United States Department of Strategery
Washington, DC 28807
TO: Secretary of State Condoleezza Rice
FROM: Stewart Patrick
SUBJECT: Making Foreign Aid Reform Work
Date: May 1, 2007
In January 2006, you unveiled a plan to bring strategic direction, coherence and accountability to the U.S. government’s dysfunctional foreign aid regime–an effort that is central to your “transformational diplomacy” agenda for nurturing well-governed democratic states in the developing world. Your plan had its bold aspects, but you chose at the time to restrict the scope of reform to what you could order on your own authority. Now, however, it is time for a more ambitious second step. You must work with Congress on a total overhaul of the Foreign Assistance Act (FAA) of 1961, including the creation of a Cabinet-level Department for Global Development.
Such an approach is essential to overcome three crippling flaws in the current setup. First, the legal scope of action of the new Director of Foreign Assistance (DFA) is too narrow to fulfill his mandate; without new authorities embodied in a new FAA, a huge proportion of U.S. aid will remain outside his control and constrained by earmarks. Second, the current reform plan risks subordinating long-term institution-building and poverty alleviation to short-term political and security imperatives. Third, the reforms undertaken thus far fail to address four long-standing deficiencies in U.S. aid policy: (1) the absence of a coherent strategy for engaging fragile states; (2) a lack of clarity about agency roles in post-conflict operations; (3) an inadequate foundation for partnership with other donors and local partners; and (4) an incomplete framework to monitor and evaluate the impact of U.S. aid. This memo details these three flaws and identifies the actions you can take in partnership with Congress to alleviate them.
Kudos and Concerns
Your decision to reform foreign aid could not be timelier. President Bush has presided over a dramatic increase in U.S. assistance and a more creative policy approach to aid programs, notably with the Millennium Challenge Account (MCA) and the President’s Emergency Plan for AIDS Relief (PEPFAR). Yet the fragmentation and ineffectiveness of U.S. assistance persist. That assistance trickles out of 18 different spigots in the State Department and USAID alone, not to mention twenty-odd other Federal agencies. We still lack integrated strategies, leaving U.S. aid to mirror the habits and desires of individual agencies or missions.
Your appointment of Randall Tobias as the State Department’s first DFA has begun to bring some order to this morass. His office is drafting an overall U.S. aid strategy, as well as five-year strategic and one-year operational plans for each recipient country. The DFA’s new Strategic Framework establishes five core objectives for aid: advancing peace and security; promoting just and democratic governance; encouraging investments in people; encouraging economic growth; and providing humanitarian assistance. Because the pursuit of these aims will depend on context, the framework groups all 156 potential aid recipients into five categories: rebuilding (12 post-conflict nations); developing (66 low- or middle-income nations); transforming (24 nations eligible for MCA); sustaining partnerships (43 middle- and higher-income countries of strategic importance to the United States); and restrictive (11 “outposts of tyranny”).
Your reform plan promises a closer alignment of U.S. aid and foreign policy priorities, and better stewardship over taxpayer dollars. It wisely emphasizes state-building: helping developing countries create their own institutions to govern effectively and provide security, economic growth and social welfare. It envisions a “graduation trajectory” for each country, thereby seeking to avoid the dependency relationships that older methods inadvertently encouraged. Finally, its new planning and budgetary processes should improve transparency, making it possible (for the first time) to connect aid expenditures to specific objectives, and to track each aid dollar from appropriation to implementation.
All this is good as far as it goes, but the State Department has not yet developed a rigorous process to prioritize among the five strategic objectives in each target country. The framework is a useful book-keeping exercise, but it gives policymakers little guidance about how to balance and integrate these goals in the service of transformational diplomacy. It offers no planning methodology to inform the allocation of limited resources on the basis of clear criteria, desired outcomes or local context. Lacking a more deliberative process, your well-intentioned reforms could deteriorate into business-as-usual budgeting driven by bureaucratic interests. This is exactly what transpired during a number of DFA-chaired country coordination meetings last summer. In some cases, agencies simply mapped current budgets over the new framework, shoe-horning existing programs and activities into new aid categories. In short, the category names have changed, but what we are actually doing has not.
(1) A Constrained Coordinator
Beyond the danger of business as usual, your reforms suffer from three critical flaws. The first of these is that the scope of action of the Director of Foreign Assistance is far too narrow. To bring coherence to U.S. aid policy, the DFA needs the practical capacity and legal authority to shift funds across accounts within USAID and State; to roll back outdated and irrelevant congressional earmarks on foreign assistance; to coordinate the independent MCA and HIV/AIDS initiatives; and to influence foreign aid spending by other U.S. agencies, including the Department of Defense. He currently has none of these powers, and to get them you will have to persuade the White House to bring presidential capital to bear.
• Obstacles to moving funds across accounts. In principle, the DFA is empowered to manage all State and USAID funds, including reallocating aid among countries and programs. In practice, his flexibility is limited by the persistence of 18 separate accounts under the control of multiple congressional committees. These legislators will jealously guard against efforts to move funds across accounts to preserve their prerogatives of oversight and appropriation.
• A plague of earmarks. Even more problematic, your reforms leave unaffected hundreds of legislative and presidential directives mandating that foreign assistance be devoted to certain countries or purposes. These budgetary restrictions often reflect parochial interests and undercut aid effectiveness. You will never achieve your goal of strategic coherence unless you can persuade Congress to eliminate these provisions and the Administration to discipline itself.
• Lack of control over other programs and agencies. To complicate matters, a large proportion of U.S. foreign aid lies beyond the reach of the DFA. This includes not only the Administration’s two signature initiatives, PEPFAR and MCA, which are statutorily independent, but also the extensive aid programs of domestic departments–Agriculture, Energy, Health and Human Services, Labor and Treasury–which collectively control some 21 percent of U.S. foreign assistance. The DFA aspires to offer these agencies “coordination and guidance.” But without budget authority, his views are likely to be ignored.
• Reining in the Pentagon. Finally, the DFA has no direct influence over DoD’s expanding foreign aid role. In FY2006, this included $5.16 billion for reconstruction and stabilization in Afghanistan and Iraq, $200 million for counterterrorism worldwide, and $917.7 million for counter-drug activities in nine countries. DoD’s role now goes well beyond its traditional mandate to include activities like construction of schools in coastal Kenya. The Pentagon’s entrée into these civilian realms undercuts the Administration’s ability to bring coherence to the U.S. foreign aid program.
In sum, while some Administration officials claim the DFA will manage 80 percent of U.S. aid, the Congressional Research Service places the actual figure closer to 55 percent. Yet even this figure exaggerates the DFA’s scope of action. Much of the aid ostensibly under his purview is effectively off limits to reallocation because it goes to a handful of strategic countries. Take the FY2008 Office of Management and Budget aid allocation to State and USAID–some $25.71 billion–as a starting point. The lion’s share of this assistance–some 63 percent–goes to just ten countries (Israel, Egypt, Iraq, Afghanistan, Pakistan, Sudan, South Africa, Colombia, Kenya and Nigeria). Once we subtract these global War on Terror partners and PEPFAR beneficiaries, the total aid available to the 146 remaining countries is only $6 billion–perhaps one or two dollars per person per year in those nations. What “transformation” can the DFA possibly accomplish with such modest funds?
(2) A Commitment to Development?
Your second big challenge is to reaffirm the Administration’s commitment to long-term development. Clearly, aid can advance different objectives, from defense to diplomacy to democracy to development. Striking the right balance among these purposes requires real trade-offs, which is why the integration of all U.S. foreign assistance under one person makes sense. Since 2001 the United States has been able to largely avoid hard trade-offs between security and development in foreign aid because rising aid levels were sufficient to reward GWOT allies even as we launched PEPFAR and MCA. This has recently begun to change. The Administration’s FY2008 budget cuts core development accounts, while aid to strategic partners surges. That is why many observers worry that your reform plan may skew U.S. assistance toward short-term political goals at the expense of long-term development. Ambassador Tobias reinforced these fears by failing for an entire year to acknowledge poverty alleviation as a U.S. aid priority.
You must therefore redouble the Administration’s commitment to poverty alleviation and the achievement of the Millennium Development Goals, making clear that these objectives can be realized only through long-term, patient investment in economic growth and institutions. In this regard, the Administration’s commitment to development will be more credible and effective if the White House works with Congress to create a U.S. version of Britain’s robust Department for International Development (DFID), to serve as a full partner with the State Department in designing and implementing foreign aid. As you know, USAID is today a deeply flawed sub-cabinet agency, bereft of most of its once-vaunted technical expertise and professional Foreign Service Officers. Integrating USAID’s programs into State Department priorities has not been easy, and even if it is ever accomplished properly, it will not correct these shortcomings. Nor will it ensure that the operational culture of development professionals is adequately represented in U.S. decisions concerning the design and allocation of U.S aid. The best way to achieve these goals is to work with Congress to create a cabinet-level Department for Global Development.
(3) Filling the Gaps
Your third priority should be to address the four key remaining gaps in U.S. foreign aid policy, as noted above.
• An incomplete taxonomy: Given the Administration’s preoccupation with weak and failing states, it is startling that the foreign aid framework lacks a specific category for the world’s most fragile states. This lacuna leaves us with a reactive U.S. policy toward war-torn countries and a punitive one toward rogue states; it suggests that we lack a preventive strategy to stop struggling states from sliding toward failure. It also downplays the distinctive dilemmas posed by states unable or unwilling to provide essential goods to their own people. Even without a fragile-states category, the Administration can still bear these unique needs in mind as it develops country plans, but it would be better to fix the taxonomy. Meanwhile, you should also work with OMB and Congress to secure more governance-focused aid for reforming such countries, which currently receive only a meager share of U.S. assistance.
• Lack of civilian capacity for post-conflict operations: A critical measure of success for foreign aid reform will be whether it bolsters U.S. “state-building” capabilities. In National Security Presidential Directive 44 (December 2005), President Bush assigned you responsibility for planning and leading interagency efforts to stabilize and rebuild war-torn societies. The focal point for this mission is the Office of the Coordinator for Reconstruction and Stabilization (S/CRS), created in the summer of 2004 in response to the failings of postwar planning for Iraq. Its mandate includes creating, managing and deploying civilian response capabilities in the areas of public security, governance, economic rehabilitation, justice and the rule of law. Unfortunately, S/CRS has been crippled since its creation by Congress’ refusal to provide the office with adequate resources, insufficient White House support, and bureaucratic resistance from within the State Department. In the absence of robust civilian capabilities, the Department of Defense will inevitably continue to fill this vacuum.
• Working with others. The Administration’s reform plan also risks reinforcing a unilateral streak in U.S. development policy. Unilateralism sometimes translates as leadership, and there is clearly a time and place for it–but foreign assistance delivery is not one of them. By defining and implementing aid programs in isolation from the United Nations, the World Bank and other established multilateral institutions, the U.S. government bears unnecessary transactional costs and fails to leverage the aid efforts of others. Current foreign aid reform is likely to reinforce this tendency by curtailing the freedom of U.S. agencies to coordinate their approaches with other donor governments. It will also burden developing country governments charged with coordinating aid from multiple donors. Your reform plan also offers little opportunity for developing countries and their civil societies to shape U.S. assistance strategies. Given its emphasis on top-down strategic direction from Washington, it is unclear how the Administration intends to solicit the views of local partners–or whether such inputs can possibly rise above the tactical level.
• Inadequate monitoring and evaluation. A final weakness of the reform effort is the absence of any independent mechanism to measure the impact of U.S. aid. To maintain congressional and public support, the Administration must show concrete results from taxpayer generosity. The DFA’s mandate includes responsibility for “monitoring and evaluation of program results against goals and objectives.” But the office has yet to explain how it defines success across its five core objectives and what indicators it will use to gauge progress. The metrics that the DFA has proposed to date measure primarily inputs and outputs (i.e., money spent or programs implemented) rather than the actual impact of programs. This will soon return us to business-as-usual, which we all know will not get the job done.
The U.S. foreign aid regime is broken, and the Administration’s reform plan, though well-intentioned and still young, will not adequately fix it. You should therefore work with the White House and Congress to correct these flaws, the top priority being a comprehensive overhaul of the foreign aid regime to include the rewriting the Foreign Assistance Act of 1961. Without a new FAA, your reforms are doomed to tinker around the edges of the problem. If you avoid cutting this Gordian knot, your efforts will fail.
A revised FAA should include at least five components. Specifically, it should:
Designate one individual to serve as the coordinator of all U.S. foreign assistance. This person should lead a deliberative interagency process to guide the allocation of U.S. foreign aid to U.S. priorities, based on a rigorous methodology that permits policymakers to strike a judicious balance among defense, diplomatic and development priorities. He or she should have congressional authority to shift funds across all U.S. aid accounts, even if that means overriding various earmarks.
Create a Cabinet-level Department for Global Development. The U.S. government needs a robust capacity to promote long-term institution-building to alleviate poverty and protect U.S. security. Unlike USAID, which has devolved into a contracting shop, this new department should be staffed with technical experts and development professionals. The new department should be a full partner with State and Defense in influencing the design and targeting of U.S. aid, under the leadership of the interagency coordinator.
Mandate a new U.S. approach to fragile and post-conflict countries. The FAA should require the Executive Branch to develop a comprehensive strategy to guide the allocation of aid and other policy instruments in engaging weak and failing states. It should also bolster civilian leadership and capabilities for post-conflict operations by reaffirming State Department leadership, backed by adequate resources, in U.S. efforts to plan, prepare for and conduct stabilization and reconstruction efforts abroad. As President Bush noted in his January State of the Union address, we still need the equivalent of a civilian ready reserve for post-conflict stabilization and longer-term development; S/CRS has not yet been able to develop that capability.
Commit the United States to work closely with international donors and recipient countries themselves. To ensure that U.S. aid leverages the efforts of others, the FAA should prioritize, where possible, the harmonization of U.S. aid policies with those of other donor nations. It should also mandate–like the MCA–an ongoing dialogue with recipient governments and stakeholders on priorities for institution-building, culminating in a bilateral “contract” detailing joint responsibilities.
Create an independent unit to monitor and evaluate the impact of U.S. aid. In the end, sustained legislative and popular support for foreign assistance will depend on concrete evidence of effectiveness. With this in mind, the FAA should insist on an honest assessment of impact, not just static inputs and outputs.