Does foreign aid fuel corruption?

In a series of blog posts curated by the World Economic Forum’s Partnering Against Corruption Initiative (PACI), a number of leading voices will present their perspectives on anti-corruption in the run-up to World Anti-Corruption Day on 9 December. In the following post, Sophal Ear, Assistant Professor of National Security Affairs at the US Naval Postgraduate School and a Young Global Leader at the World Economic Forum, explains how foreign aid and corruption might be connected. 

Is Cambodia’s perennial bid to become a member of the United Nations Security Council an attempt by the current regime to project legitimacy? Undoubtedly. It is the culmination of two decades’ worth of Cambodian reintegration into the world. It is a process that began in 1991 with the “Agreements on a Comprehensive Political Settlement of the Cambodia Conflict”, aka “Paris Peace Accords”, continuing on through with ASEAN and WTO membership in 1999 and 2004.

Embedded within Phnom Penh’s pursuit for regime legitimacy, there is an additional and equally important issue: the steady presence of corruption enabled by foreign aid and intervention over the past two decades. Take into consideration Cambodia’s consistently poor ranking in the Corruption Perception Index. In 2008, Cambodia ranked 166 out of 180 and in 2011, the country ranked 164 out of 182; a trend of high public sector corruption. Corruption in Cambodia is rampant and a significant hindrance to social and economic development.

The social implications of aid dependence is best considered when comparing how much aid the country received over a period of time and how much corruption and maternal and child mortality is present. One would think that after receiving more aid, maternal mortality, for example, would significantly decrease; but it did not. According to data obtained from the World Bank’s World Development Indicators (WDI) in February of this year, despite the billions of dollars the country received in foreign aid, the incidence of maternal mortality increased from 440 deaths per 100,000 live births in 2000 to 472 in 2005, dropping only slightly to 460.8 in 2008 (though still higher than in 2000).

On the other hand, if one combined both current domestic revenues and estimates of corruption, Cambodia would have the required resources to develop on its own. However, it is likely that the steady influx of aid is disrupting the relationship between citizens and the administration. Using 2002-2010 data from the WDI, for every dollar spent by the central government, more than 94 cents of net foreign aid was received. Essentially, for every dollar the government spent, it received almost one dollar. The motivation to independently develop is lost.

The tax department, for example, can’t be bothered to actually receive payments in cash. The counting of money is of no private benefit to the staff and it will take a taxpayer all day to be served. The alternative is to pay a facilitator (often doubling-up as a money exchange business) to make a bank transfer into the tax department’s bank account (which only facilitators can do).

In the absence of strong domestic revenues and foreign exchange, foreign aid becomes a curse, much like oil or minerals, in a version of the resource curse.

Author: Sophal Ear is an Assistant Professor of National Security Affairs at the US Naval Postgraduate School and a Young Global Leader at the World Economic Forum. He is also the author of Aid Dependence in Cambodia: How Foreign Assistance Undermines Democracy.  Research assistance for the blog post provided by Dimitri Randall.

The views expressed are his alone and do not represent the views of the US Navy or US Government.

Image: Pictured a Security Council meeting at the United Nations General Assembly in New York REUTERS/Keith Bedford