International development assistance, or "aid", is the transfer of resources at concessional rates of interest, which means rates of interest that are lower than those that could be obtained on financial markets. The Development Assistance Committee of the Organization of Economic Co-operation and Development goes further than this in formally defining aid, when it says that a least 25 per cent of the transfer must take the form of a grant, that the transfer must have improvements in human welfare through economic development as its objective, and the transfer must take place between official bilateral and multilateral agencies.

International development assistance is a complex and messy business. Nonetheless, it can have dramatic impacts on human well-being. It is notable, for example, that when South Korean officials speak of their development experience since the end of the Korean War, they always highlight the role of aid in being a catalyst of social transformation. But in order to have a catalytic impact, the state receiving aid must be capable of absorbing it -- and that is often not the case.

Part 2 of this Episode examines the reason why international development assistance may be highly volatile, in the amounts transferred, in the places that receive the transfer, and in the objective of the transfer.