country. That indicator is usually determined with the help of one of the three following methods:

1 discounting cash earnings;

2 calculation of average rate of yield on the investment;

3 estimation of the recoupment (payback) period of the investment.

The first method is based on a comparison of two flows of funds: first, capital expenditures by the investor (fixed

Table 10: Calculation of Project Profitability, $

Number of years of

Present value of $1 discount-

Value of output

Investment

Net benefit

project's

ed at 10 percent

in current

present

in current

present

in current

present

operation

prices

value

prices

value

prices

value

0.909

3,500

3,182

3,000

2,727

454.5

0.826

3,000

2,478

2,800

2,313

165.2

0.751

3,000

2,253

2,800

2,103

150.2

0.683

3,000

2,049

2,500

1,708

341.5

0.621

2,500

1,552

2,000

1,242

310.5

0.564

2,000

1,128

1,500

282.0

0.513

1,500

1,000

256.5

0.467

1,000

---

---

1,000

467.0

0.424

1,000

-

-

1,000

424.0

0.386

1,000

-

-

3,000

1,158.0

Disposal

value

---

2,000

---

-

-

---

Total

-

-

15,461

-

11,452

-

4,009.4

Source: UNITAR. Manual of External Financing, Ex/15, January, 1970, pp. 108-109.

The profitability figure is obtained by dividing the net benefit (present value) over the project's entire service life by the present value of the investments. In this instance, it makes up 4,009:11,452=0.35 or 35 per cent. This means that the production investment is 35 per cent more profitable than a similar bank deposit at 10 per cent per annum. If the calculations are based on a lower interest rate, the resultant profitability goes up (thus, at an interest rate of 6 per cent, the profitability in this instance goes up to 40.2 per cent), while a higher interest rate on the borrowed capital invested in the project makes the latter less attractive for the investor. So, this method establishes direct links between the ``price'' of capital on the money market and the profitability of the project built with that capital. Theoretically, the interest rate on the loan capital could be pushed so high that profitability would sink to zero. This happens when the lending rate equals the whole rate of profit on the investment, that is, when the investing capitalist has to give away his entire profit in interest payments on the borrowed capital.

But such a hypothetical case lies at the root of the second method of appraising the profitability of a project, known as the "internal rate of return" or "average yield on investment" method. Under that method, the analyst selects a rate of discount at which the net return on the investment equals zero. So, the average yield on investment in a project amounts to that rate of discount.

This method was used, in particular, to appraise the profitability of IBRD investments in the building of a hydroelectric power complex in Ghana with varying capacities of an aluminium plant and differing tariffs on the electric power it was to use. After that, the Bank took part in financing the construction of the Acosombo hydroelectric power station on the river Volta.

Here is a calculation based on the aluminium plant's capacity of 120,000 tons a year and a tariff on 3.5 mills (0.35 cents) per 1 kwh of electric power.^^1^^

The counter-flows were reduced to a single net flow, show-

1 John A. King, Jr., Economic Development Projects and Their Appraisal. Cases and Principles from the Experience of the World Bank, The Economic Development Institute, International Bank for Reconstruction and Development, The John Hopkins Press, Baltimore, 1967, pp. 154-155.

7-404

97

Table 11: Calculation of Average Return on Investment

from the standpoint of the creditor rather than the borrower country. For the latter, it is important not only that the project's "internal rate of return" should exceed the lending rate, but also that the investment should be particularly advisable in economic terms from the standpoint of the country's national interests. That is the weakest point of this and other methods. When a project for investment is being chosen in the conditions of limited resources, use of the "internal rate of return" method could result in far from the best choice. Nor does the "internal rate of return" or "average yield" method answer the question of how the income on investment is distributed in time or, consequently, how long is the recoupment period. It is very important for a weak economy to have the investment fully recouped as soon as possible so as to be able to use the funds for new investments and for repayment of the credit. Nor does this method take into account the distribution in time of the outlays of material resources on the building of the project. Since the outlays and incomes differ from one year to another, the actual profitability of the project can markedly differ from its average profitability.

In many instances, this method of calculation ignores the benefit from larger investments as compared with smaller ones. Thus, when an analyst compares two projects, one of which costs $10 million and yields a return of $12 million in its first year, and the other costs $15 million and yields a return of $17.7 million, he will give preference to the former, because its rate of profit is 20 per cent, while the latter's is only 18 per cent. Meanwhile, in using loan capital at an interest rate of 10 per cent, it pays to invest it in the larger project (naturally, provided its capacities can be fully loaded), for the additional investment of $5 million increases the income by $0.7 million. So, its profitability is 14 per cent, that is, it is higher than the ``price'' of loan capital.

To decide whether capital investments in industrial projects in the DCs make economic sense, analysts often use a third method: estimation of their recoupment, of the payback period, or the number of years it takes to recoup all the outlays in the form of profit (usually minus taxes) and amortisation write-offs. The sum total of profits and amortisation write-offs divided by the advanced capital is called the "capital-output ratio''.

This method also enables foreign investors to determine

7"

99

Years of

Years from

Present

Net cash

Net cash

construc-

basic year

value of

surplus (+)

surplus (+)

tion and

GJE- at

or deficit

or deficit (-),

service

7 per cent

(-) in cur-

present value

life

annual

rent prices

discount

1.000

-418

-418

0.935

-3,237

-3,027

0.873

-10,349

-9,035

0.816

-11,220

-9,156

0.763

-5,074

-3,871

0.713

-4,651

-3,316

0.666

-4,068

-2,709

0.623

-1,620

-1,009

0.582

-1,632

-950

0.544

+304

+ 165

0.508

+ 1,661

+ 844

0.475

+1,942

+922

2015 2016

0.172

0.023 0.021

+6,056

+9,183 +9,183

+ 1,042

+211 + 193

Total

+552

Source: J. A. King, Op cit.

ing the annual volume of cash surpluses or deficits in the construction and operation of the project. After that, the trial-and-error method was used to select an interest rate at which the net surpluses and deficits reduced to the basic year cancelled each other out (or nearly so). Seven per cent a year proved to be such an interest rate (Table 11).

The average rate of return on investment in the project (7 per cent ) turned out to be higher than the World Bank's lending rate (6 per cent) and Ghana's income on its deposits at the Bank of London (5 per cent). On these grounds, the IBRD deemed it worthwhile to finance the buUding of the hydroelectric power plant.

This seemingly simple method of calculation has a number of essential shortcomings. First of all, similarly to other methods used by the industrial capitalist countries, it answers the question about the project's economic efficiency

for how many years they will be in danger of losing their funds through possible nationalisation or measures to limit the activities of foreign capital. For the developing countries, this method can be useful in correcting the indicators obtained with the "average yield" method in order to choose a project with the highest rate of recoupment. At the same time, use of this method alone could lead to serious mistakes, for projects with a longer recoupment period often have a much longer period of profitable service and ultimately make a more tangible contribution to the economy.

There is also some risk in using this method when introducing new types of products or technology, for at first this process often entails losses, although smoothly running and highly profitable production could subsequently yield a long-term economic benefit.

All of this raises the fundamentally important problem of criteria for assessing the economic efficiency of investment projects and the specifics of these criteria in the conditions of the developing countries. Assessment of the project's efficiency usually goes far beyond a purely technical appraisal and often touches upon the basic principles of the developing countries' industrial strategy, i. e., it is largely political. It is only natural that in aid programmes based on market terms like those of the IBRD group, the sharpest contradictions between the creditor and the recipient government arise at that stage of the project cycle.

The method used by the IBRD group to appraise the economic efficiency of its investments has been adjusted over the years, but its substance has remained the same: "cost benefit" analysis. As it is declared in one of the Bank's official publications, "the Bank will not finance a project unless it can be demonstrated that the project represents a high-priority use of a country's resources" and that from the viewpoint of the whole economy its benefits are " sufficiently greater than project costs".^^1^^

The economic performance of the project, especially in the state sector of the economy, is in great measure determined by the principles of the country's socio-economic policy. In most developing countries, the state sector has the function of redistributing the national income: in some

instances, largely in favour of the local bourgeoisie and foreign capital (in countries following the capitalist road) and in others, in favour of the working masses (in socialistoriented countries). Public enterprises are usually built in branches with a high capital-intensity, slow turnover, and hence a relatively low rate of profit (the economic and social infrastructure). In its initial period, the IBRD agreed to finance infrastructural projects in the developing countries with a relatively low rate of return (the latter was considered adequate if it was higher than the low interest rate at which state institutions in these countries obtained loans from local banks).

In the 1950s, the Bank considerably toughened its demands on the borrower countries in selecting projects it could finance. To ensure a higher rate of return, it agreed to extend loans on condition that the recipient would raise the consumer charge for the goods or services to be provided by the new project. Having started out with the power industry, the Bank gradually extended these demands to port installations, telecommunications and railroads. Today, it wants the host governments to levy a road-user duty and increase consumer payments for water-supply in the cities and for the use of irrigation facilities. Thus, the Bank opposed the introduction of differentiated tariffs on the use of electric power for the population and industrial enterprises. As a result, the Bank's policy has often met with resistance on the part of developing countries, for it implies open interference in their internal, affairs, including their social policy.

The techniques used in calculating the ``genuine'' rate of return on capital (its ``price''), which could be used to assess the rate of return on the financed project in the conditions of a particular borrower country, are being gradually complexified. It was declared that the official interest rate in many developing countries had been deliberately marked down and did not reflect the ``genuine'' rate of return. So, the difficulty was to determine that ``price''. If one takes the average rate of return on investments, it differs markedly from one branch of the economy to another, especially if one compares private and state-owned enterprises, while an official average for the whole economy is hardly ever calculated.

Eventually, the IBRD thrashed out the following method.

Policies and Operations, p. 48.

At first, analysts calculate the "average rate of return" on the investment in question. If it equals or exceeds 14 per cent, no additional proof is needed to justify investment in it. If the average rate of return is below 14 per cent, it is compared with the average rate of return (the ``price'') of capital on the scale of the whole country, which is assumed to be 10 per cent. If the former exceeds the latter, the investment is declared to be justified, and if it does not, the investment calls for a "special rationale''.

A new line used by the Bank to appraise the economic efficiency of projects is a transition from calculations based on internal market prices to accounting (or ``shadow'') prices. Such an approach is based on the proposition advanced by some bourgeois economists that internal prices in many developing countries are influenced by a number of ``artificial'' state-regulation measures and so cannot be a true yardstick for assessing the "social importance" of the elements of production but have to be corrected. These measures include, for instance, customs duties and internal taxes on imported goods, as a result of which the internal prices of the elements of production and the finished products of national enterprises are usually higher than international prices. In effect, such an approach disputes the developing countries' right to follow a purposeful socioeconomic development policy and demands its total subordination to the sway of the international capitalist market.

This approach could lead to a wide gap between the efficiency indicators calculated on the basis of internal and shadow prices. The Bank's decision on whether to finance a project is usually based on indicators calculated on the strength of the latter. A point to emphasise here is that the comparison between the two sets of indicators applies to projects with Western-type technology, elaborated in the industrial capitalist countries and reflecting the value correlations between the elements of labour and capital typical of these countries. The IBRD and other Western aid institutions hardly ever elaborate projects whose technology is tailored to the realities of the DCs, where means of production are expensive and in short supply, while labour is cheap and abundant. Since preference is given to calculations based on shadow prices, projects with capital-intensive, labour-saving technology have better indicators. The latter are built at a higher cost for the DCs and clash with their social policy

aimed at increasing employment to the utmost.

In recent years, the IBRD and IDA have been financing projects that do not yield a profit (roads, programmes in the fields of education, public health, family planning, etc.). In these instances, the financial analyst looks at the income of the corresponding government department or institution (say, the ministry of education or road department). If the Bank is not satisfied with the state of affairs in that department or institution, it demands the introduction of roaduser charges, additional taxes on petrol, or even a review of the government's entire taxation policy. In its interference in the borrower country's internal affairs, the IBRD can sometimes go so far as to demand financial autonomy for the corresponding department, that is, its separation from the other sources of state revenue, and subsequently administrative autonomy as well. In some instances, these demands have cut across the principles of the borrower country and, having been met, entailed highly adverse consequences.

Control by the IBRD over the implementation of the project completes the project cycle. Under the terms of the Bank's loan or IDA credit, these institutions are usually entitled to control the delivery not only of the project's import components, but also of local goods bought with national currency. Hence, the creditor primarily seeks to make sure that the sources of the purchases correspond to the results of the bidding, and the specifications of the delivered goods to the technical specifications of the project. But the main area of control is supervision over the building of the project. It is not so difficult to follow the course of the work as to settle unforeseen complications, make the necessary changes in the course of construction, and assess their influence on the ultimate cost of the project. That is done by special missions being sent by the IBRD to the host country at regular intervals to draw up reports on the course of the work.

The control is not over once the project is started. The lending agreements usually include the Bank's `` recommendations'' on how to run the project. This means that the borrower pledges to carry out a number of measures in order to ensure that the rate of yield does not fall below the stipulated level, not to incur any additional debts, and so

on.

Once the construction is over, the Bank seeks to establish long-term relations (for a period of 15-20 years) with the borrowing country. With this aim in view, it can extend additional loans for adjusting the project's design or expanding its capacity. While the loan is being repaid, the Bank is entitled to send monitoring missions to the host country. This enables the Bank to be well informed about the state of affairs in the borrower country and, if the need should arise, to introduce ``leverage'' in order to influence its policy. At the same time, the Bank keeps stressing that it does not bear any direct responsibility for the quality of the management or the project's economic performance, limiting its role to consultations and recommendations in choosing candidates for top managerial posts. All the operational losses are sustained by the borrower country itself. It has happened that managers recommended by the Bank turned out to be incompetent, while the borrower country could not dismiss them for fear of harming its relations with the Bank.

The IBRD has been widely advertising its so-called policy of minimising project costs. For this reason, components necessary for the construction and equipment of the financed project are being bought at the lowest possible price. This is being done through a system of international bidding. On the other hand, the Bank wants all its members to have a "fair chance" to supply goods and services through international competition. But from the standpoint of each capitalist state, it is only fair that orders for the products of its monopolies should at least equal that state's contribution to the Bank's capital. That is why from the very beginning the IBRD has had to cope with a contradiction between the interests of US capital, which is its leading contributor but is not always competitive enough on the markets of many DCs, and the interests of the capital of other industrial capitalist countries. Apart from that, some capitalist countries (the former colonial powers in particular) made wide use of diverse instruments of trade policy in their relations with the DCs: preferential tariffs, subsidies, and quotas. They also used these instruments in the struggle for commodity supplies under the Bank's loans.

In the 1950s, an IBRD working group initiated by some member countries, the USA above all, attempted to elaborate a policy with regard to the various systems of trade pre104

ferences, primarily to the system operating within the Commonwealth. The group came to the conclusion that the USA itself practised such preference. The Bank decided that it should not interfere in these matters at all. Such a state of affairs continued until the early 1960s, when some developing countries became serious suppliers of some types of equipment for the projects being built with IBRD loans on their territories. The production of such equipment in these countries usually developed with the support of diverse protectionist measures, limiting the access of Western countries to the national markets. The Bank was ``concerned'' over these "breaches of the principle of free competition''.

In 1962, the Bank demanded that the price of goods supplied in the recipient country under IBRD credits should be no more than 15 per cent higher than the lowest price offered by foreign bidders. For the young industry of most developing countries, many of which are IBRD members as well, such a customs barrier is clearly insufficient, while refusal to accept it in effect means their exclusion from the system of IBRD financing. That is why these countries have been urging the Bank to allow a higher protective barrier, but the response of the industrialised capitalist countries has so far been negative.

In some instances, the principle of international bidding is not used at all, as, for instance, when an existing enterprise is being expanded or when a similar one is being built. Use of new types of equipment can make it more difficult to operate and repair the enterprise and to supply it with spare parts, so pushing up costs. When a country has a network of service and repair stations for certain types of equipment, this also enables the Bank not to resort to international bidding and give preference to the traditional supplier.

As it was already pointed out, the IBRD mostly finances projects with an economic or social importance of their own. But as the number of borrower countries with a particularly low economic level has increased, the Bank has come to face considerable difficulties in financing only the import components of the project. Such countries cannot supply the project with local components (production materials and consumer goods for those taking part in the construction). If a country wants to develop these lines of production, it is also obliged to use imported materials (thus, to

produce reinforced-concrete from local cement, it has to import the necessary machinery and reinforcement), something that calls for new borrowings and increases the country's debt. The effective operation of projects that have already been started also frequently calls for regular deliveries of imported raw and other materials, fuel, spare parts, etc.

So, the IBRD came to face, on the one hand, the problem of financing expenses in local currency, and on the other, the need for a broader approach to financing, notably, for a switch from ``project'' to ``programme'' loans. The latter are meant to help a developing country carry out a definite development programme, including not only the construction of certain projects, but also general measures to improve the economic situation in the country: improve the balance of payments, increase the supply of food and consumer goods to the population, strengthen the state budget, and so on. The IBRD Rules say that programme loans can be extended only in exceptional circumstances, and the IDA Rules, in special cases.

In the late 1960s, the IBRD somewhat expanded its financing of the local component, but hedged the corresponding credits with various conditions. One of these is that the recipient countries should follow ``appropriate'' development and taxation policies and demonstrate the necessary conditions for development, and another, that they should prove that the required funds cannot be obtained from internal sources or from other foreign sources, private or government.

Chapter Four FOOD AND AGRICULTURAL AID

The Food Problem in the Developing Countries

In recent years, the food problem in many developing countries, especially in Africa, has been aggravated to an extreme. The tragedy of the Sahel region in Africa, the unprecedented drought, which lasted almost without abatement from 1966 to 1975, led to the death of hundreds of thousands of people and millions of head of cattle. It revealed the adverse tendencies in the development of agriculture in the newly independent states, which had for a long time virtually escaped the notice of world opinion.

One of the reasons behind the slow development of agriculture in the DCs is that their national plans did not devote enough attention to expanding food production. The Tanzanian economist Pontian B. Rweyemamu writes: "In many African countries, the policy is to give production for sale precedence over production for consumption. That is a carry-over from the colonial era, when the emphasis was on agricultural production which met the needs of the metropolis." 1

Over the past few years, increases in procurement prices, fiscal measures, supply of fertilisers and the necessary implements have stimulated, for instance, in many African countries the production of major export crops like sisal, coffee, cacao-beans, tea, pyrethrum, cotton and tobacco to the detriment of maize, legumes, wheat and other crops for local consumption. Such a policy has been encouraged by the ruling circles of the developed capitalist countries, for it is in line with their notions about the development of the international division of labour, which confines the devel-

~^^1^^ Business Weekly, Accra, Vol. 11, No. 8, August 9-15, 1976, p.2.

oping countries to the role of agrarian and raw-material appendages of the capitalist economy, producers of tropical crops. That is why the emphasis in aid to the developing countries has been on means of production for expanding large export-oriented plantations. As for the local food shortages, the industrial capitalist countries suggest that these should be made good primarily through commercial imports and partly aid. Western food aid has always been fairly small, and in recent years it has amounted to no more than 8 per cent of total bilateral aid to the developing countries and about 15 per cent of aid by international lending institutions and UN agencies.

That policy of the developed capitalist states, exacerbated by the complicated problems facing the DCs in their socio-economic development, has resulted not only in a constant threat of hunger, but also in various adverse social consequences: a growing gap between urban and rural incomes and living standards, no hope for improvement in rural areas, rapid urbanisation, deepening of social problems in the cities, and so on.

Most developed capitalist states have followed a policy of vigorous agrarian protectionism, spending large funds to keep up the prices of their farm produce. Meanwhile, a part of that could be produced in the DCs at a lower cost. This also applies to the manufacture of agricultural producer goods: farm machinery and fertilisers. The outlays on research into the problems of agricultural development in the DCs are insignificant.

The food problem in some countries has taken a particularly sharp turn in view of a marked increase in local demand. Demand in general depends on two main factors: population growth and an increase in cash income. From 1971 to 1980, the total population of the DCs increased on average by 2.2 per cent a year, which is twice as fast as before the Second World War.

Demand is also affected by the income level in various social groups. In the least developed countries, the " income elasticity" of demand for food can be as high as 0.5-0.7, i.e., a 1 per cent rise in per head incomes leads to a 0.5-0.7 per cent rise in per head demand for food.^^1^^ In

~^^1^^ Hal Mettrick, Food Aid and Britain, The Overseas Development Institute Ltd., London, 1969, p. 14.

analysing the tendencies in the demand for food, one should pay particular attention to changes in the social structure, notably, the growth of the urban population, whose rate in almost all the DCs has been much higher than the growth rate of the whole population.

In many DCs, especially in Africa, a large percentage of those who move to the cities cannot find employment and live from hand to mouth, doing odd jobs or being supported by more lucky relatives or fellow-tribesmen. Their food consumption in absolute terms can be lower than it used to be in the countryside, but, having escaped from the natural economy, every new urban dweller increases the demand for food and, most important of all, for marketable farm produce.

A section of the new urban dwellers find regular employment and their incomes (primarily cash incomes) are to some extent higher than those of rural inhabitants. As their incomes increase, they gradually go over from traditional foods to cereals, to higher-quality and more expensive foods and, most significantly, to imported foods.

Hence the considerable shortage of the main food crops (wheat above all), which the DCs have been obliged to import from abroad. Thus, from 1960 to 1980, cereal imports by African countries increased from 3.7 million tons to 21.0 million tons, or 5.6 times. But owing to the increase in cereal prices, especially in the 1970s, their outlays on cereal imports multiplied 16.6 times.^^1^^

If these adverse tendencies in the production and consumption of food crops in African countries will continue throughout the 1980s, then, according to available estimates, by 1990 their import requirements will have shown a further threefold increase.

Food Aid

In view of the adverse tendencies in agricultural production and the grave food situation in most African DCs, they attach considerable importance to foreign aid in developing the productive forces in agriculture. That is why 'the aid they receive for these purposes should be

~^^1^^ Trade Yearbook, Vol. 35, FAO, Rome, 1981.

assessed primarily from the standpoint of its influence on the productive forces in agriculture, which determine both the food situation in the country and the living standards of the masses.

Over the past 25 years, the aid given by the industrialised capitalist states to improve food supplies in the DCs has been extended in two forms: first, food deliveries (usually in kind) mostly for supplying the urban population and also some categories of the rural population, and second, investment credits for the development of both agricultural production as such and allied branches, and also technical assistance. The balance between these two forms of aid has been changing over the years. On the one hand, it is influenced by the state of agricultural production and the food situation in the DCs at each particular moment. On the other, it is influenced by the internal situation in the developed capitalist countries themselves, primarily by the state of the agrarian crisis in the USA, the leading food supplier to the developing countries. Changes in the demand for food in other capitalist food-importing countries also have an effect.

The OECD Observer wrote: "It should ... be borne in mind that the market mechanism---in which the developing countries are residual---exposes them to the side-effects of action by more powerful countries or groups of countries. It has been seen in the last few years---and again quite recently---how the industrialised countries' grain purchases can cause very big rises in short- and medium-term prices, and can place the developing countries in a very difficult position.''^^1^^ When cereals on the world market were in short supply and prices went up, as in 1972-1975, the industrial capitalist states sharply reduced their food aid to the developing countries.

But a more typical state for the capitalist economy is a protracted agrarian crisis of overproduction, when the cereal-producing countries (the USA above all) seek to maintain domestic prices at a sufficiently high level and to sell their grain ``surpluses'' on the external market. Such was the situation in the developed capitalist countries throughout the period from 1954 to 1972, and in the past few years.

1 The OECD Observer, Paris, No. 81, May-June 1976, p. 7.

At the same time, as the food requirements of many developing countries have been steadily growing, food aid is increasingly being used as a major instrument of Western policy. That tendency is particularly pronounced in the USA, which seeks to use its food aid in particular as a counterweight to the OPEC countries' growing influence in the DCs. Here is an indicative statement by the US magazine Business Week: ". . . In a world of hunger and overpopulation, the US can apply its tremendous agricultural capacity as a lever on foreign countries to adopt policies beneficial to this nation.''~^^1^^

The USA launched its food-aid programme in 1954, when the need to get rid of the grain ``surpluses'' became particularly insistent, for the agrarian crisis in the USA had again taken a sharp turn and the rapid stockpiling of unmarketable grain could lead to a drop in prices on the world market. That was when the USA adopted its Agricultural Trade Development and Assistance Act, widely known as Public Law 480, so formalising its deliveries of a substantial part of the food ``surpluses'' to countries with food shortages.

For a few years, the USA was virtually the sole supplier of foodstuffs to the developing countries. In the mid1960s, it was joined by Canada, and since the late 1960s, by some West European countries as well (like France and the FRG) and international agencies. The USA's share has declined accordingly.

The policy of capitalist countries in extending food aid is determined by several contradictory circumstances. On the one hand, it depends on food-crop yields and carry-over stocks in the producer countries, on their striving to maintain domestic prices at a fairly high level. Hence the urge to market the ``surpluses'' outside the country. On the other hand, food aid should not compete with commercial sales or substitute for the recipient countries' usual imports. That is why each donor country seeks to confine its concessional food deliveries to the necessary minimum. The political aspect is also very important. Food supplies, especially in an emergency, can not only meet the requirements of those who need it most (like refugees), but can also help to stabilise the

1 Business Week, New York, No. 2411, December 15, 1975, p. 54.

Table 12: Food Aid

to the DCs

Donor country

$mn

per cent

$mn

per cent

$mn

per cent

USA Canada

1,221

95.6 3.7

1,213 88

913 6.6

907 60

76.9 5.1

EEC countries

0.3

0.4

7.5

Japan Other countries

0.4

1 21

0.1 1.6

60 64

5.1 5.4

$ mn

per cent

$mn

per cent

$mn

per cent

$mn

per cent

76.6

1,216

58.5

1,083

53.6

1,262

42.9

6.9

12.7

11.1

5.6

10.1

19.9

27.4

32.6

2.8

0.7

1.1

11.8

3.6

8.2

6.8

7.1

Total

1,277 100.0 1,329 100.0 1,179 100.0

Source: Development Co-operation..., 1974 Review, p. 88; 1976

recipient country's regime in accordance with the interests of the capitalist donor country. For that reason, capitalist countries which themselves import food, like Britain or Japan, may also extend food aid to the DCs.

In 1963-1972, the capitalist countries' allocations on food aid under both bilateral agreements and through contributions in cash or kind to various international agencies on average amounted to $1,300 million a year; from 1975 on, they had exceeded $2,000 million, and in 1981, almost reached $3,000 million (Table 12). As a rule, food aid is extended in kind.

In spite of the growth of agricultural production in the industrialised capitalist states and the DCs' growing food requirements, the physical volume of food aid from 1964 to 1974 gradually declined. In 1972, wheat production on the scale of the whole capitalist world went down for the first time after the Second World War. That was followed by crop failures in a number of African and Asian countries, which resulted in a further shortfall of food crops and a considerable increase in the need for imported food. The world market responded by rapid price rises. From 1972 to January 1974, the prices of such staples as wheat and rice more than trebled. At the same time, cereal reserves in the USA and Canada were sharply reduced. For the first time in many years, the United States was not faced with the need to prop up domestic procurement prices, for export prices were just as high.

At that time, the DCs were very much in need of .food

1,276 100.0 2,079 100.0 2,020 100.0 2,938 100.0 Review,pp. 148-149; 1979 Review,p. 226; 1982 Review,p. 206.

aid, but the high cereal prices on the world market led to a drastic cutback in cereal deliveries by way of aid. Its physical volume was almost down to one-third as compared with 1964, hitting the lowest point since 1955. Here are some figures on the shipments of food aid in cereals from 1964 to 1982 (million tons):^^1^^

1964 1966 1969 1971 1972 1973 1974

16.0 14.0 13.0 12.8 12.6 10.1 5.7

1975 1976 1977 1978 1979 1980 1981 1982

8.4 6.9 9.1 9.2 9.5 9.0 8.4 8.8

The World Food Conference held in 1974 called on the developed capitalist countries to give at least 10 million tons of food aid a year starting from 1975. This target, however, has yet to be reached. Although the volume of food aid subsequently increased, it is still well below the average figure for the mid-1960s.

The poorest DCs are in a particularly grave situation. Their requirements for imported cereals in 1981 were

~^^1^^ The State of Food and Agriculture 1979, FAO, Rome, 1980, p. 1-27; The State of Food and Agriculture 1981, 1982, p. 29.

estimated at 42 million tons. Only 20 per cent of these requirements were covered by food aid, while the rest they had to buy on market terms, in spite of their extremely grave financial situation. 1

Massive food deliveries on credit, emergency relief deliveries, and goal (or project) deliveries are the main types of food aid. The first type is most widespread. Up to 1972, the terms of US food aid enabled the recipients to pay for the deliveries in local currency, which led to an accumulation on US accounts of so-called equivalent funds. A part of these could be used for the recipient country's development, and the rest went to meet US expenses in that country. Since 1972, US credits for food aid are repayable only in dollars or some other hard currency over a period of 20-40 years and at 3 per cent per annum.

Emergency relief supplies are usually free. Bearing in mind the political importance of this type of aid, the USA, for instance, has been extending about half of its free food aid in such a form. It also accounts for more than onehalf of the EEC countries' food aid commitments.

Project food aid, in contrast to massive shipments, has a definite purpose. In some instances, it can be used to finance the local currency share of the outlays on a definite project. Sometimes, food is used as payment (in part or in full) for the labour of workers employed on mass and labour-intensive projects (road-building, development of new soil, afforestation, and so on). It can also take the form of assistance to definite groups of people who need additional food: pregnant women, young mothers, schoolchildren, the sick, the aged or the disabled, the poorest categories of the urban or rural population.

Food supplies exert a diverse and contradictory influence on the economy of the recipient countries. Their impact goes well beyond a simple increase in the supply of foodstuffs used for personal consumption, but is connected with the recipient country's economic development as a whole, with the problems of local agriculture, the social processes in town and country, finances and money circulation, foreign trade and accumulation.

The most direct and obvious impact of food aid is that it increases the volume of use values in the coun-

1 The State of Food and Agriculture 1980, 1981, pp. 25, 27.

try and so makes it possible to increase consumption for a definite category of the population. Food aid is particularly important where a country is hit by some natural disaster: drought, flood, earthquake, and so on, and also in case of social upheavals like wars and border conflicts, as a result of which thousands of people are left without food or shelter. In such instances, the importance of food aid depends not only on its volume, but largely on its speedy delivery to the affected areas and its rational distribution. Such aid is more or less short-term and is no longer necessary once the consequences of the natural disaster are eliminated.

But only a relatively small percentage of the capitalist countries' food deliveries is meant for these purposes. Thus, such aid made up only about 16 per cent of total US deliveries under Public Law 480 in the period from 1954 to 1975: $5,400 million out of $33,100 million. 1

One should bear in mind that most of the food aid is far from free for the people who need it. Foodstuffs received as aid are usually sold on the domestic market rather than distributed among the population free of charge. Given a certain level of domestic prices in the recipient country, food consumption depends on the purchasing capacity of each group of the population.

One essential question is how food aid influences the development of the recipient country's productive forces. Do the food shipments help to solve the food problem over the long term or merely postpone the threat of hunger for some time? Do they promote economic development which will enable the country to forego such aid or make the country dependent on it for a long time to come? Public opinion in the DCs is naturally concerned over such questions.

Regular receipts of food aid could induce the recipient country to cut back its investments in the development of its own agriculture and redistribute its national resources in favour of other branches of the economy. That is a dangerous road. The Indian researchers N. Rath and V.S. Patvardhan point out that since US wheat has been easily available under Public Law 480, the Indian authorities

~^^1^^ C. Stevens, Food Aid and the Developing World, Groom Helm, London, 1979, pp. 28-29.

have not followed a vigorous enough policy on wheat production.^^1^^ That way tends to increase the country's dependence on foreign deliveries of such important commodities as foodstuffs.

If food aid could substitute for the recipient country's usual commercial imports, this could help to develop the productive forces, for the foreign exchange so saved could be used to import, say, capital equipment and so help to increase investments in the country. But in practice this hardly ever happens. US legislation, for instance, specially stipulates that a developing country has the right to receive food aid only once it has imported a fixed minimum of foodstuffs on conventional market terms.

The DCs are badly in need of stability in food prices on the world market. But under the capitalist economic system such stability is impossible. Projection of food deliveries for a few years ahead could to some extent guarantee the recipients against losses resulting from price fluctuations. It was proposed that the donor countries should project, at least approximately, the volume of their food aid for three years ahead. But that proposal was accepted only by Canada, the EEC countries and Sweden. The Seventh Special Session of the UN General Assembly proposed the formation of a standing cereal fund (0.5 million tons) on the basis of voluntary contributions by its member countries in cash or kind. The fund was set up in 1976, but since the leading cereal suppliers were slow to make their contributions, it was only in 1981 that the fund began full-scale operations.

in the eyes of public opinion in the developing countries.

In these conditions, the Western countries could no longer ignore the DCs' demands for assistance in the development of a sector of the economy which employs the bulk of their population. The nominal amount of aid commitments to the development of agriculture has been growing (Table 13).

These changes in the Western countries' approach to agricultural problems in the DCs are also due to purely economic considerations: the need to ensure a market for the products of their own industrial firms. The World Food Conference in 1974 estimated that by 1985 the shortfall in cereals in the DCs could reach 85 million tons, compelling the latter to increase their outlays on food imports. Western industrial corporations were concerned that such large outlays on food purchases could make it much more difficult for the DCs to buy their products.

Table 13: Credit Commitments by Capitalist Countries and International Financial Institutions to the Development of Agriculture in the DCs (^million)*

Commitments 1973 1974 1975 1976 1977 1978 1979 1980

``Official development assistance" credits .1,725 2,8693,2583,425 4,566 5,839 7,144 7,663 Credits on market terms .... 595 1,3392,2231,774 2,576 3,187 2,917 3,357 Total

in current

prices . . .2,320 4,208 5,481 5,199 7,142 9,02610,06111,020

in 1975

prices . . .3,178 4,728 5,481 5,199 6,551 7,221 7,036 6,975

Source: The State of Food and Agriculture 1981, p. 23.

* The commitments relate to the development of agriculture in the ``broad'' sense of the word, which includes, apart from direct assistance to expanding the production of various crops and livestock breeding (``narrow'' definition), credits for local transport construction, the processing industry, and some other related branches.

Assistance to Agricultural Development

Assistance to the development of the productive forces in the DCs' agriculture (except plantation-type) has never been prominent in capitalist aid programmes. But the sharp worsening of the food situation in the DCs since the early 1970s and especially the tragedy of the Sahels induced the creditor countries to pay more attention to this problem so as not to discredit themselves altogether

1 N. Rath, V. S. Patvardhan, Impact of Assistance Under PL 480 on Indian Economy, Gakhale Inst., Bomhay, 1967, p. 63.

From 1973 to 1980, the developed capitalist countries and international lending institutions increased their

aid commitments to agriculture more than 4.7 times, from $2,300 million to $11,000 million. But a substantial part of the increase ($2,800 million) came from lending on near-market terms. Such loans can be mostly used by those developing countries whose financial position is relatively favourable. Thus, the list of the chief beneficiaries of aid for agricultural equipment in 1973 and

1974 was headed by India, Mexico, Indonesia and Malaysia.^^1^^

In the 1974/75 agricultural year, the group of 29 poorest countries with per head GNP below $150, which account for over 45 per cent of the developing world's population, received capital commitments for agriculture of only $1.30 per head as compared with $2.50 for the group of countries with per head GNP between $150 and $300, and $2.75 for other countries.2

The nominal figures in Table 13 are markedly depreciated by inflation: from 1973 to 1980, commitments in constant prices increased only 2.2 times. To get an idea of how these figures relate to the DCs' need for external assistance to agriculture, one should bear in mind that, even under the ``narrow'' definition of agriculture, in 1980 they required, according to FAO and some other international agencies, $8,300 million (in

1975 prices), while the commitments by industrial capitalist countries and international lending institutions were roughly $4,900 million, or less than 59 per cent of the required total. The FAO has estimated that by 1990 the DCs' requirements for external credits will have increased 2.2-2.5 times, to $11,000-12,500 million. By the year 2000 they will have gone up to $15,000-18,000 million. Moreover, these estimates were made on the optimistic assumption that by that time the DCs will be able to finance from 75 to 80 per cent of their capital and current expenditures in agriculture from their own resources.^^3^^

A real solution of the food problem in the DCs can be attained only through faster progress in every field of agriculture: crop growing, livestock breeding and fish-

~^^1^^ The OECD Observer, No. 81, May-June 1976, p. 20

2 Monthly Bulletin of Agricultural Economics and Statistics Rome Vol. 26, No. 7/8, July-August 1977, p. 23.

~^^3^^ Agriculture: Toward 2000, FAO, Rome, 1981, p. 117.

ery. These fields should also be crucial in foreign assistance to the DCs' agriculture.

Table 14: Distribution by Purpose

of Official Commitments to Agriculture in the DCs by Capitalist States and International Financial Institutions, per cent

Land and water development

Supply of inputs

Research, extension, training

---

Agricultural services

Crop production

Livestock

Fishery

Forestry

Manufacturing of inputs*

Agro-industries

Rural development infrastructure

Regional development

_

Other branches

Total

Source: The State of Food and Agriculture 1981, p. 176, * Mostly fertilisers.

Table 14 shows that the emphasis in assistance to agriculture is to a considerable extent on agro-industrial projects serving the interests of big capitalist export firms. Financing of projects in the infrastructure, transport, forestry, land and water development, mostly promotes the export branches of agriculture. The main benefits from the development of these branches go to the big landowners operating on capitalist principle. The value of their estates markedly increases with an improvement of the infrastructure, the routes for delivering their produce to the domestic and external market. At the same time, the landless or land-hungry peasants living in the conditions of a natural economy benefit very little from such improvements. The poorest groups of the population are most in need of lines of development with a relatively low capital-intensity, but efficient from the standpoint of a rapid increase in agricultural production: an improvement of storage facilities for crop-farming and livestock produce, an increase in the

supply of fertilisers, etc. Much could be done to enrich the diet of the African population with animal proteins by larger appropriations for fishery.

Most of the outlays on aid to agriculture go into capital projects and technical assistance. The aid funds are usually invested in separate projects which are recouped fairly rapidly but are isolated from the socio-economic environment and so do not promote the allround development of agriculture in the locality. The creditor countries admit the shortcomings of that approach and pay lip-service to the advantages of integrated development projects embracing such diverse spheres as the infrastructure, education, public health, credits, and the processing and marketing of farm produce. In practice, however, such projects are still at the experimental stage.

In carrying out integrated projects, all the creditors should coordinate their efforts and provide for the necessary material and technical supplies, research, technical assistance and food aid.

The building of pilot projects and model farms is a widespread type of aid. Such projects are designed for ideal socio-economic conditions, which do not reflect local specifics and difficulties, while the DCs are more in need of projects which can operate efficiently in each country's actual conditions.

Many projects being offered under aid programmes envisage the use of expensive farming equipment and complicated farming practices, and so mostly benefit a small and fairly prosperous section of the peasants, rather than the mass of small and tiny farms.

The record shows that use of the latest agrotechnical achievements in Africa and other tropical countries can yield a rapid economic effect. The possibility of obtaining several harvests a year, use of high-yielding varieties, fertilisers and pesticides can sharply boost the level of agricultural production. But this requires, apart from definite capital investments, serious organisational measures. Thus, the use of high-yielding cereals can be efficient only with due irrigation or other measures to retain soil moisture. Seed and fertilisers should be available at the appropriate time and in sufficient amounts, which requires due storage, transportation and distribution.

To be able to use modern means of production and

farming practices, the producer should have a certain minimum of knowledge. Hence, aid should include recommendations by technical advisers and agronomists.

Such donor countries as France and Britain supply small amounts of fertilisers and pesticides. The USA has been doing that on a relatively wider scale under so-called sectoral loans to agriculture, which embrace several interrelated fields of development. But the bulk of US resources is delivered in the form of farm produce on lending terms. An essential fault of agricultural aid programmes is that they concentrate almost exclusively on boosting the production of wheat and rice, while ignoring many traditional crops (like maize, sorghum, millet, cassava, peas and beans), which are better adjusted to local conditions and are a staple food in the DCs, especially in the countryside.

Larger outlays on the import of fertilisers and the building of plants for their production are a major factor in the development of agriculture. In the decade from 1965 to 1975, capitalist states and international agencies allocated about $2,000 million for building mineral-fertiliser plants in the DCs. These funds have been used to build enterprises in India, Indonesia, South Korea, Morocco and other countries. That could only have been welcomed were it not for one circumstance. According to the FAO, only 40-60 per cent of the productive capacities of fertiliser plants in the DCs are being used. Many enterprises are short of highly skilled managerial personnel, technical assistance, and spare parts for the imported equipment. The main point, however, is that "certain plants in developing countries are so badly planned and constructed from the start that neither technical assistance nor contributions for spare parts would remedy the situation".^^1^^ Fertiliser producers in Canada, the FRG, Japan, the USA and other capitalist states have been making the best of that situation and supplying fertilisers to the DCs at very high prices.

~^^1^^ Development Co-operation..., 1975 Review, p. 86.

Chapter Five TECHNICAL ASSISTANCE

Table 15: Composition of Personnel Sent to the DCs Under Bilateral Technical-Assistance Agreements

Experts and volunteers 1965

The DCs' Need for Technical Assistance

Since the early 1960s, the industrialised capitalist states have been putting ever greater emphasis on technical assistance. From 1962 to 1982, the outlays of DAC countries on such assistance increased more than 7-fold, from $746.8 million to $5,406.0 million, that is, much faster than the outlays on other forms of aid under bilateral agreements with the developing countries.^^1^^ As a result, the share of technical assistance in total bilateral ODA more than doubled in that period (from 14.9 to 29.2 per cent).

Technical assistance accounts for most of the funds being extended to the DCs in the form of subsidies. For African countries, its share ranges from one-half to twothirds. The expenses connected with the arrival and departure of technical specialists, advisers, experts, teaching staff, and their families, the larger part of their wages and some other expenses are covered by the creditor country, that is, its services to the recipient country are nominally free. But in actual fact, as it will be shown below, the situation is quite different. .In the past few years, the number of personnel engaged in technical assistance to the DCs has been declining, for the latter have been training their own personnel. From 1965 to 1975 it went down by only 5 per cent (with a considerable increase in some years), but by 1980 it had declined to about 71,600, i.e., a drop of more than 20 per cent.2

1 Development Assistance..., 1970 Review, p. 60; Development Cooperation..., 1983 Review, p. 204.

~^^2^^ Development Co-operation..., 1976 Review,p. 161; 1982 Review, p. 241.

Educational experts

40,262

40,679

38,982

35,800

Operational personnel

23,010

21,491

24,7501

Advisers

12,945

16,501

15,891J

34,800

Volunteers

14,713

22,234

16,905

15,700

Total

90,930 99,905 96,528 86,300

Source: Development Co-operation..., 1976 Review, p. 161.

The overall number of educational experts (usually teachers) has been declining, but the number of persons within that category doing higher-skilled work (training and providing extension training for local teachers, elaborating school reforms, drawing up school curricula, and so on) is on the increase.

There have also been substantial changes in the composition of operational personnel, whose number has been declining as well. Within that category, the DCs are now particularly interested in experts with higher occupational skills, often those which are scarce in the industrial capitalist countries themselves. Advisers and consultants, who can influence decision-making only indirectly, have come to occupy an important place in that category of experts.

These changes in the qualitative structure of technical assistance, and especially the growing share of higherpaid personnel, and also the growing use of expensive consultant services have markedly increased the technical assistance expenditures of the developed capitalist countries. But the more than sevenfold increase in these expenditures does not mean a corresponding increase in the real impact of technical assistance to the developing countries, for the main cause behind the growing expenditures is inflation, which pushes up expert remuneration rates. In 1978, the index of the cost of expert services in technical assistance was 362 as compared with 1962, that is, remuneration rates increased more than 3.6 times^^1^^ (since 1978, no figures have been pub-

1 Calculated from Development Co-operation..., 1979 Review, p. 207.

lished for that index). Thus, each US national serving in Africa as an educational expert cost $80,000 in 1979.1

A regional conference of education ministers of African states, held in Lagos in January and February 1976, noted that "foreign assistance was unnecessarily expensive because of the foreign experts component. The view was expressed that many national experts could be employed for the cost of one foreign expert, who is invariably not well acquainted with the national problems''.

The DCs are being persuaded that the insufficient volume and low quality of official technical assistance can be compensated through cooperation with foreign private capital.

But the use of private foreign sources of technical knowhow and experience is limited. "Management contracts" concluded with foreign firms, and also the purchase of patents for technology can help the developing countries to gain managerial and technical experience. The experience of foreign firms can also be useful outside the production sphere: in trade, marketing, credits, and so on.

But foreign private capital remains essentially hostile to the training of national technical cadres, fearing that as a result of such training private capital could eventually be ousted from the DCs altogether.

Thus, in Kenya's private sector in 1967, one-half of the posts requiring four years of education were filled by foreigners, and even for posts requiring no more than two years of education the figure was more than one-third.^^3^^

Various Western volunteer organisations play a certain role in transferring technical experience, especially in the lower- and middle-level educational brackets.

Such activities were initiated by the so-called Peace Corps set up in 1961. It reflected Washington's idea of "intercepting revolution" in the newly independent states.

~^^1^^ Foreign Policy, Washington-New York, No. 34, Spring 1979, p. 112.

2 UNESCO. Educational Studies and Documents, Paris, No. 25, 1977, p. 42.

3 United Nations Economic and Social Council. Commission for Social Development. Twenty-Second Session, 1-19 March 1971, Item 4 of the provisional agenda, 1970 Report on the World Social Situation, Addendum III, E/CN. 5/456/Add. 3, p. 48.

The young teachers, doctors, agricultural experts, and instructors for training production personnel had to advertise the "American way of life", spread anti-communist ideology and the spirit of private capitalist enterprise. In contrast to the technical assistance personnel, who fenced themselves off from the masses by high living standards and big salaries, and who mostly associated with local civil servants in the urban centres, the members of the Peace Corps were paid fairly small wages and had to live in the same conditions as most of the local population, doing the same work, eating the same food and speaking the same language. They were encouraged to penetrate into the most outlying areas.

At first, the Peace Corps' efforts were successful. Many of its members sincerely wished to help the masses in the DCs to overcome poverty, hunger and technical backwardness: they were honest, worked hard and made a definite contribution to the solution of these problems.

But later on, the success of the Peace Corps began to wane. Many developing countries recognised its neocolonialist substance. In many instances, its activities were associated with the US Central Intelligence Agency. Many Peace Corps members were expelled from the developing countries, and some of the latter rejected its services altogether. Today, that organisation plays a fairly modest part in the overall complex of US technical assistance programmes.

In the USA's wake, organisations similar to the Peace Corps were set up by France, Britain, the FRG and other capitalist states.

Thus, France's Volunteers of Progress is made up of rural inhabitants, who are sent to African and other developing countries for a term of two years. In recent years, more than 800 of its members have been working in the DCs.^^1^^ In teams of three to eight persons, they teach local farmers the rudiments of agronomy, show them how to handle modern agricultural equipment, and also train them in some handicraft trades.

Since the mid-1960s, France has been using young men called up for military service as aid personnel. One can

1 Development Co-operation..., 1979 Review, p. 264.

hardly call them volunteers, for they work in a developing country instead of military service. They constitute a special corps known as the Development Service, with about 5,000 members. Two-thirds of them work as teachers, and the rest fill technical and administrative posts and work in public health.

In Britain, similar functions are performed by the British volunteer service programme, and in the FRG, by the German development service.

j

Other channels for transferring technical experience ) and knowhow are some private charities and funds (like j the Ford and Rockefeller foundations), church bodies, cooperative organs, and big trade unions. In African coun- ; tries, they maintain from 5,000 to 8,000 job-training in- \ structors.

I

form manage to complete the sixth form, and the repeating rate is from 26 to 55 per cent. In the Ivory Coast, for example, it takes on average 12.5 student years to produce one graduate of the six-year primary cycle.¹ In secondary education, all these adverse phenomena are much more pronounced and the outlays on the education of a secondary school graduate are very much greater.

To maintain their influence in the newly independent African countries, the former colonial powers have been using technical assistance to inculcate bourgeois cultural values. Thus, participants in a seminar on education in the DCs held in Paris on May 12 and 13, 1973, pointed out that assistance is strongly biased in favour of French culture at the expense of technical knowledge. Most of the funds allocated by France to technical assistance are used to teach the French language, from primary school upwards, while national cultural values are forsaken, if not treated with contempt.^^2^^

Some Western authors maintain that a study of the language of the former metropolitan country to a certain extent promotes class-formation in African countries, setting apart an elite stratum which enjoys considerable privileges as compared with other social strata. Thus, P. Alexandre wrote in a work published in 1967 that since only a minority has access to the French and English languages, the society's class structure, which is beginning to take shape in Africa, is based on linguistic factors.^^3^^ The UNESCO journal, Prospects, notes that by facilitating social intercourse within the ruling class, the French or English language becomes a major element of class rule.'*

Knowledge of a foreign language and an appropriate education is often used to justify privileges in employment and promotion.

A spread of the languages of the former metropolitan

1 Development Co-operation..., 1972 Review, pp. 126-127.

2 Prospects, Paris, No. 2, Summer 1974, pp. 220, 224-225.

3 P. Alexandre, Langues et langage en Afrique Noir, Payot, Paris, 1967, p. 121.

^Prospects, No. 4, 1971, p. 516.

Assistance to General and Technical Education

Since independence, Asian and African countries have made considerable progress in general education. The thirst for knowledge has spread among the masses, among I men and women of all ages. The peoples of the newly f independent countries justly regard knowledge as a way [ to eliminate backwardness, attain spiritual emancipation, f and improve their lot. At the same time, the first decades of independent development have brought out many dif- > faculties and contradictions in the field of public education. ;

First of all, the development of education called for large material outlays on the training and remuneration of teachers, and on the building and equipment of schools. I But there is still a shortage of teaching staff, especially for secondary, higher and vocational schools. The skill stand- ' ards of many local teachers are still inadequate. Another adverse social factor is that the education system as a whole does not correspond to the tasks of the DCs' economic development.

As a result, the education system is out of touch with life and does not reckon with the local conditions, so that many pupils have been dropping out or repeating • classes. According to UNESCO, the average drop-out rate in African primary schools is almost 68 per cent, that is, only 32 in every 100 children entering the first

countries in the DCs meets Western economic, as well as ideological interests, for Western monopolies seek to expand their spheres of influence by marketing cultural goods. Ali Mazrui, a prominent political scientist from Kenya, writes: "What ought to be remembered is that a successful sale of cultural goods helps to expand the market for economic goods.''^^1^^

The Western education system has no experience in wiping out mass illiteracy or in adult education, while that is the most acute problem facing the developing countries. Its earliest solution could make it possible to draw a large section of the able-bodied population into productive work. In that sense, we believe, African and other developing countries could learn a lot from the experience of the Soviet Union, which carried out a genuine cultural revolution in a short historical period, bringing culture within the reach of tens of millions of men and women, of whole peoples.

With the development of industry and diversification of its sectoral structure in the DCs, there is a growing need for medium-level personnel. In view of their shortage, their functions are sometimes entrusted to skilled workers, who do not have the required special training, and in other instances, to junior engineering staff, which involves unwarranted expenditure.

In recent years, the number of pupils and graduates of secondary technical schools in the DCs has increased, largely through their own efforts, but there is still a big shortage of medium-level personnel.

The DCs have been spending large amounts on the extension of old and the building of new technical colleges and polytechnical schools, but have not been paying enough attention to the education programmes. Thus, in many African countries where English is an official language, examinations are held on the basis of British study programmes. The formation of local or regional examination commissions makes no difference. P.O. Absaba, who is on the staff of the University of Ibadan (Nigeria), analysed the programmes available in agricultural engineering education and came to the conclusion that these should

^llbid.', No. 4, 1976, p. 546.

be considerably modified. For example, the course in cultivation machinery includes implements like potato planters, potato diggers, beet-root harvesters, etc. Such machinery is used in temperate areas and therefore constitutes wasted effort and time if taught to agricultural mechanics in Nigeria, Absaba points out.

Samuel J. Cookey, former adviser to the Nigerian Ministry of Education, recounts a typical incident which occurred during a school inspection tour in Nigeria. The head of a technical college proudly displayed a model which one of his students had built for his practical examination with the firm City and Guilds of London; it was the model of a fireplace built with bricks specially imported for that purpose. Cookey was bewildered: "A fireplace in a part of Nigeria with a mean temperature ofover28°C! "1

A document drawn up jointly by the UN Economic Commission for Africa and the Organisation of African Unity for a conference of ministers of education and those responsible for economic planning in African states, held in Harare (Zimbabwe) in June and July 1982, says: "Africans still need to `decolonize' their educational systems, their curricula, and even methods of teaching... What is needed is an educational system that ministers to the socio-economic needs of Africa.''^^2^^

Foreign assistance in training technical personnel in accordance with the requirements and specifics of the DCs could be highly beneficial. Meanwhile, Western assistance in this field is fairly limited. Only 8 per cent of all the teachers arriving in Africa from capitalist countries as part of bilateral assistance work in technical and vocational training.

By way of assistance to higher education, capitalist countries have been sending over professorial and teaching personnel, giving extension training to local teachers at educational institutions in the creditor countries themselves, and supplying equipment for laboratories and libraries.

The DCs have also been sending their nationals for

1 Prospects, No. 2, 1976, p. 226.

2 African Development Strategies and their Implications for Education, ED-82/MINEDAF/Ref. 1, UNESCO, Paris, 1982, p. 8.

9-404

education to capitalist states advanced in various fields of science and technology. Such contacts have long been practised by countries at different stages of socio-economic development. In 1978, roughly 450, 000 students from the DCs were going through courses at institutions of higher learning in the capitalist states. About 3.3 per cent of all DC ' students have been studying abroad, and for Africa that ' figure is 10.3 per cent.^^1^^

Most DC students studying in the industrial capita] ist states have to pay for their education themselves. Som. of them receive scholarships from their governments. Technical-assistance subsidies extended by the DAC countries in 1978 covered the educational costs of 46,900 DC students studying abroad,^^2^^ br 10.4 per cent of the total. Apart from that, some students get financial support from the colleges and universities at which they study, and also from various charities. In the late 1970s, for instance, the US government paid only about 5 per cent of the total cost of foreign students in the USA, and the US colleges and universities themselves contributed nearly 12.7 per cent. Grants from the governments of the USA and the West European countries usually cover only a part of the educational costs, so that the students have to look for other sources of income. In 1978, US technical-assistance funds covered all the educational costs of only 3,160 DC students,^^3^^ or less than 1.5 per cent of their total (216,400 students). So, most DC students have been studying in Western countries either at their own expense or at the expense of their governments.

The African countries' opportunities for educating students abroad at the expense of the state or the students themselves are most limited as compared with other regions of the developing world, so that the capitalist states have had to extend to them relatively more funds for these purposes. As a result, Africans have become the largest contingent of students studying abroad under technicalassistance programmes: in 1970, there were more than

~^^1^^ Statistical Yearbook, UNESCO, Paris, 1981.

2 Development Co-operation..., 1980 Review, pp. 226-227.

~^^3^^ Development Co-operation..., 1980 Review, pp. 226-227.

14,000 of them.^^1^^

The importance of education and access to the latest achievements of world science and technology, which are usually beyond the DC students' reach in their home country, can hardly be exaggerated. The training of toplevel personnel in the postgraduate system is also very important. Work in laboratories fitted out with the latest equipment is very helpful if the research reflects the vital development tasks and specifics of their countries.

But education in other countries also has a reverse side to it. Far from all DC students acquire a speciality and skill standards which they can apply in their own country. Since a part of the education is subsidised along the lines of technical assistance, many DCs seek to make the utmost of that form of cooperation instead of developing their own network of educational establishments, which is a heavy burden on the local budget. The creditor states support that tendency, because it is much cheaper for them to maintain foreign students than to assist the DCs in building and equipping their own colleges and universities, or to pay the teachers being sent there (and it is only natural that some developed capitalist countries have been trying to switch that type of technical assistance to the category of economic assistance, duly changing the terms on which it is extended, that is, going over from subsidies to loans).

Another highly adverse effect of education abroad is that some of the young specialists from the developing countries do not go back to their country because of higher salaries and better prospects for applying their knowledge abroad. Hence the "brain drain". In such instances, a developing country is twice the loser: in view of the money it has spent on educating the young specialist and, much more palpably, because it cannot use his knowledge in the national interests. According to UNCTAD, the imputed capital value of the skill of DC specialists migrated to only three capitalist countries (USA, Canada and Britain) in the period from 1960 to 1972 was $46,300 million,^^2^^ while the latter's technical assistance to the

1 Development Co-operation..., 1972 Review, p. 170.

2 Calculated from Reshaping the International Order. A Report to the Club of Rome, Jan Tinbergen, coordinator, et al., E. P. Dutton & Co., New York, 1976, p. 36.

<>*

131

developing world over the same period amounted to about $5,700 million, or just over one-ninth of the first figure.

most complicated fields and limit its role as an instrument for substituting and supplementing their own efforts. Only such a principled approach to the tasks of technical assistance could eventually obviate the need for it altogether.

More and more foreign-assistance analysts have been arriving at that conclusion. Here is how a prestigious international commission on the development of education (Chairman Edgar Faure) formulated its conclusion: "...The best kind of assistance is the kind that creates conditions for its own disappearance...''^^1^^

Some changes in the structure of technical assistance have indeed taken place under the influence of the DCs' successes in training their own technical personnel, but there can as yet be no question of ending or even reducing such assistance. In effect, its real volume has not been going down.

That is because the DCs' requirements for general and specialised knowledge are far from having been satisfied. Another reason is that the Western states regard their technical experts working in the DCs as vehicles of their own influence in the host countries, and are in no hurry to train local specialists to replace them.

Most aid analysts in the West note the dual status of the foreign expert in a developing country. On the one hand, he is naturally bound to serve the interests of the host country and his main function is to help that country, and on the other, he is a vehicle of bourgeois ideology and culture. His views, habits and even his special knowledge to some extent reflect the specifics of the capitalist state which had sent him and whose economic and political interests are often fundamentally opposed to those of the host country.

US technical-assistance analysts Warren F. Ilchman and Guy Benveniste single out four roles of the foreign technical expert in the developing countries: as agent of professional knowledge, as agent of his country's national culture, as agent of a particular organisation (or private capitalist firm), and as agent of the capitalist power

Foreign Experts in the DCs

The second major category of technical assistance in the use of the experience and knowhow of foreign experts in the course of their work in the DCs themselves (in state administration, industry or agriculture). The presence in the DCs of tens of thousands of foreign technical specialists is an important socio-political factor, which can sometimes have a serious effect on diverse aspects of the host country's domestic and foreign policy, and which is often a source of conflict situations.

For most developing countries, the first 10-15 years of political independence were a period of improving state administration, strengthening national institutions, specifying their tasks in social and economic development, and training national cadres. Definite successes in these fields were achieved with foreign technical assistance. At the same time, the newly independent states were increasingly aware of many essential flaws in both the basic principles and the practice of technical assistance.

Most capitalist creditor states maintain that the chief function of technical assistance is to substitute for the efforts of its recipients. The volume and direction of technical assistance are determined as the simple difference between a DC's requirements for knowhow and experience in this or that field and the available internal resources. The fundamental proposition that technical assistance should primarily help to transfer knowhow and experience to local personnel is usually ignored. One is bound to agree with the view expressed by Professor Benjamin Higgins of the University of Montreal, who wrote: ". . . In the long run it is clear enough that it is the training function of technical assistance that is most important.''^^1^^

The DCs have increasingly insisted on structural changes in Western technical assistance that would reflect the growing need to train highly skilled local personnel in the

1 International Journal, Toronto, Vol. XXV, No. I, Winter 1969-70, pp. 53-54.

1 Learning to Be. The World of Education Today and Tomorrow, Report of the International Commission on the Development of Education, UNESCO, Harrap, London, 1972, p. 242.

that had sent him.^^1^^

Since many foreign professionals cannot understand the economic and social specifics of the host country, the culture and traditions of its people, they come into conflict with the local administration and with their subordinates, which causes mutual dissatisfaction and reduces their effectiveness.

Most foreign technical experts seek to apply those methods of work and technical solutions which they used in their own country and which they are inclined to regard as optimal and valid in all circumstances. Another category of experts resign themselves to the difficulties they encounter and work without enthusiasm, merely serving out their term in the developing country. Some of the experts simply do not have the necessary knowledge and go to work in a developing country for personal reasons. Thus, a poll among French volunteers going overseas as technical assistance experts shows that 24 per cent of them wanted to "avoid service in the armed forces", and 23 per cent were going out of ``curiosity''. Only 12 per cent of the volunteers showed an "interest in the third world problems" and 9 per cent were going out of "humanitarian considerations".^ As a result, even the authors of the Pearson Report have had to note that "most developing countries seem increasingly dissatisfied with the quality of technical assistance personnel".^

Technical assistance can exert a considerable influence on the socio-economic development of a DC in the interests of the donor state. That is why Western countries favour this type of assistance. Professor Reginald H. Green of Dar es Salaam University (Tanzania) points out that "technical assistance can be (and on occasion has been) a more effective tool of neocolonialism than capital transfers. It will be such a tool . . . unless the recipient has a

1 Agents of Change: Professionals in Developing Countries, edited by Guy Benveniste, Warren F. Ilchman, Praeger Publishers, New York, Washington, London, 1969, p. 33.

2 Denyse Harari, The Role of the Technical Assistance Expert. An Enquiry into the Expert's Identity Motivations and Attitudes, OECD Development Centre, Paris, 1974, p. 78.

3 Partners in Development..., p. 184.

clear national, institutional and goal framework.''^^1^^

In some developing countries, foreign experts and advisers filling key posts in major government institutions have been trying to influence the main lines of the country's development. Thus, a study of the role of technical assistance in Kenya's national administration carried out by Walter Ouma Oyugi, research associate at Nairobi University, contains this conclusion: "The few technical advisers in this ministry [the Ministry of Commerce and Industry] largely determine the pattern of trade and industrial development in the country."^

Rita Cruise O'Brien, who is on the staff of the Institute of Development Studies at the University of Sussex (Britain) draws a similar conclusion on the French programme of technical assistance to Senegal. She notes that the influence of French technical experts in administrative posts is "disproportionate to their total numbers... The network of French technical assistants has become an 'administration within an administration'... Decisions from one part of the administration to another pass often from French adviser to French adviser. And decisions within a department are sometimes made among senior civil servants and their technical advisers, without the knowledge or consultation of Senegalese colleagues.''^^3^^

When a technical assistance project is being serviced by several creditor countries or international agencies, intense competition could arise among them. And when the representatives of competing aid institutions are at different levels of the administrative hierarchy, the proposals put forward by a lower-level group of foreign specialists sometimes do not reach the country's ruling organs. " Usually, advisers are like salesmen who are out to maximize the volume of their own sales. They always attempt to thwart the efforts of any real or potential competitor if they are in a position to do so. This they will do not

~^^1^^ Technical Assistance Administration in East Africa, edited by Yashpal Tandon, Almqvist Wiksell, The Dag Hammarskjold Foundation, Stockholm, 1973, p. 38.

2 Ibid., p. 108.

~^^3^^ The Journal of Development Studies, London, Vol. 8, No. 1, October 1971, pp. 46, 53.

only to foreign competitors but to the locals as well," writes W.O. Oyugi.^^1^^ Such a policy has a particularly adverse effect where it obstructs the initiative and business proposals of the lower-level technical assistance staff, that is, field workers who have direct contacts with the local population and are best acquainted with the concrete difficulties and practical tasks facing the host country. In many instances, their knowledge and experience are sacrificed to the spurious and unrealistic proposals put forward by top advisers.

The high salaries and privileged living and working conditions of most foreign experts serving under longterm contracts, especially in administration, do not induce them to rapid and effective completion of their tasks. Seeding to prolong their stay in the host country, many of them try to create the impression that they are indispensable, and are thus not inclined to share their experience with their local colleagues in order to train a successor. This policy is particularly manifest when it comes to technical experts. Oyugi points out: "...That some expatriates in the technical and professional fields are doing a good job cannot be denied. But, at the same time, the fact that they are doing very little to speed up the rate of their own replacement cannot also be denied." The same applies to higher education. "That policy seems to aim at the perpetuation of the expatriate presence in these professions."2

A most common complaint concerns the work and private lives of many foreign experts themselves. Jacques Bousquet, who used to be UNESCO's chief educational adviser in the Ivory Coast, lists the typical complaints against foreign experts. They are accused of earning big salaries and even then "always wanting more". A visiting professor earns ten times more uhan a local professor with the same degree from the same university. "In spite of their hefty salaries, they have the nerve to demand free housing" and are "constantly claiming extra dispensations for the cars they import and re-sell". They make money illegally out of tax-free liquor, and smuggle antiques out of the country. They never mix with the local

1 Technical Assistance Administration in East Africa, p. 113.

2 Ibid., p. 119.

population and cannot adjust because they do not even try to learn the local language. "If you want to know what they think of us, just look at the way they treat their servants"; "basically, they are racialists". Many of them see their stay in the host country as a tourist trip. "We thought they were here to help us. But not a bit of it! They want to see the country.''^^1^^ ^x

Since such behaviour could compromise the very idea of technical assistance, and this could in turn deprive the industrial capitalist countries of a major instrument for maintaining their influence in the developing world, more attention is now being paid to the personal qualities of those being sent to the DCs for technical assistance. Scientific articles are being published analysing the psychological atmosphere in the host countries, the experts' relations with the local administration and the people, and typical conflict situations. The experts are required to display such qualities as an ability to adjust to the surroundings, lack of bias, and an ability to understand and teach other people. Some have even expressed the opinion that behaviour is ultimately more important than theoretical knowledge.

Many experts do not have the necessary knowledge or skills for work in the DCs, while others who do, prefer a routine approach and cannot or do not want to adapt their experience to local conditions. Dissatisfaction over the work of technical experts has become widespread. "...The recipient countries sometimes suspect that the people the get on expert assignments are those who cannot get a job at home.''^^2^^

Since the industrial capitalist countries are unable to send good specialists to the DCs, they have been reducing the demands on the personnel going out on expert assignments. The developing countries, for their part, often refuse to grant them appropriate status (and salary). That entails a further decline in the skill standards

~^^1^^ Prospects, No. 4, 1976, pp. 595-596.

* People in some French-speaking countries joke: "Do not say technical aid, but say picnic aid" (Fr.: technique---pique-nique).

2 Sune Carlson and Obasanmi G. Olakanpo, International Finance and Development Planning in West Africa, Svenska Bokforlaget/ Bonniets, Stockholm, 1964, p. 25.

of the newly arriving experts.

Since the creditor countries usually insist that economic aid should be preceded by research into the matter by their own technical-assistance experts, a developing country will sometimes agree to accept such experts even if it is quite capable of coping with the task on its own. Thus, in 1968, Kenya launched a special programme to develop the countryside, aimed at raising incomes and employment levels in some parts of the country. According to Walter Ouma Oyugi, many of the technical experts arriving in the country were surprised at having been invited, for the Kenyans themselves could have dealt with all the problems. The foreign experts, who did not know the country and its socio-economic specifics, wasted several months on studying the local conditions, and the conclusions they eventually formulated were no deeper than those already drawn by Kenyan experts.

The low effectiveness of foreign technical assistance is sometimes justified in local circles on the plea that "it is free anyway" and that such assistance is "better than none at all". Meanwhile, such assistance is far from free. The recipient government usually pays the foreign technical expert in addition to what he gets from his own state. Thus, the government of Senegal pays each technical expert an amount equalling the average salary of local topranking civil servants. Apart from that, the host country should provide the foreign expert with free housing ( under its agreements with France, the housing should be furnished), transport facilities, a well-equipped work place, sometimes a secretary, typist, messenger, stationery, and so on. In Dakar and other major cities in Senegal, Rita Cruise O'Brien points out, prices for accommodation are inflated because of the demand by foreign experts, and the government commitment often becomes, in effect, "a subsidy of luxury property, most of which is owned by French companies or Lebanese businessmen.''^^1^^

On the whole, all these services provided to foreign experts more than double the local government's outlays on technical assistance. Thus, "it can be estimated that recipient governments provide approximately 50 per cent of

~^^1^^ The Journal of Development Studies, Vol. 8, No. 1, October 1971, p. 49.

the total cost of technical assistance supplied by France".^^1^^

One should also emphasise that the capitalist countries' ``losses'' from free technical assistance are highly exaggerated. The deliveries of capital equipment by way of technical assistance are insignificant. According to the Pearson Commission, each $100 spent on technical assistance probably represents only $20 in foreign currency or material transfers to host countries.^^2^^

In the years of independence, many African states have trained their own specialists in various fields, and the shortcomings of foreign technical assistance are even more pronounced against that background. As a reflection of the general discontent with the state and quality of technical assistance from industrial capitalist countries, there have been increasing demands in Africa that foreign experts should serve shorter terms, that they should be invited only for specific purposes and for brief periods of time.

In the past few years, the DCs have been resorting to consultants on a wide scale. These are invited to fulfil specific tasks under contracts usually signed for a fixed period. Consultants can benefit the client in various ways. First of all, it takes less time to put a new enterprise in operation. For a small firm, they are a source of knowhow and production experience. They often help to find a new approach in place of the existing one and so to raise the efficiency of work, and also to make an independent and objective assessment of the problem in question.

In contrast to technical-assistance experts, the consultant often maintains close links with his own firm. In case of difficulties, he can apply to his colleagues for recommendations and support in his conclusions. A consultant being sent to a developing country is usually wellequipped with the necessary documents and technical facilities.

All these positive aspects of consulting services should be weighed against their high cost. In the late 1960s, the services of a specialist from a US or Canadian consulting firm cost, depending on his rank, from $152 to $369 a

Partners in Development..., p. 182. ~^^2^^ Ibid.

day.^^1^^ Since then, the costs have gone up considerably. The client also has to make additional contributions to the consultant' sickness insurance and retirement pension funds, and provide other social benefits. These payments make up from 15 to 50 per cent over and above the basic sum. Then there are also special increments for "work abroad" and "separation from the family", whose total volume varies from 20 to 60 per cent of the basic sum.

The outlays on consultants' remuneration in the official technical-assistance programmes of the capitalist countries are insignificant, and it is the DCs themselves which have to pay for their services. Judging by some statements, however, this form of technical assistance is also not very effective.

The National Conference of the American Society of Public Administration, held in Chicago in April 1975, heard many critical remarks concerning consultants and their work. "All participants seemed to agree that ... consultants have not been as successful as hoped.''^^2^^ But neither the creditor countries nor the consultants themselves think it necessary to admit their failures.

The delegates to the Chicago Conference gave a fairly modest assessment of the consultants' contribution to the DCs' development, merely noting that they do more good than harm.

Since the interests of the recipient DCs and the industrial capitalist donor states are in contradiction, matters relating to the effectiveness of technical assistance and its real contribution to development inevitably go beyond the framework of a purely technical problem and often take a sharp political turn. First of all, a positive assessment of the work done by foreign experts should serve as a basis for their further use or for increasing their numbers, while the bodies which make the assessment or plan the policy in training national technical personnel and recruiting foreigners are themselves often staffed with foreign personnel, and their conclusions can be easily predicted. It may also happen, however, that even when a

1 Manual on the Use of Consultants in Developing Countries, United Nations, New York, 1972, p. 153.

2 Revue Internationale des sciences administrates, Brussels, No. 1, 1976, p. 1.

developing country is fully aware of the faults of a project proposed by a capitalist creditor country, it is nevertheless obliged to accept it so as not to forfeit foreign aid altogether. That leads to the paradoxical phenomenon when the initiative in assessing the economic importance of projects belongs to the donor state rather than the country which is most interested in these projects. The donor state naturally appraises these projects in accordance with its own interests.

The Swedish economist Andrew Coulson provides evidence of such a situation in an evaluation of a Swedishsponsored silo project in Tanzania. "In this case it is clear that the recommendations made by the Swedish consultants could be criticized on technical and economic grounds. Yet, Tanzanian authorities approved the project ... partly because they were afraid of upsetting the Swedes."* Moreover, Tanzania asked Sweden for assistance in building yet another large silo in addition to the four it had already built.

Shortcomings in the work of the local administration and its weak links with the foreign donors could also reduce the effectiveness of technical assistance. In some instances, there was no continuity between two or several successive missions. The arriving experts discovered that a part of the work they were planning to do had already been done by the preceding group or that, on the contrary, the latter had not paved the way for productive work by the newly arriving experts. Inadequate technical facilities can also affect the experts' work. Thus, if a group of doctors being sent to a developing country is short of transport facilities, surgical instruments or medicines, their work is much less efficient.

A major condition of highly effective technical assistance programmes is their correspondence to realistic and clearly formulated goals and tasks of the country's socioeconomic development.

The DCs have long been urging the need to put technical assistance programmes on a long-term basis, single out priority lines of development, and gear medium- and longterm credits to these lines. But the industrialised capitalist states have been extremely reluctant to put that idea into

~^^1^^ The African Review, Dar es Salaam, Vol. 5, No. 1, 1975, p. 97.

practice.

The idea of ``programming'' efforts in technical assistance implies the need to determine the recipient's future requirements in capital and manpower for carrying out various projects and on that basis to draw up longterm assistance plans; draw up diagrams reflecting the recipient countries' assistance requirements and based on a profound knowledge of local conditions; and strengthen the ties between technical assistance and other forms of aid.

In 1970, the United Nations Development Programme (UNDP) proposed that the creditor countries should project the approximate volume of their assistance to each developing country for five years ahead, so that the UNDP should approve five-year programmes drawn up by the creditor countries in cooperation with UN agencies, rather than isolated projects. Although most creditor countries "recognised the merits" of such an approach, no practical steps have been taken in this direction. Only the Netherlands, Denmark and Sweden agreed to project the rough volume of their technical assistance for a few years ahead. The French government set up a special group under the Ministry of Foreign Affairs for elaborating technical assistance programmes for the DCs. The Ministry lays down the main policy lines in the field of technical assistance and allocates the available funds to various countries and sectors of the economy. French representatives in the host countries have the right to decide which projects should be approved within the limits of the annual allocations to that country. As before, France does not inform its recipients in advance of the aid funds they are to receive. These funds are still allocated on an annual basis, while the priority lines of assistance and the medium-term plans for specific projects are still being fully determined by France's Foreign Ministry.

The other developed capitalist countries have not approved the programming principle with regard to individual recipient countries. Nevertheless, they have had to admit the need for rationalising technical-assistance programmes. It was decided, in the first place, to single out at least the most important lines of assistance on the strength of a sectoral analysis. Thus, Britain has specified ten major sectors for its technical assistance, and has been making

prognostications for each of these sectors for five years ahead.

In US assistance policy, the sectoral approach has taken the form of pinpointing ``bottlenecks'' in areas like agriculture, public health, food, education, science and technology, and so on, and concentrating US assistance on the solution of these problems. Private funds (primarily the Ford and Rockefeller foundations) play an important role in organising a wide network for studying `` bottlenecks'' and providing information on these.

The contribution of the developed capitalist states in basic and applied research could have been more significant if they had reckoned with the most urgent economic and social problems of the DCs. But very little has as yet been done in this direction. Back in the colonial days, France, Britain and Belgium set up a network of research institutions which mostly studied the problems of tropical agriculture and medicine. These institutions are still in operation, accounting for 5 to 10 per cent of the outlays on technical assistance in the respective countries. They have been carrying on objectively useful research, looking for ways to expand the production of some crops (export crops above all), and working out measures to combat tropical diseases. But the main point of their research, both past and present, is to help create the best conditions for drawing the natural resources of the former colonies into the orbit of the world capitalist economy. The DCs, for their part, seek to gear that research to the solution of vital problems in their internal development.

In the field of the economy and industrial technology, foreign technical assistance could be of help in detecting and then making effective use in the country's national interests of its natural resources (minerals, energy sources, foodstuffs) so as to develop and produce finished products that would primarily meet the needs of the DCs themselves.

It is also very important, both in economic and social terms, to develop production technology that would reflect the specifics of most developing countries (shortage of capital and abundance of manpower), that is, mostly labour-intensive technology largely based on local materials and ensuring high quality and low cost of products.

Another problem is to raise the productivity of local

crop growing and livestock breeding, to introduce new useful crops and livestock. This includes an improvement of land use, introduction of progressive farming practices and soil-tillage methods, measures to improve the quality and increase the fertility of soils, and broader irrigation. It is also very important to train enough agricultural instructors, primarily in the system of local educational establishments which spread advanced knowhow in crop growing and livestock breeding among the farmers with due regard to local requirements and specifics.

Technical assistance in education, we believe, should concentrate on training higher-quality teaching personnel from among the local population, on introducing new, more massive and consequently more economical methods of education (notably, with the use of television), modifying and developing new study programmes, textbooks and study aids in accordance with the country's tasks and local conditions. Much more attention should be devoted to training medium-level personnel in the mass technical trades. In higher education, technical assistance should help to restructure as soon as possible the training of local specialists in occupations meeting the DCs' development needs, and also to train more local teaching staff who could eventually take over the training of personnel at every level. A new line of technical assistance is to draw up programmes for extending the construction of low-cost modern housing and to perfect urban planning in order to improve the condition of the poor and combat overcrowding. Now that the international monopolies have been trying to transfer to the developing countries many ``dirty'' and unhealthy lines of production, protection of the environment is becoming another major area of research.

Hardly any of these scientific and practical problems have been reflected in the technical-assistance programmes of the industrial capitalist states.

Chapter Six

AID AND THE EXTERNAL DEBT PROBLEM

Two Approaches to the External Debt Problem

The DCs' mounting debts on the loans and credits they receive from the industrialised capitalist countries, and the resultant steadily growing outflow of their scant resources have become one of the gravest problems of present-day international relations.

In the early days of independent development, the DCs' main concern was to ensure the biggest possible influx of external funds as a condition of faster economic growth, whereas today they pay particular attention to the qualitative aspect of the matter: the financial terms of the loans and credits, the degree and direction of their influence on economic and social processes, the balance between the adverse and beneficial effects of their use, and the debt problem.

The capitalist creditors, especially such collective bodies as the IBRD, IMF and DAC, are also not indifferent to the growing indebtedness of the DCs. But they look at the debt problem from a different angle: their most important concern is the DCs' creditworthiness.

In bourgeois economic writings, the most popular approach is to regard external lending to the DCs as a source of funds necessary for narrowing the gap (deficit) between the need for capital investments that would ensure adequate economic growth and the available domestic resources. The usual assumption (with which we cannot agree) is that the elements of the DCs' internal accumulation and the funds obtained from abroad are interchangeable and complementary in their material form. Western economists have been presenting abstract models of the "external debt cycle" in order to prove that upon the expiry of a definite period (with the cycle usually lasting as long as 60-70 years), the

10-404

debtor country's internal accumulations will have increased to such an extent with the help of external funds as to enable it to pay out its external debts, as well as ensure adequate economic growth. That approach ignores the fact that in most DCs the bulk of the accumulated product in its material form (in the form of goods turned out by local industry, agricultural and mineral raw materials, and also funds in local currency) cannot be used directly to increase the country's real capital. If the accumulated internal resources are to be turned into such capital, they should be sold on the foreign market.

So, we believe that Western economic theorists and lending agencies are wrong in their attempts to regard the DCs' use of external resources only from the standpoint of their domestic economy, without due regard for their position in the world capitalist division of labour. A typical thesis expounded in the World Bank report, "Economic Growth and External Debt---an Analytic Frame" is that "continuing growth in per capita production and the underlying process of rapid accumulation of productive capital is the basic long-run condition of debt servicing capacity".*

That thesis equates the growth of production in a developing country and the accumulation of productive capital, ignores the importance of the foreign market, and contains, in embryo, the idea which is now being plugged by the Western countries in their propaganda, research and the practical policy of their lending agencies, and according to which 'the main reason behind the worsening debt problem of the DCs is "insufficiently skilful" use of the foreign funds, their ``inefficient'' investment.

In other words, the industrial capitalist states regard the DCs' debt problem not as one of the problems in their external relations with the West, which have to be restructured on fundamental lines, but merely as a problem facing individual develop \ig countries and requiring a strictly individualised approach. Most DCs oppose that concept, as the propositions of the Group of 77 make it clear. Speaking on behalf of that group, Ghana's delegate said: "The debt problem had always existed and was aggravated by the declining export earnings of developing countries resulting from

1 Proceedings of the United Nations Conference on Trade and Development, Vol. 5, 1964, New York, p. 76.

the lack of access to the markets of the developed countries; and the economic recession and high rate of imported inflation; and from the world monetary disequilibrium originating from the inflationary policies of developed countries." ^l

That position meets with understanding and support on the part of the Soviet Union and other socialist countries, which note that "the critical situation which has arisen with regard to the developing countries' external indebtedness and the deterioration of their balances of payments has been engendered by factors rooted in the profound crisis of the entire world capitalist economic system... In the long run, this problem can be'effectively solved only as part of a process of the coherent restructuring of international economic relations on a democratic and equitable basis and only if colonialism and neo-colonialism in the economic sphere are eliminated once and for all.''^^2^^

Since the early 1960s, the Western attitude to the DCs' debt problem has undergone a certain evolution. A characteristic point to note is that in the 1960s, when the DCs' overall foreign debt was much smaller, some statesmen in the industrialised capitalist countries, responsible government commissions and international lending agencies showed much greater concern than today.

Thus, a special study of debt problems was carried out by World Bank staff on the instructions of its president, Robert McNamara, and a report on the main lines of US foreign economic policy in the 1970s, drawn up by a task force headed by Rudolf A. Peterson, described the DCs' foreign debt as a pressing problem which endangered the existing scale of imports, capital investment and development.^^3^^

In the past few years, however, new trends can be noted

1 UNCTAD. Trade and Development Board. Ninth Special Session, Second Part, Geneva, 23 January 1978, Items 2 and 3 of the provisional agenda, Report of the Intergovernmental Group of Experts on the External Indebtedness of Developing Countries on Its Second Session, Addendum, Annex II, TD/B/685/Add. 2, pp. 20-21.

2 Ibid., Annex III, TD/B/685/Add. 3, pp. 2, 3.

3 US Foreign Assistance in the 1970s: A New Approach. Report to the President from the Task Force on International Development, Washington, 1970, p. 10.

10'

in the approach to the debt problem. The creditor states have come to regard the DCs' immense external debt as a major element of neocolonialist policy, as an additional instrument for drawing in and keeping the DCs within the system of capitalist division of labour on a dependent basis.

The growing surplus of free money capital looking for lucrative spheres of investment has also served to change the Western attitude to the debt problem. These funds appeared on the money market, on the one hand, as a result of the growing revenues of the oil-producing countries ( socalled petrodollars) and, on the other, as a result of the fairly limited opportunities for investment in the domestic economy of the leading capitalist countries, beset by recessions and crises.

All that explains the fairly ``light-hearted'' attitude to the DCs' debt problem on the part of the leading capitalist creditors.

ing countries' external debt, publishing detailed statistics on that question. The Bank's interest in the debt problem has a practical reason, for its rules demand that in extending or guaranteeing a loan the Bank should take due account of the borrower's creditworthiness. The Bank requires the debtor country to provide data on the structure and dynamics of its external state debt covering more than 20,000 items (sic! ). As a result, it accumulates a wealth of information (mostly classified), which it uses to make a thorough study of the clients' economic situation and creditworthiness.

In generalised form, the figures on the DCs' debts are published in the World Bank's annual reports, and more detailed information is to be found in the annual two-volume World Debt Tables. That publication is primarily based on data submitted by the debtor countries and is therefore known as the Debtor Reporting System (DRS). The data are grouped by creditor category: official creditors (foreign governments and international agencies) and private creditors (mostly commercial banks and suppliers). The data on outstanding debts, based on the figures for allocated and used-up credits and also for the commitments of the creditor countries, are published for each creditor category and each debtor country. Figures are also published on the recipients' liabilities and debt service (amortisation and interest payments).

The IBRD publications, though detailed, have some essential flaws. In accordance with the Bank's accounting methods, only debts repayable in foreign currency with maturities of over one year are included in the total indebtedness. The debt should also be either a direct obligation of the debtor country's government or, if the recipient is a private body, should be guaranteed by some state organ of that country. So, IBRD statistics does not cover the considerable debts repayable in the national currencies of the debtor countries, debts to the International Monetary Fund, short-term debts, debts to creditor countries outside the DAC and, most important of all, debts incurred by the private sector and not guaranteed by the government of the debtor country.

A comparison of the data on allocated and received credits published by the creditor states and the debtor states usually shows that the latter tend to understate their vol-

The Present State of the DCs' Indebtedness

The DCs' worsening debt problem is in the first place due to the inequitable system of their economic relations with the developed capitalist states. The debt problem brings into focus the intrinsic vices of present-day international capitalist credit and aid, the difficulties of developing and restructuring the DCs' economy, and the reluctance of developed capitalist states effectively to help the DCs to overcome these difficulties and create conditions for repayment of their foreign debt.

Since the early 1960s, the DCs' debt has steadily increased, reaching the vast amount of $ 626,000 million in late 1982.^^1^^ Their debt service payments have increased accordingly. In 1982, such payments to the DAC countries and international lending agencies came to about $122,000 million, or 4.3 times higher than the total aid in 1981 ($28,400 million).^^2^^ The least developed countries, African countries above all, are the most to suffer.

The World Bank has kept a close watch on the develop-

~^^1^^ Development Co-operation,.., 1982 Review, p. 235.

2 Ibid., pp. 206, 235.

ume. Although the IBRD cross-checks the data submitted by these two groups of countries, its official publications are based on those submitted by the debtor countries. That is why the debt figures it publishes are somewhat understated.

IBRD statistics cover only its member countries, while many DCs which do not resort to its credits are not taken into account. The number of countries covered by the Bank's statistics (96 in recent years), and also their grouping by region have been changed repeatedly, so that the figures are not easy to compare.

On the whole, IBRD statistics markedly understates the developing countries' actual debt and especially their debt service payments. Thus, according to IMF estimates, only private non-guaranteed debts at year-end 1981 amounted to $80,000 million. Such debts are particularly large in developing countries with a relatively high and above-average GDP per head of population. In Africa, such countries include Gabon and the Ivory Coast. In this group of countries, the debt of the private sector not reflected in IBRD statistics ranges from two-thirds to three-quarters of the guaranteed debt. Even for the group of countries with below-- average incomes, which includes most African countries, such debts amount to more than one-quarter of the guaranteed debts reflected in IBRD statistics.^^1^^

OECD publications are based on the Creditor Reporting System (CRS), but in some instances are supplemented with data obtained from the debtor countries. These publications not only contain data on non-guaranteed debt, but also cover a much wider range of debtor countries: about 143 countries, or 50 countries more than those of the IBRD. In 1978, only because of the difference in country coverage, the OECD figure for debt was $14,000 million higher, and its figure for debt service $4,000 million higher than those of the IBRD. Coverage of non-guaranteed credits, and also fuller coverage of export credits added another $62,000 million to the debt figure and $15,000 million to the debt service figure. As a result, the OECD figures for 1978 as compared with those of the IBRD were $76,000 million

~^^1^^ UNCTAD. Debt Problems of Developing Countries. External Indebtedness of Developing Countries: A Statistical Note, Note by the UNCTAD Secretariat, TD/B/C. 3/148, September 19, 1978, p. 4.

higher for debt and $19,000 million higher for debt ser-

vice.^^1^^

For analysing the debt problem in separate DCs over the long term, OECD statistics are clearly inadequate, for it has been publishing such data only since 1974. Moreover, the debts are not classified country by country depending on the credit source.

The information published quarterly by the Bank for International Settlements (BIS) on the deposits and claims of private banks in 11 West European countries and of the leading US banks covers lending of all maturities, and not just those of more than one year. At year-end 1976, for instance, BIS data showed the developing countries' total debt to private banks as amounting to about $200,000 million as compared with the IBRD figure of only $47,000 million (disbursed debt only).^^2^^ At the same time, the BIS does not publish any figures on credits with maturities of over one year, which are taken into account both by the IBRD and the OECD, while interest payments on these debts, which are not reflected either in IBRD or OECD statistics, are an additional burden for the developing countries. According to the UNCTAD Secretariat, these payments amounted to at least $1,600 million in 1975 and $2,200 million in 1974.3

The first thing that strikes the eye in analysing the statistics of indebtedness is its rapid increase, especially over the past decade. In 1962, the foreign debt of all DCs, totalled $24,000 million,^^4^^ and by late 1972 it was up to $92,900 million,^^5^^ that is, it increased by $68,900 million in ten years, or by an average of $7,000 million a year. In late 1982, disbursed debt amounted to the huge figure of $626,000 million, that is, in the ten years from 1972 it increased by $557,100 million, or by an average of $56,000 million a year.^^6^^ In the 1960s, the DCs' external debt increased at an average rate of about 15 per cent a year, sharply increasing in the mid-1970s to an average of more than 24 per cent a

1 Development Co-operation..., 1980 Review, p. 223.

2 Ibid., p. 6.

3 Ibid., p. 10.

~^^4^^ Development Co-operation..., 1977 Review, p. 211.

5 Ibid.

Development Co-operation..., 1982 Review, p. 235.

year for 1972-1982.

Throughout the 1970s and most of the 1960s, the DCs' debt increased on average from 3 to 5 times faster than the material basis for its repayment as expressed, in the most general form, in gross domestic product (GDP). In African countries, the correlation between these two rates has been particularly unfavourable for many years.

According to OECD data, the debt of African countries more than quintupled from $16,800 million in late 1972 to $84,700 million in late 1980. Africa's share in the DCs' total debt remained stable over these years (18.1 to 18.2 per cent). In 1980, official development assistance of the DAC countries accounted for only $12,100 million of the African countries' total debt, while non-concessional credits accounted for 85.7 per cent of that debt.^^1^^ Even without the $24,100 million debt of three African OPEC members---Algeria, Nigeria and Gabon (there are no data on Libya), whose debt on official assistance is fairly small ($871 million)---the balance will change only marginally: 18.5 per cent on concessional credits and 81.5 per cent on commercial ones.^^2^^

The generally rapid growth of the DCs' debt is due to a number of adverse factors, which have had a particularly grave effect over the past decade. One of the main causes is the worsening terms of trade, which have sharply aggravated the state of the balance of payments.

The situation took a sharp turn for the worse in the 1970s. In the 1960s, the terms of trade, that is, the ratio between the prices of goods exported and imported by the DCs (except the oil-exporting countries) slowly deteriorated, at an average rate of 1.0 per cent a year. The temporary improvement in the terms of trade in 1973 was interrupted by the hike in oil prices in late 1973. In the second half of 1974 and in 1975, the DCs were increasingly affected by the worst cyclical crisis since the Second World War, which afflicted virtually all the major capitalist states. The crisis caused a steep drop in the DCs' exports and a decline in the prices of staple raw materials (by an average of 18 per cent

in 1975), while the prices of manufactures imported by the DCs went up considerably (by 12 per cent). All that led to a dramatic increase in the balance of payments deficits of the non-oil-exporting DCs. These deficits rose from a total of $8,600 million in 1970 to $37,100 million in 1975. Later on, after a marginal decline, these deficits went on growing, especially after the onset of a new economic crisis in the industrialised capitalist countries in 1980, reaching a total of $82,400 million in 1982.

To eliminate the balance-of-payments deficit, the DCs were obliged to resort to external financing on an even larger scale. That led to a sharp increase in their external debt, which in late 1982 was estimated at $520,000 million (for non-OPEC countries). From 1971 to 1982, their debt increased by $445,000 million, which means an average rate of $40,400 million a year, or nine times faster than in the 1960s.l

The official development assistance of capitalist states could not meet the growing requirements of most DCs for external financing. Whereas in 1965 the share of concessional resources in the net flow of resources from the leading capitalist countries to the DCs was 54 per cent, in 1970 it was down to 44 per cent, in 1975 to 31 per cent, and in 1981 to only 29 per cent.^^2^^

So, in the 1970s, the developing countries increasingly resorted to loan capital (mostly private) on market terms. From 1970 to 1982, they received $65,200 million worth of concessional loans from the developed capitalist states and the OPEC countries (minus repayments). Over the same period, lending on market terms amounted to $466,100 million, or more than 7 times greater. That tendency entailed a marked change in the DCs' foreign debt structure (Table 16).

Towards the end of the 1970s, there was a considerable increase in "other credits on market terms". These are mostly loans from private banks which have accumulated large sums in petrodollars and euro-dollars, and also the floating of DC government bonds on the money markets of the capitalist states. Over the past two decades, the share of that credit source in the DCs' total debt has steadily in-

~^^1^^ Development Co-operation..., 1982 Review, p. 236.

^^2^^ Ibid., p. 178.

1 Calculated from Geographical Distribution of Financial Flows to Developing Countries 1978-1981.

2 Ibid.

Table 16: DCs' External Debt to Capitalist States, $1,000 million

Lending source 1960 1965 1970 1975 1979 1980 1981 1982

Bilateral ODA

and concessional

credits by

international

agencies

5.4 14.4 29.8 44.0 73.0 81.0 85.0 95.0

Other credits by

international

agencies

2.8 4.0 6.1 12.0 27.0 32.0 37.0 44.0

Export credits 7.2 13.2 28.2 42.0 100.0 114.0 128.0 148.0

Other credits on

market terms,

including those

not grouped by

type of terms 2.5 5.5 12.6 33.0 192.0 223.0 263.0 319.0

Total

17.9 37.1 74.7 171.0 392.0 450.0 513.0 606.0

Source: Development Co-operation..., 1977 Review,p. 213; 1982 Review,p. 235.

creased, from 14.8 per cent in 1965 to 16.9 per cent in 1970 and 52.6 per cent in 1982. Export credits have remained a major source of finance, although their role has somewhat declined as compared with the early 1970s (from 35 per cent in 1970 to 24.4 per cent in 1982). Credits on market terms extended by international financial organisations have tended to decline.

These figures on the DCs' external debt and its distribution by credit source give an idea only of the most general tendencies, while the situation in various countries and regions can differ considerably from the general indicators. One of the main indicators for putting a country in this or that category is GDP per head of population. It is also one of the main criteria used by private (and often also government) credit bodies in assessing the borrower countries' creditworthiness.

Western analysts use several methods in classifying the DCs. Virtually all of them single out the leading oil-- producers, which are members of OPEC. The other DCs are mostly grouped depending on the GDP (or GNP) level per head of population. Thus, according to DAC experts, all

the developing countries outside OPEC are divided into three categories: those with a low per-head level of GDP (under $600 in 1980) with a subcategory of "least developed countries"; those with a medium level (over $600); and a group of so-called newly industrialised countries.

The last category includes Latin American states (Brazil, Mexico, Argentina), Asian countries (Singapore, South Korea, Taiwan, Hong Kong) and some European countries (Greece, Spain and others). These countries are fairly dissimilar both in terms of economic potential and in terms of external credit sources, but they usually have a relatively diversified economy, with a larger share of manufacturing and, consequently, a more diverse export base. All this attracts foreign loan as well as entrepreneurial capital to their economy. Describing these countries, the IBRD organ, Finance & Development, wrote: "The higher the rate of growth of exports, relative to other countries, historically, as well as forecast for the immediate future, the higher will be the amount of funds that the banks will be willing to supply."! Brazil, Mexico, Argentina and South Korea borrowed heavily in the private capital market even before the rise in oil prices. Since 1973, they have continued to use private loan capital to cover their vast balance-of-payments deficits. As a result, most states within that category have run up the largest debts in the developing world. In late 1981, Brazil's disbursed external debt amounted to $65,600 million. Mexico was in second place with $54,400 million, Spain and South Korea were in third and fourth place, and Argentina in fifth place. At year-end 1982, the external debt of all "newly industrialised countries" totalled $266,000 million, as compared with $31,000 million in 1971, or 51.1 per cent of the external debt of all the DCs (except the OPEC countries) .2

Bourgeois economists often say that the countries of that category, which have a large external debt while maintaining exports at a fairly high level, set an example of efficient use of external funds. In actual fact, they have to pay a high price for these funds and use the bulk of them to

~^^1^^ Finance & Development, Vol. 14, No. 3, September 1977, p. 35. pp. 237, 238.

* Calculated from Development Co-operation..., 1982 Review, pp. 237, 238.

repay earlier debts; such payments sometimes even exceed the influx of external funds. In Brazil, for instance, debt service payments in 1980 came to $ 14,200 million, or 28 per cent more than the amount of external loans it obtained that year ($11,000 million). The same year, Mexico spent virtually all its external loans ($9,200 million out of a total of $9,300 million) to repay its debts, and South Korea paid out in debt service $535 million, or 16 per cent more than the amount of capital it borrowed abroad, etc. If one also looks at the correlation between the influx of external funds and imports (in 1980, it was 61 per cent for Brazil and 50 per cent for Mexico), one will clearly see the strain on the debtor countries' balance of payments.^^1^^

The category of countries with a medium level of GDP per head of population includes two groups of countries: first, those with some relatively developed branches of the economy, mostly in the mining industry and agriculture, and also in the industry processing local farm produce; and second, numerous insular states and politically dependent territories.

The group of countries with a relatively developed economy includes Turkey, Syria, Lebanon and Israel in Asia, Peru, Chile, Uruguay, Paraguay and Nicaragua in Latin America, and Tunisia, Morocco, the Ivory Coast, Cameroon, Congo and Zimbabwe in Africa.

In recent years, the external debt of these countries has also markedly increased: from $24,000 million in 1971 to $144,000 million in 1982.^^2^^

For many countries in that category, insular countries in particular, state credits remain a major source of financing. Most of them are still at the stage of development when they cannot make regular use of private-capital borrowings. The overall increase in their debts on official development assistance amounts to $23,800 million.

The countries belonging to the lowest category in terms of GDP (less than $600 a year) are fairly diverse. First of all, there are the "least developed countries", whose socioeconomic indicators are particularly low. But even without these, that category includes, on the one hand, such count-

1 Handbook of International Trade and Development Statistics, Supplement 1981, UNCTAD, New York, 1982.

2 Development Co-operation..., 1982 Review, p. 237.

ries as India, Egypt, Indonesia and Pakistan, and on the other, Mauritania, St. Helena Island, and some islands in Oceania. In the former, some branches of industry, including heavy industry and even mechanical engineering, are fairly well developed by DC standards, while in the latter, only one or two branches of the export-oriented mining and processing industries are to some extent developed, usually on an insignificant scale. For these countries, concessional credits and gratuitous aid from Western industrial countries are an important and permanent source of income.

Countries with relatively developed branches of the mining industry, usually based on foreign investments, occupy an intermediate position in this category. In Africa, these include Zambia, Zaire, Liberia and Angola, and also countries with developed commodity agriculture: Kenya, Senegal, Ghana and Madagascar.

The external debt of countries with a low income level (including the "least developed countries") increased from $18,000 million in 1971 to $110,000 million in 1982.* But its sources and structure are quite different from those prevailing in the first two categories. Both in the early 1970s and in the 1980s, most of the countries in this category have been unable to resort to private loan capital on any considerable scale, so that their debt to private sources in that period has increased only marginally: from $400 million to $6,600 million, which makes up 6 per cent of their overall debt.^^2^^ In view of the need to finance industrial development, these countries have had to make relatively wide use of state and private export credits, and their debt on these credits has gone up from $3,400 million to $22,000 million (20 per cent of the total). Borrowing on market terms from IBRD-type international financial organisations is also of some importance, and their debt to these organisations has gone up from $1,100 million to $5,500 million.^^3^^

But the main source of funds for these countries has been foreign bilateral and multilateral aid, which is evident both from the absolute growth of the corresponding debt and its relative importance among the debts to other lending

1 Development Co-operation..., 1982 Review, p. 237.

2 Ibid.

~^^3^^ Ibid.

sources. The external debt of concessional credits went up from $13,100 million in 1971 to $75,900 million in 1982.1 In spite of some successes scored by many of these countries in their socio-economic development, their dependence on foreign aid has changed very little: in 1971, it accounted for 73 per cent of the total debt, and in 1982, for 69 per cent.^^2^^

The foreign debt problem is closely connected with the profitability of externally financed projects. In applying for a loan, the debtor always takes into account the profitability of the project in which the borrowed funds are to be invested: the rate of profit should exceed his annual debt service payments (amortisation and interest), for otherwise he cannot repay the credit. The Soviet economist Vladimir Gankovsky has estimated that the average terms of external lending to African countries in the early 1970s would have enabled them to repay their foreign debts without difficulty if the net profit on every dollar invested in a project came to no less than 10.25 cents.^^3^^ Such a rate of profit was attained only in one of the eight countries for which the necessary statistics were available (Nigeria).

But such a rate of profit can for the most part be attained only in industry, while, first, many developing countries, especially in Africa, are obliged to spend a part of the external funds on the import of food and other consumer goods and, second, in most instances, the very nature of investment cannot ensure a sufficiently high rate of profit. A large part of the external funds goes into infrastructural projects, which have a low rate of profit and a long recoupment period; and another part goes into agriculture, where profits are just as low.

A major condition of the recipient countries' creditworthiness is the capacity of investment projects to help them earn foreign exchange, that is, to produce export products. Estimates for 30 DCs show that only 30 per cent of the profit they derive comes in the form of foreign exchange. Hence, the DCs usually make their debt service payments

1 Ibid.

2 Ibid.

3 Mirovaya ekonomika i mezhdunarodnye otnosheniya, Moscow, No. 8, 1975, p. 74.

~^^4^^ Ibid., p. 75.

either by way of new loans, or from the proceeds of the sale of traditional export products, or else from their foreignexchange reserves.

Real Flow of Resources to the DCs

The DCs' growing foreign debt on credits received from the capitalist states inevitably entails an increase in debt service. The real volume of material resources left at their disposal is determined by subtracting the amount of amortisation and interest payments from the gross flow of funds. Interest payments grow particularly rapidly as the external debt increases. That is why the actual amount left at the disposal of the debtor country is much smaller than the net flow, as it is determined in the statistics of the capitalist countries.

In 1965, the gross flow of all types of resources (except direct private investments) was $11,200 million, and in 1981, it was up to $148,000 million, nominally increasing by $136,800 million. In actual fact, however, the real increase was only $32,400 million. In absolute terms the outflow of resources from the DCs increased from $4.900 million in 1965 to $109,000 million in 1981, multiplying 22 times. Simultaneously, their active external debt (only its disbursed part) multiplied almost 25 times.

The gross and real flow of funds to the DCs, the level of amortisation and interest payments, and the dynamics of the foreign debt---all these indicators are in mathematical dependence, which can be expressed in the form of models, and these indicators themselves can be fairly accurately determined and prognosticated.

According to calculations made by the US Agency for International Development, the extension of $100 a year by international lending organisations, even on terms that are concessional by present-day standards (5.5 per cent interest rate, 13 years maturity, including a three-year grace period free from repayment of principal), leads to a situation where in the tenth year of the crediting the initial net flow of funds to the borrower country can be maintained only if the gross annual credit is raised to $270. The difference between the gross and the net amounts represents the annually growing debt service payments by the debtor country.

Table 17: Resource Flows to the DCs,

Growth of External National Debt and Service Payments on It,* ^million

Disbursements

Debt service

Net flow

Real flow

Disbursed external debt

Loans

Grants and gran dike

Total

Amortisation

Interest

Total

1969 1974 1975 1976 1977 1978 1979 1980

8,900.7 25,108.4 33,443.1 38,675.4 47,461.0 65,142.7 74,051.2 70,494.5

1,321.7 2,374.4 3,392.9 3,056.2 3,480.7 4,734.6 5,757.7 6,655.1

10,222.4 27,482.8 36,836.0 41,731.6 50,941.7 69,877.3 79,808.9 77,149.6

3,429.6 8,036.1 8,950.1 10,355.1 14,459.9 22,717.6 28,939.7 28,173.5

1,481.5 4,187.2 5,442.4 6,616.1 8,282.1 11,604.0 16,966.6 23,383.5

4,911,1 12,223.3 14,392,6 16,971.2 22,743.1 34,321.6 45,905.3 51,577.0

6,792.8 19,446.7 27,885.9 31,376.5 36,481.7 47,159.6 50,869.2 48,976.1

5,311.3 15,259.5 22,443.5 24,760.4 28,198.6 35,555.7 33,903.6 25,592.6

45,741.0 105,528.7 120,982.4 160,525.6 201,083.0 251,984.6 298,051.5 330,365.9

Source: Compiled from The World Bank Annual Reports 1965-1982.

* The figures on debt cover 97 countries in 1965 and 1980; 80 in 1970; 96 in 1976, 1977 and 1979; and 94 in 1978. The figures on subsidies do not include outlays on technical assistance.

Table 18: DCs'Disbursed External Debt at Year-End 1982

Lending Source

Outstanding debt

Total debt service

$1,000 million

percentage of total debt

$1,000 million

percentage of total debt

DAC countries, total

476.0

76.0

115.2

87.7

including:

official development assistance 63.0

official and private export

10.1

3.4 2.6

credits bank loans

148.0 210.0

23.6 33.6

44.8 56.0

34.1

42,7

bonds and other

private lending sources

55.0

8.8

11.0

8.4

Credits from

international

financial agencies on concessional

terms

32.0

5.1

1.2

0.9

Credits from

international

financial agencies on market terms

44.0

7.0

5.5

4.2

OPEC countries

29.0

4.6

3.0

2.3

Other developing countries

13.0

2.1

1.9

1.4

Other countries, and also lending not grouped by source 3 2 .9

5.1

4.5

3.4

Total

626.0

100.0

100.0

Source: Development Co-operation..., 1982 Review,p. 235,

11-404

Since the lending terms have now become considerably harder, this process has taken a much graver turn.

Table 17 shows that in 1980 the DCs paid out more than $51,500 million in debt service to Western countries, or 54.2 per cent more than, say, the gross credits they received in 1975 ($33,400 million), whose repayment began in 1980.

According to table 17, from 1965 to 1980, gross lending to the DCs multiplied 12.2 times. The real flow, however, increased only 4.4 times. Simultaneously, their debt increased 12.2 times.

A relatively full comparison of gross and real amounts in the various categories of lending to the DCs became possible only a few years ago, when OECD statistics began publishing data on the gross volumes of official assistance, other official resources, and state-guaranteed private export credits, and also estimates of interest payments on a number of credits.

From 1956 to the mid-1970s, 12 developing countries urged groups of creditors to reschedule their debts on 37 occasions. Most of them kept resuming the negotiations to ensure a more satisfactory outcome. As a result, these developing countries managed to defer more than $9,000 million worth of debt service payments. These countries are no exception: about 60 other DCs carried on bilateral negotiations with DAG member countries, in the course of which they managed to obtain $1,400 million worth of debt relief.

In the 1960s, debt service payments increased somewhat slower as compared with the preceding period, but the rate of increase was on average three times higher than that of the export earnings of non-OPEC DCs.

In the 1970s, the gap between their export earnings and their debt liabilities continued to widen, especially following the rise in oil prices and the onset of the profound economic crisis in the capitalist countries in 1975. Some developing countries, primarily those with a high GDP level, borrowed even more than it was necessary to cover their balance-of-payments deficits, aiming to create additional foreign-exchange reserves in order to appear more creditworthy and obtain easier access to international markets of capital, and also to guarantee large private credits. Professor Albert Fishlow of Yale University noted: "It is easier

to borrow for reserve acquisition than for imports, easier to borrow when there is surplus foreign exchange rather than a shortage.''^^1^^

In the early 1980s, the economy of a number of leading capitlaist states, the USA above all, was hit by a new cyclical crisis, with declining production and cutbacks in imports from the developing countries. In view of that, many of the latter found it even harder than before to repay their external debts. From 1975 to mid-1982, capitalist creditor countries (members of the Paris Club and other similar bodies) were obliged on 27 occasions to carry on talks to reschedule the debts of 15 developing countries. Other DCs negotiated on these matters with groups of private international banks. As a rule, the results of such negotiations lighten the DCs' debt burden only insignificantly. According to an IBRD estimate, negotiations by 11 developing countries in 1981 resulted in the rescheduling of only $2,400 million worth of debt.~^^2^^

In the future, the DCs will have to face a worsening debt problem, for under their inequitable position in the international economic relations of the capitalist system, the debt noose is bound to be further tightened.

The developing countries' debt burden can be relieved by expanding the export of goods produced in these countries, manufactures above all. Export earnings are already the main source of funds for debt service payments, and a due increase in such earnings could reduce the volume of external borrowing and eventually alleviate the external debt problem to acceptable dimensions.

The late 1970s and early 1980s were marked by a sharp increase in protectionism on the part of Western states, especially in trade with the DCs. In 1979, 62 per cent of the OECD countries' non-food imports from the DCs were controlled in one way or another, as compared with 24 per cent for imports from other OECD countries.^^3^^ If Western trade barriers against the exports of a large nu nber of developing states were fully eliminated, their export earnings would go up by tens of billions of dollars.

A state's ability to repay its foreign debt depends on a

~^^1^^ Foreign Policy, No. 30, Spring 1978, p. 137.

2 The World Bank Annual Report 1982, p. 26.

3 Intereconomics, No. 3, 1980, p. 148.

number of factors. The crucial one, however, is the volume of earnings from the export of goods and services. A comparison of that major source of foreign exchange with the volume of debt service payments in a given year (the so-- called debt ratio) gives a good idea of the debt burden. That ratio is used by international lending organisations (like the IBRD) in elaborating their policy with respect to a particular borrower, regarding it as a major indicator of creditworthiness.

At the same time, other factors affecting the creditworthiness of diverse countries make it difficult to determine the critical level of the debt ratio. Past and present examples show that when the debt-service-to-export-- earnings ratio is close to 40 per cent or even higher, the debtor country may continue meeting its obligations. Egypt's debt ratio in 1973 was 52.5 per cent (74.6 per cent if only commodity exports are taken into account); the ratio was 62.8 per cent for Mexico and 35.8 per cent for Brazil (1979), 49.7 per cent for Bolivia and 45.8 per cent for Uruguay (1978), and 33.0 per cent for Mauritania (1979).! But, as a rule, a considerable increase in that ratio owing to a sharp drop in export earnings tends to lead to defaults.

Now that the foreign-exchange reserves in most DCs, especially in comparison with their economic development requirements, are very insignificant, the danger threshold has lowered. A report by UNCTAD's Secretariat puts it between 15 and 20 per cent. A higher debt ratio is seen as a sign of potential danger, and a lower one as ``satisfactory''. But there can be exceptions in both instances.

Growing debt service makes the borrower country more vulnerable in the vent of a sudden drop in export earnings or foreign aid. Since debt service payments are stipulated in advance and do not change, a decline in (or slower growth of) export earnings further reduces the debtor country's import possibilities. The higher the debt ratio, the stronger is the adverse effect and the greater the dependence of the country's import possibilities on export earnings and foreign aid.

Capitalist ``aid'' commitments are by no means reliable and can be reduced at any time for political or other rea-

1 Calculated from Handbook of International Trade and Development Statistics, Supplement 1981.

sons, something that has a most unfavourable effect on the recipient country's import potential, especially if the debt ratio is a high one.

In the course of the DCs' economic development, the structure of their imports gradually changes, with a switch of emphasis to elements of fixed and circulating capital: machinery and equipment, raw materials and semi-- manufactures for industry, while the proportion of consumer goods tends to go down.

In the imports of African countries, for instance, the proportion of machinery, equipment and transport facilities went up from 27.2 per cent in 1960 to 33.5 per cent in 1970 and 37.6 per cent in 1979, while the proportion of foodstuffs, drinks and tobacco goods went down from 19.3 to 16.1 and 15.3 per cent.^^1^^ These changes have entailed an increase in "elements of rigidity" in the imports of these countries, that is, there are fewer opportunities to compensate for declining export earnings by reducing imports without running the risk of a slowdown in economic development.

If capitalist lending policy continues along the same lines, with an extremely slow growth of aid in real terms, a steady decline in the share of subsidies, an expansion of commercial lending, and the retention of diverse barriers in the way of industrial exports from the DCs, the debt ratio is bound to grow.

In 1980, nine of the 70 countries for which such data are available have crossed the danger threshold in spite of many instances of debt rescheduling, and in four of these the debt ratio exceeded 25 per cent. The number of countries in an intermediate position went up to seven, and 57 countries remained outside the danger zone.

The Problem of Debt Relief

As is evident from the foregoing, if loan capital is borrowed over a long period on a constant scale, the outflow of funds in mounting debt service payments inevitably re-

~^^1^^ Calculated from Handbook of International Trade and Development Statistics, 1977; Supplement 1980; Monthly Bulletin of Statistics, No. 5, May 1981.

duces the real importance of that lending source and eventually brings it to nought.

The initial net flow of funds can be restored in two ways: either by obtaining new and larger loans, or by taking diverse steps to reduce the outflow of funds from the country. The first way ultimately leads to an impasse, for new loans, even on the old terms, rapidly increase the indebtedness and, consequently, the outflow of funds in service payments. The country becomes much more dependent on its external creditors, who often use its grave financial situation to harden the terms of their credits. A DAG review on the debt problem points out: "Hard terms may reflect the health of a borrower, or such a critical situation that it is willing to accept any terms.''^^1^^

In some instances, DCs seek to reduce the debt burden by curbing recourse to new loans. Although in the long run such a policy could slow down the growth of the indebtedness and service payments, its immediate result is a shrinking of resources available for economic development. Declining development rates are ultimately bound to affect the country's opportunities to repay its external debts.

The way of somehow reducing the amount of debt service is more promising for the DCs.

When a debt is rescheduled, the country gets a respite, but the amount of debt service is further increased, rather than reduced, for during the moratorium, when repayment of principal is suspended, the creditor continues to charge interest. Such a method of reducing current debt service payments could be useful in the event of a temporary lapse in the country's creditworthiness (as a result, say, of a decline in the world prices of its exports or a crop failure). By consolidating the debt, the borrower can improve the structure of payments. If most of these are concentrated over a short period with a subsequent tail-off, it is better to space out the payments in time.

The capitalist creditors, for their part, do their utmost to reduce the adverse effect on their finances of the temporary decline in their receipts from the borrower countries. During the moratorium, they usually impose on the DCs higher interest rates than those stipulated under the terms of the credit. As a result, the debt repayment burden is eased only

~^^1^^ Development Assistance..., 1967 Review, p. 73.

slightly, while the overall indebtedness even increases.

If the difficulties in debt service are long-term and chronic, consolidation of the debt, in the final count, only serves to aggravate the problem. The debtor country then calls for refunding. New credits extended on softer terms enable it to repay old debts incurred on earlier and harder loans. The point here is to ensure that the refunding is large enough and its terms are soft enough for the fulfilment of that task.

A more typical situation, however, is when developing countries are obliged to resort to refunding on the same terms. Such a policy meets the creditor's interests. David O. Beim, Vice-President of the US Export-Import Bank, writes: "Because of the need to maintain confidence, the banks would rather accommodate ... a new loan ... than any of the other alternatives... The banks have no interest in forcing confrontations involving defaults and reschedulings, with consequent shaking of confidence not only in the borrowers but more particularly in the banks themselves... A rescheduling is a confrontation, an admission of failure ... while a new loan is business as usual.''^^1^^

The most radical method of relieving the burden of debt service is to cancel the debt, in part or in full. That method is particularly effective for countries with chronic, longterm indebtedness. But creditors agree to such a measure only as an exception.

As it was pointed out above, the rapid growth of the DCs' external debt over the past 10-15 years has led to a number of crisis situations, when debtor countries have been unable to meet their obligations, suspended payments, and called for debt relief. But such relief is afforded very reluctantly or not at all. As a rule, the capitalist creditor agrees to such measures only if the debtor has already defaulted or is about to default. The DAC review for 1969 says: "Donors have been extremely reluctant to provide such relief, and do so only when no other alternative is available.''^^2^^

``If there is any principle which may be said to guide debt-relief operations it is that the relief afforded should be the minimum needed to ensure the early resumption of service payments and that the cost to creditors of any postponement of amortization and interest payments ... should

1 Foreign Affairs, New York, Vol. 55, No. 4, July 1977, p. 723.

2 Development Assistance..., 1969 Review, p. 235.

be matched by additional interest charged at commercial rates.''^^1^^

Any breach of the debt repayment process is, from the standpoint of the capitalist creditor, a breach of the ``sacred'' essence of credit relations, not only because it does direct damage to the creditor's interests, but also in view of its side-effects. Western creditors maintain that if debt relief is freely available, the number of countries wishing to resort to it could rapidly increase, while extreme reluctance to afford such relief ``disciplines'' the debtors and makes them manage their external debts more efficiently.

To strengthen their stand in the negotiations with debtor countries, the capitalist powers unite in groups known as clubs. The unofficial nature of these clubs enables government representatives of their member countries to impose terms on the debtor states which are often incompatible with the principles of international economic relations as proclaimed by organisations like UNCTAD.

In some instances, creditors act with the backing of international lending organisations. Thus, the three rounds of negotiations with Ghana in the period from 1966 to 1970, were held in London under the IMF's nominal auspices, but the terms of debt rescheduling were dictated by Britain and the FRG, Ghana's leading creditors. The negotiations on debt relief for Turkey, Indonesia and India were carried on by consortiums which include the leading capitalist creditor countries, and in the latter instance the group was led by the IBRD.

The capitalist creditors seek to use the debtor countries' grave situation and certain concessions to these countries in order to make them follow an internal policy which suits the creditors, that is, to interfere in their internal affairs and strengthen their own economic positions. Promises of financial assistance from the IMF's reserve (stand-by) credits are used as an additional lever. That is one of the reasons why the IMF is drawn into the talks on debt settlement with a number of developing countries.

``The more distressed the borrower, the more aggressive and formal are the conditions [of the new loan---Ed.] likely

^^1^^ Debt Problems of Developing Countries. Report by the UNCTAD Secretariat, United Nations, New York, 1972, p. 22.

to be.''^^1^^ The borrower can be required to slow down the pace of economic growth or introduce austerity measures. Egypt's experience shows, for instance, what can happen if the borrower meets such demands. Under the austerity programme introduced in the country at the IMF's insistence as a condition for a new loan, food and fuel prices were no longer subsidised. That led to popular unrest in early 1977, so that the Egyptian government was eventually obliged to abandon that programme.

At the early stage of the negotiations, the creditors usually require the debtor country to supply them with all the necessary information on its external obligations and liquid assets. If such information is not available in ready form, the creditors' club demands that its representatives should be given access to the debtor's documents, and carries out the necessary investigation on its own, usually over a period of several months. To make the debtor country more compliant, it is not allowed any additional credits in that period, however pressing the need.

Capitalist creditors usually refuse to reschedule debts on a scale and over a period which would ensure a radical solution of the problem. As a rule, they agree to postpone the repayment deadlines by no more than one or two years; moreover, it is not the whole sum of the payments due in that period that is postponed, but usually one-half or, at best, 70 per cent. That is why the situation soon takes a graver turn once again, and the debtors are again obliged to ask for rescheduling and a new agreement.

As a result of such a policy on the part of the imperialist powers, from 1973 to 1983, 12 African countries held 24 rounds of debt rescheduling negotiations. In that period, Zaire was obliged to have its debt rescheduled five times, Togo and Sudan four times, Liberia and Madagascar three times, and Sierra Leone, Uganda and Senegal twice. Such a policy is based on the ``short-leash'' principle, and its purpose is to keep the debtor country in constant dependence so as to be able to interfere in its internal affairs and direct these along the desired lines. Such an approach virtually makes it impossible for the debtor country to prognosticate its economic development.

The rescheduling procedure usually goes through several

1 Foreign Affairs, Vol. 55, No. 4, July 1977, p. 724.

12-404

stages. At the first stage, the representatives of the club and the borrower country agree on the general terms of debt relief (volume and length of the moratorium, deadlines for the deferred payments, etc.). At the next stage, the general principles are spelled out in detail and specified in the course of the debtor's bilateral negotiations with each of the creditors. At that stage, in particular, they settle the question of interest rates during the moratorium. These can differ markedly from one creditor country to another, but usually the rate is commercial or near-commercial, ranging from 5-6 to 8 per cent.

In addition to the negotiations at intergovernmental level, talks are often held with groups of private creditors in the corresponding capitalist states, who form their own monopoly associations. The latter's aim is to settle the debts on private, non-guaranteed credits. It goes without saying that at every stage of the negotiations the debtor country's government is subjected to strong pressure, and that the whole negotiation process is very protracted.

The external debt problem and the critical situations arising in the DCs in that connection have become the subject of sharp debates in various international forums. These debates have brought out the antithetical approaches to the solution of that problem put forward by the DCs and the capitalist creditor states.

Among the major documents reflecting the DCs' demands in this field are the Manila Declaration and Program of Action, adopted by the Third Ministerial Conference of countries belonging to the Group of 77 in January and February 1976. The DCs' proposals were spelled out in a report on the external indebtedness of developing countries presented to an intergovernmental group of experts in Geneva in July 1977.^^1^^ The developing countries demanded that immediate and generalised debt relief should be provided to all affected countries, the least developed countries above all. With this aim in view, the latter's debt on bilateral credits should be converted into grants. Other "most seriously affected countries" should receive the same treatment or, as a mini-

1 UNCTAD. Trade and Development Board. Report of the InterGovernmental Group of Experts on the External Indebtedness of Developing Countries, Annex I, TD/B/670, TD/AC. 2/7 Annex I, p. 1.

mum, should have their outstanding official debts recomputed on IDA terms.

With regard to the commercial debt, they propose an international agreement to consolidate the debt and postpone its repayment for at least 25 years. The DCs also propose the formation of a special financial body for refunding burdensome short-term loans.

A major specific feature of the DCs' proposals is a striving to legitimatise the right to call for debt rescheduling, tying it in with the establishment of a new international economic order and gearing it to the development needs of the young states. In their opinion, the right to put forward proposals on such rescheduling should be the debtor country's exclusive right, and any possibility for international control or a priori analysis should be ruled out. With this aim in view, the necessary measures should be taken at the earliest stage, long before the DCs' problems deteriorate into a crisis and disrupt their economic development plans. Debt reorganisation should be based on principles which include correspondence of the measures being taken to the goals of ensuring at least minimum rates of per head income growth and to the socio-economic priorities formulated in the country's development plan.

The DCs' just demands met with resistance on the part of the industrialised capitalist states, which formulated their own ``principles'' of debt reorganisation. The 15 leading capitalist creditor states, which presented a draft resolution, maintained that the way to help the developing countries was to enable them to borrow in the capital markets of the creditor countries, and also to provide technical consultations on how to use the funds borrowed on market terms.¹ The capitalist creditor states put the main blame for the default situations on the developing countries, recommending the latter to muster their internal resources and make more efficient use of foreign loans, and also to reduce external borrowing.

The creditor states insist that defaults should be considered on an individual basis or within the framework of creditors' clubs. Countries faced with debt service problems

1 UNCTAD. Report of the Trade and Development Board on the Third (Ministerial) Part of Its Ninth Special Session, Annex II, TD/B/699/Ann. H/, Geneva, AprU 13, 1978, pp. 3-7.

12*

should apply in advance to the IBRD or some other multilateral financial institution, requesting it to analyse their economic situation. If the analysis shows that the country's opportunities are limited, the international institution presents its conclusions and proposals to the creditor countries. The latter should consider measures to extend their aid on the condition that the developing country takes corresponding steps. One provision of the draft resolution puts this quite plainly: 'The debtor country would undertake a comprehensive economic programme designed to strengthen its underlying balance-of-payments situation. This programme would, as a general rule, be worked out with, and monitored by, the IMF." Programmes for extending aid are considered to be preferable to debt reorganisation. ^l

To moderate the unfavourable impression from the reluctance of the industrial capitalist countries to make concessions to the DCs on the main questions of international economic relations, these states proposed at the North-South talks a $1,000 million programme of "special measures" in support of countries with a low national income. The programme should envisage additional aid to the "least developed countries" in the form of payments through multilateral or bilateral channels, and also by debt relief. The terms of aid in the framework of such "special measures" should be close to IDA terms.

Leaving aside the question that the volume of "special measures" is obviously inadequate for meeting even the minimum requirements of the "least developed countries" for additional external resources, this programme can be carried out only if it is approved by the legislative bodies of the creditor states involved. Moreover, the disbursement of these resources is extended over several years.

Under the "special measures" programme, a number of capitalist countries have announced their contributions to its implementation.

The motives of the capitalist states in this matter are far from altruistic, as it is evident from a frank statement by the West German Inter economics: "The Federal Republic of Germany, together with the United-States of America, is one of the most determined opponents to the developing

countries' demand for a general debt moratorium... However, the outcome of recent international conferences will not be without consequences for the actual relationship between [West-Ed.] Germany and the developing countries. At least the necessity of reconsidering possible arrangements has become clear, if a further isolation of the Federal Republic of Germany in the North-South dialogue is to be prevented.''^^1^^ The total liabilities of the "least developed countries" on official development credits from the FRG amounted to DM 2,211 million ($1,050 million) at the end of 1977, including DM 1,838 million worth of principal and DM 373 million worth of interest payments. But since these liabilities were to fall due only in the fairly distant future, their cash value, i.e., the present (discounted) value of the future debt, was considerably lower. Thus, the cash value of the debt itself (i.e., the sum total of payments due to amortise the debt) was DM 610 million, or $289,9 million (also calculated for the end of 1977), and the cash value of interest payments was DM 178 million, or $84.6 million. Such was the volume of the FRG's concession in favour of the "least developed countries''.

Apart from these liabilities, the "least developed countries" owed the FRG DM 1,004 million on official and officially guaranteed private export and bank credits, and the FRG government does not intend to forgo these debts, which involve much larger service payments.

The FRG's losses from forgoing a part of its debt to the developing countries are not large. In 1978 and 1979, the annual revenue shortfall was DM 79 million ($37.5 million), and then the figure began to decline: DM 58 million ($27.6 million) in 1980, and so on.^^2^^ Canada's concession, being discounted to its present value, shrinks to $35 million instead of $250 million in revenue shortfall. The nominal value of the credits extended by Switzerland to the DCs as of January 1, 1978, was SFr 179.2 million, and their discounted value only SFr 67.4 million, or $26.9 million. The deadlines for the transfer of additional funds to the worst affected DCs under the $1 billion "special measures" programme are not precisely stipulated, and could thus take a long time.

~^^1^^ Intereconomics, Nos. 7-8, 1977, p. 204.

2 Intereconomics, Nos. 3-4, 1978, p. 67.

1 Ibid., pp. 3, 7.

The toreign debt problem can radically be solved only in the context of a fundamental change in the DCs' position in the system of international capitalist division of labour, with attainment of genuine equality in their economic relations with the West. This goal can only be achieved as a result of the DCs' long-term, progressive and successful socio-economic development, as they overcome both internal difficulties and the resistance of imperialist forces hostile to progress. For the time being, the foreign debt situation is worse than ever before, making it ever more difficult for the DCs to negotiate with the West. A resolution on foreign debt issues adopted after fierce disputes at the Sixth UNCTAD Session in Belgrade in June 1983, is indicative in this respect. The Western countries agreed to make a " positive response" to debt relief requests only from some of the least developed countries, and only with regard to debts on official assistance. As for debts to private creditors, the West refused to ease the developing countries' debt burden in any way.

CONCLUSION

An analysis of the peculiarities, mechanism and lines of capitalist ``aid'' to the developing countries brings out the complicated and contradictory nature of that form of international economic relations. Although the proportion of aid in the overall flow of resources from the industrial capitalist countries to the DCs has somewhat declined, it remains a major instrument of neocolonialist expansion and exploitation of the newly independent states.

One of the major goals of capitalist ``aid'' is to promote private-capital and commodity export. From 1960 to 1981, total capitalist aid to the DCs in current prices (minus repayments) amounted to $237,300 million. Even considering that non-material forms of aid (technical assistance services) amounted to about one-third of the total, one will clearly see its important role in expanding the markets for the products of capitalist countries. Under aid programmes, they have exported to the DCs over $158,000 million worth of products. The policy of tied aid also serves to expand commodity exports from the industrial capitalist states, enabling their private capital to make additional profits and harming the interests of the developing countries.

The donor states also pursue that policy in using aid funds to build projects with a high import content. Such projects, which are marked by high capital-intensity, are fitted out with technology which cannot ease the DCs' unemployment problem in any serious way.

The main function of aid is to advance imperialism's strategic purposes in the developing countries. The very nature of allocating aid to the various recipient countries and lines of investment is primarily due to the creditor states' politi-

cal and economic considerations, rather than the needs of the recipients. Countries which have the closest political links with the creditors get a disproportionately high share of resources, while those with a low GDP per head of population, poorly developed productive forces and low living standards are at the bottom of the list, although, one would think, they should have been the main recipients.

Although some industrialised capitalist states have proclaimed a switch of emphasis to the poorest developing countries and the least well-off strata of society, the social orientation of the aid programmes has remained the same. Apart from satellite states, these are still countries with medium and above-medium development levels and with a fairly large market.

A considerable portion of the aid being channelled to capitalist-oriented DCs falls into the hands of the corrupt bourgeois elite and the bureaucrats, who use it for personal enrichment, for building villas, buying luxury goods and consumer durables.

Having analysed the impact of aid on the accumulation process in the 32 leading recipients of aid, the British economists K.B. Griffin and J.L. Enos come to conclusions which differ from the conventional bourgeois view that any aid, being an additional source of external funds, entails an expansion of capital investment and inevitably leads to faster economic growth. In many instances, especially where the recipients are reactionary regimes, a large part of the aid is not used productively, but goes to expand the consumption of the ruling elite without enlarging the accumulation fund. Griffin and Enos draw their conclusions mostly on the strength of Latin American experience, but emphasise that these conclusions apply to many Asian and African countries as well.

Having analysed the correlation in the GDP between the proportion of gross internal accumulations and that of accumulations from foreign sources, they write: "...In general, an extra dollar of aid is associated with a rise in consumption of about seventy-five cents and a rise in investment of only about twenty-five cents." They also point out that "governments, finding abundant resources abroad, expand their consumption ... and refrain from raising taxes. In other words, aid frequently becomes a substitute for tax re-

forms...''^^1^^ So, local governments often use external funds to justify their refusal to introduce progressive taxation laws, which also helps to entrench the social inequality in the developing countries.

Although in most DCs, expecially in Africa, the rural population makes up an absolute majority, the bulk of foreign aid is directed at the solution of urban problems. According to OECD estimates, about 80 per cent of total capitalist aid to the developing world has been used in the towns and only 20 per cent in the countryside, whereas the proportion of the urban and rural population in the DCs is roughly the opposite. Such disproportionate distribution inevitably serves to deepen the antagonism between town and country, intensifying the flow of the rural population to the towns, increasing unemployment, and entailing various other adverse socio-economic consequences (like greater demand by the urban population for imported food).

Since aid funds are clearly inadequate for meeting the DCs' development requirements, they are obliged to resort to private external loans and credits on a large scale. Hence their huge indebtedness and their growing dependence on the developed capitalist countries. The aid-giving procedures themselves (extension of aid largely on an annual basis, the creditors' refusal to guarantee a definite flow of funds over a more or less protracted period) keep creating an atmosphere of uncertainty in the developing countries as regards the construction of this or that project, and jeopardise the realisation of their long-term development plans.

The DCs' hopes that aid from industrialised capitalist states would markedly increase their economic growth rate and help them eliminate the enormous difference in economic development levels have not come true. The report by the Pearson Commission, whose pretentious task was to sum up the results of capitalist ``aid'' over two decades, contains an admission of the fact that "the correlation between the amounts of aid received in the past decades [by individual countries-.Ed ] and the growth performance is very weak".2 The report goes on: "...Much aid was given in ways which did not make it as efficient a contribution to

1 Economic Development and Cultural Chanee Vol 18 Nn <? April 1970, p. 321.

'

2 Partners in Development..., p. 49.

development as it could have been." Among the reasons for the low efficiency were: "a considerable portion [of aid---Ed.] was allocated on essentially political criteria without regard to whether the recipient made effective use of it or not"; there was little or no previous experience in aid-giving; and finally, "aid has often been directed at the promotion or financing of exports from developed countries with little relevance to development objectives in the receiving countries".^^1^^

Some bourgeois economists, like P. Bauer, K.B. Griffin and J.L. Enos, directly point out the negative results of the use of foreign aid by many developing countries. Griffin and Enos write: "If anything, aid may have retarded development by leading to lower domestic savings, by distorting the composition of investment...''^^2^^

. The DCs are well aware of all the adverse consequences of the use of capitalist ``aid'' and dependence on it. That is why in recent years they have increasingly sought to rely on their internal resources. That striving was expressed, in particular, in the Lagos Plan of Action, adopted by an assembly of African heads of state in April 1980, which points out that foreign aid should only supplement the recipients' own efforts, rather than provide the basis for development.

At the same time since the DCs are very much in need of additional material resources, they cannot afford to give up foreign aid altogether. Progressive socio-economic transformations in a number of developing states, their growing political and economic cooperation with the socialist countries make it possible to limit the exploitive nature of capitalist aid and use it in the recipients' national interests.

In recent years, the conflict between the capitalist creditors and the recipient countries, which dates back to the emergence of the aid phenomenon, has entered a new stage. It is marked by the DCs' united and purposeful action in the struggle for their interests. Aid problems feature prominently at sessions of the UN General Assembly, in international forums like UNCTAD or the North-South dialogue, and in the set of demands put forward by the young states for the establishment of a new international economic order

1 Ibid., p. 50.

~^^2^^ Economic Development and Cultural Change, Vol. 18, No. 3, April 1970, p. 326.

based on the principles of equality and justice. Maintaining that the industrialised capitalist states are in duty bound to extend aid to the DCs so as to compensate them, at least in some measure, for the long years of colonial exploitation, the DCs insist on serious changes in its very nature in order to adapt it to their national interests.

They have been demanding a considerable expansion of the real volume of aid. This primarily applies to the UN proposal to increase aid to 0.7 per cent of GDP, a target which the leading capitalist creditor states have not attained. Attainment of that target by 1985 could have increased the flow of concessional resources to the DCs by $30,000 million (in 1980 prices), and by $37,000 million towards 1990, something that would help to solve many of their grave development problems. The Independent Commission on International Development Issues chaired by Willy Brandt has estimated that to reach that target the leading capitalist countries would have to allocate to aid from one-fortieth to one-thirtieth of their annual increase in GDP over a period of five years. The flow of real aid should be increased if the capitalist countries are to take into account its constant depreciation as a result of inflation. Since the nominal aid figures take no account of the DCs' interest payments on earlier credits and are thus overstated, the DCs demand an exclusion of these sums from the official aid figures.

The developing countries also want the credits to be extended on easier terms, with an increase in the proportion of subsidies and a greater emphasis on capital investment. They are dissatisfied with the terms of loans. They believe that resources with a grant element of only 25 per cent should not be included in the category of official development assistance, and demand that the grant element in this category should be raised to 50 per cent.

Most DCs are also dissatisfied with the principles of aid distribution among the recipient countries. A large part of the resources is allocated to territories which are politically dependent on the creditor countries. The DCs insist that aid should be ``depoliticised'', and that it should be distributed on a just basis with due regard to the economic development levels of the recipient countries. They attach particular importance to a serious expansion of aid to the group of "least developed countries", saying that such aid should be extended solely in the form of subsidies.

They also have serious objections to the nature and principles of financing. The donor countries should assume firm commitments for several years ahead, extend aid on an automatically expandirig basis, simplify the aid-giving procedures, and accelerate the approval and launching of projects. The DCs insist that a mechanism should be elaborated for verifying fulfilment of commitments by the creditor states.

An important way to make aid more efficient from the I standpoint of the recipient country's interests is to gear it to priority lines of development laid down by the DCs themselves. Among these are assistance in prospecting for and extraction of minerals and especially energy materials, in their processing, the development of transport and communica- j tions, production of building materials, agricultural implc- | ments, fertilisers, and pesticides. The DCs pay particular attention to the development of their food potential, and so emphasise the need for assistance in irrigation and watersupply in agriculture, storage of farm produce, increase in fish-catch, selection of plants and animals, etc. They also attach crucial importance to foreign assistance in training national technical personnel for the priority lines of development.

External resources can be much more efficient if the creditors agree to lift a number of restrictions. This primarily applies to aid-tying. An _;expansion of "programme aid" enables the developing countries to meet their needs for a wide range of goods required in many branches of industry. This helps to finance local expenses in the course of construction and subsequent operation expenses, ensures a fuller use of the available production capacities, so making it unnecessary for the country to build new industrial enterprises of that kind with the use of additional external resources.

The growing foreign debt is one of the gravest problems facing most developing countries. In this matter, however, they have yet to win serious concessions from the capitalist countries. The latter have refused to consider the question of debt rescheduling in connection with the tasks of establishing a new international economic order, and of adjusting debt servicing payments to the development goals of the debtor countries. They have also turned down the proposal for immediate and generalised debt relief, primarily with regard to the "least developed countries''.

The economic relations between the DCs, including African countries, and the socialist states are based on fundamentally different principles as compared with capitalist ``aid''. The Leninist line of Soviet foreign policy assumes that the socialist countries and the newly independent states have common vital interests in the struggle for peace, for more democratic international relations, and against imperialist intrigues. It was pointed out in the CC CPSU Report to the 26th Congress of the CPSU: "We are developing wide-ranging mutually beneficial economic, scientific, and technical cooperation with the newly-free countries. The building of large projects in these countries with some form of Soviet participation figures prominently in our relations with them... The CPSU will consistently continue the policy of promoting cooperation between the USSR and the newly-free countries, and consolidating the alliance of world socialism and the national liberation movement. "1 Such a policy is in line with the fundamental interests of the developing countries and meets with their full understanding.

The political, economic and cultural links between the socialist and developing states can with good reason be described as an essentially new type of international relations. Their cooperation is based on scrupulous and consistent observance of the partners' equality, mutual advantage, respect for sovereignty and non-interference in each other's internal affairs. In contrast to capitalist ``aid'', cooperation with the socialist countries has no political or other strings which would infringe upon their national interests. The major criterion in determining the concrete lines of such cooperation is economic necessity, urgent need for the construction of a specific project with due account of the partner country's potentialities.

Such cooperation covers many fields, including construction and running of industrial enterprises, projects in agriculture and transport, development of natural resources, and training of national technical personnel. The main line of cooperation is material production, primarily industry, which accounts for about 70 per cent of all material out-

1 Documents and Resolutions. The 26th Congress of the Communist Party of the Soviet Union, Novosti Press Agency Publishing House, Moscow, 1981, pp. 17, 21.

lays on assistance to African countries.

Soviet assistance helps the DCs, in the first place, to build up an industrial base: to develop the production of pig iron and steel, oil-refining products, cement, machine tools and electric power. In countries where the conditions for such development have yet to mature, cooperation centres on enterprises in the light and food industry.

The Soviet Union has been giving the DCs considerable assistance in agriculture. In particular, it has been helping African countries to build grain and livestock farms, irrigation facilities, granaries, and other projects.

An important feature of Soviet economic assistance is that it is oriented towards the utmost use of the material and manpower resources available in the developing countries. Soviet experts perform only that part of the work which cannot be done by local personnel. In the course of the project's construction and operation, Soviet experts help to train local specialists and skilled workers, who gradually replace them. Cooperation with the Soviet Union and other socialist countries is an important factor in strengthening the state sector in the DCs' economy as the basis of their independent development.

The financial terms of such cooperation are also most advantageous to the developing countries. Most of the projects are built under long-term, usually 10 to 12-year credits at an annual interest rate of 2.5.-4.0 per cent. Such credits do not necessarily have to be repaid in hard currency, but, in accordance with the wishes of the developing countries, can be repaid with their traditional export commodities or with products turned out by their national industry, including enterprises built with the Soviet Union and other socialist countries' assistance. So, in contrast to capitalist aid, the DCs' cooperation with the socialist states does not create, as a matter of principle, any external debt problem and promotes their advance along the road of progress.

REQUEST TO READERS

Progress Publishers would be glad to have your opinion of this book, its translation and design and any suggestions you may have for future publications.

Please send all your comments to 17, Zubovsky Boulevard, Moscow, USSR.