IN the new up-and-coming global state of affairs, trade has become the prime consideration of the domestic and foreign policies of the nation states.

Countries are forging a variety of commercial coalitions, entering into fresh trade treaties and pacts, setting up trade free areas and zones and taking major policy shifts to adjust themselves into innovative economic milieu. Every nation is bolstering trade ties with the other; commercial diplomacy is in full swing.

Foreign aid, used as accelerator of economic growth, is drying up. Foreign aid is no a very effective doable option. Although it has been a noteworthy contributor to growth and development of different countries at different times in yesteryears. With the transformation in its character and composition, things are, presently, happening other way round. The role of foreign assistance has, however, remained controversial so far.

Recent empirical research shows that foreign aid of the right type and quality can have a positive impact if macro-economic indicators are accurate, macro-economic incentives are not distorted and supporting institutions are in place.

In the absence of these pre-conditions, foreign aid only helps countries to postpone the tough decisions required for the prudential economic management. Under these circumstances foreign aid is curse which should be avoided.

One study conducted in 1975 recommends that positive relationship exists between foreign aid and investment. Its practical manifestation is the positive link between aid, saving and growth experienced in developing countries of Asia. A research conducted in 1996 implies that no significant parallel exits between aid and growth, virtually it goes to consumption. These overall negative findings can be attributed mainly to the failure of aid to the countries in Africa to improve their economies.

The qualitative literature by and large argues that foreign aid can rally round development, if the policy environment is complimentary to growth. It is strongly argued that the usefulness of development assistance varies with the quality of country’s governance and economic policies it pursues.

According to one group of scholars, no amount of foreign assistance can be a substitute for developing countries’ internal policies and incentives for increasing output and improving the efficiency of resource allocation. Finally, foreign assistance can help strengthen development in countries whose environment does not distort the allocation of resources in the economy.

Pakistan provides an interesting case study of the impact of foreign aid on economic development in an under-developed country. All Asian and African countries including Pakistan that won their independence from their colonial masters after Second World War, were poor by European standards at the start of their career as independent states. Pakistan started well on its career path as any independent nation with regard to its international balance of payment.

With the beginning of First Five Year Plan in 1955, the quantum of foreign aid began to assume significant proportions. It was conceived to fill in the two-fold gap between investment and saving, on one hand and imports and exports on the other, during the process of industrialization until the recipient country reached the stage of self-sustained growth.

Pakistan began receiving foreign economic assistance from the commencement of “Colombo plan” in 1950. The first technical assistance agreement was signed with the US in February 1951. The first project loan was obtained from the World Bank in 1952, while the first commodity loan agreement was negotiated with the Export-Import Bank of Washington in September 1952. Pakistan has continued to receive foreign economic assistance in ever increasing quantities. However, in the early years, economic assistance was mostly on grant basis but since 1960 the composition of assistance has changed in favour of loans whose terms have tended to become harder with the passage of time so that in today’s world “aid” has become a misnomer.

Foreign aid played a key role in the economic development and occupied a critical position in determining its strategy and also pace of growth. The aid relationship with the USA has recently come under heavy strain. The US foreign aid helps the US monopolies in penetrating the markets of developing countries and earning huge profits.

Prices of goods supplied to captive markets under US tied aid have been known to be much higher than then the competitive world prices. Secondly US aid has remained most of the times tied and aid tied with the conditions cuts the value of aid to recipient countries by some 25-40 per cent, according to one observation. It obliges the recipient country to purchase uncompetitive priced imports from the donor states.

According to “Reality of aid 2000” 71.6 per cent of US bilateral aid commitments were tied to the purchase of goods and services from the US. Where it did give aid, it was most often tied to foreign policy objectives.

More than half US aid is spent in middle income countries in the Middle East. Only three billion dollars a year goes to South Asia and Sub-Saharan Africa. According to one US senator, two- third of the US government aid goes to only two countries, Israel and Egypt. Much of the remaining amount is used to promote American exports or to fight war against drugs that could only be won by tackling drug abuse in the US itself. The recent US aid has taken on militaristic angles as well, following similar patterns to aid during the cold war. The war on terror is also having a similar effect.

So now “trade not aid” is regarded as an important part of development. And “Trade not aid” sounds like decent rhetoric.