I recall an event about 40 years ago, in 1974, when Dr. Bhekh Bahadur Thapa—then the State Minister of Finance—had come to Washington as head of Nepal Delegation for IMF-World Bank Annual Meetings. At a social gathering in his honor, he boasted of his success in securing commitments of US $100 million in aid money for Nepal, and then, jokingly, added that it would be nice if he gets one percent of it for his efforts!
Not a bad idea. Ordinarily, people can be far greedier, especially when it comes to laying claims on the state coffers. Just last month, The Washington Post carried a piece on the high cost of raising funds for charitable institutions, like churches and orphanages. Charities employ commission agents—known as Telemarketers—who charge as much as one-third of the donated amount for their services.
I will not characterize this practice as unethical or immoral. Telemarketers, like everybody else, are practicing their trade, and if they do so openly and transparently, there should be no shame in doing so.
Dr. Thapa or similar other dignitaries who engage in this kind of fund-raising are providing a useful service to the country by bringing in resources that, otherwise, wouldn’t be there. In fact, the one percent or even ten percent pay-off for this kind of service is a bargain, and the more of it the better.
However, this is not the end of the story, not even the beginning. The issue is that of the solicitation of financial assistance from foreign donors on behalf of the people—arguing the case that our people are poor and can’t afford resources that are needed for investment and growth and, without these, they can’t improve people’s living conditions
Of course, aid donors and other financiers are moved by such pleas, especially when the pleas are backed up by data provided on measures of poverty—population below poverty line; incidence of diseases and malnutrition; access to schooling, healthcare, safe-drinking water, sanitation services; food-security and many other indicators of miserable living conditions facing large segments of the population. Such pleas for help would be hard to ignore, especially when this is backed-up by ambitious programs for poverty alleviation; well-crafted strategies for meeting Millennium Development Goals (MDG); and, topping them all, Five- or Fifteen-Year Development Plans. You just have to show what your intentions are—in terms of promises of prosperity—and the aid money will just flow in!
During the last 40 years—since the time of development aid gathering Dr. Thapa was talking about—aid donors have been generous to Nepal. No firm accounting of such aid flows to Nepal is available but we can make an educated guess. From a meager US $100 million in foreign aid receipts mentioned by Dr Thapa in 1974, it increased to nearly US $1.5 billion by last year, according to data from the Ministry of Finance. Because aid flows haven’t been consistent and steady over this long period, it is difficult to know the actual amount of aid given to Nepal. To come up with a realistic low-end estimate, we can assume one-third rather than one half of average for the two years—of US $100 million and US $1.5 billion—which would be US $500 million in annual inflows. This amount, cumulated over 40 years, gives US $20 billion in total foreign aid money received by Nepal. Not a staggering sum but quite significant for a small country.
Whether this much of aid has done any good in terms of economic prosperity and helping to improve people’s living conditions is a debatable issue because, aside from foreign aid, there are many factors impacting a country’ economic performance. Climate is one such variable; topography is another; difficulty or ease of access to world markets is a third, and, finally, the country’s politics and governance system can be a fourth one, among a myriad other factors. They all can help or hinder economic growth, given similar endowment of resources otherwise.
Judging from this perspective, we can recognize that Nepal faces some real handicaps in promoting its developments goals, the one most universally accepted factor being the country’s land-locked geography. However, in all other respects, Nepal ranks about equal or better than its Asian compatriots, including the adverse factors such as the level of political violence, frequency of revolutions, and isolationist practices of the country’s rulers. If these were the main items impacting prosperity or a lack of it, Myanmar would be primitive; Laos and Cambodia closely like that; and Bhutan would be impoverished.
Of course, all these countries have fared much better than Nepal and, looking at their relative economic growth rates, they hold much better prospects than Nepal.
Much more noteworthy difference between Nepal and other countries—largely overlooked until now in assessing differential performance—is the amount of foreign aid the country has received per capita and the duration of time the aid has been sustained. Even the poorest country of the group until just twenty years ago—Bangladesh—can’t match the amount of foreign aid Nepal has received on a per capita basis but Nepal has little or almost nothing to show in lieu of this largesse.
In his recent contribution to the foreign aid debate—Where does the money go? Best and worst practices in foreign aid—William Easterly assigns much blame for the failure of foreign aid efforts on donor countries themselves, for their practice of offering tied aid and forcing recipient countries to buy expensive contracting and consultancy services, as part of aid conditionality. He also points out the huge amounts spent by aid donors to cover administrative costs that, for example, reach over 100 percent of aid spending by UNDP!
However, Easterly ignores the extent of leakage of aid money that actually gets spent inside the country—on project and sectoral development works. If investigated, the extent of such leakages for most countries will be much larger than what is lost to donor countries offering aid. In Africa, for example, there is so much leakage of aid money in the form of capital flight that there is no net gain for the local economy. This particular feature of aid assistance has aptly been characterized as “a leaking begging bowl.”
How large is the aid leakage for Nepal? No one knows. Actually, no one cares to know—aid accountability is an alien issue for most people because it is handled as a government-to-government business in which people need not get involved.
From a larger perspective though, foreign aid provides a life-line for all those who are in the business of decision-making—in government as well as the private sector. It provides common glue that holds all the disgruntled elements of archaic state machinery together. If, by some miracle, foreign aid is stopped tomorrow, this deprivation will have the potential of tearing the society apart which, then, will cause an upheaval. This will be so because there will be a much diminished amount of surplus left to go around, for the stakeholders to share. Such a turn of fortune will then set the stage for a new revolution which, hopefully, can have a cleansing effect on the hopelessly corrupt government apparatus like nothing else can.