U.S. Foreign Economic Aid in 2008: Winners and Losers in President Bush's Proposed Budget

There is no public document that is more revealing of a government's priorities than its budget. In Washington-speak, it's where the rubber hits the road.So what does the President's 2008 budget for foreign aid tell us about the administration's priorities abroad? Based on data available on the Department of State website, which countries and programs are the winners and losers in the 2008 foreign aid lottery?

• GWOT is a big winner again. What is GWOT? It is the Global War on Terror (pronounced g-what). It was a winner last year and the year before in 'emergency supplementals' (i.e., not included in the regular budget submission - this year the administration sent its request for emergency funding up to Congress with its budget request). GWOT - mainly funding for Iraq and Afghanistan - totals $1.3 billion for infrastructure, community action programs, and local training and capacity building and anti-corruption and rule of law projects. (This is not the only source of aid for Afghanistan and Iraq - roughly double this amount is proposed for these two countries elsewhere in the aid budget.) The brief description of projects in Iraq (the largest beneficiary of GWOT) does leave one wondering just how these activities will get done in an environment of extraordinary violence and insecurity.
• PEPFAR is another big winner. PEPFAR, our readers will remember, is the administration's program to fight HIV/AIDS abroad. The proposed increase in this budget is a whopping 110%, from $1.8 billion estimated for fiscal 2007 to $4.2 billion in 2008. It will be directed primarily to 15 'focus countries', all but three of which (Haiti, Vietnam and Guyana) are in Sub-Saharan Africa for 'prevention, care and treatment programs'. This program is the last year of the President's emergency initiative on HIV/AIDS, announced several years ago in his State of the Union address. (This is not the only source of aid for HIV/AIDS and other health-related issues. The administration has also requested $1.5 billion for "Child Survival" which includes funding for HIV/AIDS, infectious diseases and other health related activities. This is roughly the same amount that is estimated to be spent in 2006.)
• The Millennium Challenge Corporation (MCC) is yet another big winner. This is the new U.S. aid agency that bases its funding on whether recipient countries 'govern justly, invest in their people and encourages economic freedom'. Countries become eligible for MCC funds if they fulfill a number of quantitative indicators of these and other criteria and if they can come up with a set of activities to be funded that meet MCC standards. MCC's budget is proposed to rise from an estimated $1.1 billion in 2007 to $3 billion in 2008. The $3 billion request is still under the $5 billion annual budget level originally promised to be reached by FY2006 when the President created the MCC several years ago but it has never been fully appropriated by Congress, in large part because the MCC has been slow to move the money. It has now committed over $3 billion in its 'compacts' with recipient countries but as far as this writer could ascertain, it has actually spent only abut 2% of those funds - which means it still has a large bank account and is undoubtedly why the Congress has been reluctant to appropriate the full $3 billion requested each year in the past.
• Another winner is the Economic Support Fund - the bilateral aid program which has traditionally been tied to U.S. security and political interests abroad (it was the major source of economic aid for Israel and Egypt over many years) and where policy and country allocation decisions have been made primarily by the Department of State. This budget increases by just over 25% to $3.3 billion. If the $1.1 billion in emergency GWOT funding for Iraq and Afghanistan is added in, ESF increases by almost 70%.
• Another minor winner is the World Bank where the U.S. contribution grows by $300 million to a total of $1 billion in 2008. This is part of a new replenishment for the International Development Association (IDA) which provides grants and highly concessional loans to poor countries. The World Bank used to be an object of attack by Republicans as fostering socialism and not supporting U.S. interests abroad. But with the Republicans controlling the White House and the Congress for the last several years up to this Congress and with the usefulness of the World Bank to the administration (and with Paul Wolfowitz as its president), these concerns seem to have vanished.
• So which countries are set to get the most U.S. economic aid? Based on country data from the Department of State website (which is not entirely complete, lacking country data on food aid and MCC disbursements), Afghanistan and Iraq are the big winners with each receiving just over $1 billion in regular ESF and GWOT emergency aid.
• If we put aside these GWOT programs, we find that the largest recipients are South Africa, Nigeria and Kenya at between $500 and $600 million each - mostly in HIV/AIDS funding. (Can they handle and distribute this much aid - far more than they have received in such funding for fighting HIV/AIDS in the past?)
• If we put aside the extraordinary funding for fighting HIV/AIDS, we find that the major recipients of U.S. bilateral aid are Egypt at $415 million, Pakistan at nearly $425 million and Jordan at just over $280 million. (U.S. economic aid to Israel has been zeroed out as a result of an agreement struck between the Congress, the administration and the Israelis and Egyptians almost a decade ago gradually to eliminate economic assistance to Israel, offsetting it with increases in military aid, and to halve aid to Egypt. This is a major but often unnoticed change in U.S. aid-giving.) Other small but surprising winners are Algeria, Bahrain, Kuwait and Libya (all oil producers) which will be receiving U.S. aid (ESF) in 2008 if the Congress appropriates what the administration wants. Iran is in for $75 million as well but no one can imagine anyone in Iran accepting U.S. aid at this point.
• Putting aside GWOT aid, which are the major regional winners in the proposed U.S. aid budget in 2008? The major regional winner is Sub-Saharan Africa with a nearly doubling in its aid from $2.4 billion in 2005 (no data is yet available by country for 2006) to $4.6 billion proposed for 2008. The increase is almost entirely in HIV/AIDS funding.

If there are winners, there are always losers. The main loser is:

• Development assistance - the aid program decided and implemented traditionally by USAID to promote economic growth, family planning, agricultural development, education, health and the environment in developing countries. This program shrinks by a third to a little over $1 billion in 2008. It is worth noting that USAID's operating expenses also fall in 2008 - fewer staff are needed for a smaller program. This change looks very much like the feared consequence of the partial merger of USAID into the Department of State. Connecting the dots, this budget may signal the beginning of the end of USAID as we have known it.

To sum up, the President's budget request is a GWOT, PEPFAR-health, MCC budget primarily - war on terror, HIV/AIDS and other diseases and support for economic growth for 'good performers' among low and middle income countries. Aid for development for those countries that do not qualify for MCC assistance and for traditional development activities is shrinking.What is likely to come out of the Congress at the end of the appropriations process? That is always anyone's guess. But based on concerns for budgetary discipline and the political popularity of certain programs, it is a good guess that the MCC will be funded at something around last year's level (with their large committed but unspent funds) of just over $1 billion. It seems likely that the funding for GWOT will be appropriated unless serious scandals associated with past management of these funds surface (which they threaten to do in Iraq…).The big question is whether the Congress will appropriate a very large increase in PEPFAR funding for HIV/AIDS. It is a popular program in Congress and among the public and seeks to address a terrible human tragedy. BUT there are two difficult questions that could arise: can the relatively poor recipient countries, with weak health infrastructures, handle such an enormous increase in funding, whether for abstinence and prevention efforts, condom distribution, testing or the provision of anti-retrovirals? And what happens after next year? Who is going to finance the anti-retrovirals after next year or the year after that? The countries with the high infection rates will not be able to afford such expenditures for a long time to come. Will PEPFAR become an entitlement for the foreseeable future - because if we begin to finance widespread distribution of anti-retrovirals, we cannot withdraw that financing until the recipients can finance it themselves or we will be complicit in their certain deaths. These are terrible issues. But it is worth remembering that it may be as important to help countries - even the less stellar performers -- develop to the point of being able to care for their own citizens when they become ill as it is to help care for them ourselves.