Foreign aid that hurts rather than helps

Citizens unload relief food from a military helicopter on a soccer field in the Chilean village of Arauco.

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Kai Ryssdal: Chilean President Michelle Bachelet said today it could take three or four years for her country to recover from the earthquake and tsunami of this past weekend. Bachelet's been getting a lot of criticism for not agreeing quickly enough to offers of international aid. She says what really happened is that she had to figure out what kind of help Chile needed first. Immediate aid, though, to those in need would seem to be a no-brainer. But even the simplest things can be more complicated than they seem.

Sabri Ben-Achour learned about the economics of disaster assistance in Haiti.


Sabri Ben-Achour: At Terminale Varreux -- one of Haiti's major ports -- a barge full of aid arrives, just weeks after that country's devastating earthquake.

Nobody seemed to know exactly what was on the boat, or who actually sent it. One rumor was that it was from Costa Rica. Wherever it was from, throngs of men and trucks lined up for a piece.

HAITI MAN: I've been here since 4 a.m., and I haven't gotten anything.

Whoever sent the boat didn't really arrange for distribution.

The boat, it turned out, had mostly packs of water bottles, which is nice and everything, but water isn't really what Haiti needed right after the quake. There was plenty of water. Sanitation equipment or rice would have definitely been more useful. This is one example of aid that just might have been hurting more than it was helping.

TRACY REINES: It really can actually do harm to an operation.

Tracy Reines is with the Red Cross.

REINES: Just to manage that and to use resources to get that in and to get that out when there's a whole other way to provide water in the country that's safer, has less impact, has less logistical impact is really critical.

Reines remembers times when aid agencies including the Red Cross have had to foot the bill to store, sort, and figure out what to do with unwanted, sometimes even broken supplies that have been sent to them. It's prevented more urgently needed things from coming in.

REINES: The trick is matching up peoples' natural good will and intention to provide support with what is really needed, what's able to be used, and how do we prioritize it.

That's why aid agencies really like cash -- it's flexible. But it turns out there are a lot of ways that aid supplies can have unintended effects, and in more complicated ways than just clogging up ports. Let's say, for example, you want to give food to a country, so you give tons of your own wheat, for free. Well, then you're undercutting local food producers. They can't compete with free food.

Manuel Orozco heads the Remittances and Development Program at the Inter American Dialogue. He says this has actually happened before.

MANUEL OROZCO: During the 1980's, U.S. food assistance to Guatemala was distorting national production. In some cases it was discouraging people from continuing to produce corn, for example.

Well then, you say, you'll just buy your donation food from the country you're trying to help. That'll spur the damaged economy. Well, that could be a disaster because you might spur inflation. Too much demand, too little supply. In the case of Haiti, inflation was already at 8 percent before the earthquake.

JEAN DONNES: Prices went up the following day.

Jean Donnes lives in the Carrefour neighborhood of Port-au-Prince. He says imported products were scarce right after the quake.

DONNES: The day before it happened, you could buy a Coke for $3. Now it's $4, somewhere you get it for $5.

So in this situation, bringing in food actually helped keep prices down. Free imported rice from the World Food Program actually stabilized rice prices and, of course, fed two-and-a-half million desperate people.

But as time goes on, and as aid groups pile on needed assistance, the risk grows for distorting everything from currency to real-estate prices.

Again, Tracy Reines.

REINES: The Red Cross has a team right now looking at market assessments to see what the market can absorb, primarily in the food sector and in the shelter sector.

But, Reines adds, the case of Haiti is pretty special. It was so poor to begin with that while economic distortions are something to keep an eye on, they're not immediately likely. Haiti can absorb a lot of aid right now.

From Port-au-Prince, I'm Sabri Ben-Achour for Marketplace.

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