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CGD seeks to inform the US government’s approach to international development by bringing evidence to bear on questions of “what works” and proposing reforms to strengthen US foreign assistance tools.
The policies and practices of the US government wield formidable influence on global development. CGD seeks to strengthen US foreign assistance tools with evidence of “what works” and propose reforms grounded in rigorous analysis across the full range of investment, trade, technology and foreign assistance related issues. With high-level US government experience and strong research credentials, our experts are sought out by policymakers for practical ideas to enhance the US’s leading role in promoting progress for all.
Tomorrow, USAID Administrator Mark Green heads to Capitol Hill to defend the Trump administration’s FY 2019 foreign assistance budget request. It won’t be easy. Lawmakers have pushed back hard against the drastic cuts to US global development and humanitarian spending proposed by the administration.
And while, under Green’s leadership, USAID has advanced several smart ideas to improve the agency’s effectiveness—including developing a framework for thinking about aid transition, piloting new ways to pay for results, and improving procurement processes—there remain significant questions about how these efforts will fare in the absence of sufficient resources and whether proposing such deep cuts provokes a level of skepticism that jeopardizes reform efforts.
Here are some specific issues I hope receive attention during tomorrow’s hearing:
At this time last year, the Trump administration was reportedly contemplating folding USAID into the State Department as part of an effort to “streamline” the federal government. The consensus reaction from the development community was that preserving USAID’s independence is paramount. For several months we’ve heard repeated assurances that consolidation is no longer on the table. But ongoing unease about the relationship between the State Department and USAID suggests the point remains relevant.
The rapport between the department and agency is liable to change with new leadership on the horizon for State. Even so, the hearing provides a useful opening for the many members who support USAID’s independence to go on record and give Green a chance to make the case for it.
Green’s vision for USAID’s development work is centered on a “journey to self-reliance”—supporting the development of countries’ capacity to finance and manage their own development so they can eventually transition away from aid. This vision isn’t new—previous administrators have espoused similar convictions. But Green’s proposal to develop a transparent and evidence-based approach to deciding if, when, and how to transition a relationship with a country from one based on grant-based economic assistance to one focused on trade support and other forms of development finance is more focused than many previous efforts and deserves recognition.
An idea, however, is only as good as its implementation, and there are a number of unanswered questions about how this concept will be put into practice. If the hearing delves into Green’s signature “journey to self-reliance,” I hope members ask, how would USAID seek to redefine its relationship with a country based on the new framework? How will proposed metrics be used to inform decisions about readiness for transition and/or the approach USAID should take in a particular country, and what makes them an appropriate tool for this purpose? What is the relationship between the “journey to self-reliance” framework and other strategy-setting processes?
And how does it feed into processes that seek to include local priorities and goals? Directives and initiatives from Washington already tend to dominate missions’ strategic decisions; how will USAID ensure its “journey to self-reliance” framework doesn’t become yet another Washington-based tool that limits the influence of country-determined priorities?
Domestic resource mobilization
An administration-released factsheet on the FY19 budget request highlighted a new commitment to domestic resource mobilization (DRM)—$75 million for activities that help countries self-finance their own development. This is a welcome push that aligns well with USAID’s “journey to self-reliance” framework, as well as with the internationally endorsed Addis Tax Initiative, which asks donors to increase their support for DRM.
But even amid widespread support for DRM, there are real gaps in what we know about assistance in this area. To begin with, we don’t even have a good account of how much we’re currently spending on DRM, though this is improving. We also know relatively little about the effectiveness of various interventions, which largely fall into the camp of more-difficult-to-evaluate technical assistance. I hope, as part of the new initiative, that Green can articulate how the agency will define success in this area and assess the degree to which its investments achieve their intended outcomes.
While it may not sound glamorous or exciting, getting procurement right is foundational to USAID’s effectiveness. Previous administrations have spearheaded some important shifts in how USAID makes awards, but more work remains to ensure award types are better aligned with USAID’s vision for how it wants to do business.
The Trump administration makes a lotofreferences to the importance of evidence-based decision making. And USAID, with Green at the helm, has demonstrated this commitment in some noteworthy ways. Within the last year, for instance, the agency hosted a day-long event showcasing evidence and evaluation and announced participation in a new development impact bond (DIB), an innovative results-based financing scheme.
On the other hand, the administration’s proposed budget would strike a massive blow to USAID’s evidence and evaluation functions. The FY19 budget request contains a 40 percent cut (compared to FY17 levels) to the Bureau of Policy Planning and Learning—the headquarters of the agency’s learning, evaluation, and research efforts. And it would slash funding for the Global Development Lab (the Lab) by 80 percent.
Within the Lab, the evidence-focused components have been particularly shorted. Last year, USAID closed new applications for Development Innovation Ventures (DIV), the part of the Lab that rigorously tests new ideas for solutions to development problems and helps scale those that prove successful.
Green has talked a lot about improving the efficiency and effectiveness of USAID. The hearing provides an opportunity for him to highlight some of the innovative ways USAID is using evidence to pursue these objectives, but he should also be pressed on the risks that downsizing the agency’s evidence engines poses to the broader effectiveness agenda.
Fragile and conflict-affected contexts
At least a third of USAID’s assistance goes to fragile and conflict-affected states.* Fragile states are where poverty is increasingly concentrated, humanitarian relief is most needed, and US national security interests are often most pressing. Fragility, however, is extraordinarily complex, often confounding the most well-intentioned efforts by donors to promote stability and development. Recently introduced legislation (H.R. 5273), sponsored by a number of panel members, would require USAID—along with the State Department and Department of Defense (DOD)—to take a hard look at what works and what doesn’t in aid to fragile states, create a strategy for violence reduction in select countries, and better assess impact.
With over 15 years of experience providing assistance to fragile states, USAID should already have some thoughts on how to approach these questions. It would be great to get Green’s take on how USAID should adjust its procurement, program design, and implementation processes to respond quickly to emergent needs and adapt interventions in constantly evolving fragile environments.
One of the big threads in the recent US foreign assistance reform and redesign conversation has focused on how the fragmentation of aid across 20-plus agencies compromises its efficiency and effectiveness. Eliminating this fragmentation isn’t really on the table—it would be hugely complicated and require a complete rework of the distinct roles of various agencies. But it may be possible to ease the symptoms of fragmentation through improved coordination and collaboration.
This has been critical in the context of a cross-cutting initiative like Power Africa—and would likewise be necessary for doubling down on DRM. The new proposed US International Development Finance Corporation would need to coordinate closely with USAID. And the agency has highlighted the need for better coordination with DOD in its work in fragile states. For each of these needs, what can USAID do to improve coordination and collaboration? What does good coordination look like in practice?
*In FY16, 29 percent of USAID’s obligations went to the 20 most fragile states as ranked by the Fragile States Index.
Senator Bob Corker (R-TN) and Representative Ed Royce (R-CA) have teamed up with Democratic colleagues Senator Chris Coons (D-DE) and Representative Earl Blumenauer (D-OR) to introduce new legislation that would reform US international food aid to deliver more help to more people in crisis, faster.
This bipartisan group of lawmakers has championed changes to the inefficient policies associated with US global food assistance for years. But both Corker and Royce have announced they will retire from Congress at the end of the current session. This bill represents their last push to see food aid reform over the finish line, and recent changes in the landscape suggest it might also be their best chance to do so. The American Farm Bureau Federation, which long resisted changes to existing international food assistance programs that require the US government to purchase commodities in the United States and ship them long distances to those in need, recently embraced reform.
Giving the US Agency for International Development the flexibility to use cash, vouchers, or locally purchased food when one of those would be faster and more effective in helping hungry people in need
Stretching US food aid dollars by eliminating monetization, a slow and costly process whereby the US government provides NGOs with food that they must arrange to ship and then sell in developing countries to raise funds for their programs
Both bills would also preserve 25 percent of food aid for purchases of US commodities. Senators Corker and Coons estimate that reform could save $300 million that could be used to help feed an additional nine million more people.
As noted in the press release from the Corker and Coons offices, food aid is just 0.2 percent of total US agricultural production, so reducing the share of food aid that is purchased domestically would have a trivial effect on demand and no effect on prices. Recognizing that reality, the head of the American Farm Bureau Federation, Zippy Duvall, recently joined Senators Corker and Coons in an op-ed that called for modernization of food aid programs in the farm bill that Congress must pass this year.
The US shipping lobby—which benefits from requirements that at least half of US-sourced food aid must be transported on US-flagged ships—remains a stalwart opponent of sensible reform. But it’s the House and Senate Agriculture Committees that will draft the new farm bill. And with the Farm Bureau on board, this may be the last, best chance for long-time reform champions to ensure US international food aid reaches more of the people who need it most.
Demand for development finance as a key complement to traditional aid is growing, but despite the impressive strength of the US private sector, the US government’s ability to respond—to date— has fallen short. The good news: Congress got the memo.
Last week, a bipartisan group of lawmakers—led by Senators Bob Corker (R-TN) and Chris Coons (D-DE) and Representatives Ted Yoho (R-FL) and Adam Smith (D-WA)—introduced the Better Utilization of Investments Leading to Development (BUILD) Act of 2018, which would create a full-service United States International Development Finance Corporation (USIDFC).
The bill would address many of the obstacles to strategic and efficient deployment of US development finance efforts that our colleagues Todd Moss and Ben Leo have chronicled in detail over the years. (Check out their proposal for a self-sustaining, full-service, US development finance corporation.)
We’re also pleased to see that the BUILD Act imbues the new USIDFC with a strong mandate to promote development, including a directive to focus support in low-income and lower-middle-income countries. Todd and Rob Mosbacher Jr, a CGD board member and former head of the Overseas Private Investment Corporation (OPIC), recently wrote why now is exactly the right time for this idea.
Here’s what we’re most excited about in the BUILD Act’s vision for a new USIDFC:
At $60 billion, USIDFC’s maximum contingent liability limit is roughly double that of OPIC. And the bill provides for that ceiling to adjust with inflation to prevent erosion of the potential portfolio size in real terms. Giving the institution room to grow will allow it to feature more prominently in the US government’s development and foreign policy toolkit well into the future.
The bill grants the new institution equity authority. This is critical because OPIC is currently limited to debt financing—and the inability to make (even modest) equity investments has kept OPIC out of projects and limited its ability to structure deals. Equity authority—sensibly capped at 20 percent of any project—would better enable the new USIDFC to fulfill its mandate and put it on more equal footing with many of its peer institutions, which all use equity when it’s most needed.
In the tough markets where the USIDFC is expected to operate, the BUILD Act gives the agency the ability to initiate and support feasibility studies and technical assistance. Early support for planning and project development can enable more well-planned projects to get off the ground—and may be necessary to realize critical infrastructure projects.
It’s (more) integrated
The full-service USIDFC will be built on the foundation of OPIC and assume its portfolio. But the BUILD Act draws in a few select components of the US Agency for International Development (USAID) too. By consolidating these functions under a single roof, the BUILD Act would create an institution that is much closer to a one-stop-shop—more efficient and better positioned to structure financing packages with fewer coordination-related delays and roadblocks. Specifically, the bill would integrate USAID’s:
Development Credit Authority (DCA): DCA offers partial credit guarantees backed by the US Treasury, which facilitate access to financing for small businesses in emerging markets.
Enterprise Funds: Over the years, Congress has periodically provided resources for the creation of enterprise funds—which have a mixed record, at best.
Office of Private Capital and Microenterprise: This small, relatively new office seeks to mobilize private capital by facilitating partnerships and by deploying a combination of grant funding and advisory or technical support.
Of course, these changes won’t negate the need for strong coordination between USIDFC and other US agencies engaged in development activities—and USAID, in particular.
For US development dollars to succeed in creating inclusive economic opportunities in frontier markets, a full-service development finance institution is crucial. Introduction of the BUILD Act is a vital first step.
In his appearance before the committee, Morris outlined findings from newly CGD published analysis exploring the debt implications of China’s Belt & Road Initiative—and offered his views on what it should mean for US global engagement.
After over a year without top political leadership, the Millennium Challenge Corporation (MCC) may soon have a new CEO. Sean Cairncross, the Trump administration’s nominee to take the helm of the agency, has his Senate hearing tomorrow—where we’ll get an early look at his vision for MCC.
Cairncross is a relative unknown in the development community. As some have pointed out, he has virtually no development (or any sort of international) experience. But, in truth, most of MCC’s previous CEOs came to the position with little development experience, so this isn’t a huge break from the past. What Cairncross would bring to MCC is strong ties to the White House and Congress—positioning that could serve the small agency well.
To be truly effective, however, Cairncross must also demonstrate command of the development issues most relevant to MCC’s work. The hearing should provide an initial glimpse into his understanding of the principal challenges facing the agency.
Over the longer term (if confirmed), part of Cairncross’ success in a new field will come from being willing to trust and rely on MCC’s career staff. He should also seek to ensure the agency’s remaining political leadership positions are filled by strong candidates with relevant expertise.
As Cairncross gets up to speed, here are five big issues that should be on the agenda.
A limited pipeline of future partners: MCC works only with countries that meet its good governance criteria. The problem is that this set of countries changes little on an annual basis. Over the past five years, fewer than one new country a year (on average) has passed MCC’s “scorecard.” To date, MCC has had little difficulty forming new partnerships through a combination of newly passing countries and second compacts with previous partners. But these opportunities will become increasingly limited unless the agency eventually pursues third compacts with select partner countries. This is unquestionably the right way for the agency to go, as I outlined here. But it could prove a tough political sell. How will MCC’s new CEO approach the pipeline constraint, and will he be willing to push for a potentially politically unpopular but ultimately critical approach?
The potential for new regional authority: Congress may grant MCC new authorities, which would enable the agency to undertake regional programming. This would be a welcome step for MCC. Many important constraints to growth are cross-border in nature, and MCC’s bilateral focus has prevented it from taking advantage of potentially high-return regional opportunities, even though the agency often invests in sectors—like infrastructure or energy—with an inherent regional component. That said, regional programs are more complex, riskier, and take longer to put together. If granted the necessary authorities, will MCC’s new CEO commit to proceeding in a limited way at first, allowing the agency to identify risks, manage them, and learn as it goes?
The need to mobilize private capital: Donor agencies around the world are increasingly seeking to use their foreign assistance funds to mobilize private capital in pursuit of development objectives. As a growth-focused agency, this has always been one of MCC’s goals; the question has been how to do it better. In what ways will the new CEO seek to position MCC as a leader in mobilizing private finance for development? And what risks must MCC manage in pursuit of this goal?
A continued focus on results: Over the course of its 14-year history, MCC has been at the forefront of US government thinking on development results. It remains the only agency to systematically—and largely transparently—apply a range of results tools to its entire portfolio of country compacts, from program development to ex-post evaluation. The agency has also made commendable efforts to demonstrate how it takes lessons that emerge from its results processes and applies them to future programming. How will the new CEO ensure MCC continues to lead—and innovate—with respect to its focus on results?
The need to use data wisely: MCC eligibility centers on countries’ performance on a set of indicators designed to measure various facets of good governance. The trick is, governance quality can be hard to measure with precision. Particularly challenging is understanding how indicators capture (or more often don’t capture) changes in governance over a short period of time. This is something MCC is keen to track for its existing partners since backsliding may be grounds for reevaluating—and sometimes terminating—the partnership. The indicators don’t always track this well, however. And unfortunately, when imprecise data are interpreted too rigidly, it can lead—and has led—to poor decisions that resulted in cutting off, slowing, or downgrading existing partnerships on the basis of data noise rather than an actual decline in governance quality. Will the new CEO recognize that key to making smart, evidence-based decisions is knowing your data, including its limitations? Will he use his position to steer the agency (and its board of directors) toward nuanced, rational use of data in decisions about continuing eligibility for existing partners?
I don’t expect the hearing will touch on all of these areas—a number of them are fairly weedy. If Cairncross is confirmed, however, I’ll be watching for how he steers the agency on these difficult issues from the helm of MCC.
The Trump administration delivered its FY 2019 budget request to Capitol Hill this week. Containing deep cuts to the international affairs budget, it looks a lot like a repeat of the FY 2018 request. And with a 30 percent reduction in topline spending, few programs were spared. Meanwhile, buried among the rubble are smart reform ideas that run the risk of being overshadowed—or even undermined—by the depth of the proposed spending reductions.
*At the time of posting, the federal government is still operating under a continuing resolution—so this post cites figures included in the draft appropriations produced by the House and Senate. These bills were crafted well in advance of the recent two-year budget deal, and in the case of the Senate have only made it as far as Committee approval.
Congress will need to complete work on appropriations for the current fiscal year before turning their attention to FY 2019. Last week’s two-year budget deal forestalls the immediate threat of sequestration, but the fight over how additional nondefense dollars are allocated could be bruising. Meanwhile an agreement to curb nondefense overseas contingency operations (OCO) spending—on which State and Foreign Operations appropriations have grown reliant—will limit the ability of appropriators to operate outside of imposed budget caps.
Rather than rehash all of the arguments from last year, here’s an update on a few select accounts.
If realized, the administration’s budget request would mark the lowest US contribution to the multilateral development banks in 30 years (after adjusting for inflation). My colleague Scott Morris provides context for this worrying trend and explains what’s at stake if the United States continues to turn away from multilateral engagement.
Bilateral Economic Assistance
Economic Support Fund
Economic Support and Development Assistance Fund
Despite a poor reception last year, the administration revived its proposal to merge the Economic Support Fund and Development Assistance accounts—a move some suggest exhibits the administration’s drive to prioritize diplomatic and political goals over development objectives. Even more concerning, the total provided for the new account, which is also intended to incorporate the smaller Democracy Fund and Assistance for Europe, Eurasia, and Central Asia, is nearly 43 percent lower than what was enacted in FY 2017.
Global Health Programs
Global Health Programs - USAID
Global Health Programs - State
The budget request again proposes cuts to ever-popular US global health programs. But after zeroing out funding for family planning and reproductive health in the FY 2018 request, the administration included $302 million this go around. For a second year, the administration also recommended using remaining emergency Ebola funding ($72.5 million) to invest in global health security.
On a more positive note, the president’s budget request proposes creation of a development finance institution that would consolidate functions of the Overseas Private Investment Corporation (OPIC) and USAID’s Development Credit Authority. My colleagues Todd Moss and Ben Leo drew up a blueprint for just such an institution—and their ambitious plans for strengthening US development finance tools date back further.
The DFI proposal is an about-face from last year, when the president’s request included plans to wind down OPIC’s operations. To see the administration chart a more productive course is a promising evolution. We’re looking forward to the introduction of forthcoming legislation that may give this smart reform idea real legs.
International Disaster Assistance
International Disaster Assistance
Food for Peace II
The request would eliminate funding for the Food for Peace program in favor of more flexible food aid supported through International Disaster Assistance (IDA), which could yield gains in efficiency. But—in another aggravating rerun—the administration suggests this change without providing sufficient resources to meet growing global need. The US system for delivering international food aid is in desperate need of an overhaul, but the solution is to work with long-time reform champions in Congress to provide a permanent fix, not to toss a half-hearted proposal into the annual budget request.
Want to read up on the Trump administration’s FY 2019 budget? You can find all the primary budget request documents here. But for greater detail on what it could mean for foreign aid—and an easier read—check out the congressional budget justifications (CBJs): State & Foreign Operations, MCC, Treasury International Programs. The administration also released an addendum, drafted following the two-year budget deal reached by Congress last Friday, which includes $1.5 billion in additional spending and uses the remainder of an increased allocation to shift funding designated as OCO to the base budget. (This updated table reflects the changes included in the addendum.)
Reforms at Risk?
The State and Foreign Operations CBJ—which accompanied the president’s request—includes six pages outlining USAID’s internal efforts to improve the effectiveness and efficiency of the agency in delivering its mission. CGD experts have weighed in on several aspects of USAID’s “redesign,” starting with a policy brief full of practical recommendations authored by Jeremy Konyndyk and Cindy Huang.
The latest details suggest the agency is moving in some encouraging directions—advancing a plan to merge the Office of Food for Peace and the Office of US Foreign Disaster Assistance, and demonstrating a willingness to tackle procurement reform. The document also highlights USAID’s renewed emphasis on supporting a country’s “journey to self-reliance” with the ultimate goal of transitioning countries, as they demonstrate sufficient commitment and capacity, away from traditional aid to new forms of partnership. To the extent this endeavor encourages greater country ownership and better use of an array of US government tools and approaches—development finance and technical assistance aimed at domestic resource mobilization look to be favorites—it could be a good move. But while OMB clearly gave the greenlight to include the agency’s redesign objectives in the materials submitted to Congress, the budget request itself threatens to undermine even USAID’s best efforts to pursue reform.
That’s not just because sufficient resources will be important to carrying out reforms. There is also a real risk (as Scott Morris warned last year) that large—and seemingly indiscriminate—budget cuts provoke skepticism that any proposed reforms are anything more than budget driven. It can be hard to reconcile such a de-prioritization of foreign assistance with honest attempts to make it more efficient and effective.
Demonstrating an understanding of the value proposition that underpins US development and humanitarian assistance would go a long way to securing needed support from Capitol Hill. Instead, this budget request suggests the administration remains out of step with Congress, which has typically lent bipartisan backing to a wide range of development and humanitarian objectives.
This could make USAID’s job particularly challenging as the agency seeks to reorient country partnerships. Among the lessons learned from past country transitions, chronicled in a CGD policy paper published late last year, is that successful transitions require support from Congress and other stakeholders. If the Hill is left questioning the administration’s commitment to foreign assistance writ large, members may also question the motives behind transition. What’s more, where supporting countries on their “journey to self-reliance” requires USAID to respond more flexibly to country needs, demands, and opportunities, the agency may find limited receptivity. A complex web of congressional spending directives currently leaves precious little flexibility in US foreign aid spending—limiting opportunities to respond to evidence of demonstrated program success or to vest increased decision-making authority in partner country governments. In the wake of a second budget request that leaves stakeholders reeling, appropriators would seem unlikely to loosen the reins.
Last October, the US government permanently removed US sanctions on Sudan, presumably in return for various actions by the Khartoum government, such as backing Saudi-led efforts in Yemen, cutting off relations with North Korea, and progress on human rights. While removal of the sanctions was obviously welcomed by President Omar al-Bashir, the US said nothing about supporting debt relief. As I pointed out in a previous blog post, debt relief is high on the Sudanese government’s agenda since it would remove one of the final hurdles to normalization with the international financial community. This week’s budget proposals coming out of the White House indicate that Sudan may finally get its wish—but there’s something weird about where the money comes from. Here I offer an alternative.
Sudan is one of three remaining countries that are eligible for comprehensive debt relief under the Heavily Indebted Poor Country (HIPC) Initiative, launched in 1996. This debt relief would allow Sudan to normalize relations with its creditors, including international financial institutions (IFIs) such as the World Bank and the African Development Bank, paving the way for new financing. HIPC debt relief would eliminate Sudan’s arrears to the IFIs as well as bilateral creditors.
According to a recent IMF assessment, 39 percent of Sudan’s public and publicly guaranteed external debt is owed to non-Paris Club creditors, 36 percent to Paris Club creditors, 11 percent to IFIs, and 14 percent to commercial creditors. Virtually all of this debt is in arrears, including debt to the United States. The USG is reportedly the third largest Paris Club creditor.
The HIPC debt relief process is complex, requiring a number of actions by creditors and the intended beneficiary. A key early step in the process is an IMF request for assurances from the Paris Club creditors that they will be in a position to provide debt relief. To date, the Paris Club has been unable to provide such assurances because of US opposition and the fact that the Paris Club works by consensus. The US opposition has been driven by noneconomic factors, particularly the Sudan government’s attacks on civilians in Darfur and Sudan’s support for terrorist activities abroad. While the November removal of US sanctions dealt with one obstacle to US support, there remain two other significant hurdles: lack of money to cover the cost of debt relief and Sudan’s designation as a state sponsor of terrorism (SST) by the State Department.
The Trump administration is now proposing to rectify the money problem. Though not mentioned in any of the agencies’ congressional budget justifications, the FY19 budget request restores language that would allow the State Department to transfer funds to the Treasury Department’s Debt Restructuring Account to cover the cost of debt relief if certain conditions are met, such as severing all relations and ties with North Korea and improving freedom of religion. More significantly, following last week’s budget deal the administration reportedly sent Congress a list of “discretionary adds” for the FY18 budget, one of which is US$300 million for Sudan debt relief from the Economic Support and Development Fund (ESDF) account.
There is also growing belief that the administration could drop Sudan from the SST list this year. In accordance with various statutory requirements and recent precedents, the president would first instruct the secretary of state to launch a formal review of Sudan and provide a report within six months. If the decision is made to remove Sudan, Congress would have 45 days to try to block the removal, after which the decision would be formalized.
While the USG is taking steps to remove Sudan from the SST list and secure funding to finance bilateral debt relief, the IMF and the Khartoum government will need to reach agreement on a Staff Monitored Program that will underpin the debt relief process. The IMF, World Bank, and African Development Bank will also need to identify and secure the resources necessary to clear Sudan’s arrears. In the absence of any significant stumbles, Sudan could reach the HIPC Decision Point within the next 18 months.
The US$300 million request for FY18 funding could face significant resistance from Congress, particularly in the face of proposed cuts to other foreign assistance programs and lingering doubts about Sudan’s human rights record. It will be made all the more difficult by the proposal to use money that would otherwise go to Economic Support and Development Fund programs. The $300 million represents over 40 percent of the funds requested for Economic Support and Development Assistance programs in Africa in the FY18 budget.
Rather than require the State Department to cover the cost of debt relief, Congress should consider requiring the agencies that originated the bad loans to cover it. In the case of Sudan, the Defense Department is responsible for almost 60 percent of the amount outstanding and the US Department of Agriculture another 40 percent. Why make State pay for the poor credit decisions made by other agencies?
As I said last year, doing nothing is not a viable option. The United States would be rightfully accused of reneging on its past debt relief commitments. This could exacerbate tensions in the East Africa region and weaken Sudan’s interest in working with the United States on regional conflicts and the threat of terrorism, among other issues.
In 1944, the United States created a blueprint for economic statecraft, hashed out with other leading countries at Bretton Woods, New Hampshire, that relied heavily on a new class of multilateral institutions to pursue US interests in the world—the multilateral development banks (MDBs), represented initially by the World Bank, the International Monetary Fund, and an envisioned World Trade Organization.
The relative fortunes of these institutions and their agendas have varied over time, but the blueprint itself is now under serious duress in the “America First” strategy of international engagement of the Trump administration. Most visibly, the firm rejection of the Trans-Pacific Partnership and ongoing efforts to revisit the North America Free Trade Agreement have put trade multilateralism directly in the crosshairs of this administration.
Less visible has been a decline in interest in and support for the other elements of the Bretton Woods blueprint. To see it in its starkest form, you have to dig deep into US government budget documents. The US financing relationship with the Bretton Woods institutions is contained in the budget and activities of the International Affairs division of the US Treasury. It was the Treasury that played the leading role in negotiating the details at Bretton Woods (with the likes of John Maynard Keynes, who represented the UK’s interests), and the agency continues to lead engagement with the IMF, the World Bank, and four other MDBs that emerged after Bretton Woods. As a result, Treasury’s “International Affairs” budget provides a useful measure of the scale and breadth of US engagement with these multilateral institutions.
As the figure indicates, this administration has taken an unprecedented turn away from the Bretton Woods institutions, at least in the years since consistent budget data has been available. Adjusted for inflation, the first two budgets of the Trump administration are the lowest, by far, of any of the past 30 years. Similarly, the Treasury Department under the Trump administration is supporting fewer multilateral institutions and programs than any previous administration of the past 30 years.
Among the programs abandoned during the past year: innovative and highly-rated agricultural development programs in the form of the International Fund for Agricultural Development (IFAD) and Global Agriculture and Food Security Program, as well as support for the climate finance agenda. Though the latter might not be a surprise for this administration, it nonetheless marks a striking diminishment of US engagement and influence over a leading pillar of multilateral cooperation today. Increasingly, rejecting multilateral cooperation on the climate agenda is tantamount to rejecting multilateral cooperation in general.
The precipitous fall in the US Treasury's multilateral engagement is all the more remarkable in contrast to the experience of the Obama administration, when multilateral financing, in scale and breadth, reached its highest levels of the past 30 years.
Skeptics of global cooperation no doubt see the current trajectory as a welcome course correction from the Obama years. But they would do well to appreciate the costs of going it alone. This can be measured by the financing leverage that we are giving up when we cut multilateral funding, such as with IFAD, where every dollar contributed by the United States delivers nearly 80 dollars of assistance to developing countries. Harder to quantify are the potentially wide-ranging effects of not having the United States at the table to help shape multilateral strategies, standards, and priorities on issues that implicate a wide range of US economic, security, and foreign policy interests.
The irony of all of this is that an approach to multilateral cooperation that the United States itself designed nearly 75 years ago is enjoying remarkable popularity in the rest of the world today, and particularly among rising economic powers. China has garnered attention for adopting this multilateral playbook in the creation of the Asian Infrastructure Investment Bank and even in its overtures to other countries through the Belt and Road Initiative, which proposes to pursue infrastructure development across Eurasia on a massive scale by attracting and leveraging financing from a wide array of sources inside and outside of China. It is to our detriment in the United States that that kind of vision, once on display at Bretton Woods, is now missing in Washington.