What’s the purpose of foreign aid? It is commonly regarded as an altruistic contribution by richer countries in the Global North to poorer countries in the Global South, with the aim of reducing poverty.
However, this is clearly not the case. While there are some exceptions, foreign aid is largely an effective tool of imperialism, which often achieves the opposite of what it purports to do. It does this by reinforcing global inequalities by building on the economic and political structures created during the colonial era.
Colonial legacy
Any analysis of foreign aid must include a discussion on the legacy of colonialism.
The greatest theft of all times occurred during this period. While it is impossible to quantify this, research from a 2018 study estimates that US$45 trillion — about 15 times Britain’s current gross domestic product (GDP) per annum — was drained from India alone.
In many cases, the once richest locations in the world are now the poorest. For example, one mountain in Potosí, Bolivia funded the Spanish empire. Using indigenous and later African slaves, the Spanish extracted about 40,000 tonnes of silver and 5000 tonnes of gold from Cerro Rico. In today’s money, this plunder is worth about half a trillion US dollars.
Potosí is a case study in systemic exploitation: Immeasurable quantities of wealth taken from what is now a poor country to a rich one; the labour of millions exploited; the culture decimated; and the environment poisoned and never repaired.
As Guyanese Marxist scholar and activist Walter Rodney argued, this capitalist expansion created a global political economy in which development for some meant underdevelopment for others. In other words, some countries are rich precisely because other countries are poor, and vice versa.
Post-WWII aid institutions
Following World War II, the World Bank (WB) and the International Monetary Fund (IMF) were established, with the stated aim of accelerating economic growth and reducing poverty. They are regarded as the earliest foreign aid organisations.
As per their founding agreements, the WB is always headed by someone from the US — as the largest financial contributor — and a European always heads the IMF. The current WB president is multi-millionaire Ajay Banga, formerly Mastercard’s CEO.
Aid, debt and resource flows
The IMF states: “When a country borrows from the IMF, the [recipient] government agrees to adjust its economic policies to overcome the problems that led it to seek financial assistance.”
Thus, each IMF or WB loan is conditional upon reforming the recipient country’s economy to make it more suitable for capitalist exploitation. These structural adjustment programs force recipient countries to reduce government spending, cut the public sector, eliminate subsidies, privatise state-owned bodies, liberalise trade and devalue their currency.
In effect, under such strict conditions, these impoverished countries lose their sovereignty.
After West African countries were forced to follow the IMF’s structural adjustment programs in the 1980s and 1990s, spending on education fell by 25% and spending on healthcare fell by 50%. Studies show that these cuts were directly responsible for an estimated half a million child deaths.
Possibly worse than the conditions imposed along with the loans are the consequences of the ever-increasing debt burden.
Sudan, for example, one of the world’s poorest and strife-ridden countries, has the world’s highest sovereign debt-to-GDP ratio. Its current debt of US$22 billion is two-and-a-half times its annual GDP. This debt is clearly unpayable, and the interest burden alone is crippling.
By 2024, countries in the Global South had accumulated US$31 trillion in debt. Interest on this debt reached US$921 billion, a 10% increase compared to 2023. Moreover, a record 61 countries allocated 10% or more of their annual budgets to interest payments.
As a result of the interest payments on these conditional loans, there is now a net flow of resources from the Global South to the Global North. In 2023, the Global South paid US$25 billion more to their external creditors in debt servicing than they received in fresh disbursements.
Consider also that this net flow of resources is far worse when you include the impact of trade imbalances — with the Global North setting the price of both the imports and the exports from the Global South — and the Global North’s monopoly of technology and, thus, productivity.
The inevitable result of this net resource flow from poor to rich countries is growing global inequality. While 808 million people now live in extreme poverty, the 10 richest men in the world own more than the poorest 3.1 billion people.
Australia’s foreign aid objectives
While there were protests over Trump’s recent demolition of the US’ foreign aid organisation, USAID, Australia’s equivalent body was closed with little fanfare about 12 years ago.
AusAID, the body that planned and oversaw Australia’s foreign aid program, was abolished in 2013, and the aid program “integrated” into the Department of Foreign Affairs and Trade (DFAT). DFAT claimed this change was “to better align Australia's development, foreign policy and trade objectives”. There was no further pretence about the purpose of Australia’s aid program.
If Australia’s aid program was concerned about poverty reduction and inequality, it would focus on the world’s poorest regions: Africa and the Middle East. However, of Australia’s 2024–25 aid budget, less than 1% is allocated to these two regions. The African countries that do receive some Australian aid include South Africa and Tanzania, where 90% of new mining exploration licences have been taken up by Australian companies.
Justifying its geographical focus, Australia’s International Development Policy states: “The Indo-Pacific … will remain the focus of Australia’s development program ... It is the region we know best, where we can make the most difference, and where our interests are most directly affected.”
Privatising aid
Australia’s aid budget for 2024–25 was nearly AU$5 billion, which is only 0.2 of 1% of its annual GDP. As a comparison, Australia’s defence budget — at A$55 billion — is 11 times its aid budget.
Some 21% of Australia’s aid is delivered by Australian and, increasingly, multi-national companies. Over the past decade, four private contracting companies have dominated the market: Multinationals Abt and DT Global each have portfolio values from their active Australian aid contracts of more than A$1 billion.
One of this big four, Palladium, was established by Kerry Packer as a profitable business. Julie Bishop, former Minister of Foreign Affairs, became a board member of Palladium in 2019, only months after leaving politics.
NGOs co-opted
While much of Australia’s aid program is delivered by these consulting companies, a smaller amount — about 3.4% — is delivered by Australian non-government organisations (NGOs), like CARE, World Vision and Oxfam.
Although most of these NGOs start out with honourable objectives, as they become increasingly dependent on government funds, they inevitably discard their mission statements to align with the foreign policy objectives of their funder. It should be mentioned that some NGOs, like Oxfam, specifically limit their government funding to minimise this dependency.
Australian Volunteers International (AVI) is a perfect example of such NGO co-option. Starting in the 1950s, when graduates from the University of Melbourne headed to Indonesia to work under local conditions with a local salary, AVI’s predecessors had the aim of “learning” and “building bridges” as opposed to “providing assistance”.
However, this solidarity model is no longer the case. AVI, in partnership with DT Global, now has to go cap in hand and bid for a government contract. As a result, AVI now provides a service for the government and DFAT determines all aspects of Australia’s volunteer program.
Soft power and influence versus internationalism
There are many ways donor countries use foreign aid to increase their political influence and/or business interests: Britain constructs a dam in Malaysia on the condition that Malaysia signs an arms deal with it; China offers to construct a port in Peru, built by Chinese companies; Australia provides aid to PNG on the condition they sign a defence pact; or the US provides military aid to Ukraine, whichTrump truthfully states is“just business”.
While it is rare, some foreign aid comes with no strings attached.
Cuban medical internationalism, for example, is a program established by Cuba after the 1959 revolution to send its medical personnel overseas, particularly to Latin America, Africa and Oceania, and to bring medical students and patients to Cuba for training and treatment.
Unfortunately, such a view of solidarity where rich countries accept the need for economic, cultural and environmental reparations for centuries of historical plunder is impossible under capitalism.
Inequality between nations was created by colonialism and exacerbated by the subsequent power imbalances, and it is growing.
Acknowledgment of this historic reality, which includes the decimation and forced relocation of indigenous communities, slavery and environmental destruction, must be at the heart of any foreign aid program.
Moreso, until this historical fact is acknowledged and “foreign aid” is replaced by “compensation” for the damage done by so-called developed countries, foreign aid is, at best, charity that changes nothing, or — more accurately — the smiling face of imperialism.
[This article is based on a talk presented to the Ecosocialism 2025 conference, held in Naarm/Melbourne from September 5–7.]