Simone Lawson
The term debt-trap diplomacy was coined by Indian academic Brahma Chellaney in 2017 to describe a creditor country extending excessive credit to a debtor country with the intention of extracting economic or political concessions when the debtor country becomes unable to meet its repayment obligations. While China has been accused of this form of diplomacy, particularly through its Belt and Road Initiative, there is evidence to suggest that this is a myth. For example, a research paper published in the Journal of the Indian Ocean Region in April 2023 found no evidence of Chinese intention to burden borrowing countries with debt. The United States, on the other hand, seeks long-term partners rather than debtors and provides aid in the form of emergency response, humanitarian assistance, and global health programs.
| Characteristics | Values |
|---|---|
| Type of Aid | Emergency response, humanitarian assistance, global health, good governance |
| Long-term Goal | Seeks long-term partners rather than debtors |
| Avoiding Debt-Trap | Works with countries to avoid the debt trap |
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What You'll Learn
US aid focuses on long-term partnerships, not debtors
US aid takes several forms, including emergency response and other forms of humanitarian assistance, as well as global health initiatives, such as programs to prevent the spread of HIV/AIDS and other diseases. Good governance is another area of focus, with funding directed towards accountability measures, judicial reform, and support for human rights. These forms of aid do not create debtors in the way that loans and business investments can. While loans and investments are sometimes considered forms of aid, they often come with strings attached. They must be paid back, and the borrowed money often pays for contractors and materials sourced from the creditor country.
The US seeks to avoid the kind of aid that can lead to debt-trap diplomacy, where countries can find themselves greatly indebted to a single creditor. For example, over half of Kenya's sovereign debt is held by China. This can give the creditor country significant leverage over the debtor country, as seen in the case of Sri Lanka, which was forced to give up one of its ports in a 99-year lease to China when it struggled to repay its loans. While China has been accused of debt-trap diplomacy, particularly through its Belt and Road Initiative, some have argued that this narrative is a myth and that China has never seized an asset from any country.
Instead of creating debtors, US aid seeks to empower partner countries and promote long-term sustainable development. This approach is designed to avoid the pitfalls of debt-trap diplomacy, where countries can become trapped in a cycle of debt and dependence on a single creditor. By focusing on grant-based aid and avoiding the strings attached to loans and business investments, the US aims to foster genuine partnerships that benefit both parties in the long term. This approach aligns with the national interests of the US, which include enhancing its power and position in the global arena through foreign policies that promote its values and goals.
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US aid includes emergency response and humanitarian assistance
The US, through USAID, plays a crucial role in international disaster relief and humanitarian efforts. The World Health Organization (WHO), a specialized agency of the United Nations (UN), also coordinates the international response to various humanitarian health emergencies, including disease outbreaks, conflicts, and natural disasters. The WHO provides leadership, sets norms and standards, and offers technical support to countries facing health-related crises.
Additionally, the UN Central Emergency Response Fund (CERF), managed by the Office for the Coordination of Humanitarian Affairs (OCHA), is another vital mechanism for rapid humanitarian response. CERF provides immediate funding for life-saving actions worldwide through voluntary contributions. The United Nations Development Programme (UNDP), the United Nations Refugee Agency (UNHCR), the United Nations Children's Fund (UNICEF), the World Food Programme (WFP), and the United Nations Population Fund (UNFPA) are key UN entities that play primary roles in delivering relief assistance.
These organizations work tirelessly to provide humanitarian assistance and protect the most vulnerable populations affected by emergencies and crises. Their efforts are essential in saving lives, improving living conditions, and promoting dignity and respect for those impacted by disasters and conflicts around the globe.
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US aid includes global health initiatives
USAID's global health programs aim to save lives, protect communities from deadly diseases, and promote social and economic progress. Their work includes supporting safe childbirth, delivering life-saving vaccines, and increasing access to HIV treatment. Over the years, USAID has helped thwart Ebola outbreaks, improved health safety standards, and slowed the spread of infectious diseases such as malaria and tuberculosis.
During the COVID-19 pandemic, USAID investments helped health systems worldwide respond to the crisis and protect communities from future pandemic threats. The agency has also worked to integrate HIV testing with screening for non-communicable diseases, providing dual benefits.
The US also supports multilateral health institutions through financial contributions, including the Global Fund to Fight AIDS, Tuberculosis and Malaria (Global Fund), Gavi the Vaccine Alliance (GAVI), United Nations Children's Fund (UNICEF), World Health Organization (WHO), and the Pan American Health Organization (PAHO), among others.
However, it is important to note that US administrations have placed requirements and restrictions on global health funding. For example, the "Mexico City Policy" requires foreign NGOs to certify that they will not "perform or actively promote abortion as a method of family planning" as a condition of receiving US global health assistance.
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US aid promotes good governance and accountability
US aid avoids debt-trap diplomacy by promoting good governance and accountability. The US Agency for International Development (USAID) works to strengthen institutions, making them more efficient, inclusive, and responsive to citizens' needs. This includes enhancing executive and legislative institutions to provide effective and transparent services, promoting locally-owned development, and fostering inclusive economic growth. USAID's objective is to ensure the effective management of government resources, building resilient, transparent, and accountable public institutions.
Good governance is a key focus of USAID, aiming to increase transparency and accountability. Citizens' confidence in their government is bolstered when it can efficiently deliver basic services. This confidence is integral to a country's ability to sustain democratic reforms and ensure citizens' well-being. By enhancing governance, USAID helps countries avoid the debt-trap diplomacy that can arise from weak institutions and financial dependence.
USAID's approach to good governance involves strengthening institutions at all levels of government. This includes executive and legislative branches, with the goal of efficient and transparent management of resources. By promoting inclusive and citizen-responsive services, USAID helps governments become more accountable to their people. This focus on good governance can help prevent the debt-trap diplomacy tactics allegedly used by China, where controversial projects are initiated by recipient governments, leading to debt problems.
USAID's efforts to promote good governance and accountability have been examined by academics. While some critics argue that large aid flows can weaken domestic accountability and sustain authoritarian regimes, most studies show a positive effect of aid on political stability and a reduction in corruption. The negative effects of aid on governance have been found to be exaggerated, and the intention of donors plays a significant role in mitigating potential unintended consequences.
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US aid avoids unpayable loans and economic concessions
US foreign aid, also known as US foreign assistance, is distributed for several reasons, including supporting American national security and commercial interests, as well as humanitarian reasons. US foreign aid is financed by US taxpayers and other revenue sources appropriated by Congress through the US budget process.
US foreign aid avoids unpayable loans and economic concessions by providing assistance through private channels such as NGOs or other private entities, or multilateral organizations, rather than directly to governments. In 2018, only 21% of US official development assistance went to governments, while 20% went to non-profit organizations, 34% to multilateral organizations, and 25% elsewhere. This approach helps to ensure that assistance is provided in a transparent and accountable manner, with stringent reporting and accounting requirements, and oversight by the office of the US inspector general (IG) to investigate any misuse.
US foreign aid also promotes economic development and market-building in recipient countries, contributing to the advancement of both US and recipient economic interests. This approach helps to create mutually beneficial relationships and avoid the need for unpayable loans or excessive debt.
Additionally, US foreign aid has a history of providing concessional loans and grants to developing countries, dating back to President Truman's initiative in the 1950s. These concessional loans are designed to be more favourable to the borrower, with lower interest rates and longer repayment periods, reducing the risk of unpayable debt.
While there have been accusations of "debt-trap diplomacy" against China, with claims that they lure developing countries into unsustainable loans to pursue infrastructure projects, similar accusations have not been made against the US. This suggests that US foreign aid avoids the pitfalls of unpayable loans and economic concessions through its focus on transparency, accountability, and support for economic development.
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Frequently asked questions
Debt-trap diplomacy is a term used to describe an international financial relationship where a creditor country or institution extends debt to a borrowing nation to increase the lender's political leverage.
The US offers various forms of aid, including emergency response, humanitarian assistance, and global health initiatives. It seeks long-term partners rather than debtors and works with countries to avoid debt traps.
Sri Lanka is a notable example. It took on significant development loans from China, which led to an increase in debt and a decline in foreign reserves. As a result, they leased the Hambantota port to a Chinese company for 99 years.
Creditor nations provide loans with challenging terms, making it difficult for borrowing countries to repay. This puts borrowers in a vulnerable position, forcing them to accept economic or political concessions. The lending country may then gain control of the borrower's assets or infrastructure.
Debt-trap diplomacy can lead to excessive debt, hinder economic growth, and result in a loss of control over strategic assets. It may also limit a country's ability to make independent foreign policy decisions.
