An unknown path for US foreign aid

The United States Capitol. Photo by: Elliot P. / CC BY-NC-SA

The recent U.S. debt deal and formation of the congressional “super committee” to address future debt and budget issues has everyone in the foreign aid and global development community scrambling for answers. No one can really predict what will happen in the longer-term (the second phase of the deal addresses years 2014-2021), but the deal’s first phase mandates significant slashes to the U.S. government’s international affairs account, which includes foreign aid and is peculiarly lumped in with defense, homeland security, and intelligence under a “security spending” category.

If we are to believe newly appointed Defense Secretary Leon Panetta and Central Intelligence Agency Director David Petraeus, excessive cuts to security spending can be dangerous. Well, while the foreign aid voices in Washington might not be as loud as those in the defense sector, excessive cuts to foreign aid and overseas assistance can also be risky.

Some have warned that we now face a make-or-break moment for U.S. foreign assistance and significant spending cuts to international development over the course of the next few years would bring the American aid regime to the brink of collapse. The central argument here is that slashes to the U.S. Agency for International Development’s operating expense and other foreign assistance accounts will stall or completely derail institutional reform efforts already in progress. Ironically, the ultimate goal of these efforts is to make American aid more efficient and effective. In this sense, USAID will have to prove to lawmakers that pardoning the agency from drastic cuts now, will return major dividends in the future.

Other interesting analysis of what the debt deal means for foreign aid reform has been a bit more nuanced and balanced. Still, the best “let’s look on the bright side” contention appears to be that USAID and other aid organizations will be forced to become more discerning, disciplined, and innovative to achieve roughly the same set of pre-budget slash goals. Most would agree that more aid does not necessarily mean better development, but rarely does less [money] result in more [positive outcomes] when it comes to U.S. Government agencies and programs.

Another less covered but extremely critical issue is the extent to which U.S. foreign aid cuts would imperil American position in global multilateral banks. For example, there remains a possibility that America’s shareholding of the World Bank could decline, which could then change U.S. decision-making authority over major World Bank priorities, programs, and projects. The same goes for the Inter-American Development Bank and Asian Development Bank where, even if the U.S. shareholder position is not threatened, a decrease in American contributions could set a dangerous precedent for other major contributors. Devex will continue to monitor these developments closely.

Ironically, as the debate rages on, USAID has released a four-year policy framework which officials say does not take into account the budget atmospherics, but does allude to a “constrained fiscal environment” and outlines key shifts such as the Agency’s increasing reliance on recipient in-country systems and critical human resource changes. Unfortunately, after all the dust settles, the strategy might also be used to measure the gap between USAID’s hopeful pre-budget planning and what was actually achieved in this new age of U.S. foreign assistance.

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About the author

  • Pete Troilo

    Former director of global advisory and analysis, Pete managed all Devex research and analysis operations worldwide and monitors key trends in the global development business. Prior to joining Devex, Pete was a political and security risk consultant with a focus on Southeast Asia. He has also advised the U.S. government on foreign policy and led projects for the Asian Development Bank and International Finance Corp. He still consults for Devex on a project basis.