Foreign aid has increasingly become a controversial issue in the past few years. Just a decade ago the main donors pumping money into the major global organizations such as the United Nations, World Bank and the IMF were the United States and Western European countries. While most citizens of these countries saw aid as an instrument for promoting goodwill and maintaining friendly ties, the institutions responsible for disseminating the aid started becoming increasingly politically motivated. The World Bank and IMF did not just dole out money to needy countries; rather, the stick and carrot method was used where developing countries were forced to go through structural changes while the aid was held at ransom. The changes these institutions encouraged included transparency, trade liberalization and central bank reforms. Collectively, they are known as the Washington Consensus of 1989.

Some analysts argue that while reforms were much needed, the reforms that were implemented were in the best interest of the donor nations. While advocating economic openness, poorer countries became more susceptible to accepting FDI and lower taxes on import which mostly benefited foreign countries. Politically, aid could be stopped if the recipient’s conduct was deemed unsuitable. After all, the money did belong to these nations, so why not use it to their advantage?

Unfortunately, events during the past few years have shaken things up. The financial world is undergoing a structural change with money being increasingly concentrated in the emerging markets. For example, the IMF has a fund of around $400 billion but China and Russia have dollar reserves much larger than this. Increasingly China and other nations in the emerging markets are extending development aid through their own channels and are now calling for larger say and quota into policy decisions of these global organizations. On the other hand, the Euro Zone and the United States are undergoing economic crisis and their position is weaker than ever. The crisis has shown the new emerging nations that the traditional super powers are not invulnerable, and perhaps this is the right time to call for much needed change which would bring about a structural change in the way finances are circulated throughout the world.