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PUBLICATIONS :: FOREIGN POLICY INDEX (MIT Center for International Studies)

http://web.mit.edu/cis/fpi_foreign_aid.html

U.S. Foreign Aid

There is perhaps no area of U.S. foreign policy that is more misunderstood by the general public
and policymakers alike than foreign aid. Surveys demonstrate that the American public vastly
overestimates how much their government spends on foreign aid, with majorities believing that
the government spends more on foreign aid than Medicare or Social Security.1 In reality, the U.S.
spends about 0.18% of its GDP on Official Development Assistance (ODA), a far cry from the 5-
20% most citizens believe it allocates and still a ways away from 0.7% it agreed to spend on
ODA along with the rest of the United Nations over thirty years ago.2 Although the United States
does give more money in ODA than any other country in the world, when compared to GDP it is
one of the stingiest of the developed nations.

Even among the policymakers who oversee the allocation of foreign aid, debates rage over the
target, strategy, and effectiveness of assistance due in large part to the lack of clear, reliable
information on how aid is spent and what its true effects are. The Bush administration has laid
the groundwork for some of the most significant changes to U.S. foreign assistance ever
undertaken. The centerpiece of the reforms is the Millennium Challenge Account (MCA), a
government organization to which developing countries can apply for U.S. foreign aid.3
However, to be eligible these countries must not only present a clear plan for how they will
spend the money to improve the lives of their citizens, but they must also measure up on
numerous indicators assessing the degree to which their nation boasts a just government,
economic freedom, and investments in the health and education of their people. By linking aid to
policy and performance, the Bush administration hopes to further its larger foreign policy goals
of democratization, liberalization of trade, and promotion of human rights.

The Global AIDS/HIV Initiative is an example of the humanitarian portion of U.S. aid, whereby
the U.S. seeks to help countries wracked by disease, malnutrition, and natural disasters with little
to no regard for the policies of the local government. Still, some members of the U.S. Agency for
International Development (USAID) worry that their ability to direct policy in these areas is
threatened by the creation of a new office, the Director of Foreign Assistance, who will
concurrently serve as the head of USAID while reporting to the Secretary of State. It is too early
to tell whether these new initiatives will meet with success, however, understanding the
significant reforms afoot in U.S. foreign assistance is crucial for citizens and policymakers alike
who wish to shift and critique the direction of U.S. foreign policy in the years to come.

I. Foreign Assistance Reform

• The Bush administration wants to make the process of requesting, budgeting, allocating,
directing and measuring the impact of U.S. foreign assistance a more cohesive, stream-
lined process that is in line with America’s foreign policy goals

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1. "Reform will focus foreign assistance on one overarching goal: ‘Helping to build
and sustain democratic, well-governed states that will respond to the needs of
their people and conduct themselves responsibly in the international system.’"4
2. To achieve this goal, the office of Director of Foreign Assistance was created in
January 2006 and filled by Ambassador Randall Tobias, who "has authority over
all Department of State and USAID foreign assistance funding and programs,"
although he still reports directly to Secretary of State Condoleezza Rice (he holds
a rank equivalent to Deputy Secretary of State)5
 Tobias resigned in 2007 after being linked to a D.C. scandal, leading to the
appointment of Henrietta Fore as the first female administrator of USAID
as Director of U.S. Foreign Assistance on November 14, 2007
 USAID has not been made a part of the State Department under the new
reforms, although it’s clear that policy coordination between the two
departments is a key objective; some members of USAID worry that their
organization may be losing significant control over the direction (if not the
implementation) of their policies6

• "The new framework is built around five priority objectives that, if achieved, support our
overarching goal by helping move countries toward self-sufficiency and strengthening
strategic partnerships. The priority objectives are:
1. Peace and security – preventing, mitigating, and recovering from internal or
external conflict;
2. Governing justly and democratically – making governments accountable to their
people by controlling corruption, protecting civil rights, and strengthening rule of
law;
3. Investing in people – including appropriate expenditure on health, education, and
environment;
4. Economic growth – including reduction in barriers to entry for business, suitable
trade policy, fiscal accountability;
5. Humanitarian assistance – emergency relief and rehabilitation"7
 To see how each objective is achieved depending on the nature of the
target country, see Figure 1
 (b) To see a breakdown in U.S. aid before and after many of the new
reforms, see Figure 2 and Figure 3

II. Millennium Challenge Account (MCA)

• Established in 2004 with the support of President Bush and Congress, the MCA seeks to
further democratic government, liberal economic policies, and human rights by providing
assistance to countries working to improve their standing in these areas
1. For selection criteria for candidate countries and how the variables are measured,
see http://mcc.gov/selection/reports/FY04_Criteria_Methodology.pdf

• President Bush proposed a budget of $3 billion for the MCA in 2006 and 2007; however,
the U.S. Congress has consistently allocated lower amounts ($2 billion in 2007, with only
$1.2 billion approved by the U.S. Senate for FY2008).8
1. The MCA currently is not spending its entire budget due to long delays in start-up
times from proposal to approval and allocation. Indeed, a December 2007 article
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notes, "The agency, a rare Bush administration proposal to be enacted with
bipartisan support, has spent only $155 million of the $4.8 billion it has approved
for ambitious projects in 15 countries in Africa, Central America and other
regions."
 Critics charge that funding should be released as it is needed, supporters of
the current MCA structure claim that the compact system of making aid
available up front is what makes the MCA unique
 For an overview of the MCA process, see Figure 6

• At the beginning of 2008, the MCC recognized 42 countries eligible for aid from the
MCA, including 22 past or current compacts and 20 countries in the Threshold Program,
which is for countries that have "not yet qualified for MCA Compact funding, but have
demonstrated a significant commitment to improve their performance on the eligibility
criteria for MCA Compact funding."9

• The MCA currently has approved ongoing compacts with Armenia, Benin, Cape Verde,
El Salvador, Georgia, Ghana, Honduras, Lesotho, Madagascar, Mali, Mongolia,
Morocco, Mozambique, Nicaragua, and Vanatu

• For a discussion of how countries are selected to be eligible for the MCA, see
http://mcc.gov/selection/reports/FY04_Criteria_Methodology.pdf

III. Other Types of Assistance

A. Humanitarian

1. Global HIV/AIDS Initiative


o President Bush pledged $15 billion over 5 years to combat AIDS through a multi-
pronged focus on prevention, treatment, and care for those affected by the
diseases

o The program functions in 120 countries around the world, "Bilateral programs
include a special emphasis on 15 focus countries in Africa, the Caribbean, and
Asia that together account for approximately one-half of the world’s 40 million
HIV infections."10
 For the U.S. Global AIDS Initiative website, see
http://www.state.gov/s/gac/
 For annual reports on the project by country, see
http://www.state.gov/s/gac/progress/other/data/

2. Natural Disaster Relief


o The U.S. regularly makes donations to countries hit by unforeseen disasters,
manmade (as in the over $230 million pledged by the Bush administration for
rebuilding in Lebanon) or natural (over $650 million approved for the Tsunami
Recovery and Reconstruction Fund for countries in South Asia)11

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 Interestingly, public support for the U.S. rose significantly in Indonesia
soon after the arrival of American assistance, see
http://www.csmonitor.com/2006/0228/p12s01-woap.html
 For a more in-depth look at how U.S. tsunami aid affected attitudes
in Sri Lanka, see http://www.blackwell-
synergy.com/doi/pdf/10.1111/j.1528-
3585.2006.00248.x?cookieSet=1

B. Military

1. The U.S. provides a wide array of military assistance abroad that can take many forms,
from the most basic donation of funds for military purposes to the sale of higher quality
U.S. armaments, the training of foreign militaries by U.S. troops, and joint military
exercises designed to improve coordination and military transparency12

2. The vast majority of direct military funding donated abroad has gone to Israel and Egypt
in exchange for signing the Camp David Accords in 1978
o U.S. aid to Israel remains significant, with the ~$3 billion/year level, held
relatively steady for the past 20 year, continuing to this day13
o Egypt receives about $2 billion annually, with over half designed as military aid14

C. Law Enforcement/War on Drugs

1. The U.S. provides significant levels of aid to help combat the production and trade of
narcotics abroad, particularly in countries that are the source of narcotics that enter the
U.S.

2. The most prominent example is the Andean Counterdrug Initiative (ACI), for which the
U.S. has spent over $5 billion between 2000 and 2005 in the region with aid originating
from both the Department of Defense and the State Department
o For the 2006 report on the ACI, see
http://fpc.state.gov/documents/organization/60720.pdf

D. Remittances

1. Remittances, whereby individuals with ties abroad work in the U.S. and channel funds
back to relatives and friends in their native countries, have been exploding in quantity
and by many accounts more than double the total amount spent by all governments on
foreign aid combined
o There is much debate, however, over whether remittances qualify as a form of
foreign aid and therefore whether the host government should receive the
associated praise and gratitude for making these transactions possible
 For a positive spin on the remittances/aid debate, see Carol Adelman, "The
Privatization of Foreign Aid: Reassessing National Largesse,"
http://www.foreignaffairs.org/20031101facomment82602/
carol-c-adelman/the-privatization-of-foreign-aid-
reassessing-national-largesse.html

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 For a critical response, see Peter Samson, "Band Aid,"
http://www.foreignaffairs.org/20040301faletter83266/peter-samson/band-
aid.html

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