The United States has a substantial impact on promoting economic growth and reducing poverty in developing countries due to the large size of its economy, its ability to influence world opinion and action and its weight within the international donor community. In 2001 the United States was the largest donor in the OECD's Development Assistance Committee (DAC) in volume terms, reporting net official development assistance (ODA) of USD 10.9 billion, more than one-fifth of the DAC total. This represented 0.11% of its gross national income (GNI), the lowest ODA/GNI ratio in the DAC and below the DAC average country effort of 0.40%. President Bush recently announced a bold new proposal the 'Millennium Challenge Account' (MCA) for an additional USD 5 billion annually by 2006. If approved by Congress, the MCA will consolidate the American position as the largest donor, and slightly improve the country's ODA/GNI performance.
The American 'checks and balances' system of government has some important ramifications for United States development co-operation. This approach implicates a wide range of stakeholders in making budget decisions, especially through the Congress. Flexible approaches to compromise are standard features of the American system, especially for issues of a short-term nature that respond to national or special interests. Addressing long-term issues related to development co-operation can prove more difficult because they lack urgency or a sufficiently strong and influential domestic constituency. Several of the issues raised in the 1998 DAC Peer Review are being addressed by the current Administration. However, some important development issues, including those relating to Congress, to the basic structure of American aid administration, or to the promotion of policy coherence for development, have proven more resistant to change and are noted again in this review.
1.1. Seeking a common development vision
The growing number of official United States Government (USG) entities that deliver foreign aid (perhaps as many as fifty separate government units) operate with considerable autonomy. While they carry out their functions under the general guidance of the Secretary of State, they have sometimes surprisingly weak linkages to each other and relatively modest systematic opportunity to co-ordinate their respective parts of United States Government aid. The largest among these entities is the United States Agency for International Development (USAID), which now delivers some one-half of American ODA and is the lead USG development co-operation agency. Similarly, the USG does not work from a single strategic vision of aid although the development chapter of President Bush's National Security Strategy is an important step in this direction. Rather, it relies more on a pragmatic approach that addresses development assistance themes of common operational concern among USG agencies and other pertinent actors, as needed. The influences that contribute to these different development assistance themes are multiple. At the highest level of official strategy, foreign aid is seen as an integral part of United States foreign policy, which itself is specifically described as a 'vision of United States national interests', as defined by several USG entities under the general guidance of the Secretary of State. Congress exercises an independent and very strong role in the shaping of foreign aid and is itself directly influenced by numerous lobby groups and other expressions of public opinion. The wide range of forces at work shaping foreign aid decision making, the current proliferation of developmental actors, and the lack of a single strategic vision for development co-operation, can leave the United States in a position of ad hoc development decision making.
The United States has an historic opportunity to consolidate strategy and organisation in the context of the MCA. If approved by Congress, this initiative will dramatically increase the size of aid, and refocus this part of the American vision for development around a results-based system that aims at poverty reduction in poor countries which have sound policies in governance and social and economic development.
(i) The United States should define more explicitly a system that can strategically bring together key USG development co-operation entities around a common vision and a framework of broadly co-ordinated action, and the National Security Strategy development chapter is a useful step in that direction. USAID, by virtue of its development mandate and experience, would seem well placed to assume a much stronger leadership role within this system and is encouraged to do so. The MCA presents an opportunity for such strategic and operational reform.
1.2. Stronger international partnerships
Historically, the United States has been a strong advocate of reliance on international partnerships to advance the common agenda of world development co-operation. Past examples include its sponsorship of the Marshall Plan and its lead role in setting up the OECD and the DAC. More recently, USAID initiated a 'Global Development Alliance' policy, which promotes the concept of strong partnerships among Americans with an interest in development co-operation. President Bush also announced a 'New Compact for Development' (that includes the MCA) which will foster greater coherence among actors, both internationally and within the United States. Indeed, in the new National Security Strategy for the United States of America, President Bush states that "we do not use our strength to press for unilateral advantage". However, these statements make limited reference to current international partnerships for development, such as the Monterrey Consensus, or internationally agreed development goals.
(ii) The United States should continue to seek out and reinforce international partnerships to resolve the outstanding issues of development co-operation. It should take maximum advantage of the special forum offered by the DAC to enhance its (collective) learning processes. One specific example is the new MCA, where the United States could benefit from the current DAC member experience with results-based approaches to poverty reduction and good governance. Given the importance of the proposed MCA for ODA volume and development effectiveness, it will be important to ensure consistency between American selection criteria and those being used by other members of the international donor community. Also, the USAID Global Development Alliance policy emphasises the importance of partnership and common vision among American development assistance actors. This policy could be expanded so as to ensure that the principles of common vision and collaboration are extended systematically to non-American development partners, including the donor community and the beneficiary countries themselves.
1.3.Improved public understanding of developmental issues
Opinion polls indicate that the American public understands and globally supports the concept of foreign aid. The tragic events of September 11 appear to have heightened this public awareness and that of political leadership. However, Americans are often not supportive of aid due to misunderstanding of the size and scope of USG actions in development co-operation. Despite the obvious importance of public understanding of key developmental issues, USAID is prohibited by Congress from using public funds to directly influence the American public.
(iii) USAID should pursue a strong alliance with other official and non-governmental actors so as to raise public awareness of the contributions that Americans are making to world development and the importance of a sustained American commitment. The longstanding prohibition against USAID directly advocating on behalf of foreign assistance should be re-evaluated by the Congress in light of growing public and political support for aid.
2.1. Promoting policy coherence for development
Given its pre-eminent position, promoting economic growth and sustainably reducing poverty in developing countries will require the United States in particular to work alongside other donors to promote policy coherence for development. While the Bush Administration is working to strengthen co-ordination across USG agencies responsible for formulating policies in closely related areas including development, there remains scope for the United States to address more formally, systematically and coherently the effects of broader government policies on developing countries. Trade policies and agricultural policies are examples of areas where decisions taken by the United States can have major repercussions for developing countries and where further efforts within the United States to promote policy coherence can lead to positive development outcomes.
(iv) The United States is encouraged to act on a range of actions to promote greater policy coherence for development. These include the more systematic integration of development considerations into the broader national policy and legislative dialogue and the more systematic use of mechanisms for policy consultation across government agencies. As the primary USG advocate for development, USAID needs to play a stronger advocacy role vis-à-vis other USG agencies, in the analysis and promotion of development policy coherence. It should continue to seek strong working relationships with policy co-ordinating groups such as the National Security Council and the Policy Co-ordinating Committee on Development.
2.2. Untying of aid
The United States is broadly supportive of a liberal free trading environment and encourages participation by developing countries in international trade. Bilateral ODA implemented by USAID is by law tied to the procurement of goods and services from the United States, but this restriction may be relaxed for reasons of availability, emergency or efficiency on a case-by-case basis. A waiver to the law has applied since January 2002 that enables the United States to implement the 2001 DAC Recommendation on Untying Official Development Assistance to the Least-Developed Countries. Food aid and free-standing technical co-operation, major components of the United States programme are, by mutual agreement of the DAC, excluded from the recommendation's coverage and so implementation is not expected to have a substantial impact on reducing the United States' overall level of tied aid.
(v) In accordance with the effort sharing rationale of the Recommendation on Untying ODA to the Least-Developed Countries, and with repeated United States appeals for better aid effectiveness, the United States is encouraged to identify and implement supplementary actions to increase the level of untied bilateral assistance.
3.1. Empowering the field
USAID has had a longstanding policy of delegation of authority to the field. Most field staff interviewed during the Peer Review field visits to Uganda and Guatemala were proud of this decentralisation of resources and decision-making, yet, if prompted, also pointed to its limitations, especially in the current climate of creative reform for greater aid efficiency. Current USG programming practices such as extensive Congressional earmarking of funds, associated reporting requirements and selected limitations in using the fullest possible array of alternative approaches (e.g. budget support, where appropriate), may limit USAID from taking full advantage of its considerable local capacity.
Like all DAC members, the United States faces the challenge of finding a common vision and operational framework for collaboration with other partners in the field. To the extent that this common ground is not identified by the partners and that the decentralised USAID mission is not empowered to flexibly adjust over time to perceived needs at the local level, collaboration with partners in the field is less complete. As donors, both bilateral and multilaterals, now attempt to work in accordance with locally owned frameworks, such as the Poverty Reduction Strategy Papers (PRSPs), it is important that a donor the size of the United States be able to interact fully and effectively in the field.
(vi) USAID is encouraged to evaluate the range of limitations on its decentralisation policy with an eye to supporting system modifications that liberate the fullest potential of the decentralisation concept. This would seem consistent with both the intent of the current MCA proposal and with the growing feedback on aid effectiveness at the DAC. With regard to monitoring and evaluation, experience in the field suggests the importance of joint partner efforts, so as to provide a mutually reinforcing system of peer oversight and support to collective learning, while reducing the need for redundant feedback systems. USAID field missions should be encouraged to participate and even initiate such collaborative innovations.
3.2.The challenge of USG co-ordination in the field
One of the basic principles of development co-operation partnership is the identification of a common vision around which the partners can rally and collaborate. The identification of such a vision in the field is increasingly challenging for the American system for aid. The greater dispersion of ODA responsibility among USG departments and agencies has been a growing trend and while USAID is now responsible for only one-half of overall American ODA (down from 64% in the 1998 Peer Review), ODA responsibility of other agencies such as State, Defence, Heath and Human Services or Peace Corps, is growing. While efforts are being made to avoid redundancy of responsibility among USG agencies, there is a long-term risk of inefficient implementation due to poor co-ordination.
(vii) The United States is encouraged to re-examine its practice of directly funding development co-operation outside the USAID framework, or to ensure that appropriate co-ordination arrangements are in place at the level of headquarters for each agency prior to beginning field operations. USAID should undertake its own review of this issue, so as to raise the level of awareness of other key development agencies. USG co-ordination in the field could potentially be an issue that is taken up within the National Security Council or the Development Policy Co-ordination Committee.
3.3. More effective and developmentally efficient allocation of aid
The announcement of the intention to increase the volume of annual American foreign assistance by as much as 50% is a major event for world development co-operation and is a stimulus to other donors to review their own contributions. Nevertheless, improvements can be suggested now to increase the efficiency of the current USG development aid. Of particular interest is the longstanding practice of the Congress and the Administration to make widespread use of 'earmarks' to direct funding into pre-determined areas. These earmarks, taken cumulatively, can lead to inefficiencies in finding locally appropriate development solutions, in the less-than-efficient use of staff time and in limiting follow through on long-term actions. These inefficiencies, taken in the aggregate, have impacts on both the cost and effectiveness of American assistance. Also, they ultimately can represent an impediment to American co-ordination with other partners.
Other potential inefficiencies have been noted in programmes with special political visibility. First, the United States is by far the largest food aid donor in the DAC. Food aid is a good example of how the United States creatively works to locate domestically popular ways to augment its aid to the developing countries. It is, however, a complex and labour intensive form of development assistance, which could be simplified procedurally, and even replaced by simple funding, as available. Second, the allocation of ODA can become disproportionate in politically popular sectors (e.g. child survival or family planning), but less so in areas of avowed American strategic interest (e.g. democracy or economic growth).
(viii) The United States and Congress should systematically review the strategic and management costs and other consequences of the earmarking system, particularly in the context of the current debate over the MCA. In addition, the United States should investigate and pursue efforts to improve the delivery of its developmental food aid by working to lower transaction costs. Finally, the United States is encouraged to explore options for improved matching of its core development resources (i.e. ODA) with development priorities.
3.4 Enhancing management credibility
Results-based management is seen as synonymous with the improved effectiveness of aid and has long been an issue with the Congress whenever it has stressed the need to ensure 'value for money'. Consistent with the Government Performance Results Act of 1993, USAID now maintains, at the level of every operational unit, a multiyear strategic plan, an annual performance plan and an annual follow-up performance report. The agency has registered several accomplishments in this area since the last Peer Review, yet the methodological difficulties inherent in such an ambitious reform package have proven to be considerable and USAID has still to convince some influential sceptics. While USAID has a comprehensive system of activity monitoring in place, there may be scope to re-emphasise the value of evaluations to generate evidence of the achievements of its aid.
The USG, particularly USAID, often has been criticised for lacking internal management credibility. In response, the USAID Administrator quickly placed, in 2001, the reform of USAID 'business systems' high on his list of priorities. Areas of internal USAID management currently under reform are human resource management, procurement, financial management, information technology, strategic budgeting and performance measurement and reporting. At the level of human resource management, USAID has suffered from sustained reductions in its career staff over the last decade and has lost extensive developmental depth. It is currently faced with the distinct possibility of extensive retirement within the senior levels of its staff in the next few years.
(ix) Given USAID's need to improve management credibility with those who oversee it, the results orientation of the MCA and the current window of opportunity for USAID to reassert leadership in development co-operation, USAID should more aggressively adopt the use of results-based systems within the Agency. Aid effectiveness is an important topic for all donors, as well, and USAID could potentially form a strong alliance within the DAC to move forward with internationally acceptable results-based approaches for development co-operation in the future.
(x) USAID is now taking important steps to reform its human resource management system. As USAID undertakes these reforms, it should seek out skills that most explicitly support its future strategic directions, while preserving its knowledge base and expanding its analytical capacity to provide leadership in development co-operation to other USG actors.