Foreign Aid-Corruption Nexus in Cambodia: Its Consequences on the Propensity of Civil War

Table of Contents

Acknowledgements

Acronyms

CHAPTER I: Introduction
1. Background, Rationale, and Objectives
2. Structure of the Thesis

CHAPTER II: Research Methodology, Literature Review, and Conceptual Discussion
1. Research Methodology
1.1 Data Collection Method
1.2 Data Analysis Method
2. Literature Review
3. Conceptual Discussion
3.1 Foreign Aid
3.2 Corruption

CHAPTER III: Foreign Aid and Corruption in Cambodia
1. The Overview of Historical Context and Foreign Aid Trends in Cambodia
2. The Political Economy of Foreign Aid and Corruption in Cambodia

CHAPTER IV: Foreign Aid, Corruption, and the Propensity of Civil War in Cambodia..
1. Foreign Aid and Corruption in Cambodia: Creating Conditions for Civil War?
2. Greed versus Grievance Theory of Civil War: How Does the Case of Cambodia Fit?
2.1. Extortion of Primary Commodity-Natural Resources
2.2. Donation from Diaspora
2.3. Subvention from Hostile Governments

CHAPTER V: Conclusion

Bibliography

Acknowledgements

I am firstly highly grateful to my parents, who have been supporting me everything from birth up to now. Without them, I could not even become who I am right now. I would like to express my sincerest gratitude to my father (Darin Phy), who passed away in 2006 without even said any last word to me as well as my family since everyone was away from home at that time. Father, you are always with us. While he was alive, he had always encouraged me to pursue my study to the highest degree, PhD, by saying that only knowledge can bring brightest light to my life. However, he could not live long enough to cheer and congratulate me when I was awarded the scholarship to pursue my Masters in International Peace Studies. His encouraging words and advices, definitely, always in my brain that made me lead my life this far. I am so happy now for completing the first dream for my father, my family, and for myself. Also, without my mother (Sary Lim), older sister (Sopheavy Phy), and younger brother (Sopheana Phy), I am sure that I could not reach my destination as right now. Their support and encouragement, physically, emotionally, and financially, is the strongest energy energized me to study hard and finish my thesis. When I got bored or stressful with my thesis, they always cheer me up, suggest as well as encourage me to get my thesis timely, effectively and successfully done.

Secondly, I would specially like to sincerely thank my thesis supervisor Prof. Brian Polkinghorn. I have benefited greatly from his guidance, advice, support, and encouragement. I really appreciate his constructive comments and editorial suggestions that gave me insights to make this thesis successfully come to an end.

My appreciation also goes to all the professors who guided and taught me to be one of the peace-builders in the world. I acquired a lot of knowledge theoretically and empirically from them, which is helpful not only for the inputs of this thesis, but also for the rest of my academic, professional, and personal life.

I would also like to extend my gratitude to Balazs Kovacs, who not only play a role as facilitator teaching me the basic knowledge of peace and conflict studies in Manila campus, but also play a role as instructor of my foundation course in Costa Rica campus. I would say I really benefited from him.

My academic journey has come to this stage also because of my friends. I wish to thank all my DIPS friends, who have accompanied me by personally and academically sharing knowledge, sadness, and happiness. Without them, life would be so bored and I could even not come to this final destination alone.

Last but not least, I wish to highly appreciate the Nippon Foundation for their financial support during my study.

Acronyms

Abbildung in dieser Leseprobe nicht enthalten

CHAPTER I Introduction

1. Background, Rationale, and Objectives

From the outside world, Cambodia is best known, in both national and world history, for two totally opposite things— the glorious past of Angkor (12 th -15 th century), the brightest page of Cambodian history, and the brutally genocidal Khmer Rouge regime (1975-1979), the darkest page. It has been true and continues to be true in present-day Cambodia even among the Cambodians themselves, but there are two more things that contemporary Cambodia is also most likely wellknown. They are aid-dependency and corruption.

Cambodia’s history has had many notable events. It has survived being trampled by foreigners for centuries. More recently, it was dragged into the Vietnam War and fell into bloody civil war that turned into a vast killing field by the genocidal Khmer Rouge. Then, it fell into the Vietnamese occupation that turned again into an unwinnable war between the Vietnamese troops and the Khmer Rouge. Ultimately, it descended into a so-called peace full existence with the signing of Paris Peace Accords of 23 October 1991. This led to a state of negative peace around 1998 when the Khmer Rouge was finally extinguished.

Cambodia nowadays, though relatively stable, has seen slow economic growth. These conditions are, arguably, the byproducts of the peace agreement and the shift from a centralized planned economy to a more decentralized and open market economy. However, Cambodia depends heavily on foreign aid to survive, and is a nation racked by rampant corruption. Approximately half of Cambodia’s national revenue is shared by foreign aid (Ek & Sok, 2008), and Cambodia was ranked 166 out of 180 countries surveyed in 2008-Corruption Perceptions Index of the Transparency International, making it the 14th most corrupt country in the world, and the second most corrupt country in Asia behind Myanmar (Transparency International, 2008). This current condition and unusual political and economic dynamics constitute the focus of this thesis.

The thesis initially seeks to examine the nexus between foreign aid and corruption in Cambodia since 1993, the time when a huge influx of foreign aid injected into the country following the withdrawal of the United Nations Transitional Authority in Cambodia (UNTAC). Drawing from the analysis of the two, the thesis then explores if the correlation of the two encourages the propensity of civil war, and ultimately analyzes if the onset of civil war is attainable in the case that the propensity of civil war is feasible. Two main questions are asked to answer the abovementioned objectives of the thesis. They are: (1) is there any relationship between foreign aid and corruption in Cambodia? If yes, how can foreign aid impact on corruption and vice versa? And (2) how can the nexus between the two create the conditions for the propensity of civil war in Cambodia? If yes, how can the onset of civil war be attainable?

A reason to focus on the relationship between foreign aid and corruption is simple: foreign aid is supposed to promote development. However, the consequences of poor management of foreign aid might exacerbate the internal dynamics within the country and destabilize it. Is it then possible that foreign aid could contribute to the propensity of civil war? The author contention is this is a real possibility in poor countries emerging from a long period of unstable political and economic conditions.

In this regard, since Cambodia has been ranked one of the most corrupt countries on earth, the concern is corruption might interrupt aid, which is hampering development and causing more troubles. This is a vicious cycle that can reignite a civil war. Oberg & Strom (2008) paraphrased the arguments of a number of authors studying civil war¹ that “Civil conflict destroys physical infrastructure as well as social infrastructure, and it drives off labor, especially skilled workers. Civil conflicts have been and continue to be a major obstacle to economic development in several regions of the world. Moreover, civil conflicts hamper economic growth and development not only in the war-torn country but also in neighboring countries and the surrounding region” (p. 4).

So what are the causes of civil war?

As detailed in Oberg & Strom (2008), there is a massive amount of literature and first hands accounts from numerous authors from across many disciplines on the study of the causes and the onset of civil war. Some researchers place the cause on poverty, some on economic inequality, while the other on natural resources, remittances and so on. Among them, the renowned and most recent study on the causes of civil war is popularly credited to the work of Collier & Hoeffler, the Policy Researchers of the World Bank (Collier & Hoeffler, 2000; Collier & Hoeffler, 2002(a); Collier at al., (2003); Collier, Hoeffler & Sambanis, 2005; Collier, Hoeffler & Rohner, 2006). They have studied quantitatively, by using cross-country study, the issues since the early 2000s, and placed the causes of civil war on the so-called greed and grievance. From that, the theory of civil war has been developed as the “Collier & Hoeffler Model of Civil War”. This theory is used to partly test the second part of the second research question in the thesis.

The thesis argues that foreign aid partly promotes corruption, causing more poverty and huge inequality between the rich and the poor, which make Cambodia more prone to civil war; however, the civil war is manifested or not depends on the motivation of the resistant group to form themselves as well as the finance to form and sustain them.

The following is the structure of the thesis.

2. Structure of the thesis

The thesis is divided into five chapters. Chapter I constituted the introduction currently being presented. It introduces the problem statement or thesis of this study and the rationale and objectives behind of the study. Subsequently, it also structures the whole study into chapters, and explains the aims and relationships of the chapters.

Chapter II details the research methodology, literature review, and conceptual discussion, to frame the journey and direction of the thesis. The research methodology section explains the design by showing the method of data collection and data analysis. The literature review portion is classified into three main parts—(1) the nexus between foreign aid and corruption, (2) the link between foreign aid, corruption, and conflict or civil war, and (3) the correlation between the three in Cambodia. With regard to the conceptual discussion, it examines the theories and concepts of both foreign aid and corruption, and then proposes the commonly compromised definitions of both terms used in the whole thesis.

Chapter III thoroughly and exclusively focuses on the relationship between foreign aid and corruption in Cambodia. It first provides an overview of the historical context and foreign aid trends in Cambodia since it gained full independence from France, through the occupied Cambodia era as part of a so-called Indochina from 1863 to 1953, all the way to present-day. It is worth our time and attention to focus on this history as it fundamentally helps us understand the general political economy of the country and why and how aid was sent and how it impacted both domestic and international affairs. Second, Chapter III thoroughly analyzes the aid-corruption nexus in Cambodia. At this point, the focus shifts to respond to the first research question. It specifically examines how foreign aid impacts corruption in Cambodia and vice versa. By so doing, the policies of both donors and the Cambodian government in providing and receiving aid respectively, and the contextual factors are deeply analyzed.

Chapter IV, the heart of the thesis, examines if there is any consequence of the aid- corruption nexus on the propensity of future civil war, and then goes deeper to analyze if the onset of civil war is likely attainable in the status quo of Cambodia given the fact that the propensity of civil war is feasible.

Chapter V concludes the thesis by combining the findings from Chapters II through IV, and suggests lessons learned as well as provides policy recommendations to peace-related stakeholders and ends by modestly focusing on how research of this nature is of significance to the larger field of Peace and Conflict Studies.

CHAPTER II Research Methodology, Literature Review, and Conceptual Discussion

1. Research Methodology

This research is a bibliographical or desk research, and employed qualitative approach. The type of this research methodology is the exploratory case study. Gray (2004) suggests that “The case study method is ideal when a “how” or “why” question is being asked about a contemporary set of events over which the researcher has no control” (p. 124). This research looks specifically at Cambodia as a case study, in which the nexus between foreign aid and corruption is discussed and analyzed if it might encourage the propensity of civil war. Cambodia is chosen because it is one of the most aid-dependent and corrupt countries in the world. It is exploratory research, as Gray (2004) recommended, because it is worth conducted when not enough information is known about the issue. In this regard, this research is going to specifically explore if and how foreign aid impacts corruption and vice versa, and how the two instigate future civil war in Cambodia.

1.1. Data Collection Method

As the research is based on desk reviews of existing literature, the data collected are exclusively counted as secondary sources. Diverse data from different sources are gathered—in effect a triangulation of data sources—that support the validity and reliability of the finding. Data on the general situations of the link between foreign aid and corruption, and their attribution to civil war, as well as those particularly associated with Cambodia, are basically gathered through academic books and scholarly journals. While some important policy research reports related to foreign aid and corruption produced by non-governmental organizations or other institutions are collected, some up-to-date news articles, interviews with relevant stakeholders conducted by established institutions such as 101 East, Radio Free Asia etc., are also collected. In particular, while the study relies heavily on “second hand” information, attempts have been made to gather first hand accounts through the speeches and words of stakeholders such as the Prime Minister of Cambodia, the World Bank Director to Cambodia, Director of the Human Rights Watch, then-Executive Director of the Center for Social Development in Cambodia, the Parliament Member, and other relevant individuals, especially in regard to topic related to foreign aid and corruption. Some of these have been collected from the respectful and reliable sources, online news, and websites.

1.2. Data Analysis Method

The method used for data analysis is content analysis. Content analysis is defined by Holsti (1969) that “any technique for making inferences by objectively and systematically identifying specified characteristics of messages” (p. 14), while it is similarly defined by Krippendorff (2004) that “a research technique for making replicable and valid inferences from texts (or other meaningful matter) to the contexts of their use” (p. 18). Also, Dey (1993) asserts that content analysis is the process of analysis that goes beyond description by breaking data down into small units to deeply understand the characteristics of each element. This is inferential thinking at its best. After collecting and assembling all the relevant sources on the relationship between foreign aid, corruption, and civil war in general, and that in Cambodia in particular, the data are coded by breaking them down into different categories or problems, such as foreign aid, corruption, and civil war, and subcategories, i.e. state’s policies, poverty, economic inequality etc., of the research and then analyze based on content analysis method. Content analysis is used fundamentally to analyze the relevant existing literature, including books, scholarly journals, policy research reports, speeches, interviews, newspapers articles and other relevant sources, on how foreign aid in general contributes to corruption or vice versa in Cambodia. This method is also used to examine if the consequences of aid-corruption nexus influence on the propensity of civil war, and finally to analyze if the onset of civil war is attainable by party employing Collier & Hoeffler Model of Civil War. For content analysis, the data analyzed are based on three phases proposed by Flick (1998): Summarizing content analysis, explicating content analysis, and structuring content analysis.

2. Literature Review

Since the thesis mainly focuses on foreign aid and corruption in Cambodia and whether and how the link of the two perpetuate or instigate future civil war in the country, the literature to be reviewed are divided into three parts: first, the review of the nexus between foreign aid and corruption in general; second, the review of the attribution of conflict to foreign aid and corruption; and last, the review of foreign aid, corruption, and how the correlation of the two may paves the way for the propensity of civil war in Cambodia.

The study on the relationship between foreign aid and corruption is relatively new even though the separate study on the two subjects was believed to date back long time ago. Although there are many studies on foreign aid and corruption separately, there have just been a handful of relevant studies regarding the nexus between the two. Since corruption is one of the components of governance, there are some studies focusing on the relationship between aid and governance. Knack (2001) examined if there is any relationship between aid and the quality of governance. To him, the quality of governance is defined based on the rule of law, bureaucratic quality, and corruption. He concluded that higher aid level makes aid-receiving countries more dependent and they tend to have low institutional quality such as low accountability, more rent-seeking opportunities and corruption, causing conflict over control of aid funds, and the inefficient reform of policies and institutions. Santiso (2001) argues that aid conditionality is not an appropriate approach to strengthen good governance in aid-recipient countries. Foreign aid being conditional or not is not an effective way to promote good governance, while the most important thing is the framework of the agreed-upon objectives between donors and aid-recipient countries. Brautigam & Knack (2004) studied the effect of large scale aid on governance in Sub-Saharan Africa. They argue that high level of aid can harm the quality of governance. Large scale aid discourages the recipient to improve its governance quality, creates soft budget constraints and generates more rent seeking opportunities. From this point, it can be inferred that aid would increase corrupt activities.

While corruption is detrimental to economic growth, it is very likely that corruption limits the effectiveness of aid. Akramov (2006) examines if the different levels of governance with different categories of aid are important in promoting growth of the recipient countries. He measures governance in terms of democratic quality and institutional quality. He found that the recipient countries with better governance receive more aid than the one without good governance; however, governance of the recipient countries impacts on donor’s aid allocation decisions only marginally. Moreover, aid tends to be more efficient in low-governance recipient countries when it is allocated to production and social sectors, whereas aid to economic infrastructure is likely to be more effective in medium and high-governance recipient countries.

All of the above authors found no direct evidence between aid and corruption, but aid and governance and how the last two affect one another, with the result that the recipient countries with bad governance tend to receive less aid, while the ones with good governance tend to receive more aid. None of the above researchers study on why aid is still given when the aid-needed countries are not able to improve its governance, except Santiso (2001), who argues that in order to improve governance of the recipient countries, aid is not just given, but the agreed-upon objectives between donors and recipients have to be taken into account.

There are some direct studies between foreign aid and corruption. World Bank researchers found that foreign aid can induce corruption (Pradhan et al., 2000). Alesina and Weder (1999) studies whether corrupt governments receive less aid. They found no evidence that corrupt governments receive less aid; however, more corrupt governments receive more aid counted on some measures of corruption. An increase in foreign aid is often accompanied by more rent seeking behaviors and an increase in corruption, not helping reducing corruption at all. Hanlon (2004) also shares quite similar idea with Alesina and Weder (1999) that although donors criticize corruption in the recipient countries, more aid are still provided. He further studies on foreign aid and corruption in Mozambique, and argues that donors may unintentionally promote corruption in the aid-needed countries by, with the reluctant behavior to besmirch the issue of corruption, not raising the issue of corruption up publicly. Furthermore, corruption is the severe wound blocking aid allocation in the right way, and making aid more ineffective (Schudel, 2008). Schudel (2008) argues that aid is given based on the behaviors of both donors and recipients; less corrupt donor governments tend to give more aid to less corrupt recipient governments than to more corrupt governments, whereas there is no clear evidence on if corrupt donor states provide more aid to corrupt recipient states. The last argument of Schudel (2008) can be understood that on the one hand, corrupt donors might provide more aid in corrupt recipients because the first probably see the potentials of investment in recipient countries, and they already experience corruption and know how corruption plays a role in investment, and on the other, corrupt donors might not provide more aid to corrupt recipients as it is due to the fact that the first do not see any potential investments in the latter. The aforementioned researches are useful for this thesis and serve as the guidance to particularly study on the same issues in Cambodia.

There is a little scholarly work examining the connection between foreign aid and conflict or civil war. A few show that foreign aid is likely to increase the risk of civil war (Grossman, 1999, 1992, 1991). With the exception of the discussion on literature on the impact of foreign aid on ongoing conflict or civil war, which is out of the objective of this thesis, it is perceived that when huge amount of aid is flooded into the recipient countries and both the government and rebel groups are kleptocrats, who are ambitiously attempt to control the resources of the country, aid is likely to accelerate the potential of civil war by creating more rent-seeking behavior among political and economic elite, and encouraging the rebel groups to engage in war (Arcand & Chauvet, 2001). Some authors found that foreign aid has no direct impact on the likelihood of civil war (Arcand & Chauvet, 2001; Bussman & Schneider, 2007; Collier & Hoeffler, 2002). Collier and Hoeffler (2002) analyzed if aid and policy have direct impact on the risk of conflict. The finding was that aid and policy have no direct effects on conflict risk, but both indirectly influence the growth rate and the dependence on primary commodity exports, which directly affect conflict risk. Adding to the argument that foreign aid is likely to increase the risk of civil war, Collier at al., (2003) in the World Bank policy research report “Breaking the conflict trap: Civil war and development policy”, bravely argue that “the key root cause of conflict is the failure of economic development” (p.53).

Furthermore, there are few existing studies on the indirect consequences of corruption on conflict or civil war. Corruption, an old phenomenon of human history and as old as state, has become a major topic for discussion among many scholars in the related fields, especially in the field of economic growth and development retrospectively and presently. Corruption is associated with lower levels of development (Ades & Tella, 1997). It might limits the speed of private investment (Mauro, 1998), which may cause a downturn in an economy; if the economy decreases, many structural problems such as unemployment, poverty and so on, will increase, signaling the future conflict. Significantly, Huntington (1968) and Myrdal (1971) contribute different points of view concerning the impacts of corruption on economic development. The first suggests that corruption might not likely affect economic growth, while the latter claims that corruption is the sturdy obstruction hindering economic development. The consequences of corruption on poverty and income inequality have drawn attentions from some scholars (Gupta, Davoodi & Alonso-Terme, 2002; Gyimah-Brempong, 2002; Barreto, 2001). They found the positive impacts of corruption on poverty and income inequality. Corruption also impairs institutional quality. It weakens the rule of law (Herzfeld & Weiss, 2003), and create more political instability (Mo, 2001). It can be inferred from the arguments of most of the aforementioned authors that corruption is the impediment causing structural problems such as poverty, income inequality and particularly political instability in the state. If a state is unstable, it becomes a failed state, which is a source of many problems, so conflict, or more severely civil war, might be possibly erupted.

Since it is widely acknowledged that corruption is one of the main obstacles of economic growth and good governance, which principally results in poverty and other social grievances, some studies attempt to specifically focus on the interaction between poverty and conflict or civil war. The relationship between corruption and poverty has been examined by Chetwynd, Chetwynd & Spector (2003). They found that corruption itself does not cause poverty, yet they summed up “corruption has direct consequences on economic and governance factors, intermediaries that in turn produce poverty” (p. 3). The finding is confirmed through testing two models—economic model and governance model. In economic model, corruption impacts poverty by first impeding economic growth factors, which impacting poverty, while in governance model, corruption produces poverty by reducing the quality of governance. As cited in Djankov & Reynal-Querol (2008), German Chancellor Schroder asserted that “Extreme poverty, growing inequality between countries, but also within countries themselves, are great challenges of our times, because they are a breeding ground for instability and conflict. So reducing worldwide poverty is, not least, essential for safeguarding peace and security” (p. 2). Rice, Graff & Lewis (2006) explore if poverty is the precondition for conflict or civil war. According to them, poverty makes nation more vulnerable and prone to civil war because poor countries tend to have large youth bulges, low education levels, and depend on natural resources adding to the lower per capita income. Poverty lowers per capita income, which is the signal of the risk of civil war. Per capita income ensures the stability of state’s overall financial, administrative and military capabilities, which are fundamental for government’s strength; if the government is weak, the rebels might take over the government (Fearon & Laitin, 2003).

The study of single issue of either foreign aid or corruption in Cambodia is contemporarily found in a few policy research reports. Sok & Ek (2008) analyzed the aid effectiveness in Cambodia and found that aid management and coordination is not effective due to some challenges such as the use of program-based approaches, promoting the role of civil society organizations, improving government systems, especially public financial management, and the improving the database on aid delivery and administration. None of the above challenges appear to be directly associated with corruption. Yet, the researchers from the United States Agency International Development (USAID) assessed the corruption status in Cambodia, and concluded that corruption is very pervasive and widespread in the country. Recommended by USAID, many efforts have to be taken into consideration to overcome the structural, political, economic, social, and administrative malfeasance (Calavan, Briquets & Brien, 2004). A report entitled “Perceiving and fighting corruption in Cambodia: A quantitative and qualitative survey in five provinces”, produced by Indochina Research (2007), stressed that corruption pervasively and permanently exists in everyday life of Cambodians, and caused by two main reasons—low salaries of the normal civil servants, and the greed of high officials for power and wealth. The two reports just discussed only the general causes, consequences and tackling ways of corruption in Cambodia, but rather they did not particularly study the corruption on foreign aid, or the link between the two. For the time being, the two reports on corruption in Cambodia can be considered the only existing literature detailing about the corruption discourse in contemporary Cambodia. The two separate studies on foreign aid and corruption provide the overview of the trends of both issues in Cambodia, which shed the light for the study of this thesis.

Concerning literature on foreign aid and corruption in Cambodia, there were no formal existing studies so far on the nexus between the two though Ear (2007) and the Global Witness (2009; 2007) study indirectly the relationship between aid and corruption. Ear (2007) focuses on the political economy of aid and governance in Cambodia. He surveys the quality of governance based on Kaufmann et al.’s six dimensions—voice and accountability, political stability, government effectiveness, regulatory quality, rule of law and, control of corruption. So there is an indirect link between aid and corruption in his study. He analyzes how aid can influence the six dimensions of governance suggested above. With regard to the analysis between aid and corruption, he found that aid might increase corruption. However, the author does not clearly indicate why aid increase corruption in Cambodia since he mostly focuses on the impact of aid on the quality of governance in the country. Supplemented to the report on “Cambodia’s family trees: Illegal logging and the stripping of public assets by Cambodia’s elite” by Global Witness (2007) , the most recent study of the Global Witness (2009) entitled “Cambodia country for sale: How Cambodia’ elite has captured the country’s extractive industries” reveals that corruption is a deep wound blocking resources mobilization and allocation, and impairing economic growth and sustainable development of Cambodia. These two reports mainly talk about the state capture done by the most powerful elite in Cambodia, and marginally about how the donors perceive corruption done by those elite, not really mentions the correlation between foreign aid and corruption in the country. That is why, the specific study between foreign aid and corruption in Cambodia is deemed important since no one has exactly studied the issues so far. Particularly, none of the institutions or researchers in the field has directly studied the interaction of foreign aid and corruption in Cambodia and how the two can perpetuate civil war in the future. Thus, this thesis is considered the first step in studying this question, and will result in some findings and resultant recommendations as well as further issues that are in need of critical examination.

3. Conceptual Discussion

3.1. Foreign Aid

The genesis of aid flow from developed to developing countries began after World War II. Originally, aid was bilaterally given to help rebuild the war-devastated countries. During the Cold War, the two super powers—United States (US) and the Soviet Union—utilized aid to help strengthen the military capability of their allies and integrate their political ideologies into their allies’ national and foreign policies. Since the end of the Cold War, the aims of aid have been at promoting economic growth and improving general wellbeing of the developing or poor countries, and aid was shifted from bilateral aid to multilateral aid. The International Financial Institutions (IFIs), such as International Monetary Fund (IMF) and World Bank, have been becoming the leading institutions in channeling aid from donor countries to aid-needed countries. During the 1990s, aid was mainly targeted to advance democratization and political stability in war-torn countries and to encourage free-market economies in former communist countries. Currently, especially since the beginning of 2000, the general purpose of providing aid has been to advance economic growth and support humanitarian needs. Moreover, following the 11 September attack, the US began giving huge amounts of bilateral aid to its allied countries such as Pakistan, Afghanistan and Iraq in its fight against terrorism.

Foreign aid as a subject matter of political economy, development economics, and international relations has been a matter of intense debate for decades. Foreign aid theories are not independent from growth and development theories in the development economics field. Two arguments have been made about foreign aid—pro-aid and anti-aid arguments. The aid protagonists argue that foreign aid is the vital tool for pushing economic growth in developing or underdeveloped countries because it is treated as a kind of capital formation and those countries are unable to generate capital, foreign exchange, and technological knowledge on their own (Pankaj, 2005). Jeffrey Sachs, Joseph Stiglitz, Nicholas Stern are the leading scholars in line with pro-aid argument. They argue that aid contribute to economic growth and good governance by preventing worse performance of the recipient countries (Sachs, 2005; Sachs et al., 2004; Stern, 2002; Stiglitz, 2002). Whereas, the aid antagonists argue that foreign aid does not necessarily improve economic growth and development of those countries since their problems are beyond either savings or foreign exchange constraints, and it is useless without the participation of indigenous efforts (Pankaj, 2005). Milton Friedman, Peter Bauer, and William Easterly provide the most highly visible critiques of anti-aid argument. They asserted that aid has just been wasted since it has broadened government bureaucracies, encouraged bad governments, and supplemented the elite or the most powerful in poor countries (Bauer, 1972; Easterly, 2001; Friedman, 1958). In international relations arena, foreign aid has also been pro and anti. Pro-aid scholars with constructive perspective suggest that foreign aid help promote international peace and prosperity in the world by developing peaceful relationship between donor and recipient countries. On the other hand, anti-aid scholars with realist view claim that foreign aid is the tool used in foreign policy of donors to spread their political, economic, and diplomatic interests.

Aid can be different in types counted on its purposes. According to Morgenthau (1962), foreign aid is classified into six types—humanitarian foreign aid, subsistence foreign aid, military foreign aid, bribery, prestige foreign aid, and foreign aid for economic development. Humanitarian aid and subsistence aid have similar purpose, helping victims suffered from natural disasters such as floods, famines and so on in the aid-recipient countries, and preventing organized societies from breakdown respectively. Military foreign aid is given to support the allies’ security forces during mainly the Cold War. Bribery, served as an integral part of diplomacy, is proffered by a government to another for political advantage by giving a pension to the Foreign Minister or Ambassador of the latter. Prestige aid is naturally similar to military aid. It is given to increase the prestige of the recipient countries both at home and abroad because the nation can enjoy possessing modern warfare, and possibly become a modern military power. Last but not least, foreign aid for economic development, as defined in its title, is to foster economic growth of the aid-needed countries (Morgenthau, 1962). Of these foreign aid types, while humanitarian aid seems to be nonpolitical, all are political since more or less it serves the objectives of the aid-sending countries. Though politically motivated, foreign aid has been given for different purposes depending on foreign policies of the donor countries to reach their political, economic, and diplomatic interests; thus, it will probably have different consequences on development of the recipient countries. For example, economic aid intended to promote economic growth or build infrastructure is likely to have a greater impact on development than military aid, which aims to foster security forces in the recipient countries.

Taking advantage from the six types of aid listed above, and to be understandable, aid can be merely categorized into only two main types—humanitarian aid and development aid. Humanitarian aid is provided for humanitarian purposes, typically in response to humanitarian crises caused by natural disasters. Its primary objective is to save lives of the victims and maintain human dignity in the short term in the case of national emergency. Whereas, development aid can be included all the four types of aid, except humanitarian foreign aid and to a lesser extent bribery, recommended by the above author. It is provided to address the underlying socio-economic factors, such as poverty reduction and livelihood improvement, which might possibly lead to crises or instabilities, in the long term.

Foreign aid can be bilateral or multilateral, with the exclusion of private donors—non- governmental organizations (NGOs) and individuals. Bilateral aid is the aid given from one government directly to another without passing through either third government or other institutions. Multilateral aid is provided by the governments of donor countries to leading international organizations such as the World Bank, IMF, African, Asian, and Inter-American Development Bank, and other United Nations agencies such as the United Nations Development Program (UNDP) and so forth, which are responsible for distributing those aids to developing or underdeveloped countries. Currently, it is estimated that bilateral aid accounts for about 70%, while multilateral aid covers the rest².

The study of foreign aid has drawn attention from scholars since particularly the end of the Second World War; however, there is no consensus among them in defining the definition of foreign aid. A certain amount of ambiguity in the terminology of foreign aid is contained in the existing literature. Some authors include to foreign aid all financial and technical flows, including official grants and loans, from donors to developing and transition countries, while others include only grants and concessional loans.

As far as the debate on foreign aid is concerned, attention should be paid on different types of money being sent from one government to another when discussing about foreign aid. Those are grants, dept forgiveness or dept relief, concessional loans or soft loans, and loans. Grants are considered as money provided without any expectation of returns and could substitute for domestic revenues (Clements, Gupta, Pivovarsky & Tiongson, 2004). Dept forgiveness, as defined by Kharas (2007), is “a flow directly from one branch of government in rich countries to another agency in rich countries—typically from the Treasury to Official Export Credit Agencies” (p. 6). While concessional loans, as a definition provided by the World Bank, are loans typically carry no interest and offer in a longer repayment periods than other forms of financing could provide³, loans are commonly understood by scholars since the early 1960s that they are money carrying the burden of future repayment (Clements, Gupta, Pivovarsky & Tiongson, 2004).

Foreign aid, nonetheless, is defined comprehensively and acceptably in the development community by the Development Assistance Committee (DAC) of the leading Organization for Economic Cooperation and Development (OECD) in the early 1970s as official development assistance (ODA).

According to the Factsheet of OECD (2008), ODA is defined as foreign aid flowing from donors to countries on the DAC list⁴ and to multilateral development agencies. It is provided by official agencies, including state and local government, or by their executive agencies, with its main objective of promoting economic development and welfare of recipient countries, and though its characteristic is concessional, it should include grant element at least 25 percent. ODA consists of official grants and highly concessional loans flowing from bilateral or multilateral donors to, and aiming to promote economic growth and welfare of the aid-needed countries. Moreover, while excluded military support, debt forgiveness for military loans, trade credits, and political development programs, ODA includes grants for technical cooperation such as local capacity development, policy advice, and police training. There is another aid called official aid (OA), which is formally differentiated from ODA by the OECD. The OA consists of aid flows that meet eligible conditions included in ODA, but the recipients are countries in transition, mainly from Eastern Europe and Former Soviet Union.

When discussing or talking about foreign aid, people have in mind ODA. Though the standard definition of foreign aid is acceptably referred to ODA, the definition used in this thesis is that foreign aid includes all the resources, including grants, dept forgiveness or dept relief, concessional loans, and loans, financially and technically allocated from donors either bilateral or multilateral to the recipient countries. The term foreign aid, including humanitarian and development aid, and ODA are used interchangeably in this study.

Furthermore, even though foreign aid can be in private type such as NGOs’ funds and individuals, only bilateral and multilateral aid are taken into consideration for the discussion and analysis in this thesis.

3.2. Corruption

Corruption, a cancer that gradually destroys a cultural, political and economic fabric of the society, has occurred not just only in developing countries but also in developed ones; however, mostly it is found in developing countries. It is an issue believed to be erupted long time ago, but just globally gained prominent interest for research over the last thirty years. Corruption is as old as the government office. In the past, corruption is heard in Babylon, Rome, The third century BC India, Pre-Reformation Catholic Church, and Spanish Empire; whereas in modern time, it erupts everywhere across the world from simon-pure Sweden to genocidal Cambodia (Palmier, 1983).

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¹ Since civil war sometimes is confused with other terms such as civil conflict, internal war, or armed conflict, even though they are more or less share common goal. To make it clear, Kalyvas (2006) put it as “armed combat within the boundaries of a recognized sovereign entity between parties subject to a common authority at the outset of the hostilities ” (p. 17).

² For more details, find at http://stats.oecd.org/Index.aspx?DataSetCode=TABLE1 Retrieved July 20, 2009.

³ More details, please see the World Bank’s website at http://web.worldbank.org/WBSITE/EXTERNAL/EXTABOUTUS/IDA/0,,contentMDK:20189587~menuPK:5123 5940~pagePK:51236175~piPK:437394~theSitePK:73154,00.html#What_is_a_concessional_loan Retrieved July 20, 2009

⁴ The list can be found at http://www.oecd.org/dataoecd/62/48/41655745.pdf Retrieved July 20, 2009 20