ECONOMY AS AN INSTRUMENT IN INTERNATIONAL RELATIONS

1. Preface.
Post World War II (WWII) the international situation is no longer dominated by
ideological competition between capitalism against communism. United States of
America as a leading bearer of the capitalist ideology gave a dominant color in the
interactions between countries. During the time when ideology was no longer a subject of
conflict, the focus of attention was shifted from merely dealing with issues of high
politics such as ideology, war and peace, as well as weaponary, to the low politics issues
such as the economy, democratization, human rights and others.
Under capitalism the relationship between developed countries moved towards
dominating economic resources. Great Power countries are industrialized countries that
are advanced in various fields, especially in economic aspects such as the United States
of America, Britain, France and Germany. These countries need natural resources in large
quantities to support its industry. While natural resources that are abundant, they are
owned by the poor countries in the other parts of the world. This situation raises an
interesting interaction to be discussed, on one hand the developed countries uses its
economic power to control the natural resources in the poor countries with all means, on
the other hand poor countries are also using its natural resources to build the country.
Then came a concept of international political economy, if economy is about the search
for wealth, then political is about the search for power, both of which interacts in
complex and confusing ways (Gilpin 1987). Many definitions of international political
economy, one of them from Martin Staniland that defines international political economy
as the relations of political and economic changes as well its implications on political
activities, markets and production (international and domestic).
Still under capitalism, international financial institutions emerges, such as the World
Bank, the Asian Develop ment Bank (ADB) and the International Monetary Fund (IMF).
Briefly, these institutions serve to help build poor countries by providing financial aid
multilaterally.

In its practice, the debtor states (borrower) must sign an agreement which contains
requirements that must be met. Often these requirements are extensions from political
interests of creditors (lenders) that are none other than the developed countries whom are
interested in the natural resource of the borrowing countries.
In international political economy the motivation of granting foreign aid is described, as
quoted in the book International Political Economy: General Study Introduction, Yanuar
Ikbar said that the reason for the granting of aid by specific a country or institution, most
especially are the political self-interest, strategic and economy. Although in general, that
reason are in form of a moral motivation, humanitarian assistance

or aid for the

sustainability of the process in complementation relations and development of other

sides. However, it is difficult to find historical evidence on the development of foreign
aid during a certain period that indicates the donoring country or international credit
institutions will help without expecting certain advantages.

2. Economics and Politics Motivation.

Political and economic motivations are actually difficult to be separated, as both are
interrelated. The consideration of decision-makers in the donor countries are always
followed by the identification of how big is the debtor countrys dedication in the
cooperation relations even political engagements with the debtor country. Aid from donor
countries even gives their involment an oppurtunity for political power dominance,
included in the investment that they instilled in the debtor countries up to the lobbying of
decision-making or implementation of domestic policies.
Economic motivation is the most rational justification for aid, both for donors and debtor
countries. However, the essential argument of foreign aid fundamentally, can be
understood from several concepts:

1.

The resources and financial capabilities from the outside (for loans and
grants) can actually play a rational role in the context of mutual
economic interest, such as the hope of getting a variety of resources and
energy from countries that are assisted.

2.

Therefore most foreign loans are associated with other conceptions, such
as greater trade cooperation between creditors and debtors.
Foreign aid are mostly given to expendite growth and equity in the debtor

3.

countries, with the hope that the level of purchasing capability of the people will
rise, so that they can buy industrial products of the donor countries.

Foreign aid or grants in general are not only in the form of capital, but
may also be experts and management, as well as technological transfer.
Economically, foreign aid the country gives a reciprocal that is greater for
the foreign workers (from the donor country) who works as a qualified
personnel in the debtor country. They have been a part of this addition of
capital flight from the countrys foreign exchange, also provides input
4.

partly on sources of foreign exchange earnings through income tax. Thus,

the income reserve flow occurs (capital reciprocal).
Diversion of investments for the purpose of approaching the market,
expansion of international industrialization in foreign donor countries
and industrial transfer dusk, where donor countries had not done

Pearson and
1.

production with obsolete technology, because of the progress they have

reached in new technologies.
Payaslian presented four theories about foreign aid, namely :
Flow realists claim that the main purpose of foreign aid is not to show the abstract ideals of

2.

human aspirations, but for the projection of national power. Foreign aid is an important
component of international security policy.
The theory of dependence (dependensia) states that foreign aid used by rich
countries to influence the domestic and international relations, the recipient country
of aid, embracing the local political elites in the recipient country for commercial
purposes and national security.

Then, through an international network, international finance and the

3.

structure of production, foreign aid is intended for natural resources

exploitation of the recipient. So that the dependensia theorists, assume
that foreign aid can be used as an instrument for the protection and
expansion of rich countries to poor countries, a system to perpetuate
dependence.
Moralist/idealist flow claim that foreign aid is essentially a humanitarian
movement that shows the values of international humanitaraties.
According to the idealist, richer countries have a moral responsibility to
strengthen the cooperation of the North-South and respond to the needs of

4.

economic development and social in the South. So moralists contend that

foreign aid encourage support that is mutually beneficial (mutual
supportive) and beneficial relations is in line with the economic
development and human rights, international law and order.

3. Foreign
1.

Bureaucratic incrementalist theory states foreign aid as a public policy, a

product of domestic politics involving public opinion, group interest, and
government institutions that are directly involved in the policy-making
process that promotes national interests through the political agenda. This
theory also states that the objectives pursued by donors is within the
scope international political economy interest, among others: the
combination of humanitarian purpose, geopolitics, ideology, commercial
interests, environment problems and various factors in domestic politics.

Aid
Holsti devides the foreign aid program into four types, namely:
MilitaryAid
Most military aid has the advantage of the donor country dominating the recipient. Not
only that the recipient country will depend on the donor country in the form of a modern
military force, but also the recipient will not be able to effectively operate military
forces,

n a

unless the donor country provide the necessary training assistance, spare
parts and maintenance. Thus, the use of arms control provides assurance

that the recipient will use its military power in a way that does not conflict

with the interests of the donor country, unless the recipient can obtain
ammunition, spare parts and training assistance from other sources.
2.

Technical Assistance.
Technical assistance is designed to disseminate knowledge and
craftsmanship. Personnel who have special expertise that comes from an
industrialized country will be sent to developing countries to provide
assistance in various development projects.

3.

Grant dan Import Commodity Programme

Until the late 1950s, the most preferred method of capital and goods is
Grant aid or a gift that does not require behind payment. But giving a gift
like this always creates problems for the donor and recipient countries,
and finally large states government replaced Grant with long-term loans.
Grant in the form of military equipment are still done regularly and special
economic Grant is often done when the recipient country is facing an
emergency, such as a sudden military threat, famine, epidemic disease or
natural disaster.

4.

Development Loan.
Loan is only a short term financial aid, but the recipient must repay the loan
and its interest. Such assistance is only temporary. Only bilateral and
multilateral loans are granted to the recipient, with the lowest level of credit,
or interest lower than the international financial markets, only then it can be
considered as an aid.

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infl s that are able to change the attitude of a country to other country, such as the
uen following:
ce
Duty. Almost all foreign-made goods sold in a certain country will be
Int
ern taxed to raise the countrys revenue, protect entrepreneurs of that country
ati from competition with foreign goods, or other domestic economic reasons.
ona Duty can be used as an effective device for persuasion or penalty, at the
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time the state tries to gain or losses an important market for domestic
pol
products caused by fluctuations manipulation.
itic
s,
Quota. To supervise the import of some commodity goods, the government
not
onl has set quotas (rationing) than determining customs entry (customs can be
y decided for the type of goods that enters on the basis of quota). Under that
thr policy, the supplier usually sends goods at reasonable prices, but only
ou allowed to sell their goods in a certain amount.
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Boycott. Boycott trading is done by the government with eliminating
eig
imports, a particular commodity good or all kinds of export goods sold by
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aid, the country that can be a target of the boycott policy. A government that
but does not have a state company, will usually boycott by requiring private

acc importers to obtain a license to buy commodity goods from a boycotted

ord country. If the importer does not follow this requirement, any foreign item
ing
purchased will be confiscated and the importer can be prosecuted.
to
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Embargo. Government that seeks to revoke imports from a particular
c lsti,
o the country, would ban the domestic businesses to transact with the trade
n re institutions from thethe state imposed with embargo. Embargo actions can be
o are performed on certain types of goods, such as strategic commodities or all
m so kinds of items commonly sold by domestic entrepreneurs to embargoed
y me countries.
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5.
6.

Loans, credit and financial manipulation. Benefits that is given to other

countries includes the level of tariffs and quotas, lending (most preferred
reward to be given to a developing countries by large countries at the
present time) or extending credits. Manipulation of financial circulation is
also used to create a better form of interstate commerce or vice versa.
7.
Blacklists. The government uses a blacklist to classify companies that do business
with the targeted country. For example, most of the Arab countries impose a blacklist
for companies that do business with Israel. These companies are then prohibited for
doing business and agreement, of both with the Arab companies and its government.
8.
Lisencing. License of export and import can be granted or denied. This
method is effective to control the exchange of certain types of commodity
goods, which include rewards and sanctions, without having to bear the risk
9.

and cost of boycotts and embargoes. Most industrialized countries use

licensing to prevent and control the trade of nuclear fuel.
Asset Freezing.

In the current era of openess in world economy,

government and individuals often store their assets overseas, in form of

investments, bank accounts as well as land and buildings. If the amount is
large enough, then those assets can be seized.
Granting or canceling aid, includes military sales and loans. The
monetary flow, technical knowledge, technology, services and military
materials are important components in international relations. Donor
countries can do manipulation in terms of the number and type of foreign
aid for political purposes and aid or the withdrawal of capability of
military aid,

will affect towards the target countrys ability to defend itself or to carry
out other aspects of foreign politics.
10.

Pengambilan alih

(Expropriation).

Expropriation. The government could claim ownership of the assets of

the company from the target country. Usually this is done for economic
purposes. On several occasions, the takeover or threat, it is used to affect
the target country to change its domestic policy or foreign policy.

11.

Restraining dues to an international organization.

Some government wants to influence the actions and activities of the
international organizations and other countries. At the time when the
organization decide or take action against the interests of some member
states, then those who object may threaten by withholding financial
support to the organization.

5. Conclusion.
From the techniques above, the government can choose one of them with in
consideration the objectives to be achieved, the destination of the country's economy or
organization, comparison of the costs and risks of each technique and the retaliation that
will be carried out by the state or the organization. Economic persuasion techniques,
both as a reward and support or as a threat and sanctions, has its advantages and
disadvantages. Compared to the use of military force, these economic techniques can be
said to be cheaper for the donor country, although the results are not immediate.
Exchange for economic and military aid, has become a standard technique to symbolize
the support of donor countries to recipient countries. Benefits of course have its
consequences, such as a growing reliance between recipients and donors, but the
consequence, the influence of donor countries becomes stronger.

BIBLIOGRAPHY

Holsti, K. J. 1995. International Politics : A Framework for Analysis. New Jersey :

Prentice Hall.
Baylis, John and Steve Smith. 2001. The Globalization of World Politics : An
Introduction to International Relations. UK: Oxford University Press.
Jackson, Robert and George Sorensen. 1999. Introduction to International Relations.
Denmark : Oxford University Press.
Perwita, Anak Agung Banyu and Yanyan Mochamad Yani. 2005. Pengantar Hubungan
Internasional. Bandung : Remaja Rosdakarya.
Ikbar, Yanuar. 2002. Ekonomi Politik Internasional : Studi Pengenalan Umum. Bandung
: Jurusan Hubungan Internasional : Universitas Padjadjaran.

PAPER PRESENTATION
AUEA1101: PRINCIPLES OF INTERNATIONAL RELATIONS

Discuss the Economic Instruments that can be utilized by a state in

International Relations

Prepared by :

HUTOMO DANU SAPUTRO

AEU140702

FACULTY OF ARTS & SOCIAL SCIENCES

UNIVERSITY OF MALAYA
Kuala Lumpur 2014
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Statement of Authorship
I hereby declared that the attached paper is purely my work. There is no work of others that I use without

mentioning the sources. This material has never been used as a source for assignment in other subjects
except I stating clearly that I used it. I understand that this assignment can be reproduced for academic
purposes.
Subject

: PRINCIPLES OF INTERNATIONAL RELATIONS

Assignment title

: Paper Presentation: Discuss the Economic Instruments that can be utilized by a state
in International Relations.

Date

Lecturer

: Assoc. Prof. Jastwan Singh Sidhu

Name

: Hutomo Danu Saputro

Matric

: AEU140702

Signature

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