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Currently the U.S. government has 12 Departments, 26 Agencies and 60 Offices that Administer U.S. foreign assistance. Such a cumber- some and fragmented system inherently lacks the ability to strategically review the most effective models of foreign assistance, and as a result, archaic and ineffective programs continue to be funded and implemented. The Government Accountability Office (GAO) recently released a report entitled “More Efficient and Effective Government: Opportunities to Reduce Duplication, Overlap and Frag- mentation, Achieve Savings, and Enhance Revenue.” This report addresses 51 areas government-wide where programs may be able to achieve greater efficiencies or become more effective in providing government services by reducing overlap and redundancies.

While such a report is helpful and necessary on a broader government reform agenda, the government should also undertake a similar strategic review specifically targeting U.S. foreign assistance to better coordinate, streamline, and enhance value to current diplomacy and development programs. Similar to the GAO review, the findings of a comprehensive foreign assistance review would require OMB to coordinate with the various agencies implementing foreign assistance programs to identify areas of overlap and to develop an improved framework for prioritizing limited foreign assistance resources. Given the current deficit crisis and the downward pressure it is placing on the overall discretionary budget and on foreign assistance funding in particular, there is even greater urgency to conduct a strategic review that would streamline and refocus U.S. foreign assistance dollars to achieve greater results with limited resources.

Developing a New Model for Aid Selectivity and Accountability

In 2011, the United Kingdom’s Department for International Development (DFID) led a review of all Official Development Assistance (ODA) within the government. The Independent Commission for Aid Impact (ICAI) was established to review and publish in a transparent manner impartial and objective reports on the effectiveness of UK aid. DFID’s bilateral and multilateral reviews also provided findings on which programs and countries provided the best return on investment for development dollars. As a result of these reviews, the UK is graduating 16 countries completely off foreign assistance over the next four years and is terminating funding for 4 poor-performing multilateral agencies as well as conditioning future aid to a number of other multilateral agencies based on specific policy reforms.

The U.S. should create a similar independent body to review U.S. foreign assistance programs and to provide policymakers with a clear set of recommendations on where U.S. development resources are achieving the greatest impact. Conducting a perfor- mance analysis of all bilateral and multilateral assistance programs would also provide Congress with real-time data on program performance to help guide the difficult decisions on how to prioritize U.S. foreign assistance investments.

Bilateral Review Methodology:

An effective U.S. bilateral review must focus on four factors: Strategic interest to the U.S; current country resource allocation; country governance records; and the role of other donors. Such a review should assess a four-year period (funding for FYs 2008-2012) and recommend action for a following four years (FYs 2013-2017).

  1.  Strategic Importance:

Defining the strategic importance of a particular country should be the first priority of any review. Such analysis must be based on national security, economic and political factors, and should include a classified analysis based on information from U.S. intelligence agencies. Classified information will be central to this portion of the review, but it should also weigh factors such as economic and political importance to U.S. interests, which should be made public. An economic analysis should include current U.S. economic relations with any given country and should assess the viability for increased economic trade or exchange. Political analysis should address issues of host government capabilities but should also include analysis of government corruption and human rights abuses. Additionally, the U.S. must prioritize its foreign assistance investments to those regions that are the most strategically relevant to U.S. global interests by maintaining and strengthening the commitments made to U.S. strategic allies in these regions.

  1. Resource Allocation Model:

The second criteria in reviewing U.S. bilateral assistance should focus on a targeted country’s income indicators, or need. To accura- tely assess foreign assistance need, the U.S. must first adopt a universal definition to categorize recipient countries using the same methodology. Utilizing the World Bank’s analytical income categories (based on a country’s Gross National Income (GNI) per capita), countries can be divided among four categories: low income, $1,005 or less; lower middle income, $1,006 – $3,975; upper middle income, $3,976 – $12,275; and high income, $12,276 or more. The definition of need should also include the number or percentage of people living in poverty within a given country, and the burden imposed by disease, lack of education and other social impacts.

Additionally, U.S. foreign assistance should look for more opportunities for country partnerships and burden-sharing arrange- ments. This would require assistance to be matched by LMIC and MIC countries, resulting in greater host country responsibility and buy-in, ultimately leading to more sustainable programs. Host country contributions not only give a government a stake in the outcome of each program, but they set countries up for a future relationship with the U.S. that evolves from one of aid recipient to one of economic partnership. A good example of this is the President’s Emergency Plan for AIDS Relief (PEPFAR), where the U.S. government is developing compact relationships with recipient governments to transition the financial and management responsibility to host nations over time.

By developing a more clear and transparent process to assess relative need in recipient countries, the U.S. will be able to stretch development dollars further by focusing them in the countries with the greatest opportunity for improvement.

  1. Governance Record

In addition to assessing the need of recipient countries, it is imperative that the U.S. also consider the quality of governance in recipient countries when making decisions on how to allocate assistance resources. Economic need alone is not a proper justification for U.S. assistance efforts. Greater consideration must be given to the governing institutions in partner countries, and those countries with strong governance records should be rewarded with additional aid resources, and U.S. assistance to those countries with poorer governance performance should focus more directly on reforming government institutions. The Millennium Challenge Corporation provides an excellent model for how the U.S. government can use development grants as an incentive to promote improved governance, but this emphasis on governance must play a more central role across all U.S. development agen- cies when it comes to the programming processes that determine aid allocations.

  1. Coordination with other Donors:

The final component of any meaningful review is an analysis of the role of other donors within any particular country. The U.S. should weigh the role that other nations and multilateral agencies are playing within a certain country when deciding if and how to allocate U.S. aid dollars. Such determinations must also account for changing trends in donor engagement, as rising powers such as China and India play a greater role vis-à-vis traditional bilateral and multilateral donors. In assessing the role of other donors, the review should also highlight areas of programmatic overlap with international donors and propose strategic partner- ships with various donors to reduce redundancy, where appropriate. PEPFAR again provides an effective model to emulate, as its partnership frameworks and country operation plans require close coordination with other donors.

A second key component of donor coordination is aligning the efforts of outside donors with the recipient countries’ poverty reduction plans. The U.S., in tandem with the international community, should focus development resources in countries that support Poverty Reduction Strategy Papers (PRSP). Initiated by the IMF and the World Bank in 1999, PRSP results in a comprehensive country-based strategy for poverty reduction based on country ownership and broad based support from the public. Prepared by governments in low-income countries through a participatory process involving domestic stakeholders and external development partners, PRSPs address macroeconomic, structural, and social policies and programs that a country will pursue over several years to promote growth and reduce poverty. External financing needs and the associated sources of financing are also included in the papers, providing the U.S. and other donor nations a framework to incorporate the host country government from the outset. Utilizing the PRSPs gives both the recipient country and investor a sense of ownership and if used effectively, provides a roadmap for success.

Multilateral Review Methodology:

A comprehensive strategic review must also address country level performance of multilateral funding. The U.S. contributes billi- ons of dollars annually to a host of multilateral agencies, and such contributions, assessed and voluntary, should be examined in order to produce a comprehensive assessment of the effectiveness of all U.S. foreign assistance. The multilateral portion should include a peer review, external review, and consultation with civil society on the effectiveness of such assistance. Based on the findings, the U.S. should establish a contractual relationship with multilaterals, based squarely on the results achieved and return on investment of such assistance.

Additionally, the U.S. must review the governance and transparency policies of multilateral agencies, including the conduct and release of independent audits, when considering its multilateral investments. For those institutions that have poor performance records on oversight and reporting mechanisms, the U.S. should condition assistance based on benchmarks and reforms to achieve greater accountability. Such a steadfast commitment to increasing transparency will result in the most effective use of U.S. taxpayer dollars, and will also incentivize multilateral organizations and institutions to address weaknesses in their current policies. The U.S. is the largest contributor to most international organizations and development banks, and therefore, should require the same accountability as a large shareholder would at any private company.