U.S. foreign aid reform: changing institutional problems in order to meet modern day needs.

• Published date: 22 December 2009
• Author: Wiese, Stephen J.
• Date: 22 December 2009

I. INTRODUCTION

Since America's initial foreign aid effort following World War II, foreign aid has played an increasingly important part in shaping America's international role. Developing countries that rely on foreign aid play an integral role in our economic success. Americans increasingly see human suffering as an issue that transcends national boundaries and that can be alleviated with foreign aid. While the validity of using foreign aid for both of these issues has not been seriously challenged, people have recently raised concerns about the effectiveness of foreign aid. With well-publicized scandals, such as the United Nations Oil-for-Food program, (1) and unease over the possibility of foreign aid enriching dictatorial leaders at the expense of the intended recipients of the aid, (2) it is time to rethink how we allocate foreign aid and ensure its effectiveness.

This Note will attempt to trace the evolution of America's foreign aid policy to the modern day and offer solutions for the entrenched problems of our current foreign aid setup. First, it will explain the genesis of our current foreign aid setup in post-World War II reconstruction and how that changed through the Cold War. Second, it will provide the current legal framework in which our foreign aid operates. Third, it will explain the limitations and problems that result from our distribution of foreign aid. Finally, it will offer a solution: the creation of country-specific and regional coordinators who are responsible for distributing and overseeing foreign aid to ensure it meets our goals.

II. HISTORY OF AMERICAN FOREIGN AID: FROM POST-WORLD WAR II EUROPEAN RECONSTRUCTION TO POST-Y2K DEVELOPING COUNTRY DESTRUCTION

The first major attempt at foreign aid in America came as a result of World War II. While Europe was in shambles, America had a resurgent economy and growing prosperity. (3) In the shadow of the emerging Cold War, the United States sought to further its alliances with Europe by helping to rebuild the countries destroyed in World War II. (4) On April 3, 1948, President Harry Truman signed the Foreign Assistance Act ("FAA"). (5) This enacted legislation that put into force the Marshall Plan, a foreign assistance program that allowed Europe to reconstruct itself with American assistance. (6) The Marshall Plan remained in place for nearly four years until December 31, 1951. (7) Under the Marshall Plan, the United States gave $13.3 billion to Europe for economic recovery. (8)

The Marshall Plan was actually terminated six months prior to its projected end date because of the escalating Korean War conflict. (9) Congress wanted to unite American military operations with economic programs and technical assistance. (10) Thus, on October 31, 1951 Congress passed the Mutual Security Act, (11) which achieved these goals by establishing the Mutual Security Agency with a controller heading the operations in each country. (12) Soon thereafter, on August 1, 1953, a reorganization abolished the Mutual Security Agency and gave its functions to the Foreign Operations Administration. (13) This new agency operated as an independent government agency outside the Department of State. (14) Following this, on June 30, 1955, the International Cooperation Administration was created to take over the operations of the Foreign Operations Administration. (15) However, unlike the Foreign Operations Administration, the International Cooperation Administration operated within the Department of State. (16) A revised Mutual Security Act in 1957 created the Development Loan Fund in order to act as the International Cooperation Administration's lending arm. (17)

Because none of these organizations met the need for a long-term foreign development program, under the statutory authorization of the Foreign Assistance Act of 1961, the Kennedy Administration created the United States Agency for International Development ("USAID") on November 3, 1961. (18) The creation of USAID was based on three assumptions: (1) the current state of foreign assistance had not developed to meet the current needs of the United States and developing countries, (2) it is in the United States' economic and security interests to avoid a collapse of developing countries, and (3) the post-World War shuffling of power structures across the world provided a unique opportunity for industrialized nations to create self-sustaining economies in underdeveloped countries. (19)

The Foreign Assistance Act created two primary developmental programs: the Development Loan Fund to stimulate capital, and a Development Grant Fund to develop human resources. (20) It also created three other important programs: insurance to protect businesses operating abroad from the risks involved in foreign investment, a program to promote economic and political stability, and an appropriated contingency fund. (21) The main improvement of USAID over the previous foreign assistance efforts was that it allowed for country-specific planning and long-term development planning. (22)

Because the Foreign Assistance Act contained few restrictions on how aid could be disbursed and failed to delineate specific factors to determine aid recipients, in the early 1970s the public again began to call for reform. (23) Throughout the 1970s, the Foreign Assistance Act was renewed in various forms, often unenthusiastically signed into law by the President. (24) A key reform in 1973 basically turned the Foreign Assistance Act to the state in which it remains today. (25) The main change in the 1973 reform was to replace the technical assistance and developmental loans and grants with loans and grants targeted at specific categories, such as agriculture or education. (26)

President Jimmy Carter instituted the next reform in 1979, creating the International Development Cooperation Agency ("IDCA"). (27) This changed the chain of authority from the previous system in which authority for all FAA programs was delegated by the President to the Secretary of State. (28) After the reform, the President delegated economic assistance programs to the Director of the IDCA, who then re-delegated them to the Director of USAID. (29) Security assistance programs remained under the authority of the Secretary of State. (30) The IDCA lacked the punch that Carter desired because it could only coordinate USAID, which included no more than seventy-five employees, and no other foreign aid efforts. (31) The IDCA's funding lapsed under the Reagan administration, and the last general foreign aid act was passed in 1985. (32) Finally, in 1995, the Foreign Affairs Reform and Restructuring Act abolished the IDCA, while at the same time transforming USAID into a statutory agency from a statutorily authorized agency. (33)

III. CURRENT FOREIGN AID FRAMEWORK: SYMBOLIC, BUT NOT STRUCTURAL, CHANGE

On March 14, 2002, President George W. Bush delivered an address calling for a "new compact for global development" with the purpose of creating accountability in foreign countries that receive aid. (34) His speech trumpeted a message that has persisted in foreign aid discourse since Kennedy in 1961, namely that foreign aid must be "defined by new accountability for both rich and poor nations alike. Greater contributions from developed nations must be linked to greater responsibility from developing nations." (35) Bush promised an increase of 50 percent ($5 billion) in its core development assistance by 2006, (36) with funds placed into a Millennium Challenge Account ("MCA") and controlled by the Millennium Challenge Corporation ("MCC"). (37)

The MCC looks to sixteen indicators in determining which of the eligible countries will receive funding. (38) The indicators are intended to

 reward nations that root out corruption, respect human rights, and
                 adhere to the rule of law ... invest in better health care, better
                 schools and broader immunization ... [and] have more open markets
                 and sustainable budget policies, nations where people can start and
                 operate a small business without running the gauntlets of
                 bureaucracy and bribery. (39)
                

However, the MCA remains only a part of the overall foreign aid system in the United States. In general, foreign aid can be categorized into five groups: bilateral development aid, economic assistance for the purposes of furthering U.S. political and security goals, humanitarian aid, multilateral economic contributions, and military aid. (40) As a whole, foreign aid comes from over twenty different sources from the federal government, with USAID being the most prominent. (41)

USAID is managed by the Director of U.S. Foreign Assistance ("DFA"), who, as of 2009, is Randall Tobias. He also has the task of "directing the transformation" of America's approach to foreign aid. (42) This position was created as part of a 2006 reform of America's foreign aid structure, an attempt to centralize and rationalize our foreign aid with the needs of the twenty-first century. (43) The new Director of Foreign Assistance created five core objectives for U.S. foreign aid: (1) peace and security, (2) governing justly, (3) investing in people, (4) economic growth, and (5) humanitarian assistance. (44) He also created five categories in which to place countries: (1) restrictive countries, (2) rebuilding countries, (3) developing countries, (4) transforming countries, and (5) sustaining partnership countries. (45) The end goal of the United States for countries in each category is to advance them to the subsequent category, with sustaining partnership countries being the final goal before removal from the foreign aid program altogether. (46)

IV. GLOBALIZATION OF A WELFARE MENTALITY AND OTHER FOREIGN AID ISSUES

Despite the persistent and recurring reforms in foreign aid, many problems remain with the U.S. foreign assistance setup. The 2006 reform attempts to bring coherence to U.S. foreign aid, but neglects one of the most important aspects that U.S. foreign aid has consistently had...