Foreign Aid

• The U.S. gives billions of dollars to many countries around the world each year (~$138 B) which the U.S. has to borrow because it does not have sufficient revenue in the treasury

• The US also loans money and provides loan guarantees to many countries; the U.S. has to borrow the money to make these loans and must also borrow when it has to cover a default; we consider this to be “foreign aid” as well

• Recent magazine articles such as one in the Economist have suggested that cutting foreign aid should not be done because the U.S. gives so little, less than 1% of GDP (Gross Domestic Product); haven’t you heard something similar from Members of Congress talking about earmarks?.....however, 1% of GDP according to the U.S. Bureau of Economic Analysis (BEA), is $146 Billion

• So, let’s get familiar with the numbers: The U.S. GDP is estimated by the BEA to be $14.6 Trillion this year;
  
  U.S. national debt is ~$13 Trillion;
  
  For Fiscal 2009, Federal tax revenue was a bit over $2.1 Billion (~14.5% of GDP)

• It is difficult to know exactly how much in Fiscal 2009 was spent on Foreign Aid (we don’t have fiscal 2010 numbers yet) because aid comes from many budgets, for example: food aid comes from Agriculture appropriations (we could not find a bill for that yet) but aid for “democracy programs” and certain health care programs are part of the State-Foreign Operations appropriations bill; also it is not clear what is meant by “aid”; for example, does it include contributions to the United Nations, the World Bank, IMF and the Export-Import bank? Does “aid” include loans and loan guarantees? (as noted above, we think all of these activities are “aid”)

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DISCUSSION

FOREIGN AID

1) Why Blog about U.S. Foreign Aid? The U.S. has continued to spend money as if it grows on trees (perhaps because we have a printing press that we have been too eager to use) while acknowledging that we have to cut our debt, so if you are Obama’s deficit reduction commission, you ask, why not start with cutting Social Security benefits since that seems to be the low hanging fruit? We have already discussed why Social Security should not be cut and have pointed out wasteful government spending that should be cut instead (see below for our prior postings on this Blog) While foreign aid is great to give when we are flush with cash, we need to be more selective in our aid spending until we get our fiscal house in order

2) Top 10 recipients of US aid are: Iraq, Afghanistan, Pakistan, Israel, Egypt, Jordan, Kenya, Nigeria, Mexico, South Africa & Ethiopia [source: Congressional Research Service (CRS) Report R41228 dated July 2, 2010] We think Haiti should be added to this list because over $2B was requested for Haiti for reconstruction after the earthquake in a supplemental funding bill and over $1B has already been provided to Haiti not to mention the military support and other services that were provided to the country right after the earthquake

3) War zone economic aid: In the CRS Report referred to above, which only discussed the State-Foreign Operations appropriations bill (so most military expenditures as well as aid from other government agencies as well as loans and loan guarantees are not included); the requested aid listed below for each of these countries includes both the 2011 request as well as a supplement payment for 2010:

Iraq: $2,816.7 Billion

Afghanistan: $5,927.7 Billion

Pakistan: $3,423.6 Billion

Total: 12,168.0 Billion

Note: Congress indicated they are holding off on aid to Afghanistan due to a Wall Street Journal article about US aid money that arrives at the airport and is immediately flown out of the country to places unknown

4) Aid to the Middle East: CRS Report RL32260 dated June 15, 2010, states that there is a consensus among most analysts “that U.S. economic and security aid has contributed significantly to Israel’s security, Egypt’s stability and Jordan’s friendship with the United States; the requests for fiscal year 2011 are:

Israel: $3 Billion in military aid which is spent on U.S. manufactured military equipment (although up to 26.3% can be spent on military equipment that is manufactured in Israel); the US also provided loans to Israel (although not since 2005) and loan guarantees so that Israel can borrow at a lower rate than it could without the U.S. guarantee

Egypt: A total of $1.558 Billion, with $250 Million of this total for economic aid and $1.3 Billion for military aid; Economic aid to Egypt has decreased from previous levels and will be further reduced over time (the inference from the CRS report is that Egypt does not want to accept “conditions” from the U.S. Congress on human rights issues so it wants bi-lateral economic aid to gradually end and in its place it requested “endowments” because those don’t come with “conditions”); A law was adopted providing for an endowment for Egypt of up to $200 Million to “further the shared interests of the U.S. and Egypt, but so far that has not been established because the terms are still being discussed; apparently there are no “conditions” on military aid, so Egypt wants that increased due to the escalating cost of maintenance on U.S. equipment that it has purchased in the past

Note: Egypt also receives Excess Defense Articles (EDA) from the Pentagon worth hundreds of millions of dollars according to CRS [note: this program enables the U.S. military to reduce its inventory of outdated equipment by providing friendly countries with necessary supplies at either reduced rates or at no charge], and Egyptian officers also participate in the IMET program ($1.4 million requested in the 2011 budget) which fosters cooperation between the U.S. and Egyptian military (the CRS report has a footnote about debt owed to the US by Egypt of ~$4.2 Billion with repayment installments at $370 million per year)

Jordan: A total of $842 Million for fiscal 2011 (which includes a supplemental funding request for fiscal 2010 for “logistical expenses in support of military operations in Iraq and Afghanistan”) Part of the money to Jordan goes to pay installments on its debt of $6.7 Billion which we believe is owed to the U.S. (that is the inference in the report, but is not stated explicitly) with most of the other economic aid going to managing scarce water resources in Jordan, education and to “democracy assistance”, with military assistance being used to upgrade Jordan’s air force equipment

Jordan also receives funding from the Millennium Challenge Corporation (MCC); the request for 2011 is $40 Million and from a Wikipedia article on the MCC it looks like Jordan previously received $25 Million from this program [note: the MCC is a development fund started by the George W. Bush administration in 2004 when he pledged to increase assistance to both rich and poor countries by 50%]

Palestinians--West Bank/Gaza: While not in the top 10 of US recipients, by signing the Oslo Accord in 1993, the U.S. committed $3.8 Billion in economic assistance to the Palestinians, of which $2.3 Billion has been paid (average annual aid is $388 Million)

Further assistance from the U.S. comes to the Palestinians from the United Nations Relief and Works Agency (UNRWA) for Palestine Refugees; the U.S. voluntarily contributes money to UNRWA despite admission by that agency that they hire employees who are members of Hamas. The U.S. contribution in 2009 was $267.9 Million and was $155 Million in 2010 despite viewing a documentary filmed by a Palestinian showing UNRWA students being taught that all of Israel is occupied Palestinian land and that only through violence can the liberation of Palestine be achieved (while the teacher looked on, nodding her head in agreement [source: The Washington Times, June 10, 2010, U.S. Taxpayer Money Funding Terror Education in West Bank/Gaza by Anath Hartmann] The Palestinians also get additional economic assistance from the United Nations which indirectly comes from money provided by the U.S.

5) Aid to African Countries: The U.S. provides aid to most African countries which is mostly for health needs, with Ethiopia, Kenya, Nigeria & South Africa getting more U.S. aid than their neighbors; the amount of the aid listed below is for the so-called International Affairs Budget for the State-Foreign Operations appropriations bill; however, Africa gets over $7 Billion annually in aid for HIV/AIDS:

Ethiopia: $583.5 Million requested for fiscal 2011

($533.2 Million received in 2010); a very recent (August 11, 2011) interesting Yahoo News article (Ethiopia Eyes End of Food Aid Within Five Years) by Barry Malone quotes Ethiopia’s Prime Minister as saying that, due to their ambitious development plan that has been giving them average economic growth of 14.9%, Ethiopia may not need any more food aid in five years; The article states that over the past five years, Ethiopia had an average annual growth rate of 11% [note: the U.S. State Department website estimates economic growth for Ethiopia for 2009-2010 at 9%]; according to the Yahoo News article, Ethiopia hopes that its economy will grow due to business ties with China, India and Turkey. China has this year invested in road building, hydropower and wind farm projects, probably because they want to tap into Ethiopia’s oil and gas reserves; a good way to avoid having the country’s money get into the pockets of corrupt politicians is to put it directly into projects that improve the lives of the indigenous people

Kenya: A $714 Million requested for fiscal 2011

($687.7 Million received in 2010)

Nigeria: $647.7 Million requested for fiscal 2011

($614.7 Million received in 2010)

South Africa: $586.1 Million requested for fiscal

2011 ($577.7 Million received in 2010)

6) Aid to Our Southern Neighbors: Mexico and Haiti are the final countries that we will address here

Mexico: There was no requested aid for fiscal 2011

($582.7 Million received in 2010) however the requests in the CRS Report are only preliminary requests from the State Departments and, as noted, do not include supplemental requests for 2011 nor do they include aid from other agencies. There is no doubt that Mexico will be receiving U.S. aid in 2011 if for no other reason than the drug war they are fighting. A good question for Americans to debate is whether we want to continue to put money into fighting drug cartels rather than legalizing drugs and treating people for their “disease”

Haiti: There is no 2011 fiscal request for Haiti; however, we believe that there will be a supplemental request as there was for 2010. The U.S. went all out to help Haiti right after the earthquake, but the results (we think) have not been great because the government appears to be weak and is rumored to be corrupt, which makes us wonder where the bulk of our money has gone. President Clinton has said in public many times that he likes to give cash to countries to empower them (we are not sure that is the exact language he used, but something like that). We think that is NOT the correct approach when dealing with a corrupt government, especially when the U.S. is having financial problems and has to borrow to get the funds for aid to Haiti. Bottom line, any additional aid to Haiti should be “in kind” rather than in cash

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• Reluctant as we are to cut back on aid to help poor people around the globe, the U.S. needs to face the reality that we must dramatically reduce our debt in the short run because having so much debt reduces the security of the American people; but we have to reduce our debt without doing so on the backs of our seniors [note: did you notice that the requests for 2011 aid by the State Department actually raised the amount of aid from last year?]

• The U.S. should form “partnerships’ with major U.S. donors like the Gates Foundation and the Clinton Global Initiative. Why shouldn’t the U.S. get “credit” for their donations when it is the U.S. who gave those organizations deductions for their charitable giving. For example, why should the U.S. give$7 Billion a year for HIV/AIDs when the Gates Foundation and/or some of the Billionaires who have now agreed with the Gates/Buffet team to give a least one-half of their wealth to charity, can do this?

• The U.S. must stop IMMEDIATELY providing loans and loan guarantees to countries; similarly, our Federal Reserve needs to stop using its balance sheet to bail out sovereign nations like it did for some European countries; if history repeats itself, those countries will not feel gratitude for this after they have recovered, and they can and should borrow on their own “dime”

• Are you as bothered as we are about the U.S. spending money on “democracy programs”? Why should we interfere with a government’s internal form of government if it is not torturing its citizens or depriving them of freedom of speech? We were unhappy when our State Department tried to require Honduras to reinstate their President when the Honduran people revolted against their President who was trying to take away their freedoms; Please let us know how you feel about this