//' FROM MARSHALL PLAN TO DEBT CRISIS// Foreign Aid and Development Choices in the World Economy
ROBERT E. WOOD
UNIVER...
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//' FROM MARSHALL PLAN TO DEBT CRISIS// Foreign Aid and Development Choices in the World Economy
ROBERT E. WOOD
UNIVERSITY OF CALIFORNIA PRESS Berkeley . Los Angeles . London
CONTENTS
INTRODUCTION:
PART ONE:
Tables and Figures Acknowledgments List of Abbreviations Economic Aid, Development, and the World Economy
lX XlU
xvii
1
The Development and Functioning of the Aid Regime INTRODUCTION TO PART ONE:
l.
2. 3. 4.
PART TWO:
Alternatives to Aid The Marshall Plan and the Origins of the Aid Regime The Changing Structure of Extemal Financing and Aid Dependency The Structure of the Aid Regime Sectoral Allocation and the Management of Industrial Investment
21 29 68 94 138
The Aid Regime in Crisis INTRODUCTION TO PART TWO;
5.
Crises of Dependent Development Basic Needs and the Limits of Regime Change
191
195 vu
CONTENTS
VIII
6. 7.
EPILOGUE:
APPENDIX:
Aid, Debt, and the Crisis of State Capitalism Regime Restructuring and Reconsolidation Regime Conditionality and Development Choices in the 1980s
232 270
313
DECD Classification of Less Developed Countries 327 Notes Index
331 391
TABLES AND FIGURES
Tables
1. Net u.s. Direct Investment Abroad, by Area,
1946-51 2. Exports of Overseas Territories to the United States as Percentage of All OEEC Exports and Metropolitan COWl try Exports to the United States, 1947-50 3. Balance of Trade of Overseas Territories with the United States, by Metropolitan CoWltry, 1947-50 4. United States Balance of Trade With Mrica, Asia and Oceania, and Latin America, 1947-52 5. Marshall Plan Aid to Overseas Territories as ofJWle
30, 1951 6. U.S. Foreign Aid to Underdeveloped Countries (Excluding Overseas Territories), 1948-52 7. The Flow of Financial Resources to Less Developed Countries by Source of Flow, Net Disbursements,
1956, 1960, 1965, 1970, 1975, 1980
47
50 50 51 56 61
83
8. Percentage Breakdown of Total Official Flows and Total Private Commercial Flows, by Source, 1956,
1960, 1965, 1970, 1975, 1980 9. Changes in Single Donor Dependency: Countries Receiving 50 Percent or More of Their DAC Bilateral ODA from a Single DAC CoWltey, by Region, 1967 and 1980
84
87 ix
X
10. Largest Source of External Financing, by Region, 1978-80 11. Largest Individual Donor of Official External Financing, by Region, 1978-80 12. Summary of the International Regime of Economic Assistance 13. The Financial Spectrum of Official Aid Institutions 14. Policies and Facilities of the International Monetary Fund 15. Grants and Loans as Percentage of Total External Resource Flows to LDCs, 1965-83 16. Medium- and Long-Term External Public Debt Outstanding (Including Undisbursed), 1970-83 17. Sectoral/Functional Distribution of 1980 Commitments of Major Multilateral Institutions, DAC Bilateral ODA, and OPEC Bilateral ODA 18. Multilateral Development Bank Loans for Industrial Projects, Fiscal Years 1978-81 19. Multilateral Development Bank Loans for Industrial Projects, by Product, Fiscal Years 1978-81 20. World Bank Loans for DFCs and for Industrial Projects, Fiscal Years 1978-81 21. Nonproject Aid to LDCs from DAC Countries and Major Multilateral Sources, 1975, 1980, 1981 22. Distribution ofDAC Bilateral and Multilateral ODA and Total Official Flows, 1974 and 1980 23. 1980 Per Capita ODA Receipts of Different Groups of LDCs, by Category of Donor 24. World Bank Classification ofIts Sector Lending by Poverty Focus 25. Sectoral Distribution ofDAC Bilateral ODA, 1971 and 1981 26. Gross and Net Official Bilateral Aid from Advanced Capitalist Countries, 1968-83
TABLES
89 90 104 119 128 131 132
140 147
152 171 184 211 213 216 218 236
TABLES
27. Gross Disbursements, Debt Service Receipts, and Net Transfer ofIBRD and IDA, 1968-85 28. Interest Rates on Loans to LDCs: Euroloans, World Bank, Official Bilateral Loans, and Percent Change in Non-Oil LDC Export Unit Values, 1970-82 29. Distribution of Debt to Private Banks of Non-Oil LDCs, by Income Group, 1971, 1975, 1980, 1982 30. Twenty Largest Third World Debtors to Private Banks as of December 1982 3l. Developing Country Groups: Selected Indicators, 1955 and 1980 32. Long-Term Debt Service ofLDCs, by Source of Lending, 1971, 1975-83 33. Private Bank Lending to LDCs: Gross Disbursements, Debt Service, and Net Transfers, 1970-84 34. Renegotiations of Debt to Official and Private Creditors, 1974-84 35. TenDs of Renegotiated Debt and New Loans in 1983 and Average Terms on Bank Loans in 1979 for Ten Latin American Borrower5
XI
238
244 257 258 260 264
268 274
282
Figure Flow of Transactions for Typical Commodity Aid Loan
179
ACKNOWLEDGMENTS
Sociology colleagues and students have commonly expressed surprise upon learning that I was'writing a book about foreign aid, In a discipline that lumps all papers dealing with the Third World into a single session on "developing societies" at its professional meetings, foreign aid can appear to be an esoteric subject indeed, My boldness in tackling a subject generally the preserve of economists and to a lesser extent political scientists has had several sources. My belief in the virtue-in fact, the necessity-of transgressing disciplinary boundaries developed early in my undergraduate career as a social studies major at Harvard in a pioneering interdisciplinary program whose leading light was Stanley Hoffman. During my sophomore year, I had the extraordinary good fortune to participate in a tutorial led by Allen Graubard and Ted Marmor, which I still look back to as a model of teaching and learning. By a quirk of fate, Allen Graubard later became one of my editors at the University of California Press and helped me along in a second oflife's passages. Coming of intellectual and political age during the Vietnam War, I, like many of my generation, turned to history to try to make sense of United States foreign policy. The work of William Appleman Williams and Gabriel and Joyce Kolko had a particularly profound impact on me; the Kolkos' influence is particularly evident in my treatment of the Marshall Plan. Teaching and research experience in East Mrica and Southeast Asia broadened my awareness of external constraints on Third World development choices and deepened my conviction that the tradi-
Xlll
XIV
ACKNOWLEDGMENTS
tional disciplinary boundaries of the social sciences too often stand in the way of an Wlderstanding of development. It convinced me of the sociologist's obligation to address the larger structural forces behind the patterns of dependent development observable in most of the Third World. In studying foreign aid, I have not felt that I have left my sociologist's craft behind. Substantively, it has become increasingly apparent to me that foreign aid plays a significant role in shaping those aspects of the social world that sociologists commonly look at: social inequality, class structure, politics, gender relations, rural-urban relations, and so forth. Methodologically, my training as a sociologist in the tradition of Marx, Weber, and Durkheim has made me particularly sensitive to the existence of structures behind processes that on the surface seem without "rhyme or reason." As I explain in the Introduction, I have found it useful to pull together two contemporary structural perspectives, world systems and international regime analysis, in making sense of the role of aid in the world economy. There are many ways to trace the impact of foreign aid; I have chosen one both ambitious and simple. I have sought to identifY the overall way that access to concessional external financing is structured and to link that structure to the issue of development options and choices in the Third World. One cannot deduce outcomes in Third World countries from this structure, but one can gain a better understanding of basic contours of world development and of the complex combination of opportunity and constraint that foreign aid presents to Third World coWltries. And as I argue, an analysis of the major aid institutions sheds light on both the origins and cpnsequences of the devastating debt crisis in the Third World. My indebtedness to many scholars who have studied various facets of the complex realities of aid will be evident as I proceed. Here I would like to acknowledge a broader debt to friends and colleagues whose intellectual stimulation, support, and encouragement have been critical for me. These include Fred Block, Harry Brill, Steven Cohn, Susan Eckstein, Gonzalo Falabella, Linda Falstein, Roz Feldberg, Keitha Fine, Ann Froines, Sheila Grinell, Susan Gore,
ACKNOWLEDGMENTS
xv
David Hunt, Carole Joffe, Bruce Johnson, Karl Klare, Magali Sarfatti Larson, Arthur MacEwan, Susanne Morgan, Arm Popkin, Jack Spence, and Arm SwidJer. Sheila Grinell gets special thanks for copyediting the original draft of this book. I also consider myself unusually blessed to be able to cite the genuine stimulation and support from my colleagues in the Department of Sociology and Anthropology at Camden College of Arts and Sciences, Rutgers University: Myra Bluebond-Langner, Sheila Cosminsky, Ted Goertzel, Meredith Gould, Drew Humphries, and Arthur Paris. Some of the research and costs of manuscript preparation were supported by the Rutgers Research Council and by the Office of the Provost at Rutgers University, Camden. My wife Joy and my sons Nicholas and Timothy have mostly found ways of lending support other than observing claims of the sanctity of my study or releasing me from household chores. Their challenge and delight is the best contribution of all.
LIST OF ABBREVIATIONS
ADB AfDB BIS CABEI CDB CIP CMEA DAC DFC DLF EADB
ECA EDF EEC ERP ESF IBRD IDA IDB IFC IGP IMF LDC LIBOR
Asian Development Bank African Development Bank Bank for International Settlements Central American Bank for Economic Integration Caribbean Development Bank Commodity Import Program CoWlcil for Mutual Economic Assistance Development Assistance Committee Development Finance Company Development Loan FWld East African Development Bank Economic Cooperation Administration European Development FWld European Economic Community European Recovery Program Economic Support FWld International Bank for Reconstruction and Development International Development Association Inter-American Development Bank International Finance Corporation Investment Guaranty Program International Monetary FWld Less developed CoWl try London interbank offering rate
XVll
XVIII
LIC LLDC MDB MIC MIGA MSA NIC ODA OECD
ABBREVIATIONS
Low-income cOW1try Least developed country Multilateral Development Bank Middle-income country Multilateral Investment Guarantee Agency Mutual Security Agency Newly industrializing country Official development assistance Organization for Economic Cooperation and Development OEEC Organization for European Economic Cooperation Other official flows (non-ODA) OOF Organization of Petroleum-Exporting Couritiies OPEC Overseas Private Investment Corporation OPIC Structural adjustment loan SAL SSE Small-scale enterprise .. SUNFED Special United Nations Fund for Economic Development UNCTAD United Nations Conference on Trade and Development UNDP United Nations Development Program USAID United States Agency for International Development
INTRODUCTION: ECONOMIC AID, DEVELOPMENT, AND THE WORLD ECONOMY
1
2
INTRODUCTION
to defeating the ~~~. quota. ~cre.~~~ .~"- ~.~. ~~~~~~~~~~~~~~?e~~ry Fund iTh1,rli~, . - - -..-Yes ,foreig}).,,!;.;ooomic- aid. ~.t~!1!i!:i~e~ }~~e.,()f i:n.~e~p:~tio~al
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INTRODUCTION
tween aid
and,.dfxc:~?pment.
Statistical studies of the relationship
~~;;;=;Jd";idd~vd~p~ent have produced inconsistent and in-
conclusive results. I~:~.:.~.:.E.S~8Em~ml\s~i~~,'!H£S~,G£~.J.!:ee
~¥r~A~~~';~~i!k1~~~~~~~~~a!4~rJiJ.:4~~~~~1~~~
"""tHete tan"b(tno.rig9rO~S:·sci~tr&--E;~fIJi~t..ill_i1~,Pa,st tb~ aggl;C:.Sitior:ev~U!iPffi,jajiYde.sig~ted -as offici&-ckYdopwenr assis!~ce"has-ohacL.illl.idt.ll..tifi_abk.,..~gm.bJ~... p.Q~and
cost-t;ffective iIp-p'!!.ct, Ql} .'!hi.!:~_:~y'orld
there are also methodologicaI and theoretical problems in measuring aid's impact. Fo?r, ,911e ~ing, we ~tivit;Y.. financed by' aid may not be the true measure of aid's imgact becau~~mjpiemgovernm.-ent
ii!~~ff~~~t§fi~~bi:~
government activity or simply to underwrite higher domestic (often luxury) consumption. 8 Determining aid's impact is further complicated by its relationship to other types of capital flows, particularly private loans and foreign investment. Access to aid is generally inversely related to the availability of private foreign capital and to the security of existing investments by foreign capital. If lower levels of aid are associated with higher levels of other capital flows, aid is unlikely to be statistically associated with economic growth, even if its impact on individual countries is indeed developmental. In addition, econ2~iE_ai~i!,&~~~ut one of a variety of factors, both(lomes~'ana-international, impinging ondeaslons"aboutde-
v.~i2i~~~t'ft~~~~:·'i~,·~~¥:~~sS~:,w.~~~~gri:m~~~r,::~~~~i~e
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'shapmg me nature .of devel.opment strategIes and processes. ,.~'.h"",)'.;",·,, """"'"")"""..,':."',, :·':·'·:::L"·'M'· '''''''h: '::'1', 'Pt ".';,---'" .,,,".' .... I"': 'd"'··h·';·...' b r m Its .ongms 10 me ars