Foreign Aid and Investment of Bangladesh

Topics: Development aid, Aid, Development Assistance Committee Pages: 24 (6642 words) Published: August 24, 2012

Foreign Aid
Investment in Bangladesh

Submitted By:
Md. Masudur Rahman
Dept of Management Studies
Jagannath University, Dhaka.
Foreign Aid in Bangladesh
Foreign Aid any capital inflow or other assistance given to a country which would not generally have been provided by natural market forces. In Bangladesh, foreign aid serves to bridge the gap between savings and investments and make up the deficits in the balance of payments. Foreign aid is a major means of financing the country's economic development. Economic literature generally classifies foreign aid into four main types. First, the long-term loans usually repayable by the recipient country in foreign currency over ten or twenty years. Secondly, the soft loans repayable in local currency or in foreign currency but over a much longer period and with very low interest rates. The softest are the straight grants often given to the less developed countries. Sale of surplus products to a country in return for payment in the country's local currency, e.g., food aid from the USA under PL-480, is the third type and finally, the technical assistance given to the developing countries comprises the fourth type of foreign aid. Foreign aid is essentially economic aid and is provided on a governmental basis. In Bangladesh the standard practice is to treat only the loans received on concessional terms and grants as foreign aid. Excluded from the category are fund transfers in the form of military assistance, aid provided by foreign private agencies, suppliers credit, export credit, foreign portfolio investment, foreign direct investment and hard-term borrowing with an interest rate of 5% and above and/or a repayment period of less than twelve years. The donors of foreign aid to Bangladesh include individual countries, multinational financial institutions and international agencies and organisations. Foreign aid to Bangladesh is classified on the basis of terms and conditions, source, and use. Accordingly, the various types foreign aid are loans and grants, or bilateral aid and multilateral aid, or food aid, commodity aid, project aid and technical assistance. Food aid is the supply of food from the donor countries and organisations or payment to suppliers of food to Bangladesh by them. Donor payments of costs associated with food supply such as transport, storage, distribution, etc. are also considered as food aid. Likewise, commodity aid represents donor funding of the acquisition of commodities including consumer items, intermediate inputs and industrial raw materials. Sale of food and commodities imported under aid arrangements generates a counterpart taka fund in the government treasury. In the imperial days of Britain, the dependency was to meet the costs of government and of development out of local revenue. If a dependency was ever given any grant-in-aid, the British Treasury took control of its finances. In this way the imperial government suppressed the development needs of its dependencies, one of which was undivided India. After World War I, when the movement for independence was intensified in the major colonies, the British rulers enacted the Colonial Development Act of 1929 to provide external help through regular funding of development activities in the colonial territories for mutual benefit. Such direct assistance to dependent territories was reserved until 1950, but India and therefore, Bengal, never came under the operation of the Act. Neither was it benefited by the Colonial Development and Welfare Act of 1940. The United States started a programme of bilateral aid in 1948 to provide support for the reconstruction of Europe and parts of Asia. The largest of these programmes was the Marshall Plan spawned by the Economic Co-operation Act 1948 and administered by the Economic Co-operation Administration (ECA). The ECA was replaced in 1950 by the Act for International Development, which translated President Truman's Point IV...
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