Uploaded by Danny Hong

IR Hypothesis Script

So you may think more money + development To first start
off, lets begin by defining what aid conditioning is. It’s a state
in which aid is provided by a nation, in exchange for the
recipient nation satisfying certain conditions that are
previously imposed by the donor nation. This can be divided
into two forms: tied aid and policy aid.
First, tied aid can be considered to be the condition in which
aid must be utilized in a manner that is previously proposed
before the actual transfer. To elucidate, 41.7 of all ODA is
considered to be tied aid. However, because nations are
forced to use money in a certain way, it leads to detrimental
consequences. This is because it prevents resources from
being used on domestic products which leads to significant
ramifications to the national economy. To provide an
example, 80% of all USA aid must be used on the United
States. For this very reason, USA products dominate the
African market while the African domestic products cannot
compete with them.
Second, policy aid is the provision of aid in exchange for a
change in policy. There are two main types of policy aid. The
first can be considered to be privatization, which is
transferring ownership to public corporation to private
entities. To elaborate, the case of Zambia’s copper industry can
be taken into consideration. To elucidate, copper exports
generates around 75 percent of Zambia’s foreign exchange
earnings, and the price of copper has increased significantly
since 2003 because of a sudden increase of demand. Despite
such fortunate circumstances, Zambia has not been able to profit
from this as the International Finance Institutions removed
mining from state ownership since 1991. This consequently led
to the loss of over 36,500 jobs over the course of 1991 to 2004
and became a mere third of its original national value after the
conclusion of privatization in 2005.
Another form of policy aid is tax alternation, which is the
change of tax rates in exchange for the provision of aid. To
recap on the importance of having such levies, taxes are what
allow for domestic goods of a least developed country to stay
competitive with the large supply of foreign goods of
developing or developed countries. Thus, once taxes are
changed, it is possible that it will lead to the devaluation of the
domestic economy. This can be depicted in the example of
Kenya’s cotton industry after the reduction of taxes and the
opening of the domestic market to foreign industries.
Consequent to this occurrence, cheap material from Europe and
Asia flooded the markets, allowing the citizens to buy clothing
at a cheaper price in the short term but completely devastating
the economy in the long term. As a result, the overall worth of
the cotton industry became only 5 percent of its original value
after the end of the 1990’s, less than twenty years after the
deduction of taxes. Indeed, policy aid can be truly detrimental.
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