"Foreign Aid Has Flaws" (#154, Topic F)

Under the above heading, Nicholas D. Kristof comments on a recent book by William Easterly, formerly a World Bank economist (thus, technically, a former colleague of mine) and now at NYU, in today's New York Times. (I resist mentioning the book's title, as it is offensive and bears no relationship to the subject matter Easterly writes.) One point made (probably by Kristof) is that "countries that have succeeded best in lifting people out of poverty (China, Singapore, Malaysia) have received minimum aid, while many that have been flooded with aid (Niger, Togo, Zambia) have ended up poorer." This is superficially so, since it confuses cause and effect. First, a distinction needs to be made between loan and aid -- the latter is a free gift and requires no repayment, while the former is an obligation and the WB expects repayment. A self-respecting country prefers loans, the granting of which is also WB's reason of existence -- in the pursuit of which WB follows specific procedures. However, there are instances where, in the WB's judgment that the probability of loan repayment is low (or where WB has been specifically requested to make grants) would grants be offered, where procedures to follow are simpler and, thus, less time-consuming. In short, a poor country receives grants simply because it can hardly be self-supporting. Indeed, many infrastructure projects (such as river blindness cited by Kristof) are so important that they have to be undertaken whether financed by loans or by grants.