Not all aid involving quid pro quo is problematic, however. In other areas of foreign aid, quid pro quo agreements can be quite common, legal and helpful at incentivizing development. But we call the quid pro quo by another name: aid conditionality.
What is aid conditionality?
Institutions like the World Bank and recipients of their support use the term “conditionality” to describe financial agreements. For example, in December, the World Bank committed $180 million to Senegal for reform of its energy and communications sectors. In return for these funds, Senegal agreed to boost its administration of the sectors and to promote the digital economy.
Donors provide foreign aid expecting to see a specific action — or offer funding in response to an action by the recipient country. For example, a donor might require a country to enact policies to protect human rights or to improve transparency of public finances as a condition of receiving development or military aid.
Despite the inclusion of well-intentioned language about such conditions, in reality, donors don’t always enforce the conditions they demanded.
Why not? In a recent article, I show that donors may choose not to enforce conditions for development aid when they view the recipient country as strategically important. What makes a country strategically important? In general, the donor decides the recipient’s political behavior is vital to protect or advance the donor’s national security.
Why the U.S. relaxes aid conditions
Here’s how this played out in Egypt, which has long been strategically important to the United States because it borders the Suez Canal. And Egypt has been a key partner in the peace process with Israel, as well as U.S. counterterrorism efforts. In 2013, the Obama administration wanted Egypt to democratize and protect human rights in exchange for military aid. Egypt, however, refused. According to one senior U.S. official, “We caved” — the United States eased up on human rights demands.
Similarly, the United States valued its relationship with Afghanistan during the height of the global war on terrorism in the 2000s. This meant the United States could not credibly threaten to withdraw assistance when the Afghan government did not meet its end of a quid pro quo on political reform that Washington proposed.
The survival of the Afghan government was essential to U.S. strategy in Afghanistan — and thus more important to the United States than lackluster reform efforts by Afghan officials. Washington could not say reform “or else,” and continued giving aid.
Donors tend to get tougher on aid conditionality when countries lack strategic importance. The same aid recipients that opted not to reform when they were strategically important during the Cold War later reformed in the 1990s, when they lost that strategic importance.
Why this matters for aid recipients
Studies show conditioning aid on economic reforms can produce rapid economic growth. During the 1990s, foreign aid helped foster nine times as much economic growth in recipient countries than aid to these countries did during the Cold War.
But aid effectiveness stalled after the Sept. 11, 2001, attacks on the United States — the war on terrorism brought back Cold War dynamics. In the 1990s, the governments of El Salvador, Guatemala, Mozambique and Rwanda met Western demands as they emerged from civil war and sought foreign aid to reconstruct their countries.
These four countries received Western aid ranging from $3 billion to $17 billion between their respective cease-fires in the 1990s and 9/11. Their aid amounts paled in comparison to the $150 billion that the strategically important countries of Iraq and Afghanistan received, to little effect.
Where does this leave U.S. foreign assistance?
Donors want to see their funds foster economic development in recipient countries. This suggests clarifying the strategic value of recipient countries can help donors who want to maximize development.
As the war on terrorism declines and the new Great Power rivalry remains unclear, the strategic value of many low-income countries seems uncertain. For example, President Barack Obama argued for a U.S. pivot away from the Middle East, suggesting the region does not now hold the same strategic importance to the United States as it once did.
This suggests it’s now possible for the United States to enforce development conditions in exchange for aid in more countries — with less risk to national security.
For U.S. foreign aid, a threat to withdraw aid may become more credible — recipients who want Washington’s support have greater incentives to comply with aid agreements. This suggests minimizing the number of countries the United States classifies as strategically important on a case-by-case basis might be one way to achieve that goal. Maximizing the number of aid recipients from which it can credibly threaten to withdraw assistance, in turn, would probably incentivize recipient compliance with legitimate quid pro quo agreements — leading to improved aid effectiveness.