Foreign Aid Definition and Examples

Foreign aid

Foreign aid is voluntary transfer of resources, including capital, to developing countries that lack a strong industrial base and a high Human Development Index. It can take the form of loans, grants, or soft loans. While hard loans require repayment in foreign currency, soft loans require repayment in the country's home currency. The World Bank lends in both hard and soft forms of foreign aid. In order to determine which type of aid to provide, consult the definitions and examples below.

Multilateral aid

While many countries work together to support development projects in developing countries, the term "multilateral aid" is a broader definition. It refers to humanitarian assistance provided by more than two nations. Often, this aid helps coordinate efforts and harmonizes efforts, but there is little accountability to the people it is designed to help. While many donors have their own preferences when it comes to what types of aid they give, some countries are more inclined to help specific multilateral institutions or funds. For example, Australia gives more money to multilateral development banks than it does to United Nations agencies. But the voting at multilateral development banks is weighted according to financial contributions, making Australia's contributions equal to those of other countries.

Multilateral aid can take the form of money, food, medications, weaponry, technical services, training, and information technology. Multilateral organizations are organizations governed by member governments and are the primary source of funding. By contrast, bilateral cooperation relates to direct cooperation between countries. In contrast, multilateral aid is not meant to be coercive. It should be given only when the recipients of the aid are willing to cooperate.

Bilateral aid

In the world of sudden crises, the UN organizations, such as the World Health Organization, are crucial. The World Food Programme (WFP) faces enormous challenges, dealing with a growing population and a community fleeing a country. On CBS 60 Minutes, a representative of the WFP described its emergency aid to over a million refugees. Bilateral aid is assistance transferred from one country to another, and is responsible for 75% of all aid worldwide.

Foreign aid, or "tied aid," is foreign assistance that a recipient country agrees to spend on goods or services from the country that provided it. High-income countries donate money to countries in need through multilateral aid organizations such as the United Nations and the World Bank. Examples of aid programs are short-term emergency aid (for example, food and clean water), long-term education (an ongoing program to improve living standards), and debt abolition, which involves wealthy nations canceling debts owed by developing nations.

Official development assistance

When speaking of official development assistance, it is not always easy to find a precise definition or example. In the past, researchers from the University of Copenhagen have attempted to quantify the effects of international aid on specific countries. However, they have found that evaluating official development assistance has proven to be difficult due to its high-risk-high-reward nature. As such, the term "Official Development Assistance" is often used to refer to a broad category of foreign aid that includes private investments, actions by foundations and NGOs, and money transfers made by expatriates. In 2017 alone, this category was estimated to be worth 466 billion dollars and 415 billion euros.

Another important definition of official development assistance (ODA) is that it is funding from public entities in developed nations for the purpose of improving living conditions in low and middle-income countries. This assistance can be in the form of grants, loans, or other financial aid. In many cases, the government of the recipient country provides the majority of the money needed to finance a project, such as the construction of a hospital or school in a region.

Military aid

There are several types of foreign aid, but one of the most well-known is military assistance. Military aid is provided to countries in need when other methods of foreign assistance fail. It may be provided to groups that struggle to maintain their autonomy, and may also be given to governments that oppose authoritarian regimes. In the Cold War, many democratic nations found themselves at odds with undemocratic forces backed by foreign powers.

The State Department and the Defense Department are responsible for the bulk of unclassified military aid, with the Department of Justice, the Drug Enforcement Agency, and the Department of Homeland Security administering smaller overseas programs. While most foreign aid is classified, some programs are overseen by the U.S. intelligence community. The Pentagon's Coalition Support Funds are another form of foreign aid. Its goal is to reimburse key allied countries for their contributions to the coalition.