Restructuring U.S. Foreign Aid: The Role of the Director of Foreign Assistance in Transformational Development

^Pr^ep^ar^{ed f}^o^r^M^e^m^b^ers^an^d^Com^mⁱ^t^t^ees^of^C^ong^r^e^ss

The creation of a new State Department position—Director of Foreign Assistance—has sparked
congressional interest regarding the management, budgeting, and proposals for reform of U.S.
foreign aid programs. Charged with coordinating U.S. assistance programs, the Director of
Foreign Assistance (DFA) will have authority over most State Department and U.S. Agency for
International Development (USAID) programs, although major foreign aid programs, such as the
Millennium Challenge Account and the Office of the Global AIDS Coordinator will remain
outside of his scope. The DFA is also tasked with providing “guidance” to other agencies that
manage foreign aid activities. Some assistance programs are scattered throughout numerous
domestic policy agencies and the Department of Defense.
The restructuring is part of Secretary Rice’s “transformational development” initiative, that seeks
to use foreign assistance to transform recipient countries’ economic development paths, and to
graduate countries from a dependence on aid. Details of the restructuring have been unveiled with
the release of a new Strategic Framework for Foreign Assistance. The Framework links strategic
objectives with categories of countries that have shared characteristics or development
challenges. Operational plans would design country-specific aid programs to meet those
challenges. The FY2008 budget request has been developed by joint State Department and
USAID teams to provide better coordination and coherence.
While the current restructuring requires no legislative action, it raises a number of questions with
regard to the management of foreign aid programs, funding levels, and reform options that will ^th
confront the 110 Congress. Supporters argue that it is a long overdue reform of fragmented and
uncoordinated assistance programs that will focus aid on strategic objectives and make programs
more accountable. Some critics contend that its piecemeal approach will not result in
comprehensive reform. Others fear that it will politicize aid programs, and put the focus on short-
term objectives rather than long-term development. Administration officials have said that the
current effort is the first step in a more thorough overhaul of U.S. foreign assistance.
Larry Nowels, who retired from CRS in 2006, was an original co-author of this report.
This report will be updated.

Transformational Development.......................................................................................................1
The Role of Director of Foreign Assistance....................................................................................2
State and USAID Programs.......................................................................................................3
Domestic Policy Departments with Aid Programs....................................................................4
DOD Programs..........................................................................................................................4
Iraq and Afghanistan Assistance.........................................................................................5
Military Assistance and Training........................................................................................5
Humanitarian Assistance.....................................................................................................5
Counter-Drug and Anti-Terrorism Assistance.....................................................................6
Restructuring Foreign Aid Management and Programs..................................................................6
Organizational Reform..............................................................................................................6
Programmatic Reform...............................................................................................................6
The FY2008 Budget............................................................................................................7
The FY2007 ‘Fast-Track’ Process......................................................................................8
Earlier Attempts at Foreign Aid Reform..........................................................................................8
Hamilton-Gilman Foreign Aid Reform Task Force...................................................................8
Clinton Administration Initiative..............................................................................................8
Consolidation of USAID into the State Department.................................................................9
Issues for Congress..........................................................................................................................9
Coordination of Programs.........................................................................................................9
Politicization of Aid Programs and the Role of USAID.........................................................10
Reforms Deferred and Subsequent Initiatives.........................................................................10
Congressional Priorities...........................................................................................................11
Table 1. Foreign Aid Accounts........................................................................................................3
Author Contact Information...........................................................................................................11

he creation of a new State Department position—Director of Foreign Assistance—has
sparked congressional interest regarding the management of U.S. foreign aid programs, its
possible impact on funding levels, and any possible future reform of foreign aid operations T

and account structure. The Director of Foreign Assistance (DFA), who serves concurrently as
Administrator of the U.S. Agency for International Development (USAID) is Randall Tobias, the
former Global AIDS Coordinator.
Charged with coordinating U.S. assistance programs, the DFA has authority over most State
Department and USAID programs, and will provide “guidance” to other agencies that have
foreign aid programs. Details of the restructuring have been unveiled in the form of a new ¹
Strategic Framework for Foreign Assistance. The restructuring raises a number of questions with
regard to how Tobias will be able to coordinate aid programs spread throughout almost every
government department. Executive officials have said that the current restructuring is a first step
in a more thorough overhaul of U.S. foreign assistance.

Announced on January 19, 2006, the restructuring is part of Secretary Rice’s “transformational
development” initiative that seeks to use foreign assistance to transform recipient countries’
economic development paths, with the goal of graduating countries from U.S. assistance. A 2004
USAID White Paper defined transformational development as going beyond a traditional focus
on raising living standards and reducing poverty. It would “transform countries, through far-
reaching, fundamental changes in institutions of governance, human capacity, and economic
structure that enable a country to sustain further economic and social progress without depending ²
on foreign aid.” In addition to promoting transformational development, the same paper
identified four further challenges to which U.S. assistance programs are designed to respond:
strengthening fragile states; providing humanitarian relief; supporting U.S. geostrategic interests;
and mitigating global and transnational ills. The concept of transformational development already
has been applied by the Millennium Challenge Corporation (MCC) which manages another Bush
Administration foreign aid initiative that rewards “best performing” countries through a
competitive process measuring achievements in the areas of governance, economic policies, and
social programs.
Also announced at about the same time was a related “transformational diplomacy” initiative that
will reposition diplomats to “critical emerging areas,” enhance language and regional skills, and
emphasize outreach to foreign populations. In this new environment of seeking transformational
change in recipient countries through both development and diplomacy, Secretary Rice has
argued for better coordination and policy coherence of U.S. assistance programs, with an
emphasis on both short-term, and long-term strategic goals at the country and global level.
Secretary Rice contends that the DFA position will accomplish those goals.
Both initiatives signal a more prominent role for foreign aid after the terrorist attacks of
September 11, 2001 and the beginning of the global war on terrorism. Since 2002, development
has been included as one of three pillars—with defense and diplomacy—upon which U.S.

¹^T^h^e^Fra^m^e^w^ork^{is a}^v^a^ila^ble^a^t^http://w^ww^.sta^t^e^.g^ov^/^f^/.
²^{U.S. A}^g^eⁿ^c^y^f^o^{r Inte}^rna^tio^na^{l De}^v^e^lopm^eⁿ^{t, “}^U^{.S. Fore}^igⁿ^Aⁱ^d:^M^e^e^ting^the^Cha^lle^ng^e^s^of^the^T^w^eⁿ^ty^-^f^{irst Ce}^ntury^,^”
^J^a^nua^r^y^2004.

national security rests.³ Countries with high poverty levels and undemocratic governments are
considered permissive environments for terrorism and criminal activities. Under such a doctrine,
foreign aid has come to be seen as a tool to promote national security in addition to the traditional
view of aid as a long-term humanitarian endeavor that will generate good will for the United
States and promote eventual trading partners.

The DFA has been charged with two missions: to develop a coordinated U.S. foreign assistance
strategy; and to direct a transformation of foreign assistance to achieve the President’s ⁴
Transformational Development Goals. As both the USAID Administrator and the DFA, Tobias
serves at the level equivalent to Deputy Secretary, reporting directly to the Secretary of State.
USAID is, and remains, an independent agency under the restructuring. While it is considered
independent, the Administrator reports to, and serves under, the foreign policy guidance of the
Secretary of State.
In testimony before the House Foreign Operations Appropriations Subcommittee on April 26,

2006, Administrator Tobias identified a number of challenges that he has begun to address.

Among those challenges are: a planning and budgeting process that is fragmented among
numerous departments and agencies; duplication of programs; poor accountability; and the lack
of linkage between strategic objectives and implementation.
The DFA has authority over foreign assistance programs managed by USAID and the State
Department. In addition, the DFA will “provide guidance” for foreign assistance delivered
through other government agencies. Some, like the Millennium Challenge Corporation (MCC),
the Peace Corps, and Treasury Department-managed international financial institutions and debt
policy activities, are funded through foreign policy budget accounts. Others are managed and
funded through Defense Department and domestic agency appropriations.
With the increasing number of domestic policy agencies involved in foreign aid programs, as well
as the Department of Defense’s growing role in reconstruction and stabilization work, the actual
percentage may be lower. When looking at calendar year 2005 disbursements of just the State
Department and USAID, their percentage of the total U.S. foreign aid budget is about 53%, or
$13 billion. In the same year, the Defense Department disbursed roughly 24%, mainly for
reconstruction work in Iraq and Afghanistan that was funded in the FY2004 Supplemental. Other
departments and agencies disbursed about $5.6 billion, or 22% of total official development ⁵
assistance.
As the size of foreign aid budgets and the number of operational agencies have increased,
especially in recent years, a number of observers have highlighted the fragmentation of programs
and the possible lack of coordination among them. Some critics also argue that the Bush

³^E^x^ecu^tⁱ^v^{e O}^f^fⁱ^{ce o}^f^t^h^{e P}^r^esi^d^ent^,^U.^S^.^Natⁱ^oⁿ^a^l^S^ecu^ri^t^y^S^t^rat^e^g^y^,²⁰⁰²^and²⁰⁰⁶^.
⁴^U^.^{S. D}^e^pa^r^t^m^e^{nt of}^Sta^t^e^Fa^c^t^Sh^e^e^{t: N}^e^w^Dⁱ^r^e^c^{tion f}^o^r^U^.^S.^For^eⁱ^g^{n A}^s^sⁱ^s^t^aⁿ^ce^{, J}^a^nua^r^y^{19, 20}⁰⁶^.
⁵^C^a^lc^ula^tions^by^C^R^S^f^r^o^m^inf^o^r^m^a^{tion r}^e^p^o^r^t^e^d^by^th^{e Un}ⁱ^t^e^d^S^t^at^{es t}^o^t^h^{e Devel}^o^p^m^en^t^A^ssi^st^an^c^e^Co^mmⁱ^t^t^ee
^(DA^C^{) o}^f^the^Org^a^niz^a^{tion f}^o^{r Ec}^onom^ic^Coo^p^e^r^a^tion^aⁿ^d^De^v^e^lop^m^eⁿ^{t (OECD) f}^o^{r c}^a^l^e^nda^{r y}^e^a^r²⁰⁰⁵^{. DOD f}ⁱ^g^u^re^s
^inc^l^u^d^e^s^u^p^p^le^m^e^nta^l^f^unds^tha^t^w^e^r^e^a^ppr^opr^ia^te^{d f}^o^r^FY²⁰⁰⁴^,^b^u^{t n}^o^t^dis^b^ur^s^e^d^unti^l²⁰⁰⁵^{, a}ⁿ^{d r}^e^pr^e^s^eⁿ^{t a}^la^r^g^e
^inc^r^e^a^s^e^f^r^o^m^the^pre^v^{ious y}^e^a^{r’s le}^v^e^{l of}^$1.6^billi^on^.

Administration, while launching a number of innovative and important initiatives, has not
articulated a coherent foreign aid policy strategy or an integrated set of core objectives within
which to operate efficient and well-coordinated assistance programs.
USAID manages most U.S. economic assistance programs, in some cases directly and in other
cases jointly with the State Department. In FY2006, USAID manages $4.347 billion for programs
addressing economic growth, health programs, and disaster and famine assistance. In addition,
some funds managed by the State Department are transferred to USAID. Examples include
narcotics and law enforcement funds that USAID uses for alternative crop development
programs. Economic Support Funds (ESF) are co-managed by the State Department and USAID
and provide assistance to strategic partners for a wide variety of purposes. In FY2006, ESF is
estimated at $2.621 billion.
Programs that State manages directly include the Global HIV/AIDS Initiative, Foreign Military
Financing, International Narcotics and Law Enforcement, Migration and Refugee Assistance,
Nonproliferation, Anti-Terrorism, and Demining (NADR), and International Military Education
and Training (IMET). In FY2006, funding for these State-managed programs amounted to $10.6
billion. In total, the two agencies manage foreign aid programs of roughly $19.6 billion. In
addition, there are other foreign policy-related agencies providing foreign assistance, whose funds
are not managed by the State Department, including the Millennium Challenge Corporation; the
Peace Corps; the Department of Treasury, and the Trade and Development Agency.
At his USAID confirmation hearing on March 7, 2006, before the Senate Foreign Relations
Committee, Ambassador Tobias said that the DFA would have responsibility for all foreign aid
funding accounts over which Secretary Rice maintains authority, and that the Secretary would ⁶
delegate her authority to the DFA. Nevertheless, it appears from statements made by other
Administration officials that the State Department’s Office of the Global AIDS Coordinator will
not be under the DFA’s control. It is also unclear as to the relationship between the DFA and ⁷
State’s Office of the Coordinator for Reconstruction and Stabilization.
Table 1 lists the programs over which the DFA will have responsibility as well as those that may,
at least initially, remain outside of his portfolio. Programs under his direction total about $15
billion in FY2006 and a requested $15.6 billion in FY2007. An additional $4 billion in FY2006
and $6.5 billion in FY2007 for State Department programs would remain outside of his control.
Table 1. Foreign Aid Accounts
^{Under DFA Direction}^{Outside of DFA Sc}^ope
^{All USAID accounts}^{Millennium Challenge Corporation}
^{Economic Sup}^{port Fund}^{PEPFAR (State)}

⁶^S^{ee exch}^an^{ge b}^e^t^w^een^S^eⁿ^a^t^o^{r S}^a^rb^an^{es an}^d^A^m^b^a^s^s^ad^o^r^T^o^bⁱ^as^at^t^h^{e S}^eⁿ^a^t^e^F^o^rei^gⁿ^Rel^a^tⁱ^oⁿ^s^C^o^mmⁱ^t^t^{ee h}^eariⁿ^g
^on^Ma^r^c^{h 7,}²⁰⁰⁶^.
⁷^“^S^ta^te^D^e^pa^r^t^m^e^{nt Of}^fⁱ^cⁱ^a^l^s^H^o^{ld a}^B^a^c^k^g^r^{ound B}^r^ie^fⁱ^ng^{on U}^.^S.^For^e^ig^{n A}^s^sⁱ^s^t^aⁿ^c^e^-^N^e^w^s^B^r^iefⁱ^ng^,”^Polit^ic^a^l
^T^r^aⁿ^s^c^rⁱ^pts^by^C^Q^T^r^aⁿ^s^c^rⁱ^ptions^{, J}^a^nua^r^y^{19, 2}⁰⁰⁶^{. I}ⁿ^br^ie^fⁱ^ng^s^to^C^ong^r^e^s^sⁱ^ona^{l s}^t^a^f^f^,^de^pa^r^t^m^e^nt^of^fⁱ^cⁱ^a^l^s^indic^a^t^e^d
^tha^t^the^e^x^a^c^t^a^c^c^ounts^ov^e^r^w^h^{ich the}^D^F^A^w^ould^ha^v^e^a^u^thorⁱ^t^y^ha^{d n}^o^t^be^eⁿ^f^u^lly^de^te^r^m^ine^d^.

^{Under DFA Direction}^{Outside of DFA Sc}^ope
^SEED^{Peace Corps}
^FSA^{Inter-America}^{n Foundation}
^{Narcotics (INL) & AC}^I^{African Development Fou}^ndation
^{Migration & Refugee Assista}^nce^{Treasury De}^{pt. Technical Assista}^nce
^{Nonproliferation (NADR)}^{Treasury De}^{pt. Debt Relief}
^IMET
^{Foreign Military Financing}
^{Peacekeeping O}^perations
^Notes:^{SEED—Assistance for Ea}^stern^Euro^{pe and Baltic States; FSA—Assistance for t}^{he I}^ndepe^{ndent States of}
^{the Former Soviet Union; IM}^ET—Inter^{national Military Education and Training; PEPFAR—President’s Emerge}^ncy
^{Plan for AIDS Relief.}
The degree to which the DFA will be able to guide and coordinate the programs of entities falling
outside the State Department and USAID has not been fully articulated and is likely to be one of
the most difficult challenges faced by the new Director. Ambassador Tobias said at his
confirmation hearing that he hoped to put in place a “formal process” for achieving the DFA’s ⁸
mandate of coordinating across the government. Similar approaches have been tried in the past,
but with limited impact. An entity legislated in 1973 by Section 640B of the Foreign Assistance
Act of 1961 (FAA)—the Development Coordinating Council (DCC)—was intended to coordinate
government-wide foreign assistance activities. The DCC, however, rarely met and according to ⁹
USAID, exists today “only as an unimplemented provision in the FAA.”
Some type of foreign assistance program exists in nearly every department and agency. Major
programs exist in the Department of Agriculture (P.L. 480 food aid), the Department of Health
and Human Services, the Department of Energy and the Department of Labor. Smaller programs
are located in the departments of Commerce, Homeland Security, Justice, Interior and
Transportation. In calendar year 2005, disbursements from these agencies amounted to roughly ¹⁰
$5.6 billion. This represents about 22% of total foreign aid disbursements made in calendar year

2005.

The Department of Defense is playing an increasing role in post-conflict situations, and has for
many years maintained its own programs supporting U.S. humanitarian responses and narcotics
interdiction. Many of the programs now conducted by DOD are similar to those provided by the
State Department through FMF, IMET, and even ESF funds. Even though the DFA is to provide

⁸^S^{ee exch}^an^{ge b}^e^t^w^een^S^eⁿ^a^t^o^{r L}^u^{gar an}^d^Am^b^a^ssad^o^r^T^o^bⁱ^{as at}^t^h^{e S}^eⁿ^a^t^e^F^o^rei^gⁿ^Rel^a^tⁱ^oⁿ^s^Co^m^mⁱ^t^t^{ee h}^eariⁿ^{g o}ⁿ
^Ma^r^c^{h 7,}²⁰⁰⁶^.
⁹^Se^e^“^U^SA^I^D^Hⁱ^s^t^or^y^,^”^f^{ound a}^t^http:^//w^w^w^.us^a^id.g^ov^/a^bout^_us^aⁱ^d/^us^aⁱ^dhis^t^.^h^tm^l.
¹⁰^C^a^lc^ula^t^e^d^by^C^R^S^{, f}^r^om^inf^o^r^m^a^{tion r}^e^por^te^d^by^th^{e Un}ⁱ^t^e^{d S}^t^at^e^s^t^o^t^h^{e Devel}^o^p^m^en^t^Assi^st^an^ce^Co^mmⁱ^t^t^ee
⁽^D^A^C⁾^o^f^the^O^r^g^a^niz^a^{tion f}^o^r^Ec^onom^ic^C^o^o^p^e^r^a^tion^aⁿ^d^D^e^v^e^lop^m^eⁿ^{t (}^O^EC^D⁾^f^o^r^c^a^l^e^nda^r^y^e^a^r²⁰⁰⁵^.

guidance for all foreign assistance programs, it is unclear how much influence he will have over
DOD programs in such strategic places as Iraq and Afghanistan.
Congress has given authority to DOD to carry out reconstruction and stabilization programs in
Afghanistan and Iraq subsequent to military actions there. Many of these funds have been
provided through emergency supplementals, but some funds were included in regular
appropriation bills. First established in the FY2003 Emergency Wartime Supplemental
Appropriation (P.L. 108-11), the Iraq Freedom Fund authorizes DOD to provide counter-terrorism
training for foreign governments, subject to the concurrence of the Secretary of State. In the
FY2006 Defense Appropriation Act (P.L. 109-148), Congress provided $4.66 billion.
The Commanders’ Emergency Response Program (CERP) enables U.S. military commanders in
Iraq and Afghanistan to respond to urgent humanitarian relief and reconstruction requirements
that will immediately assist the Iraqi people. For FY2006, Congress provided up to $500 million.
In addition, the FY2005 Emergency Supplemental Appropriation Act (P.L. 109-13) provided
DOD funds to train and equip security forces in Iraq ($5.7 billion) and Afghanistan ($1.3 billion).
Other funds exist to repair oil facilities and related infrastructure in and around Iraq, to transfer
defense articles to Iraq and Afghanistan, and to provide health care to Iraqi children injured as a
result of Operation Iraqi Freedom.
Beyond Iraq and Afghanistan, Congress has authorized additional programs to train and equip
other foreign militaries. The FY2006 National Defense Authorization Act (P.L. 109-163)
authorizes up to $200 million annually to build the capacity of foreign militaries to conduct
counterterrorist operations, or to participate in or support military operations in which the United
States is a participant. The same Act allows DOD, with the concurrence of the Secretary of State,
to reimburse any key cooperating nation for logistical and military support provided in
connection with U.S. military operations in Iraq, Afghanistan, or the global war on terrorism. The
FY2006 Defense Appropriation Act (P.L. 109-148) provided $805 million for such
reimbursements. The FY2006 authorization act also authorizes up to $100 million annually for
services, defense articles, and funds to the Secretary of State to facilitate reconstruction, security,
or stabilization assistance to a foreign country.
Congress has also given DOD authority to provide humanitarian assistance in response to either
military operations or natural disasters through a number of provisions in defense appropriation
measures or authorization acts. For FY2006, Congress provided $61.5 million for humanitarian
and civic assistance activities in host nations in conjunction with military operations. DOD is also
authorized to provide transportation of humanitarian relief supplies, disaster assistance, and
excess nonlethal supplies.

The Defense Department has taken on increasing responsibility for drug interdiction and anti-
terrorism activities worldwide. For FY2006, DOD funding for such activities totaled $917.7
million. DOD counter-drug activities are authorized in Peru, Colombia, Afghanistan, Bolivia,
Ecuador, Pakistan, Tajikistan, Turkmenistan, and Uzbekistan.

Administrator Tobias has taken two steps to accomplish his mission of providing better
coordination of programs and to develop an overall strategy for U.S. foreign assistance. The first
involves organizational measures to address a fragmented planning and budgeting process. The
second involves potential changes in programs and implementation to achieve transformational
development. While the second could very well involve a number of other departments and
agencies that provide foreign assistance, recent Tobias statements indicate that his initial focus
will be on coordinating USAID and State Department programs.
Prior to the creation of the DFA Office, separate offices within State and USAID maintained
independent budgeting and planning activities, resulting in possible duplication and lack of
coordination. The DFA Office has drawn strategic, budget, and program planning staff from both
State and USAID. The size of the office will range from 80 to 100 staff, with approximately 25
from the State Department’s Bureau of Resource and Management and the office of Special
Initiatives. The remaining staff will come from USAID. The centralized planning and budgeting
operation is designed to provide coherence and coordination, and to reduce duplication among
programs. It is also proposed as a better way to ensure easier tracking of foreign assistance, a
problem that Congress has urged USAID to solve.
The new office is overseeing the development by USAID missions of FY2007 operational plans
for each country. This initial focus will be on USAID programs, but the plan envisions that 67
countries will have FY2007 operational plans that include all U.S. foreign assistance resources.
Operational plans are to indicate the funding levels for various activities, as well as performance
measures. Plans are to be reviewed in Washington for consistency with U.S. foreign policy goals
before funds are allocated. The timetable is to have operational plans for every country with a
USAID mission by January 2007.
The second of Tobias’ proposed reforms includes the recently unveiled Strategic Framework that
establishes objectives for U.S. foreign assistance and goals and performance indicators for
recipient countries. The Framework links transformational development goals with funding
sources and activities. Tobias describes the Framework as a roadmap to establish goals and
performance measurements, and to guide country teams in defining activities that will achieve
those goals. The Framework is being used as the basis for integrated budget planning for State
and USAID beginning with the FY2008 budget request.

The current proposal creates five categories of countries.¹¹ The first—Rebuilding Countries—
would include post-conflict states such as Afghanistan, Haiti, Sudan, Iraq and Somalia.
Transforming Counties would include low and lower-middle income countries that meet MCC
performance criteria. The category of Sustaining Partnership Countries would include higher
income countries with which the United States maintains economic, trade, and security
relationships beyond foreign aid. Restrictive Countries would include authoritarian governments,
most of which are ineligible for U.S. aid. Programs in these countries operate through non-
governmental organizations or through entities outside the country. The fifth category—
Developing Countries—would include low and lower-middle income countries that are not yet
meeting MCC performance criteria. A sixth category encompasses global or regional programs
that transcend any one country’s borders, or are addressed outside of a country strategy.
Each category represents common challenges around which aid programs would be designed and
coordinated. While the list of countries in each category has not been released, it is conceivable
that some recipient countries might object to their categorization, particularly if they face more
than one challenge to development. For example, some could argue that Colombia is a post-
conflict state, while others would make the case that it is either transforming or a strategic partner.
The framework includes five aid objectives around which programs are to be designed: peace and
security; governing justly and democratically; investing in people; economic growth; and
humanitarian assistance. Country teams would make recommendations on country-specific aid
programs.
Critics of the Framework have expressed concern that categorizing countries will result in
unidimensional programs when development problems are often multidimensional. Others fear
that the Framework is focused on strategic objectives to the neglect of poverty alleviation, which
they contend is the underlying cause for instability. Still others believe that the restructuring
advantages a short-term strategic approach over a long-term development perspective. The
Administration counters that the Framework is flexible enough to deal with any number of
development issues a country may have. Further, poverty reduction was recently incorporated as
one of the end goals of aid, in response to criticism about its initial omission. They also contend
that reaching short-term strategic goals will assist in long-term development.
The DFA is overseeing the process of developing the FY2008 foreign aid budget for both the
State Department and USAID. The process includes the coordination of both State and USAID
functional bureaus into integrated teams that define program priorities for the strategic objectives
and country categories, determining the array of programs for each category. Country-focused
teams make country-specific recommendations that undergo senior review and presentation to the
Secretary of State in an integrated budget format.
The FY2008 budget will be presented to Congress in February 2007. The format of the final
budget is unclear at this point, although DFA officials have said it will be one integrated
document encompassing both State and USAID programs. No change to the account structure is
occurring, but it is likely that the budget and accompanying budget justifications will be
structured around the strategic objectives as represented in the new Framework. Until the budget

¹¹^T^h^is^inf^o^r^m^a^{tion is}^dr^a^w^{n f}^r^om^Ste^w^a^r^{t P}^a^tric^k^,^“^F^oreⁱ^gⁿ^Aⁱ^{d Re}^form^{: T}^h^e^L^a^te^{st Sk}^inny^f^r^o^m^the^Inside^,”^Ce^nte^r
^f^o^r^G^l^oba^{l D}^e^v^e^lop^m^eⁿ^{t, Ma}^y^{8, 200}^6.

is submitted, it is not possible to evaluate the effect of the Framework on program or country
funding levels.
At the same time that the FY2008 budget is being planned, the DFA has undertaken a FY2007
“fast-track” process for 67 countries. This process is meant to accelerate the implementation and
development of country operational plans, that will also be eventually developed for all recipient
countries. Country teams will review the FY2007 allocations for the 67 countries and will re-
allocate some funding to reflect the new strategic framework. This review was scheduled to begin
in late summer/early fall and to be completed by the end of the year. A request to reprogram these
funds is expected to be sent to Congress after the FY2008 budget submission.

While reforming U.S. foreign assistance strategy and programs has been a matter raised a number
of times by past Administrations, members of Congress, public policy think-tanks, and American
non-governmental organizations (NGOs), implementation of such initiatives has proved difficult.
During the past two decades, Congress and the executive branch have considered three broad
foreign aid reform proposals, each of which stalled.
With an increasing recognition of changing global conditions near the end of the Cold War and 14
years after the previous overhaul of U.S. foreign aid policy, two senior members of the House
Foreign Affairs Committee—Representatives Lee Hamilton and Ben Gilman—were asked to
shepherd a bi-partisan effort to re-write basic foreign aid laws. The initiative was intended to draft
legislation that reflected new realities of U.S. foreign policy, narrow and more clearly define key
American foreign aid objectives, streamline congressional restrictions placed on executive
implementation of the program, and restore congressional confidence in the purpose and
achievements of foreign assistance. Although the House Foreign Affairs Committee endorsed
legislation reflecting most of the Task Forces’ recommendations, key Members, including
Representative Gilman, dissented from some of the major proposals. Without executive and
Senate support, the initiative died.
At the outset of the Clinton Administration in 1993, Deputy Secretary of State Clifford Wharton
was named to lead a review of U.S. foreign aid policy that would design a post-Cold War policy
framework and reform USAID. While the Wharton review never published a final report, in late
1993 the Administration submitted to Congress the Peace, Prosperity, and Democracy Act
(PPDA), a bill that included many ideas that arose during the Wharton review. Congress raised
concerns over proposals to increase Presidential flexibility in managing foreign aid programs and
to consolidate funds into a more narrow set of appropriation accounts focused on strategic
objectives as articulated by the executive branch. While the House passed a modified version of
the PPDA, the bill stalled in the Senate and was not re-submitted by the Administration in the ^th

104 Congress.

Arguing that the Secretary of State should have more direct control over all tools of U.S. foreign
policy, a number of analysts and members of Congress proposed in the mid-1990s to abolish the
U.S. Information Agency (USIA), the Arms Control and Disarmament Agency (ACDA) and
USAID, and consolidate their operations within the State Department. After three years of debate,
Congress enacted legislation in 1998 (Division G of P.L. 105-277), transferring USIA and ACDA
into State, but retaining USAID as an independent agency. The legislation, however, further
required that the USAID Administrator report to and serve under the foreign policy guidance of
the Secretary of State. This remains the current relationship between USAID and the Department
of State.

As with any restructuring initiative, the creation of the DFA raises a number of questions with
regard to implementation. The restructuring initiative has been applauded by many as marking the
beginning of what they perceive as a long overdue effort to reform a cumbersome and fragmented
U.S. foreign assistance program. Some supporters of the plan, however, believe it does not go far
enough and that the Administration is missing an opportunity for launching a much bolder, and
necessary reform effort. Some critics have expressed strong concern that the new initiative may
lead to a greater degree of aid politicization and that USAID will be further marginalized as a key
maker of U.S. development policy.
As currently envisioned, Congress will not have a direct role in the restructuring, although key
congressional committees are likely to maintain close oversight as the plan moves forward. The ^th
first formal opportunity for the 110 Congress to review the restructuring plan will be in February
2007 when the FY2008 budget is submitted to Congress. It is likely that a request to reprogram
FY2007 funds to reflect the new strategic framework will be presented to Congress for approval
soon after the FY2008 budget is unveiled.
Secretary Rice has argued that more coordination and coherence is needed in foreign assistance
programs in order to meet transformational development goals. With some 18 foreign aid
accounts in both the State Department and USAID appropriations, and numerous other programs
scattered throughout other government agencies, Secretary Rice has not been the first to observe
that the U.S. foreign aid apparatus is cumbersome and lends itself to inefficiency and redundancy.
A number of programs have similar or identical purposes, but management is split between
USAID and State.
It is unclear at this point how much authority the DFA will have to coordinate activities, and what
effect better coordination will have on funding levels. For example, counter-narcotics and
democracy programs are shared between USAID and State. Questions have been raised as to
whether better coordination will produce efficiencies, reduce redundancy, and result in more
effective programs. It is also unclear how much authority the DFA will have over State
Department offices that are not formally a part of his portfolio. For example, the President’s
Emergency Plan for AIDS Relief (PEPFAR), administered by the Global AIDS Coordinator, is

not formally a part of the DFA’s budgeting authority. The Coordinator also reports directly to the
Secretary of State.
While the Director of Foreign Assistance has been granted authority over State Department and
USAID aid programs, a number of other foreign aid agencies remain outside the scope of the
Director’s responsibility. As mentioned earlier, the largest is the Millennium Challenge
Corporation, but several others, like the Peace Corps, the Overseas Private Investment
Corporation, and the Trade and Development Agency maintain smaller but important aid
activities. In addition, the Treasury Department is responsible for U.S. participation in the World
Bank and a number of other international financial institutions. It is unclear how the DFA will
provide “guidance” to these types of programs in light of his mission to develop a coordinated
U.S. foreign assistance strategy government-wide. There is also concern that if a truly
coordinated foreign assistance strategy is achieved, countries that are not considered prime
candidates for transformational development, but who nonetheless are in need, will see their
assistance reduced in favor of those countries that are moving in the right direction.
Some critics of the restructuring fear that long-term development and poverty reduction goals, the
traditional concern of USAID, will be overwhelmed by the demands of shorter-term strategic
considerations, often of high priority for the State Department. The need to balance these often
competing objectives will be challenging. Some observers have argued that USAID has lost
considerable influence in past years due to the separation of policy and implementation in which
the State Department, as the stronger agency, has gained significant authority over policy.
Examples include creating coordinators at State to oversee aid programs in Eastern Europe and
the former Soviet Union, shifting primary responsibility over international HIV/AIDS programs
from USAID to the Global AIDS Coordinator at the Department, and dividing democracy
promotion activities between the two agencies. Others fear that the role of USAID missions is
being diminished in favor of a Washington-based planning process.
The future of USAID is unclear at this juncture. Those who believe in USAID’s traditional
mission of promoting long-term development fear that the agency will be relegated to a position
of solely implementing programs rather than shaping development policy. Secretary Rice and
other senior Administration officials, however, contend that the reconfiguration will strengthen
USAID’s role and status. Since the DFA will also serve as USAID Administrator, they argue,
USAID will more likely participate in the policy and budget decision-making process to a greater
extent than at present. At his confirmation hearing, Ambassador Tobias noted that a difficulty
faced by his predecessor at USAID, Andrew Natsios, was the time consumed negotiating with
State Department officials over whom the Administrator had no authority. This would no longer ¹²
be the case, he argued, since the DFA would have such authority.
During the State Department’s 2005 review of foreign aid reforms, a number of other policy
options were considered, but either dropped or deferred until later. It appears that the Department

¹²^S^{ee exch}^an^{ge b}^e^t^w^een^S^eⁿ^a^t^o^{r S}^a^rb^an^{es an}^d^A^m^b^a^s^s^ad^o^r^T^o^bⁱ^as^at^t^h^{e S}^eⁿ^a^t^e^F^o^rei^gⁿ^Rel^a^tⁱ^oⁿ^s^C^o^mmⁱ^t^t^{ee h}^eariⁿ^g
^on^Ma^r^c^{h 7,}²⁰⁰⁶^.

seriously considered creating a more formalized position of either a Deputy Secretary of State or
Undersecretary for foreign aid. Also planned but eventually dropped was a proposal to restructure
the current appropriation accounts. This option would have required extensive review and
ultimate approval by Congress. Administration officials have said that the current restructuring
effort is only the first step in a more expansive reform of foreign aid, suggesting that issues ^th
considered but dropped may be part of subsequent initiative, perhaps in the 110 Congress. But a
number of observers note that a piecemeal approach to comprehensively reorienting U.S. foreign
aid is particularly difficult, especially in the final two years of an Administration. They argue that
the State Department should have aimed for a much broader plan, consulted with Congress
throughout the review process, and presented a complete legislative package for congressional
approval this year.
Even previous to the current aid restructuring, some observers have asserted that congressional
earmarks hamper the Administration’s flexibility to respond to changing world events and to
prioritize aid objectives. Congress regularly exercises its prerogative to direct funds to certain
countries and for certain objectives in the annual foreign operations appropriation bills that in
many cases differ from the Administration’s budget request.
Because the initial framework is being implemented within existing appropriation accounts, and
without legislation that would restructure foreign aid in general, it is possible that congressional
priorities may not completely correspond to the strategic framework as developed by the DFA.
For example, the FY2007 Foreign Operations bill reported by the Senate Appropriations
Committee (S.Rept. 109-277) contains numerous directives with regard to the level of funding for
programs and activities, as well as recipient countries. The Senate bill restructures some accounts,
consolidating several programs into a $1 billion Democracy Fund, and putting all health related
programs into the Child Survival and Health account. The House-passed bill (H.R. 5522/H.Rept.
109-486) creates a Trade Capacity Enhancement Fund that totals $522 million. How
congressional priorities will be reflected in the framework and in the FY2008 appropriations bills
is a challenge Congress and executive officials will have to confront.
^Coⁿⁿ^{ie Veillet}^t^e

^,