IS FOREIGN-AID FUNGIBLE - THE CASE OF INDONESIA

Several questions concerning the impact of foreign aid on public expenditures in recipient countries are explored: the impact of changes in total foreign aid on total public expenditures; the effects of aid given for specific categories of public expenditure on those types of expenditures; the fungibility of categorical foreign aid among public expenditure categories, and the effect of aid on revenue-raising efforts. The conclusions about the effects of foreign aid on public expenditures in Indonesia are very much at variance with the conventional wisdom on this issue. Foreign aid did not displace development expenditures; on the contrary, it stimulated total public expenditure. Equally important most categorical aid was spent on the purposes for which it was intended by donors. No diversion to other categories of development expenditures, nor from development purposes to current expenditures is found. -from Authors