Foreign Aid Reform

Showing how foreign assistance can work better has been the main aim of this chapter. The reforms we recommend could help tens of millions of people escape hunger and poverty. Effective aid matters to poor countries and to the United States, as it creates partnerships that fuel the growth of both. Moreover, effective aid that reduces poverty helps to build a more stable world, improving the security of all.

Assistance that is earmarked is legally set aside by Congress for a specific issue or country. The programs that receive earmarked assistance today are worthwhile—sanitation, microfinance, childhood immunization, women’s education, biodiversity, and so on. The problem is that earmarks steer resources to programs or countries without a process of using objective criteria to determine where assistance is needed most and/or how it can achieve the best results in catalyzing sustainable development. In other words, earmarks cost flexibility and coherence in development assistance.

Presently, country-led approaches are the exception rather than the rule in U.S. development assistance. Early signs of progress under Millennium Challenge Corporation (MCC) compacts led the administration to incorporate a country-led approach into the plans for Feed the Future.

Sixty years of foreign aid has shown that donors alone—no matter how well-intentioned or generous—cannot end poverty and hunger. A poor country’s development depends on national leaders with vision and the will to follow through and gain the support and cooperation of their citizens.

Following the end of El Salvador’s civil war in 1992, USAID began a program to help rural communities displaced by the fighting. The project focused on cashew nut production, providing families with trees to plant and technical assistance. After that, the farmers established a farmers’ cooperative with support from USAID. Next, USAID coordinated with European aid agencies to help farmers begin to process their cashews so they would be worth more at market.

Foreign aid is considered “tied” when it comes with conditions that the goods and services funded must come from suppliers in the donor country. For example, 75 percent of U.S. food aid must be shipped on U.S.-flagged vessels, a requirement written into the 1936 Merchant Marine Act. And under the 1961 Foreign Assistance Act, virtually all commodities purchased with U.S. food aid resources must come from the United States.

This chapter began by stating that donor assistance alone cannot end global poverty and hunger. But assistance can be a catalyst for sustainable progress. Long-term progress depends on the capacity of a partner country to build on the gains achieved with donor assistance, which is why capacity-building should be a priority for donors.