I bumped into this saga in 2000 when we were proposing a big increase in aid to Tanzania in order to help fund universal, free primary education. One of the Department for International Development officials then informed me that an old proposal for the sale of a military air traffic control system, which had been blocked many years earlier, had re-emerged. The old proposal had been divided by BAE into two phases in order to make it appear cheaper.
My problem was that the increased aid would end up paying the BAE bill. Tanzania had recently received debt relief and one of the conditions was that it would not borrow money except on concessional terms such as those available from the development banks. Yet this project was to be funded by a loan from Barclays bank, which claimed to be concessional. Since Barclays is a commercial company, it did not seem credible that they would offer loans below market prices. The suspicion was that they had simply inflated the price and then pretended the loan was concessional.
Two lessons here: money is fungible and yes, there is indeed corruption in the governments of many African states.
Poses something of a problem for those who insist either that we should be giving more aid (for if money is fungible and there is corruption then even if they don\’t nick the aid they can steal from elsewhere and get the aid to cover the hole) of that we should be ensuring that all those evil multi-nationals pay more tax (for it might well get stolen, eh?).
These aren\’t the points that anyone wants you to take from the BAe/Barclays thing, of course. But there\’s no point in facilitating a thief if there ain\’t a thief to facilitate, is there? And it\’s the existence of the thief that is the ultimate cause.
“money is fungible”
So taxpayer money for union modernisation is going to the Labour Party. But the lefties on this blog said it wasn’t. How can this be?
There was a study somewhere that studied the correlation between foreign aid and Palestinian violence that concluded that aid gave the leadership of either Hamas or Fatah the ability to ignore dealing with civilian concerns and instead focus on buying weapons.
“The suspicion was that they had simply inflated the price and then pretended the loan was concessional.”
I’m struggling to understand this … can somebody explain it?
* Issues like this with regards to development aid
* The recent problems of municipal borrowers and monoline insurers
* The effect of subsidised mortgages in helping to create the housing bubble
I think there is a third lesson here: No one should be allowed to borrow money at below the market rate for their circumstances.