Problem

Reverse flow of financial aid

Other Names:
Recuperation of foreign aid by lenders
Aid lenders as beneficiaries of net outflow of funds from developing countries
Misappropriation of aid by lenders from beneficiaries
Effective negative loans from development banks to developing countries
Donor profit from provision of financial aid
Nature:
Because of the amount of interest paid by developing countries to service their existing indebtedness to industrialized countries, and with the reduction in the level of commercial lending to the developing countries, lenders of funds may in fact become recipients of larger amounts than are currently being sent to the borrowing countries in various forms of development aid.

For many developing countries foreign aid from the North is less than the reverse financial flows required to service debt. This is a situation which is morally unacceptable, not just for the poorest countries but also for those "middle income" countries whose average GDP per head is usually less than a tenth of the creditor countries and where often the most adverse consequences fall on those in the severest poverty, most particularly on women.

Incidence:
Net inflows to the World Bank from the 17 highly indebted middle-income countries began in the fiscal year to 30 June 1988. They were then $1.27 billion and rose to $1.92 billion in the following fiscal year.

In 1982 and 1983 nearly $28,000 million more than was lent was received by the developed world's banks from the developing countries. At the same time bank lending decreased, as did direct investment by multinational enterprises. According to the OECD, between 1982 and 1990, total resource flows to developing countries amounted to $927 billion, while over the same period these countries paid $1345 billion in debt service alone. Between 1983 and 1990, sub-Saharan Africa paid back $1.8 billion more to the International Monetary Fund than it received in new loans.

In Tanzania, debt repayment has absorbed more funds than either health or education since the 1980s. In reality, many African countries are quite simply bankrupt and unable to repay loans. In 1991, Tanzania met less than one quarter, and Zambia only around one third, of its scheduled debt payments.

Counter Claim:
Lending to developing countries cannot rise continually, and it is not appropriate to aggregate the results of such operations beyond the country level.
Problem Type:
E: Emanations of other problems
Date of last update
14.03.1997 – 00:00 CET