Why foreign aid fails: lessons from Indonesia's economic collapse

摘要

Financial assistance and debt forgiveness fail to engender economic growth. In fact, financial assistance and dept forgiveness inhibit growth by encouraging the rent-seeking behavior created by the post-colonial political economy which saps the cultural strength inherent in these societies and undermines the technical assistance the West could legitimately offer. This Note began by asking how the world's premier financial institutions could have failed to predict an economic collapse obvious to a third-world public high school student. The answer lied in a sad combination of misdiagnosis, inappropriate treatment, and physician arrogance. It is fitting to have begun this analysis with Indonesia and ended with an examination of debt relief's negative effects on HIPCs. In July 1999, precisely two years after holding the country up as a poster-child for foreign aid, an IFI success story, and a model for economic development, the World Bank declared Indonesia a HIPC. This rating was not precipitated by war, natural disaster or shocks to the nation's terms of trade. The economic policies for which Indonesia had been heralded had not changed. What had changed was that the facade had fallen, revealing what foreign aid donors had forgotten or never appropriately taken into consideration-the post-colonial political economy. Unfortunately, as exemplified by the World Bank and IMF's millennium-inspired debt-relief initiatives, they still ignore it as institutional inertia prevents the IFIs from abandoning their raison detre. Being declared a HIPC does not bode well for Indonesia's recovery. But if for all these years institutions such as the World Bank could claim Indonesia as a model of foreign aid's success, they must now accept it as the epitome of why foreign aid fails.