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Issues: U.S. Foreign Aid Priorities in 1996

(The following fact sheet is from the United States Information Agency's (USIA) Electronic Journal, "Economic Perspectives," Vol. 1, No. 11, August 1996.)

The current U.S. foreign aid program began in 1961 with passage of the Foreign Assistance Act, which established the U.S. Agency for International Development (USAID). From 1962 to 1994, the United States distributed a total of $244,496 million in economic assistance -- both loans and grants, mostly to developing countries -- for an enormous variety of programs.

The regions and programs that have been the focus of U.S. assistance have changed from decade to decade. Much aid was provided as a response to wars and regional crises. In some cases, aid became less necessary as recipient countries developed their economies.

Total appropriations for foreign assistance have declined in recent years for a number of reasons, most notably the end of the Cold War, concern about the effectiveness of aid, and the lack of a strong domestic constituency for many of the assistance programs. At present, there is significant sentiment in the U.S. Congress for reducing assistance, except for aid to the Middle East.

Congress resisted an effort in 1995 to drastically cut back aid funding. All agree, however, that the overall U.S. aid budget is not going to be increasing and that the aid provided will have to be used more effectively.

Aid in 1996 U.S. foreign assistance legislation appropriated $12,186 million for foreign economic and military assistance in fiscal year 1996, which ends September 30, 1996.

The economic assistance portion of this amount totaled $9,614 million, down from the $10,312 million in economic aid provided in 1995. Much of the decrease reflected reduced contributions to the International Development Association, a World Bank affiliate, and to United Nations agencies.

Of the 1996 economic assistance funds, $6,763 million was appropriated for programs administered by USAID. This total represented a slight increase over the 1995 fiscal year amount of $6,516 million. The 1996 total, however, included more than $200 million in new spending in Bosnia-Herzegovina. Aid to other parts of the world was reduced, except for the Middle East, where the assistance amount increased.

The United States also contributed a total of $1,438 million to multilateral development banks and to United Nations agencies in 1996, a decline from previous years. The United States has been the largest single contributor to international financial institutions and was a founding member of the World Bank, the International Monetary Fund, and other regional multilateral development banks.

Most U.S. aid is bilateral, however. Among the major categories of U.S. bilateral aid are the following:

-- Development assistance (DA): This is spending for specific projects or programs. A sampling would include programs for child survival, family planning, primary school education, reform of the public administration of local government, and improved agricultural yields. In 1996, $2,369 million was appropriated for development assistance.

-- Economic Support Funds (ESF): ESF is generally direct cash transfers to the recipient government. The bulk of this is the annual ESF cash transfers to Israel of $1,200 million, and to Egypt of $800 to $900 million. In 1996, $2,359 million was appropriated for ESF.

-- Special Assistance Initiatives for Russia and the Newly Independent States: In 1996, $1,163 million was appropriated for this category.

-- Food aid: The United States supports three food aid programs under Public Law 480. They are Title I, which provides concessional loans to developing countries to buy U.S. agricultural products; Title II, which transfers food supplies to countries in need; and Title III, which provides assistance to help improve the recipient nation's food production and distribution systems. In 1996, $262.9 million was appropriated for Title I, $821 million for Title II, and $50 million for Title III.

-- Anti-narcotics programs: In 1996, $115 million was appropriated for anti-narcotics programs.

-- Peace Corps: In 1996, $218 million was appropriated for Peace Corps volunteer operations around the world. An additional $817.5 million was appropriated for other programs that do not fit into any of the specific categories and that are not classified as region specific. The largest portion of this, $671 million, was for migration and refugee assistance. An appropriation of $88 million was for the loan subsidy and administration expenses of the Overseas Private Insurance Corporation (OPIC), which insures U.S. companies' investments in developing countries. There was also $70 million for peacekeeping operations, $50 million for emergency refugee and migration assistance, $50 million for the U.S. trade and development program, $20 million for nonproliferation and disarmament programs, and $20 million for the Inter-American Foundation.

Following is a summary of U.S. assistance on a region-by-region basis as appropriated for fiscal year 1996.

Africa For Africa in 1996, a total of $1,074 million was appropriated. The largest amount, $629 million, was for development assistance. Another $339 million was appropriated for P.L. 480 Title II food assistance.

A total of 46 African countries received some form of U.S. aid in 1996. The biggest single recipient was South Africa, which was designated $122 million -- nearly all development assistance.

The second largest recipient was Ethiopia, which received $109 million: $32.8 million in development assistance, $40.3 million in Title II food assistance, and $34.7 million in Title III agricultural development assistance.

The third largest recipient in 1996 was Rwanda. Nearly all of the $106.5 million it received was in P.L. 480 Title II commodities, mostly for feeding refugees and other persons displaced by the 1994 civil war.

The U.S. aid program for Africa includes initiatives to address regional problems and to facilitate cooperation among neighboring states. In 1994, the United States launched the Greater Horn of Africa Initiative, which covers 10 East African countries, as a regional effort to increase food security and to help prevent conflicts. A second regional undertaking is the Initiative for Southern Africa, which promotes the integration of the countries in southern Africa, concentrating on education, infrastructure development, and building democratic institutions.

Asia and the Middle East This region includes Israel and Egypt, which received about 42 percent of all U.S. foreign aid -- economic and military. Most of the $5,888 million appropriated for Asia and the Middle East in 1996 was spent in Israel, Egypt, Jordan, and the West Bank and Gaza. Israel and Egypt have long been the biggest recipients of U.S. aid, as part of the U.S. commitment to support the 1979 Camp David peace agreement.

In 1996, Israel received $1,800 million in military aid and $1,200 million in economic aid. Israel also receives other forms of U.S. aid, most notably loan guarantees. Under the loan guarantee program approved in 1992, the U.S. government can provide up to $2,000 million in loan guarantees a year from 1993 through 1997. The guarantees are intended to help Israel resettle and absorb immigrants from the former Soviet Union and other countries. Since 1993, a total of $7,286 million in guarantees have been authorized. The Israeli loans that the U.S. has guaranteed through this program have been allocated for a variety of purposes including expenditures on infrastructure, such as roads, highways, and bridges, and the Israel Electric Corporation.

Egypt received $1,301 million in military aid and $815 million in economic aid in 1996. Jordan in 1996 received $11 million in economic aid and $171 million in military aid, reflecting assistance resulting from its peace treaty with Israel. The West Bank and Gaza received $75 million in economic assistance, a program begun to support the Israeli-Palestinian peace process.

Other major recipients of aid in Asia and the Middle East in 1996 include India, which received $48.6 million in development assistance and $107.8 million in P.L. 480 Title II food assistance; Bangladesh, $41.5 million in development assistance and $32.5 million in P.L. 480 Title II; the Philippines, $47.5 million in development assistance and $4.7 million in Title II food aid; and Indonesia, $52.7 million, nearly all in development assistance. Twenty-nine other Asian and Middle Eastern countries received some U.S. assistance.

Europe/Newly Independent States About 85 percent of the $1,367 million appropriated for this region during 1996 was distributed through the Special Assistance Initiatives for the Newly Independent States.

In 1996, the $228 million allocated for Ukraine surpassed the $148.3 million appropriated for Russia. In previous years, Russia has been this region's largest aid recipient. In 1995, Russia received $260.7 million, while Ukraine received $165.8 million. Bosnia received a special appropriation of $248 million, as part of the reconstruction efforts called for by the Dayton Peace Accords. Bosnia also received $49.8 million in P.L. 480 Title II assistance.

Armenia was the third largest aid recipient of the Newly Independent States in 1996, receiving $86 million. Thirty other European and former Soviet states also received some U.S. assistance.

Latin America and the Caribbean This region was appropriated $589 million in 1996. In 1996, development assistance accounted for $248 million, while ESF totaled $113 million and P.L. 480 Title II food assistance totaled $136.8 million. Funds earmarked for anti-narcotics assistance totaled $56.9 million, the largest amount for any region.

The largest aid recipient in 1996 was Haiti, reflecting the third year of an effort to support the restoration of democracy in that country. Haiti received $122 million in aid: $24 million in development assistance, $60 million in ESF, $27.4 million in P.L. 480 Title II, and $10 million in P.L. 480 Title III.

The second largest recipient of U.S. aid in the region in 1996 was Peru, which was appropriated $91.1 million. The largest amount of this, $52.4 million, was for P.L. 480 Title II assistance. Another $22 million was for development assistance, and $15.2 million was for anti-narcotics programs.

Bolivia was the third largest Latin American recipient: $26.6 million in development assistance; $25.1 million in P.L. 480 Title II aid; and $15 million for anti-narcotics programs.

These three countries were also the largest recipients during 1995.

The fourth largest recipient in 1996 was El Salvador, which received $41.8 million. The majority of this was for development assistance, $22.1 million, and ESF, $16 million. El Salvador was the biggest aid recipient in Latin America during the 1980s, as the U.S. government provided military and economic assistance to help the government combat a Marxist insurgency.

Twenty-one other Latin American countries also received aid in 1996.