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Economics
Written by Lateef Mauricio

International Aid, Economic Sovereignty, and the Washington Consensus

At yesterday’s OPEN DC event Shaukat Aziz (former PM and FM of Pakistan) answered an audience question by talking about how IMF funding causes nations to give up economic sovereignty – this was a great point, and a very timely one given today’s economic ‘crisis.’  Aid from international financial institutions comes with rules, and currently, those rules are largely based on the ‘Washington Consensus‘ guidelines for economic growth.  Unfortunately, as economist Dani Rodrik presented in his recent book (‘One Economics, Many Recipes’), these western-built guidelines for growth may be obsolete, and at best, can use a few edits.

Some nations have received so much aid from international financial institutions that their debts have had to be pardoned…more than $40 billion in foreign debt was totally written off in 2005 for 18 nations (14 of them African).  When countries are spending most of their money on repaying debts – and forgoing critical domestic improvements – they’re terminally screwed.  It’s called foreign ‘aid’ – loans granted to spur growth by organizations like the World Bank and African Development Bank – but aid turns into a burden as it instantly becomes debt.  This is where the head scratching starts…

If you ignore a nation’s request for aid terrible things can happen…including loss-of-life (e.g. no money for healthcare = people dying).  Yet, if you provide aid to a needy nation and they allocate money incorrectly, they’re worse off then before they received aid (e.g. money goes to elitist cronies, fails to trickle down to where it has to go).  So DC-based institutions like the IMF set rules for using aid money – as Dani Rodrik argues in his book that these rules need to be more flexible, and on top of that, they must be open to prioritization..that is, uncompromising adhesion to every rule, all at once,  shouldn’t be a condition for a country to receive aid.  The point here is that the country’s institutions are already in shambles – they can only solve a few issues at a time – and those issues must be prioritized to deliver the maximum results, with as few resources.

One of the most rewarding moments of yesterday’s event was when I spoke briefly to Dr. Zubair Iqbal (scholar and economics expert @ the Middle East Institute).  After his panel finished I asked him about the Washington Consensus and he told me that there is no consensus – and we don’t even follow those rules in the United States anymore.  In reality, this is more than a sentiment…it’s a fact that is admitted openly through our policies, and rightfully so.  After all, it is impossible to apply the same guidelines for economic growth to every LDC (less developed country) since each nation has its own unique set of challenges.

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