Organizing U.S. Foreign Aid: Confronting the Challenges of the Twenty-First Century

What Is Foreign Aid?

What Is Foreign Aid? The principal tool for promoting development abroad has long been foreign aid. “Foreign aid” (used interchangeably here with “international assistance”) is another term that means different things to different people. Some think of it as a policy. Others regard it as any public resource transferred abroad. Still others define it as only those resource transfers that are specifically intended to help recipients. International assistance is not a policy; rather it is an instrument of policy. It has multiple purposes, only one of which is to benefit the recipients of that aid, and it has a specific set of characteristics. International assistance, or foreign aid, as defined here means A voluntary transfer of public resources from one government to another government, international organization, or nongovernmental organization (including not-for-profit organizations working on specific issues, public interest organizations, churches and their associated organizations, universities, foundations , even private, for-profit business enterprises) to improve the lives and livelihoods in the country receiving the aid, among other goals. This definition is close to the definition of official development assistance (ODA) offered by the Development Assistance Committee (DAC) but differs in two ways.6 First, it defines impact more broadly by including activities intended primarily to address global issues such as HIV/AIDS and global climate change, democracy promotion, and support for economic and social transitions in former socialist countries . Second, our definition is more expansive in what it includes. The DAC defines ODA as those concessional resources transferred to poor countries. Transfers to countries on the World Bank’s list of “high income” countries (with per capita incomes above $9,200 in 2001) 6 ❚ ORGANIZING U.S. FOREIGN AID for three years or more are not considered official development assistance , but rather official assistance (OA). Thus the DAC would not include aid to countries such as Israel, Russia, Ukraine, the Baltic countries, Poland, and Romania in its definition of ODA. Because the DAC’s distinction between ODA and OA underestimates the full development assistance effort of the United States, this study includes both OA and ODA in its examination of U.S. international assistance. Funding for cultural exchanges, covert intelligence action, export promotion , the purchase of military equipment, and training or peacekeeping missions will not be counted as international assistance. Aid can be provided as cash grants, concessional loans, debt cancellation or relief, or in the form of commodities such as food or medicine . It can fund discrete projects, such as road construction; it can be used to finance research, technical assistance and training for individuals in recipient countries; or it can be provided as an incentive for recipients to adopt policies favored by the donor. In this last case, aid is often provided as “non-project assistance,” in the form of budget or balance-of-payments support. In 2003 the United States provided more than $16 billion in international assistance. Total aid worldwide (net of repayments) amounted to approximately $88 billion.7 Since 1946 the United States has provided nearly $350 billion in international assistance, making it the largest single source of international assistance over the past half century . At the same time, the United States has long been the smallest donor relative to the size of its economy, as figures 1 and 2 show.8 The Mission and Purposes of U.S. Foreign Aid People often complain that the mission of American foreign aid is unclear. In fact, the missions of public policies and programs are often unclear because they tend to be so general. For example, the closest ORGANIZING U.S. FOREIGN AID ❚ 7 ...