How Does Recipients’ Corruption Taint the International Image of Taiwan’s Foreign Aid?

Written by Ernie Ko. 

Image credit: 04.02 「民主夥伴共榮之旅」總統參訪齊瑪德蘭戈（Chimaltenango）醫院暨贈交儀式 by總統府/ Flickr, license: CC BY 2.0.

Taiwan’s foreign aid, officially known as official development assistance (ODA), has rarely been mentioned as a good practice in the circle of international press and international aid agencies. On the contrary, corruption, inefficiency, non-transparency, and unaccountability are often associated with the recipient countries of Taiwan’s aid. So, the question is, does this negative stereotype unavoidable?

Honduras severed diplomatic ties with Taiwan and switched its recognition to China on March 26, 2023. While its decision comes with little surprise, the news disclosed the actual distribution of Taiwan’s foreign aid, a piece of long-awaited classified information. There is open data for the Taiwan ODA budget thanks to the check and balance by the parliament, the Legislative Yuan. But the details and the classified part of the ODA budget are yet to be subject to parliamentary and public scrutiny.

Taiwan’s foreign ministry claimed that Honduras asked much more than Taipei’s annual ODA of US$50 million. For the first time, this sum of aid money revealed by the Taiwanese government confirmed a basic price tag of Taiwan’s ODA in exchange for diplomatic relations with the remaining thirteen countries except for the Vatican. The lump sum of foreign aid indicates Taiwan’s lack of leverage in balancing China’s global repression of Taiwan’s international space. Providing foreign aid becomes Taiwan’s only diplomatic tool for counterbalancing China’s threat.

Demand dominates supply while ODA policies fossilised

In international aid, it is unusual for a donor country to be controlled by the countries receiving the aid. However, when a donor’s intentions become inflexible, the recipient countries often act to maximise their interests. From a realistic standpoint, ethics and morality are useful foreign policy tools. Unfortunately, almost all recipient countries, except the Vatican, take Taiwan’s generosity for granted without showing gratitude. As a result, Taiwan faces a difficult choice when dealing with additional corruption or extortion on top of the US$50 million it gives to each recipient country, as it can impact the maintenance or loss of diplomatic relations.

The risk of corruption in Taiwan’s bilateral foreign aid is notably high. Official Development Assistance (ODA) can be divided into bilateral and multilateral approaches, depending on the number of donors. In general, the multilateral approach, which involves the expertise of international agencies, allows donors to better monitor and audit spending. Meanwhile, the bilateral approach enables donors to influence recipient countries for specific objectives.

The current Taiwanese government has allocated a classified bilateral ODA budget of US$50 million, which is three times higher than the last fiscal year of the previous administration in 2016. While this budget is subject to congressional oversight, some opposition party legislators have criticised the information provided by the foreign ministry to the Legislative Yuan as being oversimplified and unclear. This lack of comprehensive congressional and public oversight increases the likelihood of corruption during the delivery of ODA to recipient countries.

The Guatemala fiasco

A recent case happened in Guatemala, the only Latin American country recognising Taiwan diplomatically. On March 31, a local news outlet in Guatemala revealed that Taiwan appropriated US$450,000 to help Guatemala to lobby in the United States. It is politically risky for Taiwan to interfere in the domestic politics of Guatemala. However, the Guatemalan government is criminally suspicious of committing foreign bribery crimes in the United States if money laundry practice is involved.

Another corruption case concerns the newly opened national hospital in Guatemala unveiled by President Tsai and Guatemalan President Retrato de Alejandro Giammattei. President Giammattei claimed that the new hospital was found to have at least three corruption involving overpriced medical equipment. The Guatemalan government implied the need for more foreign aid from Taiwan to address the deficiency of the overpriced procurement.

Taking into account the present Guatemalan government’s notorious reputation for human rights abuses and widespread corruption, an unidentified grassroots leader expresses disappointment, stating, “It is disgraceful for Taiwan to endorse a government that ranks as the most corrupt in the Americas, only surpassed by Venezuela and Nicaragua.”

Foreign ministry as the guarantor

Current government open data indicates that Taiwan’s annual foreign aid budget is US$800 million for open ODA and US$50 million for classified ODA. There has been a substantial annual increase of US$190 million compared to the previous administration. A large part of the Official Development Assistance (ODA) is classified as a concessional loan. This type of loan involves a significant amount of money provided by a specific public bank in Taiwan at a reduced interest rate to the borrowing country. In this arrangement, the Taiwan public bank serves as the lender, the Taiwanese government (officially the Ministry of Foreign Affairs) acts as the guarantor, and the recipient country, which typically has a low credit rating in international financial markets, is the borrower.

When the lender and guarantor are on the same side, the borrower is motivated to default if diplomatic ties with Taiwan are severed. This creates a situation where one party takes advantage of moral hazard for their own benefit, leading to significant consequences for the other party. Taiwan’s Ministry of Foreign Affairs covers the interest payments to prevent default in this “unconventional” ODA loan system. The total sum of these politically-driven concessional loans accumulated over time is considered confidential information by the finance ministry.

Frontline diplomat’s dilemma

The frontline diplomats of Taiwan are the direct victims of the above-mentioned ODA practice. For career diplomats, keeping the status quo is the standard protocol of bureaucracy. After all, no one wants to be the last ambassador to the ODA recipient country. For the ruling party, it is a convenient excuse to maintain the status quo to keep the maximum number of diplomatic recognitions.

According to Article 1 of the Montevideo Convention, a sovereign state is required to have the ability to enter into relations with other countries. It is believed that diplomatic recognition meets this requirement. Pursuing a maximum number of diplomatic recognitions to maintain the status of a de jure sovereign state becomes the tacit understanding of the Taiwanese government regardless of the change of the ruling parties. The recipient countries, therefore, are happy to manipulate Taiwan’s mindset and ask for more ODA from Taiwan. In short, a mountain of diplomatic recognition and China’s repression of Taiwan’s international space is two sides of the same coin.

Ignored parliamentary insights

In 2021, the Budget Assessment Centre of the Legislative Yuan issued a report criticising the rigidity of Taiwan’s ODA, which is predominated by the approach of bilateral aid rather than a multilateral approach. The common practice is to provide aid directly through Taiwan’s embassies in the recipient countries according to recipients’ requests and expectations. From fiscal years 2016 to 2020, the annual multilateral aid in terms of money amount only occupied between 0.03% and 11.69% out of the total budget of US$300 million. The latest official data indicates that only 11.71% of the ODA as of July 2022 goes to the framework of multilateral aid.

The congressional evaluation not only scrutinises the effectiveness of Taiwan’s ODA because of its predominantly bilateral approach but also recommends that the foreign ministry adopt a more adaptable multilateral strategy by engaging in aid initiatives led by reputable international organisations. Furthermore, the congressional suggestion encourages the reformation of the ODA approach to be “more robust and credible, to attract public support.” Regrettably, as is often the case, the executive branch disregards this advice.

Repainting Taiwan’s international image—an imminent need to find exit strategies

International media have long categorised Taiwan’s ODA as dollar diplomacy or chequebook diplomacy. Although the Taiwanese government repeatedly denies any wrongdoing and self-portrays as a good practitioner of a philanthropic donor contributing international community, the latest case of Taiwan’s shrinking diplomatic relations reveals a cruel fact of decreasing marginal benefit and rapidly rising corruption in its ODA practice. Without public awareness and a fundamental policy change, the odds of changing Taiwan’s negative international image are in dire future.

Finding feasible solutions to address ODA corruption is an eminent challenge for the current government in Taiwan. A short-term approach is to strengthen congressional and media scrutiny. While the ruling party occupies the majority in the Legislative Yuan, the legislators affiliated with the opposition party have the constitutional mandate to access classified information of the ODA. Therefore, these congressmen and congresswomen must unearth suspicious spending by working with the robust civil society and free press. Moreover, during the presidential election in 2024, there is a window of opportunity to mobilise social support to ensure a more transparent and accountable ODA policy and practice.

Overall, it is in Taiwan’s best interest to minimise its bilateral foreign aid strategy and embrace a multilateral approach by participating in more multilateral aid projects. The traditional bilateral approach gives the recipient countries a dominant upper hand over Taiwan’s ODA, with an elevated risk of corruption.

A possible innovative solution is to create a new open bidding mechanism for multilateral aid agencies or international NGOs such as Transparency International. The multilateral approach encourages a hopeful platform of catalyst to distribute or apply Taiwan’s ODA for structured and justifiable purposes to fund recipient countries. A few years ago, Taiwan’s foreign ministry appropriated a sum of core funding to Berlin-based Transparency International to build anti-corruption capacity in developing countries. It sets a good precedent to follow suit as long as the process is open and accountable.

Ernie Ko, PhD, is the General Education Centre Chair at the National Taiwan University of Arts.

This article was published as part of a special issue titled “Corruption, Clientelism and Democracy”.