In June, I wrote an article for the Financial Times on the question of foreign aid and loans to post-revolutionary Tunisia and Egypt. The crux of my argument is that this aid would be a bad idea for three main reasons:
1- foreign aid’s track record is less than stellar, and it is unlikely to spur the economic growth and development its advocates promise. Foreign aid money goes to governments and development agencies which essentially engage in central planning, a discredited idea that has has a woeful track record whenever it has been tried. Prosperity doesn’t come from the planning of the few, but the freedom of the many.
2- Foreign loans will, on top of failing to spur economic growth, turn into a heavy debt burden on the recipient country, leading to increasing debt repayment burden, requiring higher taxes and potential fiscal and monetary crises.
3- The political impact of handing large sums of money to the transitional governments of Egypt and Tunisia will be to give them inordinate power, and make them accountable to their foreign funders, rather than to their people. It is worth remembering, after all, that the deposed regimes of Ben-Ali and Mubarak were themselves the recipients of large amounts of foreign funding, and we all saw how that worked out.
The article is available on the Financial Times’ website (requires free registration). Excerpts:
Perhaps most important, aid has a political impact too. Those calling for new support seem to forget that the deposed regimes already received plenty of international aid finance. Under the aegis of the International Monetary Fund and the World Bank, they presided over elaborate privatisation and reform programmes, which benefited those close to power but did little to help the wider population. In truth the regimes tended to use this support to strengthen their rule, building state security apparatuses and creating kleptocratic governments accountable only to their foreign bankrollers.
Today, with both Tunisia and Egypt led by provisional caretaker governments, the risk is that the power granted by control of this spending will subvert their precarious democratic transitions. Generous aid programmes mean leaders do not need to please their citizens, or gain their trust to secure power; they can instead use donor money to build a security state and buy off their opposition. Without aid, however, governments find it harder to build corrupt client networks, and must instead be responsive to the demands of their people.
A better approach would be for assistance to wait until elections are completed, and elected governments are formed. Even better, donors should be willing to put the question of funding to the public in a referendum, allowing the people to choose whether they really want projects today and then debt tomorrow. Indeed, given the strong relationship between donors and the deposed regimes, it is not impossible to imagine free elections producing new leaderships that reject new funding, aiming instead to reduce or eliminate foreign aid and debt.
Without this, a dysfunctional body politic and a large debt burden may be all that Tunisia and Egypt are left with following the distribution of donors’ money. Yet the people of Tunisia and Egypt rose up against unaccountable dictators aided by just this largesse. Now they deserve the chance to decide for themselves whether they want the same foisted on their ruling classes again.