Corruption and mismanagement of foreign aid

The effectiveness of foreign aid and international grants and assistance programmes is hindered by corruption and mismanagement. Abuses include fraudulent accounting procedures to cover poor management or to conceal misappropriation of funds for private gain. Misapplications and inefficient and questionable use of money, goods and services occur within granting national governmental bureaux, granting international organizations (public and private) and among the recipient counterparts who may be foreign officials inside or outside government service. Indifferent and incompetent management of essential services such as road and rail communications, and corruption which gives priority to luxuries for the advantaged rather than necessities for the disadvantaged, lead to the breaking down of distribution networks for goods which have reached the country where help is required but not the people in need. Although the total amount of aid in grant form is increasing, the growth in export credit loans more than makes up for lower debts from official aid loans. In addition, loans can have long-term commercial returns and create long-term dependency.

Several aid donors, including the Danish and British governments and the World Bank, froze or severely decreased financial support to Kenya in 1991 because top government officials and their relatives were siphoning off millions of dollars. The corruption was also deterring private investment, which fell by 12% in 1990, the first time since 1982.

Much of the aid to Romania in the early 1990s, intended for orphans and institutionalized inmates of psychiatric homes, was allegedly diverted into the hands of corrupt officials and intermediaries who sold it at a profit on the black market, notably in neighbouring countries. The web of corrupt officials was organized across the country and allowed only token amounts to reach the intended institution.

In October 1998 the Financial Times asserted that "half the $500 million which the World Bank gave the country Russia to restructure its coal industry has gone missing-even as coal miners sat outside the main government offices in protest against months without wages".

In 1998, beef and veal were supposedly exported to Jordan, a destination which would entitle the exporters to refunds. The real destination was Iraq, a country subject to trade embargo. The European Commission uncovered the fraud once it realized that the volume of shipments to Jordan bore no relation to local consumption.