Review of the Development Co-operation Policies and Programmes of United States

See also USA's USA Aid-at-a-Glance    

Overall framework and new orientation

The United States is a leader in international development co operation because of the large size of its economy, its ability to influence global action and its presence within the international donor community. It is the largest donor in the DAC. Historically, the US has justified its development assistance policies in terms of both recipient country needs and its own foreign policy objectives. The events of 11 September 2001 and the “War on Terror” which grew from them have provided the starting point for a renewed American interest in development co operation. Since that time, the government has used the logic of national security to resuscitate the image of development co operation with Congress and the American public. A variety of policy statements has helped to define the role of development in relation to this national security perspective. Prominent among them, the National Security Strategies of 2002 and 2006 have moved the United States in significant new directions since the 2002 DAC Peer Review.

Clarifying US development strategy with poverty reduction as the starting point

The US National Security Strategy raises development to the status of one of three pillars of national foreign policy, along with diplomacy and defence (the 3Ds). Building on this strategic perspective, the Department of State has shaped a policy of Transformational Diplomacy, aimed at working “with our many partners around the world 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.” The extent to which this policy will translate into a clear vision of long term development on a par with diplomacy and defence, or whether development will remain primarily as a tool to support other priority political goals remains to be seen.

Transformational Diplomacy has crystallised around an operational matrix  - the Foreign Assistance Framework. This framework does not yet fully factor in international objectives for reducing world poverty, however, it offers a promising opportunity to do so. Widespread poverty is a major contributor to world insecurity and its reduction is consistent with the expectations of the American public. Another challenge is to broaden the reach of the Foreign Assistance Framework across all US Government development actors, including the Department of Defense. Currently, the framework mainly guides the operations of the Department of State and the United States Agency for International Development (USAID). Similarly, in line with the draft DAC Principles for Good International Engagement in Fragile States, the government should pursue approaches that best unite development, defence, diplomatic and humanitarian communities in fragile states. In doing so, the potential for conflict among these different communities should be recognised and ways of actively managing it should be found. There are also complementarities among the communities and this sensitive balance requires an approach which, for example, avoids unnecessary militarization of aid work in the humanitarian sector.

As the Foreign Assistance Framework is further refined and used, it needs to draw more explicitly on the operational lessons learned from other US institutions, such as the Millennium Challenge Corporation (MCC), and from wider international donor experience. This includes the Paris Declaration aid effectiveness agenda, which focuses on improving the international aid delivery system at the country level. The new framework could include policy goals which link to issues such as streamlining systems, working more with other donors, putting greater focus on country led development, capacity development and local procedures.

A need to better inform the public

Polls widely concur that the American public supports aid which can efficiently promote the better welfare of the world’s poor. This support has grown further since the events of 11 September 2001, even though strategy for the War on Terror has not yet highlighted poverty reduction as a primary objective of US policy. Nevertheless, the public remains cynical over the way government aid programmes are implemented. This includes perceptions that only a small percentage of aid reaches the poor and concern that aid is diverted for more political objectives, such as supporting regimes friendly to the US.  Public cynicism and misunderstanding of official aid programmes can be addressed through more ambitious and strategically targeted programmes. Government actions for public awareness have been modest to date, in part because the resources for this purpose are limited by Congress. Given the influence of public opinion in matters of development assistance and the public misunderstanding of the size and role of American aid, public awareness should be a priority task for the government and its development partners.

Recommendations

• DAC commends the US for raising development to a high priority within the 3D foreign policy approach. Development needs to be accorded the same status as diplomacy and defence and the key importance of poverty reduction within this mandate should be more explicitly recognised.
• The Foreign Assistance Framework has the potential to become an instrument for furthering coherence. To realise this, its scope should be broadened over time to include all government development co operation actors. The framework also has the potential to be an effective tool for sharing with Congress and other stakeholders the US approach in achieving results in different country contexts and to build in good practice on international aid effectiveness.
• The United States needs to improve public awareness of its development co operation. It should develop a strategy for better targeted and accurate information to the public, while seeking alliances with other public, private and civil society organisations.

Aid volume and distribution

Record high level of ODA

With a record high net official development assistance (ODA) of USD 27.6 billion in 2005, the United States ranked first among DAC members in terms of volume of aid. As a share of Gross National Income, this ODA represented 0.22%. While this was its highest level since 1986, the US ranks second to last within the DAC for this statistic. The bulk of this growth is explained by Iraq debt forgiveness and reconstruction; reconstruction and anti narcotics efforts in Afghanistan; and specific programmes in Africa, primarily Sudan and Ethiopia. Given the substantial debt relief granted for 2004 05, aid volumes may be lower in the future, although an annual level over USD 20 billion is probable.

The new Framework for Foreign Assistance offers the United States an opportunity to work toward a longer term ODA plan in line with international donor commitment to greater aid predictability. Such a plan could simultaneously provide a more strategic allocation of aid, whether between bilateral or multilateral instruments or across countries. As the government has opportunities to increase aid, it should consider shifting resources towards low income countries, including fragile and post conflict states, many of which are currently receiving insufficient attention, including aid.  

Continuation of major allocation trends

Current aid allocations are consistent with several past organisational, geographic and sector allocation trends, often linked to Congressional funding earmarks and Presidential Initiatives. Among the most remarkable was the continued fragmentation of funding among government institutions and the continued redirection of ODA away from USAID. The Agency was responsible for 38.8% of total ODA in 2005 (down from 50.2% in 2002). A primary factor in this decline was the rapid increase in ODA disbursements managed by the Department of Defense (21.7% in 2005 versus 5.6% in 2002). This is consistent with the growing budget trend in support of global security interests, particularly in the Middle East. However, the consistently reduced share of funding to USAID carries risks, both because it is the most experienced government provider of aid and because it contains much of its development expertise.

Government ODA allocations also continue to increase in the sectors of governance, social services and emergency assistance and reconstruction. By contrast, funding to infrastructure and the productive sectors continued to decrease, despite the United States Government’s long standing interest in issues of economic growth.  

Finally, while the volume of multilateral ODA has fluctuated over time, its share of gross ODA has experienced a decline from almost 26% at the time of the previous Peer Review to 8% in 2005, among the lowest in the DAC. The DAC has long recognised the relative merits of both bilateral and multilateral approaches to development. The DAC further recognises that the decline in multilateral share is the result of a number of factors rather than a change in US policy. Nevertheless, the Committee encourages the US to review its role in multilateral financing. The US could also develop a clearer performance based framework for allocating ODA to multilateral institutions, based on the emerging approaches to monitoring effectiveness. At present there is no consistent system in place within the US for tracking results and effectiveness of aid channelled to these institutions.

Recommendations

• The DAC applauds the major increase in American ODA volume and its efforts with the international community to reduce the debt burden of poor countries. The US should work towards a longer term ODA plan that can permit greater aid predictability and a more strategic allocation of funds across instruments and countries.
• The escalating distribution of aid to crisis countries and to address emergencies reflects current US policy priorities. The government needs to find a balance between the use of aid in these countries and those where long term and significantly increased development efforts are required.
• US Government funding of the multilateral system has fluctuated and the multilateral share of ODA has declined in recent years.  The DAC encourages the government to play a stronger financing role in the multilateral system. This could usefully be supported by a more consistent performance framework to inform multilateral allocations.

Promoting national and international policy coherence

A clearer US development vision with poverty reduction as its central point is needed as the rallying concept around which to build US policy coherence for development. Based on a more systematic and strategic vision, the government will need to put in place the organisational structure, leadership (plausibly in the Office of the Director of Foreign Assistance) and supporting resources needed to better analyse and manage the policy coherence for development agenda. DAC partners already working in this area could be effective allies in supporting such an emphasis and in generating an internationally informed perspective on these topics.

In light of the size and global impact of the US economy, policy coherence discussions should focus on key areas, such as trade, investment, financial flows and environment.

Recommendations

• The government is encouraged to develop a more explicit policy on the role of policy coherence for development. It also needs to put in place the resources needed to carry out analysis and effectively manage the policy coherence agenda, drawing, for example, on the resources of think tanks, academia and civil society.

Aid management and implementation

Bringing the American system together

While about 26 government institutions are involved in providing ODA, five institutions (USAID, Defense, Agriculture, State, Treasury) accounted for over 90% of the funding in 2005. An approach to address this organisational fragmentation was announced in 2006 with the creation of an Office of the Director of Foreign Assistance in the Department of State. It is described as “an umbrella leadership structure for rationalising and co ordinating all foreign assistance policy, planning and oversight”. Consistent with new political importance accorded to development and to enhance his span of control, the Director was appointed both as Deputy Secretary of State and as Administrator of USAID. The operational detail of this Office is still being defined, but it is already getting organised around some 100 staff drawn from both the Department of State and USAID.

As its operational approach becomes better defined, the Office of the Director of Foreign Assistance needs to be clear on its role and responsibilities relative to other parts of the aid delivery system. In particular it needs to find effective ways of drawing on the wealth of expertise in its decentralised overseas resources. This will ensure that its perspectives on development are based on field realities, on an operational understanding of effective poverty reduction and on country need. To be effective in its leadership role, it will also be important to extend the office’s authority beyond only the Department of State and USAID to the other key actors in official development. The office should also actively involve other informed partners outside government.   

Another organisational innovation of particular note was the creation in 2004 of the Millennium Challenge Corporation “… to reduce poverty by supporting sustainable, transformative economic growth in low income countries…”. MCC field operations are at the earliest stages and implementation is only just starting in many countries. Nevertheless, it is a good example of how the US aid system could be more broadly adapted in line with the aid effectiveness principles of the Paris Declaration. This includes approaches to local ownership and funding that are results based (rather than being tied only to US procurement) and that do not include Congressional earmarks. Consideration should now be given to extending these opportunities to other parts of the government system and to a wider set of partner countries to ensure greater efficiency. Integration of MCC strategy and resources into the overall US development effort has yet to be addressed fully. In addition, the US Government runs the risk of giving rise to an expensive parallel mechanism at country level, which may add to transaction costs. 

Of special interest to this Peer Review is the rapidly growing ODA role of the Department of Defense. Several recent initiatives support greater co ordination between Defense and the other development institutions, driven by the perceived difficulties facing civilian actors in delivering assistance in highly insecure environments. DAC asks that all donors maintain policies based on development experience and good practice and which avoid risks of prejudicing achievement of sustainable and broad based development in the recipient countries. This should apply equally to implementation of development action by military institutions. Similarly, while deploying military forces to support humanitarian operations in sudden major crises, it is critical to protect the independence and impartiality of humanitarian and developmental action.

Fitting aid management into the new organisational context

The reshaping of American aid organisation has required new management approaches appropriate to the new structures. With the creation of the Office of the Director of Foreign Assistance, many management functions (planning, budgeting, monitoring) will be standardised and centralised in one location. Centralised aid planning and budgeting for USAID and the Department of State has begun around the Foreign Assistance Framework model. Joint programme evaluation and accountability will be rolled out over the next year. The DAC sees much of this reform as good operational practice. As the US harmonises its own national management systems, it will be particularly important to do the same with other international and local partners in the field.

Joining together the separate and parallel systems of the Department of State and USAID into a common results based framework for development will be a challenge if it is to provide the comprehensive feedback traditionally expected by both systems while remaining operationally lean and efficient. Identifying priority development objectives within the Foreign Assistance Framework and clearly assigning roles among actors can help to simplify the monitoring and reporting of results.  

The US Government sees results based management of its bilateral system as synonymous with aid effectiveness and the best way to address Congressional insistence on “value for money”. The DAC views aid effectiveness as an international issue, involving interaction between partner countries and the donor community, as much as a bilateral one. More explicit, organised across-government action that fosters ownership, strengthens partner country systems and procedures, and collaboratively tracks results would support the international Paris Declaration effort to address effectiveness. This will also help to promote better donor harmonisation, sharing of staff and delegated partnerships.

Congress itself is viewed widely as limiting the efficiency and flexibility of American aid because of the cumulative impact of its extensive earmarking of funding allocations and other directives. The Office of the Director of Foreign Assistance is well positioned to study the impact of these practices on the effectiveness of foreign aid and to suggest a better approach. Another area largely driven by Congress is the practice of tying aid exclusively to US sources. This can reduce its effectiveness by limiting competition, increasing costs and undermining local ownership. The office is also encouraged to further analyse the cost of tying American aid and the impact of this practice on aid efficiency and effectiveness. Consistent with the DAC Recommendations on Untying, the US should continue to work toward identifying and implementing additional actions to untie aid. 

Recommendations

• As its structures and operating procedures evolve, it is desirable that the Office of the Director of Foreign Assistance become the strategic reference for the entire development co operation system over time.
• As the government seeks to accord a greater role in development and humanitarian work to the Department of Defense, it should persist in clarifying the respective lines of operational responsibility between military and development institutions to ensure that aid efforts are optimally co ordinated and primarily focused on development outcomes.
• Consideration should be given to widely applying the lessons learned from the experience of the Millennium Challenge Corporation. 
• The current United States objective of improved aid effectiveness should be supported by further government attention to the Paris Declaration agenda, including actions on ownership, untying and collaborative strengthening of local systems and tracking of results. The new Office of the Director of Foreign Assistance should brief Congress on the Principles of the Paris Declaration on Aid Effectiveness and their implications for US foreign assistance.
• Building on the Paris Declaration for Aid Effectiveness, US agencies are encouraged to increase dialogue with other donors to achieve shared results and joint learning.
• Bringing the Department of State and USAID into one results based management approach will be a useful first step toward consolidating and streamlining the current system in ways which both reduce transaction costs and enhance coherence within the US Government. Clear identification of priority development objectives and specific assignment of roles among institutions will also facilitate this action.

Humanitarian aid

The US role as the largest bilateral donor of official humanitarian assistance is complemented by a range of other strengths. These include an unparalleled operational and technical capacity to respond to major crises, strong engagement with the multilateral and non governmental organisations and important efforts to strengthen the protection of civilians. To sustain its capacity to respond and plan for a wide range of growing threats, and to realise its commitment to impartial humanitarian response, it will be important to sustain core budgets at existing levels so as to avoid a further dependence on supplemental funding. A growing willingness to consider reforms to the emergency food aid regime is commendable. Delivering these reforms can offer major efficiency gains for the US and significant benefits for vulnerable people. The Office of the Director of Foreign Assistance, with USAID, should work to muster Congressional support for locally sourced commodities and consider cash based alternatives.

Historically, the architecture of US humanitarian assistance has underscored the distinctiveness of its principles and objectives. The reform of the wider aid architecture will have implications for humanitarian aid. It will demand greater co ordination between humanitarian actors and those engaged in a wider range of developmental, security and peace building objectives in unstable environments. In these environments, humanitarian principles and approaches should be reaffirmed and understood across the government. The new Foreign Assistance Framework presents a range of other opportunities and challenges for humanitarian work. In particular, it offers the potential for increased co ordination between the different components of government that have responsibility for humanitarian affairs. In the medium-term, consideration might be given to how to consolidate a complex array of agencies responsible for humanitarian affairs.

As the Administration works to achieve its wider objectives around security, stabilisation, recovery and state building, it will be important to ensure that protection issues are fully addressed, and that space for independent humanitarian action is maintained. This issue is especially relevant in the complex “grey zone” environments of protracted instability, such as the Middle East and Afghanistan. 

The whole of government approach should also help to articulate more clearly the relationship between humanitarian and longer term development work. It provides scope for increasing development commitments to basic services and livelihoods in protracted crises, where much of humanitarian action is currently carried out. In addition, the Food for Peace emphasis on food security for the most vulnerable, and growing government willingness to consider less tied and more cash based approach to supporting food security are welcome. These and other steps should enable humanitarian officials to concentrate on responding to the most extreme threats to lives and livelihoods.

Among its many achievements in the humanitarian arena, the US stands out for the efforts it has made to improve objective measures of humanitarian need, and of the performance and impact of humanitarian assistance. There is scope for further strengthening the monitoring and evaluation of partner work, in particular through promoting the views of beneficiaries at all stages of the project cycle, and in expanding the use of Good Humanitarian Donorship indicators in internal reporting frameworks, including at field level.

Recommendations

• The Department of State and USAID should jointly develop and disseminate an overarching  strategic plan (2007 2012) to guide US humanitarian work. This would provide a framework for increasing the coherence of different US agency approaches as well as informing US efforts internationally to improve the effectiveness of humanitarian action.
• Continued reform of the emergency food aid regime should remain a priority.
• Links between the government humanitarian and development dimensions should be strengthened in accordance with humanitarian principles. Increased support for basic services in fragile states through non humanitarian aid instruments should be encouraged, as should investment in longer term safety nets to address acute poverty.
  
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