"The Future of Foreign Aid" -- Brian Atwood

"The Future of Foreign Aid" -- Brian Atwood

                       Statement of J. Brian Atwood
                 U.S. Agency for International Development
                                 to the
                  Committee on International Relations
                        House of Representatives

                            Washington, D.C.
                              May 9, 1995

Mr. Chairman: Thank you for allowing me this opportunity to appear before the Committee today. We all recognize the gravity of the issues before this committee and I must be frank. The Administration is deeply disturbed by the budget and reorganization proposals being considered by this committee with regard to our international affairs operations. While the Administration welcomes lively debate on the best course for America's foreign policy in the post-Cold War period, we fear that this bill would force America to abdicate a large part of its international leadership.

As former President George Bush said so eloquently last week, "I believe winning the peace and expanding the promise of democratic capitalism in this new era are possible only if America continues to lead in the world. We cannot retreat and turn inward. We must stay engaged." President Bush, during his visit to Romania, argued that, "we can already hear the heated rhetoric of those who would respond to the economic uncertainty many Americans face by calling us home into some kind of Fortress America. They preach a peculiar brand of neo-isolationism and protectionism. Some even call themselves 'America Firsters.' But what they don't seem to realize is that the best way to put America first is to put isolationism and protectionism last. Churchill said 'the price of greatness is responsibility.' Well in my view, the need for American leadership has not diminished one bit; and yes, there is a price to be paid for that leadership."

In considering both dramatically reduced funding levels for international affairs, and restructuring the foreign policy structure of the United States government, we need to act with the utmost responsibility. At every step of the process we must ask ourselves both what will be gained, and what will be lost. I have looked closely at the reorganization and budget proposals that the committee is currently considering. I cannot escape the conclusion that these proposals, if enacted, will cost the United States dearly.

The combined effect of the reorganization and budget cuts would cripple America's global leadership and our ability to advance U.S. interests abroad. The reorganization has been trumpeted as an efficiency move, yet it is far from clear that it will improve management or save money. The GAO was unable to conclude that there would be significant savings from merging the four agencies. Everyone close to the issue has realized that savings will only be obtained by slashing vital programs, not because of any improvements in efficiency.

The current budget proposals target development assistance for the deepest cuts. Such cuts would do profound damage not only to friendly nations struggling to establish market economies and democratic systems, but to American families and America's long- term economic health. If development assistance is cut by one- third, the United States will be faced with very hard choices: abandoning entire sectors of our development programs; leaving entire regions of the world; or closing perhaps twice as many missions as we already have. In any of these scenarios, American's national interests and the poorest of the poor around the world will suffer greatly:

In some parts of the world, these cuts would clearly benefit the trade prospects for our economic competitors, while undermining the growth of U.S. exports to developing markets. America's ability to move nations toward free market reforms would be drastically reduced and countless U.S. firms would lose a valuable "foot in the door." America would be giving away the comparative advantage it now enjoys in fast growing export markets such as environmental goods and services, high technology products and agricultural processing equipment. Tens of thousands of American jobs would be sacrificed as a result. In those countries not deemed as good economic prospects, other donors might simply follow America's lead and abandon those most in need. Cuts in U.S. assistance have the potential to trigger a chain reaction of cuts from other donors to the most vulnerable nations.

Budget cuts of these levels could result in hundreds of thousands of easily preventable deaths of children in the developing world. It is possible that four million children would not be vaccinated, that there would likely be 600,000 more unintended pregnancies around the globe each year, and that at least 100,00 children could die because they were denied oral rehydration therapy.

These proposals would abandon America's longstanding commitment to advancing both free markets and democracies. America would still provide assistance to refugees, but would deny nations the support needed to ensure their citizens don't become refugees. America would be sending a clear signal to the international community that development was no longer a U.S. priority. As a result, The United States would lose the leadership that it needs to work with our international partners.

The reorganization of the U.S. government's foreign policy structures could cause major disruptions in the conduct of U.S. foreign policy for years to come. Instead of undertaking a top-to-bottom review of the full range of foreign affairs conducted by the U.S. government, Congress would be shotgunning through legislation opposed by the Administration . The reorganization proposal would likely add layers of unneeded bureaucracy to our foreign affairs operations, diminish U.S. flexibility in meeting pressing foreign policy challenges and sacrifice long-term development to short-term political gain. Deep cuts in the 150 account could also cause immediate, and expensive, reductions in force at these agencies.

The reorganization proposal would cast away the sweeping reforms that USAID and the other agencies have put in place during the Clinton Administration, and send a message government-wide, that reform and innovation are to be punished -- not rewarded.

I would like to deal with each of these points in turn. One of the most enduring benefits of foreign assistance programs has always been the new markets and increased trade it has helped generate for the United States. This is especially true with the end of the Cold War. Some have suggested that opening America's export markets is best left to American business, not the U.S. government. Private investment is indeed a crucial part of the equation, but such reasoning misses a more fundamental point: American companies will not invest in a country until they have some basic reassurances that their investment will be reasonably safe and given fair treatment under the law.

Will IBM invest in a country that does not have fair business codes? Will Ford Motors be attracted to a nation that does not have viable commercial banks and reasonable tax and tariff standards? Will Fortune 500 companies find investing in nations ruled by unstable regimes appealing? The answer in each case is clearly no. Foreign assistance helps create the stable and transparent business standards that U.S. companies must have to operate in a country. It is U.S. technical assistance and expertise that has traditionally been the first Marine on the beach in developing markets. It is U.S. assistance programs that have leveled the playing field so private investment can serve as the true engine of development.

Most of the growth in U.S. exports is not coming from trade with our traditional partners, but from the explosive growth in American exports to the developing world and nations who are making the transition away from socialism toward free markets. Between 1990 and 1993, U.S. exports to developed countries grew by 6.2 percent. In contrast, during that same period, U.S. exports to developing countries grew by a remarkable 49.8 percent. This growth in trade to the developing world meant $46 billion more in U.S. exports and 920,000 more jobs in the United States.

Importantly, developing countries are particularly good customers of the type of high-tech products which we lead the world in producing, such things as pollution control equipment, communications equipment and computers. Exports to countries in both Asia and Latin America are one of the primary reasons our unemployment rate in the United States is low and our economy is still growing.

The incredible growth of American exports to these emerging economies is not the product of luck. Years of efforts through U.S. foreign assistance programs helped foster an enabling environment for American trade in these markets. Programs not only in economic growth, but in institution building, civil- society and the environment all boost American trade. When I look at the proposals that this committee is considering, if I didn't know better, I would think they were written by our business competition eager to give themselves an advantage in tomorrow's markets.

Does it make any sense for America to potentially turn away from a $300 billion annual market in environmental goods and services? The total global market value for environmental goods and services is estimated to be $600 billion by the end of the decade. Without U.S. support for environmental programs underway in these countries, American firms will be losing their comparative advantage. It makes no sense at all to potentially drastically cut these funds and shoot our own businesspeople in the foot. The possible loss to the American economy could exceed tens of billions of dollars and mean the loss of thousands of American jobs. Is that something you would be eager to explain to your constituents?

Not only would these budget cuts hurt America's economic prospects, they would have a devastating effect on the poorest of the poor around the world. In countries that are not yet economically promising, the U.S. budget cuts could well trigger other donor nations to simply abandon their commitment to helping the less fortunate as well. In the end, the cuts would not only mean severe hardships for the have-nots of the world, they would be felt in our own backyard. Foreign economic and humanitarian assistance programs make up less than one half of one percent of the U.S. budget. This small contribution by the United States makes a big difference around the world.

In any scenario, as I have said, budget cuts of this magnitude would mean very hard choices. In even the best of cases, the consequences of these cuts would be so severe that I think few Americans would support them if they knew their impact. A 30 percent cut in USAID's child survival program would mean that more than 4 million children will likely not be vaccinated, greatly heightening their risk of death or severe illness from such preventable diseases as measles, whooping cough and diphtheria. With cuts of these levels, millions of children and adults would be robbed of the most fundamental way to improve their lives and the lives of their families -- an education. These cuts would deeply impact some of the same programs you have worked so hard to champion, Mr. Chairman. A 30 percent cut in USAID's microenterprise program would probably translate into the equivalent of about 4.2 million loans to the poor that would not be made over the next ten years. A 30 percent cut in resources for USAID's AIDS prevention efforts could lead to an increase in infection rates resulting in almost two million preventable new HIV infections by the year 2000.

Oral Rehydration Therapy (ORT) prevents an estimated one million deaths a year due to acute diarrhea. Usage rates for ORT in all areas of the world have now risen to 40-65 percent. Despite the steady growth in ORT use, three million children still die from diarrheal disease annually. A cut of 30 percent in child survival resources would likely mean at least 100,000 children's lives would be lost each year for lack of this cheap and simple treatment.

Perhaps there is no better illustration of the penny-wise, pound-foolish nature of the budget cuts than polio. Polio has now been eradicated from the Western Hemisphere through the combined efforts of USAID, UNICEF, the Pan American Health Organization and Rotary International, greatly reducing U.S. costs to prevent this dread disease and to treat polio victims. A 30 percent cut in child survival resources would undermine the USAID-supported initiative to eradicate polio from the rest of the world by the year 2000.

But this would mean more than just not achieving the goal of eradicating polio from the world. It would also mean that the United States would continue to be forced to spend some $300 million in public and private funds a year to prevent polio in American children -- a cost far higher than that of the eradication program. Do we not go to the dentist to save the cost of a single visit? Do we not change the oil in our cars although we could save $20 each time we didn't? Then why are we here today considering eliminating investments that ultimately save the United States money?

It is interesting that the budget proposals being considered by this committee leave funds for disaster and refugee assistance virtually intact, yet slash funds for development assistance. It is curious to me that the United States would wish to pursue a course where we help victims, but refuse to prevent people from becoming victims. America, and I am very proud of this, has always been willing to lend a helping hand to those whose lives have been shattered by flood, famine and war. That should not change.

Since World War II, America has also had the foresight to help other nations help themselves. Development assistance programs have always been designed to move countries to the point where they no longer need assistance. Countries that can feed themselves; countries that are free and democratic; countries that are good trading partners and good allies -- it has always been the goal of America's assistance programs to help create independence and self-sufficiency. And it has worked. South Korea, Taiwan, the Marshall Plan countries, Cost Rica, Thailand - - the list of nations who have graduated from our assistance programs offer a remarkable legacy to the vision of America's bipartisan foreign policy leadership.

Now we stand on the brink of abandoning this leadership. Instead of helping nations prosper, we would only be in position to assist them after they collapsed. Do we really wish to pretend that we can exist as Fortress America, only periodically air- dropping food and water into nations as they implode like Rwanda or Somalia? As we continue to cut development assistance, is anyone really surprised that we spend more in emergency assistance? Building democracies and free markets does not happen overnight. Shaping a safer and more prosperous world is demanding and full-time work. We should not abandon the long-term commitment to development that has served this nation so well.

I want to say that I understand the difficult task that you have before you in marking up the FY 1996 bill. Cuts must be made and I realize that foreign assistance seems like a natural place to start. The Clinton Administration does have funds for international relations on a glide path of steadily reduced budgets as part of the overall effort to reduce the deficit. The question becomes, "Do we cut funds in a responsible fashion, or an irresponsible fashion?" Since 1985, the International Affairs Function of the Federal Budget has been cut dramatically in real terms. In contrast, domestic functions increased 23.2 percent in real terms. Ten years ago, the 150 Account absorbed 2.5 percent of the federal budget. Today, it has been halved, to 1.2 percent.

Nevertheless, we have taken on significant new responsibilities. We have initiated programs for Central and Eastern Europe and the Newly Independent States. We have dramatically expanded our activities in South Africa. We have launched microenterprise and environmental initiatives in Latin America. We moved quickly to support the peace process in the West Bank and Gaza. We have already cut our small development budget by 20 per cent in the last two years. We will never balance our budget if we fail to compete in the global economy, if we fail to create the new markets for American products in the developing world, or if we are forced to rescue whole regions that descend into chaos in part because we didn't take preventive action.

It is equally troubling that Congress is currently considering dramatically reorganizing part of the foreign policy structure of the United States. I do agree that it is time to reexamine all of our foreign affairs programs in the wake of the Cold War to ensure that they are appropriate, advance U.S. interests and are cost efficient. When looking to overhaul the America's military structures, the Congress and the Administration undertook an extensive and carefully executed top- to-bottom review of the Pentagon's capabilities, needs and potential. In contrast, when it comes to the foreign policy structures, which are equally vital to America's security, Congress is rushing through proposals without giving them a full public hearing or a thoughtful analysis. This is dangerous approach that makes for both bad precedent and bad policy.

The Administration is strongly opposed to combining four agencies with distinct missions into a single mega-bureaucracy. This reorganization plan does not make sense from a management perspective, it does not make sense financially, it sets dangerous precedent, it undermines the ability to conduct a sound foreign policy and it simply has not been well thought out or properly debated. USAID already directly supports U.S. foreign policy goals, under the overall guidance of the Secretary of State. But the mission of USAID has always been different from the core focus of the Department of State. The Department of State works in large measure on our bilateral relations with foreign governments and must often deal with difficult crises in those relations. The State Department's activities tend to have a relatively short term focus and typically involve political issues in our relations with other governments. State Department personnel are trained in diplomatic reporting, negotiation, representation and political analysis.

USAID is charged with promoting long term development in the world's less advantaged countries. USAID is now also engaged in helping countries of the former Soviet bloc to make the difficult transition from autocratic, command economies to democratic, free market economies. USAID carefully monitors the way our resources are spent to ensure that they are applied responsibly and effectively. USAID's field missions enable us to plan our programs and projects with a maximum degree of effectiveness and to ensure that our programs are, in fact, implemented as planned. Our field missions have made us the most effective aid agency in the world. USAID's staff is technically proficient in such fields as public health, nutrition, energy and environmental conservation.

The missions of USAID and the Department of State are different in time horizon and focus; they involve working with different types of partners; and they require quite different skills of their staffs. They reinforce one another, but they are not the same. This is even more true today than it was during the Cold War when policy was organized around the common goal of defeating communism. This reorganization plan is the equivalent of asking a governor -- in addition to their numerous other pressing responsibilities -- to take control of day-to-day management responsibilities for the city governments across a state. Is the average governor, as gifted as he or she may be, trained in the nuances of local road repair, wastewater treatment and functions of the city schoolboard? Of course not. Such an approach would make no sense. Then we must ask ourselves, "Is the average diplomat, adept as he or she is in international relations, well versed in agronomy, economic policy reform, telecommunications and arms control verification?" This approach does not make sense.

There is also the very real danger that a development assistance program submerged into the Department of State will find development overwhelmed and downgraded by the compelling political crises which will remain the core mission for the Department of State. The development mission would become a weak sister, with little authority over its own budget or management and whose ability to work with others in the international community was greatly diminished. Long term development goals would all too often run the risk of being subsumed by short term political expediency. Requiring the approval of regional Assistant Secretaries of State for each and every aid project before it goes forward would effectively lodge the power to decide on and disburse aid funding in the regional Assistant Secretaries hands, obviating the need or rationale for an Undersecretary of State for Development.

If it is the wish of this Committee and others to downgrade the development mission of this country, than a reorganization of the type proposed here would make sense. But no one here has raised the question of whether the development mission should continue or not. This kind of sea-change in policy should be carefully explored and debated on a bipartisan basis before we rush to it. We should not prejudge the outcome of a reasoned discussion of this issue through a premature reorganization. We should decide basic policy questions before turning to organizational issues.

Some have argued that there is insufficient coordination between the Department of State and USAID, and that a merger would strengthen that coordination. I would like to see details of where our coordination is weak. There are formal and informal coordination arrangements at every level of our two agencies' operations, in the field and in Washington, from the lowest staff level to the highest political level. I attend the Secretary of State's morning staff meeting three times a week; I attend a special meeting with him, the heads of ACDA and USIA once every two weeks; and I have regular meetings with the Deputy Secretary.

USAID coordinates with the Department of State in regard to budget, policy, programs and financing. There are formal and informal coordination arrangements at every level of our two agencies' operations, in the field and in Washington, from the lowest staff level to the highest political level. I cannot argue that the coordination between us is perfect or that there are not at times differences between us. There are bound to be such differences, given our distinct but mutually reinforcing missions. But these differences are seldom serious, and we are all committed to resolving them responsibly and quickly whenever they appear.

The Committee has not specified the problems it seeks to resolve with the merger proposal. It proposes to move organizational boxes around before examining the basic issues of objective, mission and purpose of the various foreign affairs agencies it proposes to merge. Nor has this Committee explored carefully the programmatic or budgetary impact of its proposals. I think this approach is unwise.

The first question that should be asked in any effort of this kind is, "What are we trying to achieve?" What are the purported problems this legislation is intended to address? In fact, the problems to which this legislation purportedly addresses are minimal or non-existent. The Vice President's study of these very issues earlier this year concluded that a merger of these agencies was both unwise and unnecessary.

This reorganization proposal puts Congress in the position of telling the Administration how to organize itself to conduct foreign affairs. Just as the Administration does not tell Congress how to organize itself, and just as the federal government does not dictate to the states how they should organize themselves, it makes little sense for Congress, unilaterally, to order the Administration to reorganize its agencies.

Reorganization, as proposed in this bill, simply does not make sense from a management perspective. All through the Congress and all across America, managers are trying to create public and private organizations that are more flexible, effective and less centralized. Ironically, this reorganization plan proposes to create a monster-bureaucracy that is the polar opposite of those ideals. By merging organizations with distinct missions, this proposal is advocating a top-heavy, inefficient style of management. In the last 18 months, for example, USAID has begun to reduce the time it takes to design and implement a project from 27 months down to a brisk 6 month process. The reorganization plan would quickly see the trend reversed, and projects would be slower moving and less responsive to pressing U.S. interests.

Let me put it even more simply. Can anyone on this committee name a major American corporation that would advocate putting disparate products, personnel and strategies under the same centralized corporate management? This is a recipe for foreign policy disaster. As former Deputy Secretary of State Wharton -- who studied the functions of USAID and the State Department at length -- said recently, USAID, "is on the right track, in fact, merging it with the State Department would lose an effective and flexible weapon in building democracy and promoting peace."

Furthermore, if existing missions were kept intact, there would be little cost savings achieved through reorganization. Despite allegations to the contrary, there is little duplication between USAID and the Department of State. Even though we both have Africa Bureaus or Latin America Bureaus, our staffs perform very different tasks. If the missions of both agencies were to be retained, cost savings would be minimal -- it is even possible that costs would rise in the event of a merger, at least in the short run. This is not only the Administration's view. It was also the view of the Ferris Commission, and the General Accounting Office was unable to conclude reorganization would result in significant savings.

The only way to make major savings in costs is to abandon existing missions and programs. The bill would set USAID's operating expenses for FY 1996 and 1997 at levels which would require reducing our direct-hire workforce by almost a thousand people during the next nine months. Such drastic measures could mean reductions in force before post-consolidation requirements were known. Cutting staff, with or without consolidation, would be expensive, and the bill has not stated the costs of reductions in force.

No agency in government has worked more aggressively to embody the spirit of reinventing government than USAID. USAID is far leaner and more focussed than it was just 18 months ago. Eliminating USAID would send a devastating message to all federal employees -- reform is not important; doing your job well is not important; moving boxes around on an organizational chart is.

To begin our reform process, we offered the entire agency as a laboratory for Vice-President Gore's "Reinventing Government" effort. As a result, USAID has put sweeping changes in place. During the last year USAID has:

Announced the close-out of 27 overseas missions over the next three years and established a timetable for how long the agency should be involved in countries in which it currently operates;

Eliminated 90 organizational units in Washington; cut back 70 senior positions, and reduced total staff by over 1,000.

Developed a new electronic acquisition and procurement planning system that replaces 65 different systems and will eliminate tons of paperwork and expedite contracting.

Established interrelated goals around which financial and human resources are focused: encouraging broad-based economic growth; protecting the environment; building democracy; stabilizing world population growth and promoting human health; and providing humanitarian assistance and aiding post-crisis transitions.

Completed an agency-wide reorganization and "right-sizing" effort to streamline the agency.

Introduced reforms to open up USAID's procurement to the best expertise in America, whether that expertise is located in Seattle, Milwaukee or other places "outside the beltway."

Reduced project design time by 75 percent and developed a framework to unify USAID's multiple personnel systems.

Our efforts are succeeding. So much so that a member of the Ferris Commission which President Bush appointed to review USAID in 1993, said "This is the most remarkable transformation of a government agency I have ever seen."

We haven't made these changes to save a bureaucracy. We have fixed what is wrong because we believe that if America is to lead, it must lead with the best development agency in the world.

In conclusion, I would stress that this debate is about leadership. American can not truly lead internationally if we compromise the small investments that make that leadership possible. This bill would sacrifice that leadership. The United States will jeopardize its own economic future if we abandon developing markets. This bill will undercut America's hopes for continuing economic growth and prosperity. This bill would lead to untold suffering for millions of families around the world who only need opportunity to succeed. The ability of the United States to project a forceful foreign policy will be undermined if we throw away important diplomatic assets. This bill would abandon tools that every President since Truman -- Republican and Democrat -- have found essential to promoting America's interests abroad. In sum, far, far more stands to be lost through this bill than the United States would gain.

The choices are clear.



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Message-ID: 01HQDMTN5C5E0022DP@GBMS01.UWGB.EDU Date: Thu, 11 May 1995 13:26:51 -0500 From: Richard Logan LOGANR@GBMS01.UWGB.EDU Subj: "The Future of Foreign Aid" -- Brian Atwood testim

Editor: Ali B. Ali-Dinar
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