Order Code RL33491
CRS Report for Congress
Received through the CRS Web
Restructuring U.S. Foreign Aid:
The Role of the Director of Foreign Assistance
June 16, 2006
Larry Nowels
Specialist in Foreign Affairs
Foreign Affairs, Defense and Trade Division
Connie Veillette
Specialist in Foreign Affairs
Foreign Affairs, Defense and Trade Division
Congressional Research Service ˜ The Library of Congress

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Restructuring U.S. Foreign Aid: The Role of the Director
of Foreign Assistance
Summary
The creation of a new State Department position — Director of Foreign
Assistance — has sparked congressional interest regarding the management and any
possible future 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, the Office of the Global AIDS Coordinator, and the Office for
Reconstruction and Stabilization 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.
Details of how the restructuring will operate have just begun to be defined. A
soon-to-be-released strategic framework creates five categories representing
challenges to development. Operational plans would design country-specific aid
programs to meet those challenges. 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.
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 future reform options. 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.
This report will be updated.

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Contents
Transformational Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Role of Director of Foreign Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
State and USAID Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Domestic Policy Departments with Aid Programs . . . . . . . . . . . . . . . . . . . . 5
DOD Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Iraq and Afghanistan Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Military Assistance and Training . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Humanitarian Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Counter-Drug and Anti-Terrorism Assistance . . . . . . . . . . . . . . . . . . . . 6
Restructuring Foreign Aid Management and Programs . . . . . . . . . . . . . . . . . . . . . 6
Organizational Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Programmatic Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
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 . . . . . . . . . . . . . . . . . . . . . . . 11
Congressional Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
List of Tables
Table 1. Foreign Aid Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

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Restructuring U.S. Foreign Aid: The Role of
the Director of Foreign Assistance
The 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 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 will have
authority over most State Department and USAID programs, and will provide
“guidance” to other agencies that have foreign aid programs. Details of how the
restructuring will operate are in the process of being defined following Tobias’
confirmation as USAID Administrator on March 29, 2006. 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.
Transformational Development
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 on foreign aid.”1 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
1 U.S. Agency for International Development, “U.S. Foreign Aid: Meeting the Challenges
of the Twenty-first Century,” January 2004.

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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. national security rests.2 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 Role of Director of Foreign Assistance
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 Transformational Development Goals.3 As both the USAID
Administrator and the DFA, he will serve 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.
Initial information from the State Department indicated that the DFA will have
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
2 Executive Office of the President, U.S. National Security Strategy, 2002 and 2006.
3 U.S. Department of State Fact Sheet: New Direction for U.S. Foreign Assistance, January
19, 2006.

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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.
State Department and USAID officials have maintained that the DFA would
manage approximately 80% of U.S. foreign assistance programs. 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. In addition, there are programs run by independent
entities, such as the Millennium Challenge Account, or that are within the State
Department, such as PEPFAR, that the DFA will not manage. 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 55%. In the same year, the
Defense Department disbursed a little more than $5 billion, or nearly 19%, mainly
for reconstruction work in Iraq and Afghanistan that was funded in the FY2004
Supplemental. Other departments and agencies disbursed about $7.2 billion, or
26.5% of total foreign aid.4
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 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.
State and USAID 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
4 Calculations by CRS from information reported by the United States to the Development
Assistance Committee (DAC) of the Organization for Economic Cooperation and
Development (OECD) for calendar year 2005. DOD figures include supplemental funds that
were appropriated for FY2004, but not disbursed until 2005, and represent a large increase
from the previous year’s level of $1.6 billion.

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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.
When first announced, the DFA was described as having authority over all State
Department and USAID foreign assistance programs. Subsequent statements by
officials introduced some ambiguity as to whether certain State Department programs
would fall under the DFA’s jurisdiction. 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 delegate her
authority to the DFA.5 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 State’s Office of the Coordinator for
Reconstruction and Stabilization.6
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 Scope
All USAID accounts
Millennium Challenge Corporation
Economic Support Fund
PEPFAR (State)
SEED
Office for Reconstruction & Stabilization
FSA
(State)
Narcotics (INL) & ACI
Peace Corps
Migration & Refugee Assistance
Inter-American Foundation
Nonproliferation (NADR)
African Development Foundation
IMET
Treasury Dept. Technical Assistance
Foreign Military Financing
Treasury Dept. Debt Relief
Peacekeeping Operations
SEED — Assistance for Eastern Europe and Baltic States;
FSA — Assistance for the Independent States of the Former Soviet Union;
IMET — International Military Education and Training;
PEPFAR — President’s Emergency Plan for AIDS Relief.
5 See exchange between Senator Sarbanes and Ambassador Tobias at the Senate Foreign
Relations Committee hearing on March 7, 2006.
6 “State Department Officials Hold a Background Briefing on U.S. Foreign Assistance -
News Briefing,” Political Transcripts by CQ Transcriptions, January 19, 2006. In briefings
to Congressional staff, department officials indicated that the exact accounts over which the
DFA would have authority had not been fully determined.

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Domestic Policy Departments with Aid Programs
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 mandate of coordinating across
the government.7 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 USAID, exists today “only as an unimplemented
provision in the FAA.”8
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 $5.8 billion.9 This
represents about 21% of total foreign aid disbursements made in calendar year 2005.
DOD Programs
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 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.
Iraq and Afghanistan Assistance. 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.
7 See exchange between Senator Lugar and Ambassador Tobias at the Senate Foreign
Relations Committee hearing on March 7, 2006.
8 See “USAID History,” found at [http://www.usaid.gov/about_usaid/usaidhist.html].
9 Calculated by CRS, from information reported by the United States to the Development
Assistance Committee (DAC) of the Organization for Economic Cooperation and
Development (OECD) for calendar year 2005.

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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.
Military Assistance and Training. 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.
Humanitarian Assistance. 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.
Counter-Drug and Anti-Terrorism Assistance. 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.
Restructuring Foreign Aid Management and
Programs
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

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provide foreign assistance, recent Tobias statements indicate that his initial focus will
be on coordinating USAID and State Department programs.
Organizational Reform
As currently structured, separate offices within State and USAID maintain
independent budgeting and planning activities, resulting in possible duplication and
lack of coordination. The DFA has notified Congress of the formal creation of the
Office of the Director of Foreign Assistance as part of the Office of the Secretary.
Its personnel, drawn from both State and USAID, are staff currently performing
strategic, budget, and program planning. 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 will also oversee 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 35 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.
Programmatic Reform
The second of Tobias’ proposed reforms includes the soon-to-be unveiled
Strategic Framework that will establish objectives for U.S. foreign assistance and
goals and performance indicators for recipient countries. The Framework is also to
link 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 will be used as the basis for integrated budget planning
for State and USAID beginning with the FY2008 budget request.
The current proposal envisions five categories of countries.10 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. Reforming Countries would include authoritarian governments, most of
which are ineligible for U.S. aid. Programs in these countries operate through non-
10 This information is drawn from Stewart Patrick, “Foreign Aid Reform: The Latest Skinny
from the Inside,” Center for Global Development, May 8, 2006.

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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. 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 proposed 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. The framework envisions
a larger role for U.S. ambassadors in developing operational plans to meet strategic
objectives.
Earlier Attempts at Foreign Aid Reform
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.
Hamilton-Gilman Foreign Aid Reform Task Force
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.
Clinton Administration Initiative
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

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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 104th Congress.
Consolidation of USAID into the State Department
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.
Issues for Congress
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.
Coordination of Programs
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

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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 State Department has
created the Office of the Coordinator for Reconstruction and Stabilization (O/CRS)
to respond to post-conflict situations. Its 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. 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.
Politicization of Aid Programs and the Role of USAID
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.
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

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CRS-11
had no authority. This would no longer be the case, he argued, since the DFA would
have such authority.11
Reforms Deferred and Subsequent Initiatives
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 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, and to significantly consolidate funding channels into six or seven that
would be based on the strategic purposes of particular aid activities, such as
assistance for failing and post-conflict states, or transformational development. Both
options 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 considered but
dropped may be part of subsequent initiative, perhaps in the 110th 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.
Congressional Priorities
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 are in many cases different 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. How congressional
priorities will be reflected in the framework is a challenge Congress and executive
officials will have to confront.
11 See exchange between Senator Sarbanes and Ambassador Tobias at the Senate Foreign
Relations Committee hearing on March 7, 2006.

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