Foreign aid

Michaels, Simon, Ulysses

Definition

Foreign aid is defined as the transfer of funds or goods and services to developing countries with the main objective to bring about improvements in their economic, social, or political conditions. Such transfers must be concessional and non-commercial.

Foreign aid is:

concessional
non-commercial

Foreign aid is not:

military aid
peacekeeping
refugee assistance
anti-terrorism
most multilateral development assistance

Humanitarian aid

Foreign aid extended in regions where there are emergencies caused by violent conflicts or natural disasters such as floods, earthquakes, and tsunamis, intended to save lives, ensure access to basic necessities such as food, water, shelter, and health care, and provide assistance with reconstruction.

food aid
medical aid
emergency relief aid

How humanitarian aid is offered

grants
goods in kind

Development aid

Foreign aid intended to help economically less developed countries with their growth and development efforts.

project aid
programme aid
technical assistance
debt relief

How development aid is offered

grants
concessional, long-term loans
debt forgiveness (for debt relief)

Humanitarian aid and development aid are offered by both ODA and NGOs. Whenever it involves financial inflows, these enter as credits in the balance of payments, thus bringing in foreign exchange and helping countries offset possible deficits in their trade balance.

Official Development Assistance

The most important part of foreign aid, referring to foreign aid that is offered by countries or by international organisations composed of a number of countries (it does not include aid offered by non-governmental organisations).

ODA funds reach developing countries in three ways:

through bilateral aid
through multilateral aid
through NGOs

Donor countries:

most of the members of OECD
some members of OPEC
some eastern European countries

Donor motives for providing ODA

Political and strategic motives
Economic motives
Humanitarian and moral motives

Donor countries are motivated to provide aid through ODA for a variety of reasons:

Political and strategic motives. For example, during the Cold War, the United States provided aid to restrict the spread of communism. The Soviet Union provided aid to communist states as well as some non-communist states with communist leanings. European powers provided aid to their former colonies. Often aid has been used to support regimes in developing countries that are considered to be ‘friendly' to the interests of the donor governments.
Economic motives. Developed countries often regard it to be in their interest to assist countries with which they have strong economic ties. For example, much of Japan's aid is directed towards neighbouring countries with which it has strong trade and investment links. The practice of tied aid (to be discussed below), is an important example of economic motives of donors.
Humanitarian and moral motives. Some aid is provided on humanitarian grounds for short-term emergency assistance, such as in the case of famines, wars or natural disasters. Concern about the extent of poverty in developing countries is a motive for allocating aid funds for long-term development purposes.

As a result of these priorities of donors, aid funds do not go to the countries that need them the most. In fact, middle income developing countries receive ten times as much aid per person in extreme poverty as lower income countries.

Arguments in favour of ODA

Aid and the poverty cycle
Aid and provision of basic services
Aid and improved income distribution
Aid and economic growth
Aid and the Sustainable Development Goals (SDGs)
Aid, the debt trap, and debt relief

Aid and the poverty cycle

To emerge from a poverty cycle (Chapter 19), poor people and poor communities need the government to intervene by undertaking the necessary investments in physical, human and natural capital. If the government does not have enough tax revenues, the only way the country, or community within a country, can escape the poverty cycle is through foreign aid that maka up for the lack of savings. Very poor developing countries do not have enough funds to make the necessary investments in health care, education and basic infrastructure to help people escape the poverty cycle. Therefore, countries can escape the poverty cycle if foreign aid provides the missing funds for these investments.

Aid and provision of basic services

Even ifa country is not caught in a poverty cycle, aid can make resources available for investments in health, education and infrastructure, which can help poor people improve their employment opportunities and improve their incomes. In a number of sub-Saharan African countries, foreign aid is an important component of social budgets. Many of these programmes contribute to significantly limiting the incidence of preventable diseases and reducing infant and child deaths.

Aid and improved income distribution

By focusing on the most disadvantaged groups in society, aid can help improve the relative income positions of the beneficiaries and contribute to improved income distribution.

Aid and economic growth

There is strong evidence that aid leads to economic growth, because it makes possible increased investment and consumption levels, leading to increased voluma of output.

Aid and the Sustainable Development Goals (SDGs)

The provision of aid is crucially important to the achievement of the Sustainable Development Goals (SDGs). Much of aid is closely linked to the achievement of these goals. According to the United Nations Development Programme, it will not be possible for developing countries to achieve the SDGs without enough aid.

Aid, the debt trap and debt relief

Countries that are heavily indebted (have high levels of debt) face serious negative consequences for their growth and development, especially when caught in a ‘debt trap', where they must go on borrowing more and more in order to service old debts (see below). Aid for debt relief helps countries reduce their debt burden and releases resources that can be used for poverty reduction and economic growth and development.

Factors that limit the effectiveness of ODA

Tied aid
Conditional aid (conditionality)
Aid volatility and unpredictability
Uncoordinated donors
Aid may substitute for rather than supplement domestic resources
Aid may not reach those most in need
Aid may be associated with corruption
The quantity of aid and poverty alleviation

A number of factors limit the effectiveness of aid as a mechanism for achieving economic and human development and poverty alleviation. The most important of these include the following.

Tied aid

One of the most important limitations of the effectiveness of ODA funds is the practice of tied aid, whereby donors make the recipients of aid spend all or a portion of borrowed funds to buy goods and services from the donor country. It occurs only in the context of bilateral (not multilateral) aid, and gives rise to several serious disadvantages:

Recipient countries cannot seek lower price alternafiva for the goods and services they are forced to buy from the donor country, so recipients of tied aid face higher than necessary import costs.
Having to buy specific goods and services from the donor country often results in buying inappropriate, capital-intensive technologies.
Those who benefit from tied aid are usually large firms in developed countries whose goods and services the recipient countries are forced to buy. This is a kind of support for industry of developed countries. occurring at the expense of poor country development objectives.

Conditional aid (conditionality)

Most donors of ODA impose numerous conditions that must be met by the recipients of aid. Donors see these conditions as a mechanism for forcing developing countries to make important policy changes, as well as for ensuring that aid funds are used effectively. The kinds of conditions vary from requiring the recipient to pursue policies to achieve a greater market orientation (such as privatisation, elimination of trade barriers, etc.), to forcing the recipient to accept particular projects that the donors decide on. Conditional lending creates disadvantages for developing countries. Donors do not pay sufficient attention to the preferences of the government or of the population groups the project is intended to benefit. Policy prescriptions by donors may be incorrect; they may not fit in with the government's development strategy and priorities; and they may weaken the recipient government's authority and accountability to its citizens.

Aid volatility and unpredictability

The flow of aid funds (particularly bilateral flows) into developing countries is volatile (unstable) and unpredictable. This is partly due to changing volumes of aid in donor budgets, and changing donor priorities on how to allocate aid funds. This makes it difficult for recipient governments to implement policies that depend on aid funds, as they cannot be sure if and when funds will be available to undertake necessary investments and activities. In very poor countries that depend heavily on aid for provision of basic services (such as education or health care services), disruptions in aid flows can have very serious effects on the welfare of the population groups affected by the aid cuts.

Uncoordinated donors

In any recipient country there are usually large numbers of donors (bilateral and multilateral) who finance uncoordinated activities, giving rise to numerous inefficiencies in the use of aid resources. Sometimes the numbers of aid-funded projects are in the hundreds. Lack of co-ordination of such projects results in overlapping and duplication of some projects, inconsistencies between other projects, and the lack of coherence in the entire aid effort.

Aid may substitute for rather than supplement domestic resources

Aid resources are intended to supplement insufficient domestic resources. A possible danger is that governments in recipient countries may use aid funds to substitute for domestic resources, and not make enough effort to increase domestic revenues through taxation. The evidence on this issue is mixed; whereas some countries have been unable to increase tax revenues in spite of growth, others have succeeded in increasing tax revenues even as aid increases rapidly.

Aid may not reach those most in need

Aid resources are not allocated on the basis of the greatest need for poverty alleviation. Donors do not allocate aid resources according to country needs, focusing instead on promoting their own interests. As noted by the US Congressional Research Service, aid ‘can act as both carrot and stick and is a means of influencing events, solving specific problems and projecting US values'. In addition, recipient country governments may not be genuinely committed to poverty alleviation; they may lack the necessary expertise to design and implement poverty alleviation policies; tied aid may favour projects that are not appropriate for poverty alleviation; donors may select projects that are not the most effective from the point of view of poverty alleviation.

Aid may be associated with corruption

Corruption involves misuse of aid funds by recipient countries, and is a key problem associated with the provision of aid. Corruption is a reflection of the degree of transparency and accountability in public affairs, and tends to be more prominent the lower the per capita income of a country.

The quantity of aid and poverty alleviation

SDG 17.1 (goal 17, target 2) states ‘Developed countries to implement fully their official development assistance commitments, including the commitment by many developed countries to achieve the target of 0.7 per cent of ODAIGNI to developing countries . . .'

Donors have repeatedly promised to allocate 0.7% of their GNI for ODA, however only a few meet this target. Since those that do not are among the larger and wealthier donors, it means that overall ODA funds are far less than the target amount. If rich countries fail to follow through on their commitments, developing countries will be unable to make the investments in health, education and infrastructure needed to improve welfare and support the economy on the scale required to achieve the SDGs.

Non-governmental organisations

Non-profit organisations that provide a very wide range of services and humanitarian functions; in developing countries they provide foreign aid, all of which takes the form of grants (there are no loans involved). They are involved with an enormous range of activities, including emergency assistance, promotion of sustainable development, poverty alleviation, protection of child health, provision of technical ssistance, and many more.

Well-known international NGOs (INGOs):

Amnesty International
Greenpeace
Oxfam
Save the Children
World Wide Fund for Nature / World Wildlife Fund

NGOs include a wide variety of organisations, such as charitable organisations, non-profit organisations, nationally based groups with a national or international reach, locally based community groups, or grassroots organisations, and they may operate in developed or developing countries (or both). Among the better-known international NGOs (INGOs) are Amnesty International, Greenpeace, Oxfam, Save the Children and World Wide Fund for Nature, also known as the World Wildlife Fund (both abbreviated as WWF).

NGOs in developing countries have grown massively in numbers and in involvement since the 1980s. It is estimated that developing countries now have several tens of thousands of national NGOs, and several hundreds of thousands of community-based NGOs. A growing number of these now have consultative status with United Nations agencies; from 41 in 1948, the number of NGOs with consultative status today is in the thousands. Most of these are small local groups pursuing development objectives within a relatively small community.

NGOs obtain their funds from private voluntary contributions including private sector corporations and, increasingly, from bilateral and multilateral ODA funds. In other words, more and more of ODA funds are channelled through NGOS, particularly in the case of humanitarian assistance. The reason for this is that NGOs can perform functions that are not performed as effectively by national governments.

NGOs are involved in a vast range of activities, including provision of humanitarian aid in times of crisis, promotion of sustainable development, promotion of community development, service delivery, poverty alleviation, protection of child health, promotion of women's rights, promotion of small-scale entrepreneurs, support of the poor in the informal sector, provision of technical assistance to small farmers, provision of credit to poor people (microfinance), research activities, political advocacy, support for people's movements, and more.

Advantages of NGO

Strong anti-poverty orientation of activities
Working closely with project beneficiaries
Contributing to democratisation, advocacy and raising public awareness and support
Offering expertise and advice
Ability to be innovative in pursuit of solutions
Enjoying the trust of beneficiaries

More and more bilateral and multilateral donors of ODA are channelling their funds through NGOs because of their ability to perform some functions better than developing country governments. The reasons for better performance include:

Strong anti-poverty orientation of activities

NGO activities are for the most part concerned with reaching poor people and helping them emerge from their poverty. Governments often have difficulties in reaching the very poor; NGOs have an advantage by working very closely with communities of poor people and responding to their particular needs as these arise in their own particular economic, social and environmental conditions.

Working closely with project beneficiaries

One of the strongest advantages of NGOs is that they work closely with their beneficiaries, involving local people in the design and implementation of development projects. Involvement by local people allows them to participate in deciding what problems should be addressed and how they should be solved, and gives them a sense of ownership and commitment to the project, contributing greatly to success.

Contributing to democratisation, advocacy and raising public awareness and support

Such participatory practices contribute to a process of democratisation, which can be important in countries that do not have democratic institutions. Poor people usually lack political voice and representation, and their concerns are not heard at higher government levels. NGOs play an important leadership role in acting as advocates on public policy issues, and ensuring that poor people's concerns are heard.

Offering expertise and advice

International NGOs accumulate experience from a variety of countries and local settings, many of which may be relevant and transferable to similar settings in other countries. They recruit experts in a variety of areas in accordance with need, and the experts are highly motivated out of a strong commitment to the objectives of the N60 with which they are affiliated.

Ability to be innovative in pursuit of solutions

Unlike governments, which often take a uniform approach to problems, NGOs. by working closely with their beneficiaries. can be more creative and innovative in devising solutions to very specific problems that arise in local settings.

NGOs have a greater freedom than governments to use their expertise and technical knowledge to assess problems independently and arrive at suggestions for solutions. NGOs also enjoy more freedom because their activities are not subject to the conditions often imposed by donors of aid (conditionality); and they are not subject to the restrictions associated with tied aid.

Enjoying the trust of beneficiaries

Poor people are often highly suspicious and mistrusting of government officials and administrators. feeling at best neglected and at worst exploited. NGOs sometimes enjoy greater trust than governments, because of their close relationship with project beneficiaries, and their commitment to solving problems at grassroots level.

Criticisms of NGOs

Small size and weakness of many NGOs
Possible loss of independence due to growing dependence on governments and aid agencies for funding
NGOs may attract the best qualified personnel away from government
Challenge to state authority

Small size and weakness of many NGOs

NGOs may be too small and weak to be able to play an important role as agents of change and development. They often have limited resources, and may face difficulties in attracting skilled personnel, so that the effec’a'veness of their projects may be limited.

Possible loss of independence due to growing dependence on governments and aid agencies for funding

One of the potential strengths of ”(305 is their ability to act independently, free of constraints imposed by governments, aid agencies, and bilateral and multilateral donors. However, as they become more and more dependent on these outside sources for their funding, they may lose their independence if they are forced to conform to the demands of funders.

NGOs may attract the best qualified personnel away from government

The growing role of NGOs in development creates a demand for technical experts and personnel that may deprive governments of scarce highly qualified personnel, as NGOs are often in a position to offer higher salaries and benefits than the government.

Challenge to state authority

Whereas governments generally welcome NGOs that complement their activities in poverty alleviation, they often dislike the advocacy role taken on by many “605, which may conflict with government policy or question its authority.

The consensus view on NGOs overall is favourable. However, NGOs must act in partnership with governments, and must not be considered to be a replacement of government. Governments have crucial roles to play in the development process, which NGOs, even under the most favourable circumstances, cannot possibly undertake. Governments are essential for establishing an overall policy framework for the economy, including a framework for sustainable development; for providing a legal, institutional and regulatory framework for the economy; for pursuing policies to ensure economic stability; and for correcting market failures.

Debt relief

Refers to the cancellation or forgiveness of all or a portion of a country's debt (Chapter 19.2).

SDG 17.4 (goal 17, target 4) states ‘Assist developing countries in attaining long-term debt sustainability through coordinated policies aimed at fostering debt financing, debt relief and debt restructuring'.

In Chapter 19 we saw why indebtedness is a major barrier to growth and development. In 1982, following the buildup of large amounts of debt, the international community stepped in with a series of measures to prevent developing country defaults. These measures included debt restructuring, involving new loans by commercial banks on better terms, such as granting new loans that were stretched out over longer periods at lower interest rates. The loans were used to pay off some of the old loans, and therefore ease the pain of having to service the debts. The IMF gave loans that would help cover large and growing current account deficits. The loans were conditional in that they were made only if the borrowing country government agreed to pursue policies prescribed by the IMF including tight fiscal and monetary policies, liberalisation policies and market-based supply-side policies (see above). The World Bank also made conditional loans, which also forced the borrowing country government to pursue economic and trade liberalisation policies to qualify for receiving a loan.

The Heavily Indebted Poor Countries (HIPC) Initiative

1996: the Heavily Indebted Poor Countries (HIPC) Initiative

2005: the Multilateral Debt Relief Initiative (MDRI)

In 1996, the World Bank and IMF began the Heavily Indebted Poor Countries (HIPC) Initiative, intended to provide debt relief to some highly indebted poor countries by cancelling a portion of their external (foreign) debs. The objective was to ensure ‘that no poor country faces a debt burden it cannot manage'. In 2005, this was supplemented by the Multilateral Debt Relief Initiative (MDRI) which provides 100% debt relief for debts by the World Bank, IMF and other multilateral institutions).

To qualify for debt cancellation, countries must:

have a per capita GNI below a particular level
have a debt level that cannot be sustained (i.e. they must be in a debt trap)
show evidence that they are following certain elements of IMF and World Bank policies (such as cutting government expenditures and liberalising their markets)
commit themselves to pursuing a poverty reduction strategy.

As of 2019, there were 39 countries eligible to receive HIPC assistance, of which 36 were full debt relief.

Debt relief under the HIPC frees up resources that can be spent for development purposes, since the country's savings from debt reduction must be spent on projects that attack poverty. These include development of rural infrastructure, providing health servica and education, creating new jobs, and providing family planning servica. In addition, debt reduction is made part of a broader development effort which ensures that more money is directed to the needs of the poor than just the savings from debt reduction. The result is that spending on health, education and other social services is on average about five times the debt-service payments that are saved.

Critisms of the HICP Initiative

The rate of delivery of funds remains low.
The programme takes effect too slowly.
Some measures that are imposed as conditions for a country to qualify are too severe.
There are many other countries that are highly indebted but which have not been included in the HIPC Initiative

The HICP Initiative is considered to be a welcome step in the direction of solving the debt problem, but has been criticised for several reasons:

Some of the bilateral creditors have not provided any relief and the rate of delivery of funds remains low. Their participation is voluntary so they cannot be forced to provide funds.
The programme takes effect too slowly, risking that the benefits of debt relief may follow too slowly to be of much use to the countries.
Some measures that are imposed as conditions for a country to qualify are too severe, including for example, charging fees for schools and hospitals, privatising key public enterprises such as electricity and telephone, reductions in government expenditures that reduce the provision of social services and infrastructure.
There are many other countries that are highly indebted but which have not been included in the HIPC Initiative; these countries, whose debt situation is considered to be more manageable, are not poor enough or indebted enough to qualify for assistance, yet still suffer the consequences of high levels of debt, but unable to benefit from debt relief.

Examples and data

History of the United States foreign aid

Earliest instances
World War I
World War II
Cold War
After the Cold War

Earliest instances

One of the earliest and least known instances of US foreign aid is also a good example of how aid has a long history of being used as a tool of foreign policy. On May 6, 1812, despite continued hostilities over independence from British colonial rule, US Senator from Kentucky Henry Clay signed a bill appropriating $50,000 for disaster relief food aid to Venezuela after a massive earthquake devastated the capitol, Caracas, that was enacted on May 8 by the 12th Congress (Chap. LXXIX). Coincidentally, Venezuela was also fighting a war for independence from Spanish colonial rule, from 1810 to 1823. The food aid was accompanied by diplomat Alexander Scott, who stated that this aid was “strong proof of the friendship and interest which the United States…has in their welfare…and to explain the mutual advantages of commerce with the United States.” A case may be made that some motivation for this act of generosity was diplomatic (i.e.: transactional) in nature, insofar as that both nations were seeking diplomatic recognition as sovereign from colonizers, and that this gesture would elicit such a desired reciprocal response. Later, in 1927, the US Congress appropriated $41,000 for the creation and transportation of a statue in Henry Clay's likeness to be erected in Caracas, where by all accounts it remains to this day, memorializing Clay as a symbol of US generosity abroad.

World War I

During World War I, the Committee for Relief in Belgium (CRB), which sent food to the hungry in that war-torn country, received $387 million from the U.S. government (as well as $314 million from the British and French governments and about $200 million from non-governmental sources). These government monies were given in the form of loans, but a considerable portion of those loans was forgiven.

After the war, the American Relief Administration, directed by Herbert Hoover who had also been prominent in the CRB, continued food distribution to war-devastated European countries. It also distributed food and combated typhus in the Russian Soviet Federative Socialist Republic during its famine of 1921–23. The U.S. Congress appropriated $20 million for the ARA under the Russian Famine Relief Act of 1921.

World War II

Levels of United States aid increased greatly during World War II, mainly on account of the Lend-lease program. United States government aid remained high in the decade after the war because of contributions to European reconstruction, and competition for influence versus the Communist powers in the first years of the Cold War. By 1960, the annual aid amount had receded to about half of what it was in the early post-war years, and, in inflation-adjusted terms, it has remained at that level—with some fluctuations—until the present.

The Lend-lease program, which began in 1941 (before the U.S. entrance in the war) was an arrangement whereby the United States sent large amounts of war materials and other supplies to nations whose defense was considered vital to the defense of the United States. It began with the passage by Congress of the Lend-lease act (PL 77-11) on 11 March 1941. Initially, the main recipient was the United Kingdom; the Soviet Union began receiving supplies (paid for in gold) in June 1941 outside of Lend-lease, and was included in the Lend-lease agreement in November 1941. By the end of the war, most of the Allied countries had been declared eligible for Lend-lease aid, although not all received it. By the time the program was ended by President Harry S. Truman in August 1945, more than $50 billion worth of supplies had been disbursed, of which the Commonwealth countries received $31 billion and the Soviet Union $11 billion. Although formally the material was loaned, in the end only partial repayment was demanded.

A second wartime aid program, the United Nations Relief and Rehabilitation Administration (UNRRA), was founded in November 1943, by 44 Allied governments, for the purpose of assisting and resettling displaced victims of the war.[16] Its initial focus was on assisting people in areas the Allies had captured from the Axis powers: distributing food, clothing and other essentials, and helping with medical care and sanitation. Later it also assisted in the resumption of agriculture and industry. Each of the 44 signatories was supposed to contribute one percent of its national income. The chief beneficiaries were China, Czechoslovakia, Greece, Italy, Poland, the Ukrainian SSR and Yugoslavia. UNRRA returned about 7 million displaced people to their countries of origin and provided refugee camps for about one million who were unwilling to be repatriated. UNRRA ceased operations in Europe in mid-1947; some of its activities in Asia continued under other auspices until early 1949. In the end 52 countries had contributed as donors. Contributions from governments and private organizations during the four years of the program totaled over $3.8 billion; more than half of that was from the United States.

Cold War

After the war, the United States began giving large amounts of aid to Greece and Turkey under the Truman doctrine. Both countries were experiencing civil strife between communist and anti-communist factions, and the President and his advisors feared that their efforts to keep European countries from adopting communism might be about to suffer a serious setback. In December 1946, Greek Prime Minister Konstantinos Tsaldaris visited Washington and requested additional United States aid. Truman promulgated his containment doctrine in early 1947, a major component of which was to be aid to the world's poor countries in order to blunt the appeals of radicalism to their hungry peoples and to bolster their anti-communist political elements. In May 1947 the U.S. government granted Greece $300 million in military and economic aid. Turkey received $100 million. The U.S. government gave Greece $362 million in 1949, and U.S. aid to Greece generally remained over $100 million annually until 1998. After the Chinese Civil War and the Korean War, U.S. military aid both to Europe and the developing "Third World" increased, with military aid composing 95 percent of all U.S. aid by 1954 and going largely to countries in Cold War proxy conflicts against communist forces.

The most well-known, and largest, United States aid program in the immediate post-war years was the European Recovery Program (ERP). More often known as the Marshall Plan, it was the creation of George Kennan, William Clayton, and others at the U.S. State Department under Secretary of State George Marshall. Publicly suggested by Marshall in June 1947, and put into action about a year later, the Plan was essentially an extension of the Greece–Turkey aid strategy to the rest of Europe. The U.S. administration considered the stability of the existing governments in Western Europe vital to its own interests. On 3 April 1948, President Truman signed the Economic Cooperation Act, establishing the Economic Cooperation Administration (ECA) to administer the program, and actual disbursements got underway. The focus was on promoting production, stabilizing currencies, and promoting international trade. To be eligible for the aid, a country had to sign an agreement with the United States government committing itself to the Act's purposes. The Communist countries were formally invited to participate in the Plan although Secretary Marshall thought it unlikely that they would accept and they did in fact decline the aid. Also in 1948, the United States and the recipient countries created the Organisation for European Economic Cooperation (OEEC – it became the OECD in 1961) to coordinate the use of the aid. A large portion of the money given was used to purchase goods from the United States, and the ships used to transport the goods had to be of U.S. nationality. Military aid was not part of the plan. The Marshall Plan ended in December 1951. The United States government gave out about $12.5 billion under the Plan during its three-and-a-half-year existence. The countries receiving the most were Great Britain ($3.3 billion), France ($2.3 billion) and West Germany ($1.4 billion).

Meanwhile, President Truman had started the practice of giving aid for the development of poorer countries. This was signalled in the famous Point Four of his second-term inauguration speech. Initially this assistance was mainly in the form of technical cooperation, but during the 1950s, grants and concessional loans came to play a large role in development aid, within the framework of the Mutual Security Act and alongside foreign military assistance and defense support.

From 1945 to 1953 – U.S. provides grants and credits amounting to $5.9 billion to Asian countries, especially Republic of China/Taiwan ($1.051 billion), India ($255 million), Indonesia ($215 million), Japan ($2.44 billion), South Korea ($894 million), Pakistan ($98 million) and the Philippines ($803 million). In addition, another $282 million went to Israel and $196 million to the rest of the Middle East. The main category was economic aid, but some military aid was provided. All this aid was separate from the Marshall Plan.

After the Cold War

Congress passed the Foreign Assistance Act on 4 September 1961, reorganizing U.S. foreign assistance programs and separating military and non-military aid. The Act was established by President John F. Kennedy two months later. USAID became the first U.S. foreign assistance organization whose primary focus was long-term economic and social development. As the Cold War waned foreign aid spending was cut dramatically from 0.44% of GDP in 1985 to 0.16% Of GDP in 2002.

President Barack Obama announced to the UN Millennium Development Goals summit in September 2010 that the United States was changing its policy towards foreign aid. The President said the country would focus more on effectiveness, and make sure donated food, medicine, and money help countries get to the point where they no longer require such aid. Infrastructure set up for the President's Emergency Plan for AIDS Relief would be used to build capacity in local health care systems to improve maternal and child health, and also fight tropical diseases. The new policy would increase the profile and participation of the United States Agency for International Development (USAID), which would coordinate more directly with the National Security Council and Secretary of State Hillary Clinton. Some observers criticized the link with national security and foreign policy as unhelpful for the impoverished, and others lamented the attempted streamlining as only adding more bureaucracy.