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U.S. Foreign Aid

I. Foreign Assistance Reform
II. Millennium Challenge Account (MCA)
III. Other Types of Assistance
IV. Maps/Tables
V. Bibliography/Recommended Reading
VI. Footnotes

There is perhaps no area of U.S. foreign policy that is more misunderstood by the general public and policymakers alike than foreign aid. Surveys demonstrate that the American public vastly overestimates how much their government spends on foreign aid, with majorities believing that the government spends more on foreign aid than Medicare or Social Security.1 In reality, the U.S. spends about 0.18% of its GDP on Official Development Assistance (ODA), a far cry from the 5-20% most citizens believe it allocates and still a ways away from 0.7% it agreed to spend on ODA along with the rest of the United Nations over thirty years ago.2 Although the United States does give more money in ODA than any other country in the world, when compared to GDP it is one of the stingiest of the developed nations.

Even among the policymakers who oversee the allocation of foreign aid, debates rage over the target, strategy, and effectiveness of assistance due in large part to the lack of clear, reliable information on how aid is spent and what its true effects are. The Bush administration has laid the groundwork for some of the most significant changes to U.S. foreign assistance ever undertaken. The centerpiece of the reforms is the Millennium Challenge Account (MCA), a government organization to which developing countries can apply for U.S. foreign aid.3 However, to be eligible these countries must not only present a clear plan for how they will spend the money to improve the lives of their citizens, but they must also measure up on numerous indicators assessing the degree to which their nation boasts a just government, economic freedom, and investments in the health and education of their people. By linking aid to policy and performance, the Bush administration hopes to further its larger foreign policy goals of democratization, liberalization of trade, and promotion of human rights.

The Global AIDS/HIV Initiative is an example of the humanitarian portion of U.S. aid, whereby the U.S. seeks to help countries wracked by disease, malnutrition, and natural disasters with little to no regard for the policies of the local government. Still, some members of the U.S. Agency for International Development (USAID) worry that their ability to direct policy in these areas is threatened by the creation of a new office, the Director of Foreign Assistance, who will concurrently serve as the head of USAID while reporting to the Secretary of State. It is too early to tell whether these new initiatives will meet with success, however, understanding the significant reforms afoot in U.S. foreign assistance is crucial for citizens and policymakers alike who wish to shift and critique the direction of U.S. foreign policy in the years to come.

I. Foreign Assistance Reform

  • The Bush administration wants to make the process of requesting, budgeting, allocating, directing and measuring the impact of U.S. foreign assistance a more cohesive, stream-lined process that is in line with America's foreign policy goals
    1. "Reform will focus foreign assistance on one overarching goal: 'Helping to build and sustain democratic, well-governed states that will respond to the needs of their people and conduct themselves responsibly in the international system.'"4
    2. To achieve this goal, the office of Director of Foreign Assistance was created in January 2006 and filled by Ambassador Randall Tobias, who "has authority over all Department of State and USAID foreign assistance funding and programs," although he still reports directly to Secretary of State Condoleezza Rice (he holds a rank equivalent to Deputy Secretary of State)5
      • Tobias resigned in 2007 after being linked to a D.C. scandal, leading to the appointment of Henrietta Fore as the first female administrator of USAID as Director of U.S. Foreign Assistance on November 14, 2007
      • USAID has not been made a part of the State Department under the new reforms, although it's clear that policy coordination between the two departments is a key objective; some members of USAID worry that their organization may be losing significant control over the direction (if not the implementation) of their policies6

  • "The new framework is built around five priority objectives that, if achieved, support our overarching goal by helping move countries toward self-sufficiency and strengthening strategic partnerships. The priority objectives are:
    1. Peace and security - preventing, mitigating, and recovering from internal or external conflict;
    2. Governing justly and democratically - making governments accountable to their people by controlling corruption, protecting civil rights, and strengthening rule of law;
    3. Investing in people - including appropriate expenditure on health, education, and environment;
    4. Economic growth - including reduction in barriers to entry for business, suitable trade policy, fiscal accountability;
    5. Humanitarian assistance - emergency relief and rehabilitation"7
      • To see how each objective is achieved depending on the nature of the target country, see Figure 1
      • (b) To see a breakdown in U.S. aid before and after many of the new reforms, see Figure 2 and Figure 3

II. Millennium Challenge Account (MCA)

  • Established in 2004 with the support of President Bush and Congress, the MCA seeks to further democratic government, liberal economic policies, and human rights by providing assistance to countries working to improve their standing in these areas
    1. For selection criteria for candidate countries and how the variables are measured, see

  • President Bush proposed a budget of $3 billion for the MCA in 2006 and 2007; however, the U.S. Congress has consistently allocated lower amounts ($2 billion in 2007, with only $1.2 billion approved by the U.S. Senate for FY2008).8
    1. The MCA currently is not spending its entire budget due to long delays in start-up times from proposal to approval and allocation. Indeed, a December 2007 article notes, "The agency, a rare Bush administration proposal to be enacted with bipartisan support, has spent only $155 million of the $4.8 billion it has approved for ambitious projects in 15 countries in Africa, Central America and other regions."
      • Critics charge that funding should be released as it is needed, supporters of the current MCA structure claim that the compact system of making aid available up front is what makes the MCA unique
      • For an overview of the MCA process, see Figure 6

  • At the beginning of 2008, the MCC recognized 42 countries eligible for aid from the MCA, including 22 past or current compacts and 20 countries in the Threshold Program, which is for countries that have "not yet qualified for MCA Compact funding, but have demonstrated a significant commitment to improve their performance on the eligibility criteria for MCA Compact funding."9

  • The MCA currently has approved ongoing compacts with Armenia, Benin, Cape Verde, El Salvador, Georgia, Ghana, Honduras, Lesotho, Madagascar, Mali, Mongolia, Morocco, Mozambique, Nicaragua, and Vanatu

  • For a discussion of how countries are selected to be eligible for the MCA, see

III. Other Types of Assistance

A. Humanitarian

  1. Global HIV/AIDS Initiative
    • President Bush pledged $15 billion over 5 years to combat AIDS through a multi-pronged focus on prevention, treatment, and care for those affected by the diseases

    • The program functions in 120 countries around the world, "Bilateral programs include a special emphasis on 15 focus countries in Africa, the Caribbean, and Asia that together account for approximately one-half of the world's 40 million HIV infections."10
  2. Natural Disaster Relief

B. Military

  1. The U.S. provides a wide array of military assistance abroad that can take many forms, from the most basic donation of funds for military purposes to the sale of higher quality U.S. armaments, the training of foreign militaries by U.S. troops, and joint military exercises designed to improve coordination and military transparency12

  2. The vast majority of direct military funding donated abroad has gone to Israel and Egypt in exchange for signing the Camp David Accords in 1978
    • U.S. aid to Israel remains significant, with the ~$3 billion/year level, held relatively steady for the past 20 year, continuing to this day13
    • Egypt receives about $2 billion annually, with over half designed as military aid14

C. Law Enforcement/War on Drugs

  1. The U.S. provides significant levels of aid to help combat the production and trade of narcotics abroad, particularly in countries that are the source of narcotics that enter the U.S.

  2. The most prominent example is the Andean Counterdrug Initiative (ACI), for which the U.S. has spent over $5 billion between 2000 and 2005 in the region with aid originating from both the Department of Defense and the State Department

D. Remittances

  1. Remittances, whereby individuals with ties abroad work in the U.S. and channel funds back to relatives and friends in their native countries, have been exploding in quantity and by many accounts more than double the total amount spent by all governments on foreign aid combined

IV. Maps/Tables

Figure 1: U.S. Foreign Assistance Framework

U.S. Foreign Assistance Framework

Figure 2: U.S. Aid at a Glance (2004)

U.S. Aid at a Glance (2004)

Figure 3: U.S. Aid by Type (2004)

U.S. Aid by Type (2004)

Figure 4. U.S. vs. Other Countries in Absolute Levels of Aid (2006)

U.S. vs. Other Countries in Absolute Levels of Aid (2006)

Figure 5: U.S. vs. Other Countries in Relative Levels of Aid (2006)

U.S. vs. Other Countries in Relative Levels of Aid (2006)

(Note: GNI is Gross National Income)

Figure 6: Millennium Challenge Account Process

Millennium Challenge Account Process

Figure 7: Summary of U.S. Foreign Aid

Summary of U.S. Foreign Aid

V. Bibliography/Recommended Reading

"U.S Foreign Assistance Reference Guide," U.S. Department of State and USAID,

Millennium Challenge Account website:

William Easterly, The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good (Penguin, 2006)

Jeffrey Sachs, The End of Poverty: Economic Possibilities for Our Time (Penguin, 2006)

Steven Radelet, "Bush and Foreign Aid," Foreign Affairs, (September/October 2003),

Steven Radelet "Think Again: U.S. Foreign Aid" Foreign Policy,

"The Millennium Challenge Corporation’s Global Impact" Hearing Before the Committee on Foreign Relations, U.S. Senate, April 26, 2005,

FY2007 U.S. International Affairs Budget Request

VI. Footnotes

1. See "America’s Global Role: Red Flags," Public Agenda, and "Americans on Foreign Aid and World Hunger," World Public Opinion.

2. ODA does not account for all types of foreign aid, which will be addressed in the rest of this section.

3. See the organization’s website,

4. The Director of Foreign Assistance goes on to state, "Under the current structure where and how we spend money is not strategically tied to our overarching goal… With foreign assistance processes fragmented across numerous bureaus and agencies, our efforts lack the coherence necessary for maximum impact, and accountability becomes increasingly difficult."

6. "Remarks At the U.S. Agency for International Development On Foreign Assistance Question and Answer Session,"See

7. Ibid.

8. C.W. Dugger, "U.S. Agency’s Slow Pace Endangers Foreign Aid," New York Times Dec. 12, 2007.

9. "Threshold Program Agreements,"

11. For USAID’s efforts in Lebanon, see For USAID’s efforts in areas hit by the tsunami, see

12. The concept of "military aid" is not clear-cut, as some would argue that the U.S. security umbrella provided to Europe and Japan (especially during the Cold War) counts as a form of military aid, whereas others would not classify it as such.

13. This is to say nothing of the military equipment the U.S. makes available to Israel, which is generally as good or better quality than equipment sold to any of its other allies. For U.S. aid to Israel by year, see

Massachusetts Institute of Technology