Inder Sud, R4D Principal, submitted today's Expert Opinion piece on "Framing the US Foreign Aid Budget Debate." This is part of a new series featuring commentary from R4D experts.
Framing the US Foreign Aid Budget Debate
President Obama released his FY2012 budget request proposing $47 billion in core funding for the State Department and USAID, a 1% increase from 2010 enacted funding levels, the White House's Office of Management and Budget states. Some $32 billion of this is budgeted for foreign aid. The Republican House has threatened to cut the foreign aid budget in half. We can expect a reigniting of the old debates: the opponents questioning the effectiveness of foreign aid and the proponents pointing to the importance of aid as the “soft power” in the arsenal of US diplomacy.
Given the polarized views and past experience, we can expect a contentious debate along the usual ideological lines. The most likely outcome is for an arbitrary reduction across the board in every part of the aid program. This will be a mistake and a lost opportunity.
The debate should not be on whether there should be a cut. There is no reason to spare foreign aid when equally important domestic programs are also facing cuts. In a paper [1] I co-authored a few years back with my colleagues David Gow and Dan Morrow of the George Washington University, we argued that it is not the quantity of foreign aid that is important, but rather the quality. What we need to do is identify and support those parts of aid that have proven to be effective, and even increase funding for them. On the other hand, we need to take a hard look at programs that have not been effective, are not needed, or, despite being useful, are of lower priority.
Although the US foreign aid program is dispersed over numerous government departments and agencies – a point that itself has been a subject of much criticism because of overlap and duplication – four programs comprise a bulk of the foreign aid budget: US Agency for International Development (USAID) that provides economic assistance to mostly poor countries, although a significant part of such economic aid unfortunately is also provided on political grounds; the Millennium Challenge Corporation (MCC) created by the Bush administration in 2004 to provide economic assistance to countries that are deemed to be managing their affairs as measured against specific criteria of good governance; the President’s Emergency Program for Aids Relief (PEPFAR) created also by the Bush administration in 2003 to combat HIV/AIDS in poor countries; and US contributions to soft lending windows of multilateral development banks like the World Bank, and the various regional development banks.
What is working well and should be maintained or expanded
Let me start with the parts of the aid program that work and should be maintained or expanded. PEPFAR is the prime candidate for an expanded budget. Over its short existence, it has proven to be highly effective in delivering life-saving treatment to an estimated 3 million men, women and children affected by the scourge of AIDS. Independent evaluations have found the program to have been well-designed and effective. Its design builds on an important lesson of foreign aid: narrowly designed and targeted programs whose outcomes can be measured are likely to be effective. The international multi-donor effort in the 1970s to control and eradicate river blindness in Western Africa, or the Green Revolution of the 1960s are good examples of such an effort.
PEPFAR funding has stagnated at about $7 billion annually in recent years while the needs for anti-retroviral treatment is growing. This amount is not even enough to provide continued treatment for the existing recipients, much less meet the needs of additional patients that need to be covered. Estimates of financing need for HIV/AIDS, tuberculosis and malaria in a report released by experts at R4D estimate the annual global funding need to rise to $18.5-31.9 billion in 2031, from the current level of under $15 billion [2] . PEPFAR funding should be expanded significantly to allow it to continue to be a part of this critical global effort.
Contributions to the soft loan windows of the multilateral development banks account for another $2 billion. There are good reasons for maintaining these commitments. The multilateral aid has generally been more effective, and supportive of US foreign policy priorities such as helping Afghanistan, Pakistan and the Palestinian Authority. Finally, there is a significant leverage effect: every dollar of US contribution results in four dollars of contributions from other countries. Leadership by the United States is critical to the success of these organizations.
This still leaves about $23 billion for a wide assortment of programs covering over one hundred countries. It is here that one needs a scalpel. Instead of trimming each program or the level of assistance for a particular country, the approach should be to question the very rationale. It is better to focus on fewer countries and programs where there is a compelling rationale for aid and where aid has delivered demonstrable results.
The rationale for some parts of this part of the budget are clear. The importance of one to two billion dollars for emergency humanitarian relief is self-evident. This is an obligation Americans take on willingly. Commitments to Israel and Egypt of about $3 billion each are also likely to be sacrosanct given the political realities, although each could be questioned for different reasons – Israel’s share because of its high income level and Egypt because of its waste and ineffectiveness. In addition, recent developments in Egypt probably prevent us from considering a cut this year, although most Egyptians would welcome a smaller, better managed, program. Aid to Afghanistan, Pakistan and Jordan amounting to some $5 billion is important from US foreign policy perspective but each of them have enormous built-in waste that can be cut. As far as I am concerned, all the rest should be up for serious scrutiny.
Towards Aid Effectiveness
Then there is the question of aid effectiveness. We have learnt from over 50 years of experience with foreign aid that it is effective only in countries that have the leadership committed to the development of their people and has a clear vision of its own home-grown development strategy. Donors like the World Bank emphasize the “right policies” as the cornerstone for development. I think good leadership comes first and is a much better assurance for good policies. This simple fact is what underpinned the spectacular development in East Asia. Good leadership explains why Rwanda under Paul Kigame is progressing while most other post-conflict and fragile states are mired in a low equilibrium. Even within a country with a poor overall record of development, good leadership at the sector level can make a difference as we have seen in the successful aid-funded programs in the health and social protection sectors in Afghanistan. Unfortunately, few of the countries on USAID’s list would make the cut if good leadership were made a pre-requisite for receiving aid. Good intentions are simply not enough.
The MCC is one aid initiative that links aid to performance. However, while built on a very sound concept, it is not a concept that is workable for a bilateral aid program that cannot avoid political considerations in its decisions, or can never have enough funds to make a major dent in promoting development in a country, or is unable to deliver funds to the budget because of legislative restrictions. Moreover, the countries supported by MCC are precisely the countries the multilateral donors are more than happy to provide as much funding as they need. So why use precious budget funds on it? MCC is the right concept but wrong for the US bilateral program.
So there is ample room to trim the foreign aid budget. What is needed is to find common ground on when and where foreign aid is effective and what should be the priorities. The opponents need to understand that not all aid is wasteful and the supporters must give ground to the genuine criticisms. This should not be hard to do.
[1] “Foreign Aid: Needed but Needs Fixing,” with Dan Morrow and David Gow. In Divided Diplomacy and the Next Administration: Conservative and Liberal Alternatives, Henry R. Nau and David Shambaugh (eds.), Elliott School of International Affairs, The George Washington University, 2004.