Asia Economy

EU to Stop Aid to Fast-Growing Countries

Stanley Pignal in Brussels

The European Union is to stop all bilateral aid payments to China, India, Brazil and other fast-growing economies as a result of a review into development spending.

In plans put forward on Wednesday, the European Commission, the bloc’s executive arm, said that 17 countries in all were effectively graduating from being recipients of European aid, including some of the world’s most dynamic economies, to “new partnerships” that are not based on bilateral aid.

Argentina, Peru, Colombia, Malaysia, Indonesia and Thailand are among those that are to lose funds — sometimes worth hundreds of millions of euros a year — from 2014, when the new EU policy comes into force.

The shift is ostensibly designed to concentrate European aid on the world’s poorest countries where EU funds can make a tangible difference, rather than spending it in places where rapid economic growth has given local governments the means to fund their own development initiatives.

But it also underlines the fact that new economic superpowers such as China and Brazil have recently seemed more likely to come to the rescue of the fragile European economy rather than depend on it for handouts.

Europe has in recent months sought to tap emerging economy sovereign investors to help finance some of the financial instruments around the eurozone bail-out.

“[The budget] has been prepared taking into account the new realities of the world,” said Andris Piebalgs, the EU’s development commissioner. “Our focus will be on where the EU really adds value.”

In some countries, including India and Indonesia, some EU funds have been transferred straight into national coffers, plugging shortfalls in the national budget. Under the current aid regime, India is to receive €365 million in the seven years to 2013, and Indonesia €423 million. Projects in China and Brazil were granted €170 million and €60 million respectively. Those flows will all be closed by 2014, if not before.

“It’s a sign of the times,” said Thomas Klau, fellow at the European Council on Foreign Relations. “Both in that Europe is looking for ways to reduce spending, but also of the growing strength of some [emerging] economies. It is bringing European policies up to date.”

A host of countries which have benefited from oil and commodity price increases since the allocation of aid was last debated in 2004 will also lose out, including Chile, Kazakhstan and Venezuela.

The Commission stressed the overall amount it spent on bilateral aid would not decline — Brussels will have a budget of around €10 billion a year from 2014, up by nearly a fifth on current amounts. This excludes the overseas aid administered directly by member states of the EU.

European aid will also be more closely linked to themes that it is looking to tackle globally, notably around global warming and the environment, which will swallow one quarter of its aid spending. Education and health will take up another 20 per cent.