President Bush's 2008 Budget and Development

While all the figures are not yet available, it appears that the budget for foreign assistance is proposed to rise in 2008 by approximately $4 billion, not counting funding for reconstruction in Iraq or Afghanistan.The major beneficiaries of this increase are HIV/AIDS funding, set to increase from $1.8 billion estimated for 2007 to $4.5 billion in 2008. The Millennium Challenge Account is also proposed to increase by nearly $900 million to reach $3 billion in FY 08.Smaller increases are projected for the Economic Support Fund (from $2.6 billion in FY 07 to $3.3 billion in FY 08), and for U.S. contributions to international financial institutions (up by $400 million), reflecting the increased U.S. contribution to International Development Association (IDA) as part of the new replenishment.Decreases are projected for Development Assistance (down by $450 million), and for aid to the Independent States of the Former Soviet Union (down by $75 million).These changes are not broken down by country so it is difficult to know who is losing and who is winning. But some trends are clear:

• The largest increase, for HIV/AIDS, is for probably the most popular program in U.S. aid-giving. Much of this will likely go to countries of Sub-Saharan Africa, reflecting a gradual shift in the bulk of U.S. assistance to the region to fighting HIV/AIDS.
• The administration has again asked for full funding of its commitment to the MCA but the likelihood of this funding being appropriated, given the still limited disbursements of MCA funds, would seem small in a tough budget year.
• Economic Support Fund monies are up significantly--by almost a third. These are traditionally funds for development activities in politically important countries. Does this reflect the increased clout of the Department of State over aid budgets?
• Monies for Development Assistance are down by nearly one third--a major decrease. These are funds usually allocated and used by USAID to further development in recipient countries (often countries, like many in Sub-Saharan Africa, of less political priority to the U.S.). Does this not only reflect the increased influence of the Department of State over this program as part of the aid reform but also the beginning of the end of the program itself? (It is worth noting that Operating Expenses for USAID are also falling, possibly reflecting similar influences.)
• Most other programs, including Child Survival, Assistance for Eastern Europe and Baltic States, and Migration and Refugee Programs are proposed as much the same as for FY 07.

The questions raised by this budget are several:

• Who are the winners and losers in the shift from Development Assistance to ESF? And what do those shifts reflect about the future direction of U.S. aid, especially aid for development and poverty reduction? Is this shift the one feared to result from the partial merger of USAID into the Department of State in the reform?
• More broadly, how will the increases in aid budgets fare in what promises to be a tough budget environment? MCA is vulnerable; PEPFAR is probably not. If there are other cuts, where will they fall (and where will the administration suggest they fall since its views will surely be sought by appropriators)?
• Most broadly, where does aid fit into the broader administration's budget? A Democratic Congress is unlikely to agree to cuts in Medicare and Medicaid so where will the cuts be taken? (This is a "Washington Monument" budget in that the administration has proposed cuts in programs that clearly won't be cut.) If cuts must be made under a serious 'Pay-go' system, how much is foreign aid vulnerable as a discretionary program (but a small one)?