Looking at the issue of foreign aid

In a way, it is good that this whole brouhaha about the Philippines turning down the European Union’s aid—280 million euros worth over a three-year period—has come to light. In a way. Because it forces the country to look at the whole issue of foreign aid and its importance to us, and our development.

But we have to define the issue before we even start the discussion.

So, what is foreign aid? It is assistance in the form of money, services (technical assistance), and/or goods from abroad, that must meet two criteria: 1) it must be designed to promote economic development and welfare as its main objective, and 2) it must be provided as either a grant or a subsidized loan, called concessional assistance (a subsidized loan is one which has a grant element of 25 percent or more.)

What kinds of foreign aid are there? There is Official Development Assistance or ODA, provided by donor governments, and there is private voluntary assistance, which includes grants from nongovernment organizations, religious groups, charities, and foundations (e.g., Bill and Melinda Gates Foundation, Oxfam International).

We will focus on ODA. Nota bene: Military assistance does not count as foreign aid/ODA because it does not meet the first criterion. Neither do World Bank or Asian Development Bank loans because they do not meet the second criterion (we do not qualify for loans and grants from the WB’s IDA or the ADB’s ADF). Only about 10 percent of the International Monetary Fund’s outstanding loans are categorized as ODA.

Now that we’ve got that figured out, we can ask: How important is ODA to the Philippines?  In 2015 (latest statistics), the aid volume was around $1.2 billion, as compared to its GDP for the same period of $292.45—or around 0.4 percent of GDP. Pretty insignificant if you look at the percentage, but $1.2 billion is nothing to sneeze at. Our largest donor was Japan, with almost $536 million, followed by the United States, with slightly more than half that amount. Our third largest donor was Australia, with about $90 million. The EU’s ODA was $57 million. FYI, South Korea came in fifth place, with $47 million.

So let’s focus on the EU (not to be confused with individual countries like Germany or France, etc., which have their own aid programs). The amount of $57 million in 2015, and now roughly $83 million average for the next three years, doesn’t seem like much. So why all the shouting? It must have been a deliberate decision of President Duterte, something like “Let’s not pick on the top three to make our point about foreign interference in domestic matters; the EU is small potatoes, so it’s a good choice.” Hmm.

There’s one problem with that decision: Most aid comes with conditionalities. Either the aid is tied to the donor country’s consultants or services or commodities, or it contains policy conditionalities (governance, anticorruption, rule of law) that it expects the country to be implementing or observing, or both. This is as old as the history of aid, and although there are some improvements connected to the 2005 Paris Declaration on Aid Effectiveness, progress has been slow. So unless the Duterte administration says, “To hell with $1.2 billion in aid,” it has to contend with these realities.

Maybe Mr. Duterte is confident, because he has an alternative source of aid: China, which, according to reports, had offered humongous amounts (no time period given). A word of caution: China’s official position is that developing countries know best how foreign aid should be used and therefore China never attaches  conditions to its assistance. Sounds great? Hah. Remember, China’s aid is still tied to its commodities, services, etc.

And more important, when China offered its coal to us way back during Marcos’ time, the coal was cheap, but it turned out to be unusable. Then, during Cory’s time, it offered us transport buses, cheap. Within a year they were unusable. More recently (P-Noy’s time) we got our MRT coaches from China, cheap. They arrived last year, were supposed to be ready early this year, but the date has been postponed to December.

President Duterte, please look at that Chinese gift horse carefully. Remember the tale of the Trojan one 2,800 years ago.