Poor Nations May Compete for U.S. Aid

WASHINGTON -- Countries that want a slice of the new $5-billion pie the Bush administration has set aside for economic development and alleviating poverty will have to compete for it, U.S. officials proposed Monday.

The officials, who released the first details of White House plans to change the way foreign aid is granted to developing countries, said the program, which requires congressional approval, would be administered by an independent government “corporation.”

“There is no model for what we are about to do,” said a senior administration official who spoke on condition of anonymity.

The new foreign aid program, known as the Millennium Challenge Account, would be a kind of merit scholarship for the best performers among developing countries, the officials said. It would not replace or reduce the current need-based aid that totals $10 billion per year and is administered largely through the U.S. Agency for International Development, or USAID, part of the State Department.

Development officials and experts welcomed the proposal, in part because it represents a 50% increase in U.S. foreign aid, which has fallen sharply in real terms since the end of the Cold War.

“This is a real big change in the United States’ foreign assistance program, mostly because of the size,” said Steven Radelet, a senior fellow at the Center for Global Development and a former Treasury Department official.

All the same, the United States will remain the least generous foreign aid supplier in the industrialized world relative to its economy: The Millennium Challenge Account will raise the amount of money the United States spends on foreign aid from 0.1% of gross domestic product to 0.15%.

“We will still rank No. 22 out of the 22 industrialized counties,” Radelet said.

As details of the administration’s proposal became known, development experts said they worried that the program could create a system of winners and losers -- that a select group of 10 to 15 nations might do exceedingly well, but the rest could be left further behind.

Moreover, more traditional development agencies like USAID could be saddled with only the most problematic countries.

“It means you don’t get the neediest people or the poorest countries,” said Carol Graham, a development expert who is director of the governance studies program at the Brookings Institution. “Who will be left with the basket cases? AID.”

The proposed Millennium Challenge Account follows many years of conservative criticism of how U.S. foreign aid is allocated and administered.

The Bush administration came into office vowing to rethink foreign aid, an effort boosted by post-Sept. 11 concerns about failed states in the underdeveloped world.

For the most part, development experts praised the Bush administration for increasing its commitment to economic development for the world’s poorest countries.

But they asserted that many aspects of the proposal -- including strict eligibility criteria and accountability mechanisms -- are less of a break with current practice than the administration suggests. Such improvements have been introduced in recent years by international institutions like the World Bank, whose primary mission is to promote development around the world.

“This is a sincere effort to complement the programs that are already out there,” a World Bank spokesman said on condition he not be further identified. “Their criteria track pretty closely to what we are already doing or developing. It doesn’t supplant existing programs.”

Perhaps the most unusual aspect of the proposed funding entity is that it would not be a part of any existing federal department or agency.

Instead, it would have a board of directors made up of Cabinet-level officials, chaired by the secretary of State, and would be run by a CEO nominated by the president and approved by the Senate, the administration officials said.

Such a structure has no apparent analogue. Government-sponsored institutions such as Fannie Mae and the Export-Import Bank are independent, with boards composed in part of private-sector officials.

But those are loan-making organizations active in the capital markets. By contrast, the Millennium Challenge Account would make grants, not loans, and be administered solely by federal officials despite its corporate structure.

“This is not a privatization” of foreign assistance, an administration official said.

Development experts said that one of the most vexing issues for the Bush administration was designing a governing structure for the new program. If it was part of the State Department or other department, its mission would probably conflict with existing agencies like USAID. The Bush administration also wanted the new program to have maximum flexibility in contracting, hiring and salaries.

As a result, it was decided to make it a corporation independent of existing departments and agencies.

“It increases flexibility,” said Graham of Brookings. “There’s also a risk that it reduces accountability.”