FOREIGN AID DURING THE COLD WAR

From the 1950s to the fall of the Berlin Wall in 1989, there was intense cold War between the West and the Soviet Union. The relations between the two blocs were marked by mutual suspicion, intense hostility and political competition. Aid became enmeshed in foreign policy and geopolitical calculations. After the breakup of the USSR, aid to Eastern Europe and Central Asia to help them in their transition to market economy was also guided by political considerations.

Western nations also extended food aid to poor and needy nations. But this was not motivated by purephilanthropy,rather it was partlytheoutcome of theirdomesticpoliciestowardsagriculture. Under these policies, they subsidized agriculture, which led to surpluses. These were dumped on world markets and used for food aid. The whole process has retarded agricultural growth in poor countries. The rich countries have been protecting their markets from competitive imports. Poor countries are denied access to markets in the West through various means. These unequal relations harmed the poor nations. Despite various rounds of discussions between rich and poor nations under the aegis of the World Trade Organization negotiations, agricultural protectionism is still high in the West.

In the 1970s aid was linked to structural adjustment or to changes in the macroeconomic policy of aid receiving countries. This approach aimed at supporting the poor countries which faced severe macroeconomic imbalances characterised by high balance of payments deficits, fiscal deficits and excessive debt. Aid was used to push neoliberal economic reform and to bolster the private sector. The recipient country had to accept conditions that sought to enforce macroeconomic and trade reforms, and to facilitate private (particularly foreign) investment. Donors insisted on structural economic reforms without simultaneous attention to institutional reform, social sector investments or social cohesion. Structural reform policies harshly impacted on the poor people. By the mid-1990s, the public opinion turned against market based structural reforms.