The Recipient's Domestic or Foreign Policies

Donors can also manipulate economic and military aid programs to change the internal politics of recipients. A regime can be rewarded through increased aid allotments if it promises to institute political reforms, or it can be threatened with a reduction in aid if the reforms are not carried out. In 1963, the American government decided that the war against the Viet Cong could not be prosecuted satisfactorily as long as the Diem regime in Saigon continued to behave as an arbitrary dictatorship. American diplomatic representatives frequently asked Diem and his advisers to observe basic civil liberties in the country and permit other political groups a voice in policy making. When Diem consistently refused to accept the American advice, the United States quietly began to apply pressures by reducing its foreign-assistance program. First, it halted the financing of com­mercial exports to South Vietnam and later refused to continue payments to Vietnamese Special Forces engaged in persecuting anti-Diem groups rather than fighting against the Viet Cong. It finally "postponed" renewal of the annual agreement on grants of surplus food. By the end of the year, American aid to the Southeast Asian country had been reduced by 75 percent. These steps, which were coordinated with a diplomatic and propaganda campaign against the Diem regime, undoubtedly had an important bearing on the subsequent coup d'etat by the Vietnamese army that threw out the Diem regime.

Major donors of aid seldom use it in such a crude and open fashion to interfere in the internal politics of the recipients, but virtually all governments have found it necessary on occasion to act this way. Joan Nelson lists some other ways in which aid can be used to affect the internal political processes— in the short run—of recipients:

1. Aid, usually in the form of financial subsidies of commodity import programs, can be used to buy time. Sometimes a new government takes office only to find that it is faced with extreme inflation, a depleted treasury, or an untenable balance-of-payments situation. A financial subsidy from a donor can relieve the government of a crisis situation and give it time to formulate programs to control the economy.

2. A donor can also supply funds to help a government cope with specific economic or political problems, such as unemployment.

236Economic Instruments of Policy

3. Occasionally, a grant of aid can be given at a strategic time so as to affect the outcome of an election. In 1964, for example, the United States provided a program for Chile, which was facing a serious problem of inflation. The grant was made several weeks before an election in which the Marxist candidate Allende (subsequently elected president in 1970) had a good chance of defeating the left-of-center candidate supported by the United States.

4. Aid can be suspended following a coup d'etat. The United States had done this almost routinely in Latin America as a means of promoting constitutional changes of government and discouraging military takeovers.¹³

Examples of aid manipulation designed to change a recipient's foreign policies are equally plentiful. In 1963, the United States decided to cut off almost all economic and military aid to Indonesia after the Indonesian government mobilized resources to achieve its goal of "crushing" Malaysia. Similarly, the Soviet Union quietly withdrew thousands of technicians and millions of rubles worth of aid after the Chinese began to criticize Soviet leadership in the world Communist movement. The Russians claimed that their aid personnel were requested to leave by the Chinese; but it is likely that the Soviet government took the initiative to reduce its economic aid program as an attempted means of inducing the Chinese to change their domestic and foreign policies, as well as their position on certain ideological issues. In 1960, the Soviet Union also seriously curtailed its military aid to China, thus depriving the Chinese of needed modern weapons and spare parts and, in particular, slowing down the Chinese program to build nuclear weapons.

Aid as a Reward for Becoming an Alliance Partner

Promise of large quantities of military and economic aid are also used to obtain or support allies. In return for committing its resources and manpower to the development of a large, modern military capability, targeted toward the main potential enemy of the donor, the alliance partner will receive aid with which to fashion a program for economic development. Since World War II, the largest share of American, British, and Soviet aid has been devoted to obtaining and supporting allies.

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