Revamping Foreign Aid

Hot Topic!

45's first budget blueprint proposes deep funding cuts for the United States Agency for International Development, the largest provider of U.S. economic foreign aid. Trump’s stated objective is to save money and do more good for those who need help most. If the president wants to reach his goal of allowing the United States to “retain its current status as top donor while saving taxpayer dollars,” a prudent diplomatic goal, he should eliminate tied aid, scale back the number of aid recipients, and cut ties with countries that violate human rights

First, the president should eliminate all tied foreign aid -- assistance that must be spent by the recipient country on goods and services supplied by the donor country. Such rigidity drastically increases the cost of foreign aid, by as much as 30 percent -- especially when it comes to food. For example, current law states that 50 percent of all U.S. food aid must be carried by U.S. flagged shipping vessels. In 2015, the Government Accountability Office estimated that this restriction increased the cost of shipping food by $107 million between 2011 and 2014. In other words, tied aid means the donor -- U.S. taxpayers, in this case -- has to spend more on aid to accomplish the same goal that untied aid could accomplish.  

Second, the president should support distributing foreign aid only to countries in true economic need. This would dramatically reduce the number of countries receiving economic aid, allowing USAID to focus its resources where they can do the most good. If the United States focused its foreign aid on countries classified by the World Bank as low-income economies, it would distribute aid in 31 countries, rather than the 158 countries we’re sending aid to today. For example, USAID is sending $295 million to South Africa, an upper-middle-income country, and only $49 million to Chad, a country stuck in desperate poverty. And while USAID is spending $59 million in Mexico, another upper-middle-income country, it sends only $17 million to nearby Nicaragua, a country of far less prosperity.

Lastly, 45 should insist on a Leahy-style amendment for foreign aid. The Leahy Amendment prohibits any military assistance to parties who are guilty of human-rights violations. The same standard should apply to foreign aid, which is designed to promote human development and humanitarian purposes. Adopting this type of restriction on who can receive aid encourages accountability, both in terms of who is eligible for aid and how USAID distributes the aid. The loss of aid, which for some countries would be substantial, would be a powerful incentive for better behavior. For example, in 2015, South Sudan received $618 million in economic aid, about 7 percent of their total gross income, even though ethnic cleansing remains an ongoing problem.

While these reforms would improve how the United States distributes aid, there are many special interests who benefit from the status quo. Former presidents 43 and 44 both tried to reform foreign-aid practices, only to meet a wall of opposition. Eliminating tied aid will probably be the most controversial of the above reforms because the benefits would be felt widely -- mostly by foreign aid recipients -- while the costs would be concentrated domestically. U.S. shipping interests in particular are sure to complain if the law were changed to allow more foreign shipping of food aid. But cronyism is cronyism, and it’s even worse if it comes at the expense of the world’s poorest individuals.

Despite the potential opposition, 45 has the opportunity to reform U.S. aid practices that will save money for American taxpayers and make aid more beneficial to those who need the most help. That’s a win-win both sides of the political aisle should be able to get behind.