Foreign Aid: An Introductory Overview of U.S. Programs and Policy

Foreign Aid: An Introductory Overview of U.S. Programs and Policy

Order Code 98-916 F
CRS Report for Congress
Received through the CRS Web
Foreign Aid: An Introductory Overview of
U.S. Programs and Policy
Updated April 6, 2001
Curt Tarnoff
Specialist in Foreign Affairs
Larry Nowels
Specialist in Foreign Affairs
Foreign Affairs and National Defense
Congressional Research Service ˜ The Library of Congress

Foreign Aid: An Introductory Overview of
U.S. Programs and Policy
Summary
Foreign assistance is a fundamental component of the international affairs budget
and is viewed by many as an essential instrument of U.S. foreign policy. This report
provides an overview of the U.S. foreign aid program, by addressing a number of the
more frequently asked questions regarding the subject.
There are six major categories of foreign assistance: bilateral development aid,
economic assistance supporting U.S. political and security goals, humanitarian aid,
non-emergency food assistance, multilateral economic contributions, and military aid.
Economic aid for security and political purposes, primarily supporting peace in the
Middle East and emerging democracies in Eastern Europe and the former Soviet
Union, is the largest category of U.S. assistance.
By nearly all measures, the amount of foreign aid provided by the United States
has declined in recent decades. The roughly $16.8 billion obligated for each of the
past two years, representing less than 0.2% of U.S. GNP, was the smallest amount
in the last half-century when calculated in constant dollars.
In 2000, the United States provided some form of foreign assistance to more
than 140 countries. Most aid, however, is concentrated in a few countries – the top
10 recipients accounted for 76% of bilateral aid allocated to individual nations.
Leading aid recipients have changed significantly during the past decade. Israel and
Egypt continue as they have since the late 1970s as the largest recipients. Several of
the top current recipients, however – Colombia, Ukraine, Kosovo, Russia, Armenia,
and Georgia, among others – have replaced countries such as Pakistan, Turkey,
Greece, El Salvador, and the Philippines who were leading aid recipients in the 1980s.
Over half of U.S. assistance goes to the Middle East while the proportion allocated
to Asia and Latin America has fallen significantly during the past 10 years.
The United States is currently the second (behind Japan) leading international
economic aid donor in terms of dollars, but is the smallest contributor among the
major donor governments when calculated as a percent of GNP.
The House International Relations and Senate Foreign Relations Committees
have primary congressional responsibility for authorizing foreign aid programs while
the House and Senate Appropriations Foreign Operations Subcommittees manage
bills appropriating most foreign assistance funds. Within the executive branch, the
Agency for International Development (USAID) manages the bulk of bilateral
economic assistance, the Treasury Department handles most multilateral aid, and the
Department of Defense (DOD) and the State Department administer military and
other security-related programs.

Contents
Foreign Aid Goals and Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
What are the goals and objectives of U.S. foreign assistance? . . . . . . . . . . . 1
What are the different types of foreign aid and how much do they cost? . . . 2
Bilateral development assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Economic aid supporting U.S. political and security objectives . . . . . 3
Humanitarian economic assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Food aid (non-emergency) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Multilateral assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Military assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Foreign Aid Spending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
How large is the U.S. foreign assistance budget and what have been
the historical funding trends? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
How does foreign aid spending compare with other federal programs? . . . . 9
How much of foreign aid dollars are spent on U.S. goods? How does
this compare with other nations’ programs? . . . . . . . . . . . . . . . . . . . 10
Recipients of U.S. Foreign Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Which countries receive U.S. foreign aid? . . . . . . . . . . . . . . . . . . . . . . . . 11
Why do some countries receive grants while others receive loans? How
much of foreign aid loans have been repaid? What incentives do
foreign aid recipients have to repay U.S. loans? . . . . . . . . . . . . . . . . 16
Loan/grant composition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Loan repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Debt forgiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
How does the United States rank as a donor of foreign aid? . . . . . . . . . . . 17
Congress and Foreign Aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
What congressional committees oversee foreign aid programs? . . . . . . . . 18
What are the major foreign aid legislative vehicles? . . . . . . . . . . . . . . . . . 19
The Executive Branch and Foreign Aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
What executive branch agencies administer foreign aid programs? . . . . . . 19
Data Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
List of Figures
Figure 1. Program Composition of Aid - 2001 . . . . . . . . . . . . . . . . . . . . . . . . . 3
Figure 2. Shifts in Program Emphasis, 1989-2001 . . . . . . . . . . . . . . . . . . . . . . . 5
Figure 3. U.S. Foreign Aid, FY1946 - 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Figure 4. Foreign Aid as a Percent of GDP, 1946-2001 . . . . . . . . . . . . . . . . . . . 7
Figure 5. Foreign Aid as a Percent of the Budget, 1977-2001 . . . . . . . . . . . . . . 8
Figure 6. Foreign Operations Appropriations, 1985-2001 . . . . . . . . . . . . . . . . . 9
Figure 7. U.S. Budget Outlays, 2001 Estimates . . . . . . . . . . . . . . . . . . . . . . . . 10

Figure 8. Leading Recipients of U.S. Aid, FY2001 . . . . . . . . . . . . . . . . . . . . . 12
Figure 9. Leading Recipients of U.S. Aid, FY1990 . . . . . . . . . . . . . . . . . . . . . 13
Figure 10. Regional Composition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Figure 11. Assistance by Income Level: FY1990 . . . . . . . . . . . . . . . . . . . . . . 15
Figure 12. Assistance by Income Level: FY2001 . . . . . . . . . . . . . . . . . . . . . . . 15
Figure 13. Economic Aid from Major Donors, 1999 (dollars) . . . . . . . . . . . . . 17
Figure 14. Economic Aid from Major Donors, 1999 (% of GNP) . . . . . . . . . . 18
List of Tables
Table 1. Aid Program Composition, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Table 2. Program Composition, 1987-1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Table 3. Foreign Aid Funding Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Foreign Aid: An Introductory Overview of
U.S. Programs and Policy
U.S. foreign aid is a fundamental component of the international affairs budget
and is viewed by many as an essential instrument of U.S. foreign policy.1 Each year,
it is the subject of extensive congressional debate and legislative initiatives. Since the
end of the Cold War, many have proposed significant changes in the size,
composition, and purpose of the program, several of which have been adopted.
This report, generally using a question-and-answer format, addresses a number
of the more frequently asked queries regarding the U.S. foreign aid program, its
objectives, costs, organization, the role of Congress, and how it compares to those
of other aid donors. In particular, the discussion attempts to not only present a
current “snap-shot” of American foreign assistance, but also to illustrate the extent
to which this instrument of U.S. foreign policy has changed from past practices,
especially during the last decade and the end of the Cold War. Data presented in the
report are the most current, reliable figures available, usually covering the period
through FY2000 or, where possible, the most recent year. Dollar amounts are drawn
from a variety of sources, including the Office of Management and Budget (OMB),
U.S. Agency for International Development (USAID), and from annual Foreign
Operations and other appropriations acts. As new data become obtainable or
additional issues and questions arise, the report will be modified and revised.
Foreign Aid Goals and Programs
What are the goals and objectives of U.S. foreign assistance?
Foreign assistance supports a great many objectives. Among the more
prominent during the past decade have been: support for peace in the Middle East
through assistance to Israel, Egypt, Jordan, and, more recently, the West Bank and
1 Other tools of U.S. foreign policy are the U.S. defense establishment, the diplomatic corps,
informational and cultural programs, and trade policy. American defense capabilities, even
if not employed, stand as a potential stick that can be wielded to obtain specific objectives.
The State Department diplomatic corps are the eyes, ears, and often the negotiating voice of
U.S. foreign policymakers. Informational and cultural programs, such as U.S. Information
Agency-run exchanges like the Fulbright program and Radio Free Europe, project an image
of the United States that may influence foreign views positively. U.S. trade policy – provision
of most favored nation treatment and use of the Export-Import Bank, for example – are
viewed as carrots by recipient nations that affect the presence of U.S. business in those
countries. Foreign aid is probably the most flexible tool – it can act as both carrot and stick,
and is a means of influencing events, solving specific problems, and projecting U.S. values.

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Gaza; fostering democratization and stability for countries in crisis, such as Bosnia,
Haiti, Rwanda, and Kosovo; facilitating democratization and free market economies
in Central Europe and the former Soviet Union; suppression of international narcotics
traffic through assistance to Colombia and other drug-producing countries; and
alleviating famine and mitigating refugee situations in places throughout the world.
Foreign aid is a tool of U.S. foreign policy. Arguably, from the end of World
War II until the early 1990s, the underlying rationale for providing foreign aid was
the same as that for all U.S. foreign policy – the defeat of communism. U.S. aid
programs were designed to promote economic development and policy reforms, in
large part to create stability and reduce the attraction to communist ideology and to
block Soviet diplomatic links and military advances. The programs also supported
other U.S. policy goals, such as reducing high rates of population growth, promoting
wider access to health care, and expanding the availability of basic education in the
developing world, advancing U.S. trade interests, and protecting the environment.
If these secondary goals were also achieved, U.S. aid programs could be promoted
as delivering “more bang for the buck”. With the end of the Cold War, no consensus
has emerged over what should be the new overarching rationale for U.S. aid
programs. Consequently, many of these secondary objectives of foreign assistance
are more vulnerable to challenge. Some may ultimately be discarded; while others are
being incorporated into new initiatives, representing emerging foreign policy
priorities.
The Clinton Administration emphasized the promotion of “sustainable
development” as the new, post-Cold War main strategy of those parts of the foreign
aid program under the aegis of the U.S. Agency for International Development
(USAID). To attain sustainable development, USAID works toward six inter-related
goals – achievement of broad-based, economic growth; building of democratic
systems; stabilization of world population and protection of human health; sustainable
management of the environment; building human capacity through education and
training; and meeting humanitarian needs. Ultimately, USAID argues that an effective
sustainable development objective advances broader U.S. foreign policy goals –
including the promotion of U.S. economic prosperity through the creation of new
markets and the prevention of crises that might otherwise require large U.S. military
expenditures to resolve.
Generally speaking, different types of foreign aid support different objectives.
Focusing on any single element of the aid program would produce a different sense
of U.S. objectives. But there is also considerable overlap between categories of aid.
Multilateral aid serves many of the same objectives as bilateral development
assistance, although through different channels. International financial institutions
have become the predominant players in Central Europe and the former Soviet Union,
serving U.S. economic and security objectives in those regions. Both military
assistance and economic security assistance serve U.S. objectives in the Middle East.
What are the different types of foreign aid and how much do
they cost?
There are six major categories of foreign assistance, illustrated in Figure 1 below:

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Figure 1. Program Composition of Aid - 2001
Bilateral development assistance. Development assistance programs are
designed chiefly to foster sustainable broad-based economic progress and social
stability in developing countries. For FY2001, Congress appropriated $3.5 billion in
such assistance, an amount accounting for 23.3% of total foreign aid appropriations.
Most of these funds are managed by the Agency for International Development
(USAID) and are used for long-term projects in the areas of economic reform and
private sector development, democracy promotion, environmental protection,
population and human health. Other bilateral development assistance goes to distinct
institutions, such as the Peace Corps, the Inter-American Development Foundation,
the African Development Foundation, and the Trade and Development Agency.
Another development activity gaining more prominence the past two years has been
debt relief for the poorest nations, mostly in Africa
Economic aid supporting U.S. political and security objectives. In
FY2001, Congress appropriated $4.44 billion, 29.7% of total assistance, for five
major programs whose primary purpose is to meet special U.S. economic, political,
or security interests. The bulk of these funds – $2.3 billion – are provided through
the Economic Support Fund (ESF), an aid category designed to advance American
strategic goals with economic assistance. Since the 1979 Camp David accords and
especially since the end of the Cold War, most ESF has gone to support the Middle
East Peace Process. ESF funds can be used for development projects (usually about
30% of the total), or to pay for imports of U.S. goods through the Commodity Import
Program (less than 10%), or, in the form of cash grant transfers (about 60% of the
total) to help countries stabilize their economies, service foreign debt, and implement
economic policy reforms.

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With the demise of the Soviet empire, the United States established two new aid
programs which met particular strategic political interests. The SEED (Support for
East European Democracy Act of 1989) and the FREEDOM Support Act (Freedom
for Russia and Emerging Eurasian Democracies and Open Markets Support Act of
1992) programs were designed to help Central Europe and the new independent states
of the former Soviet Union (NIS) achieve democratic systems and free market
economies. In FY2001, SEED countries are allocated $676 million while the NIS
receives $810 million in appropriated funds.
Several other global issues that are considered threats to U.S. security and well-
being – terrorism, narcotics, crime and weapons proliferation – have received special
attention from the foreign assistance program. Each of these programs provide a
range of law enforcement activities, training, and equipment. In FY2001, the anti-
narcotics and crime program accounts for $325 million in foreign aid appropriations,
anti-terrorism programs add another $42 million, and weapons proliferation-related
activities are funded at $250 million.
Humanitarian economic assistance. Unlike, development assistance
programs, which are often viewed as long-term efforts that may have the effect of
preventing future crises from developing, three programs are devoted exclusively to
the immediate alleviation of humanitarian emergencies. The bulk of humanitarian
assistance goes to the refugee program administered by the State Department. It
supports, with about $715 million in FY2001, a number of refugee relief
organizations, including the U.N. High Commission for Refugees and the
International Committee of the Red Cross. The Offices of Foreign Disaster
Assistance (OFDA) and Transition Initiatives (OTI) in USAID provide relief,
rehabilitation, and reconstruction assistance to victims of manmade and natural
disasters, activities totaling $350 million in FY2001. Supplementing both programs
is USAID- administered emergency food assistance (about $390 million in FY2001)
under P.L. 480, Title II. In total, Congress appropriated $1.46 billion for
humanitarian economic assistance for FY2001, including a special supplemental for
victims of floods and typhoons in southern Africa representing 9.7% of total aid
obligations. Because of the unanticipated nature of many such disasters, humanitarian
aid budget allocations often increase throughout the year as demands arise.
Food aid (non-emergency). The food aid program, generically referred to
as P.L. 480 or the Food for Peace program, provides U.S. agricultural commodities
to developing countries. Until recently, the United States has maintained three
different elements. Food aid with a market-development focus has been provided
commercially under long-term, low interest loan terms (Title I of the legislation).
Because of its increasing export focus, the Clinton Administration shifted Title I out
of the foreign assistance account beginning with FY1998. Title II grant food aid is
provided for humanitarian relief, as noted above, or development-oriented purposes
to private voluntary organizations (PVOs) or through multilateral organizations, such
as the World Food Program. Title II funds are also used to support the “farmer-to-
farmer” program which sends hundreds of U.S. volunteers to provide technical advice
and training to farm and food-related groups throughout the world. Finally, with the
purpose of encouraging agriculture-related policy reforms, grant aid prior to FY2000
was provided bilaterally to least developed country governments meeting certain

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poverty or food deficit criteria (Title III). Total non-emergency food aid accounts for
2.7% of aid appropriated for FY2001 (about $400 million).
Multilateral assistance. A relatively small share of U.S. foreign assistance
– 9.5% in FY2001 – is combined with contributions from other donor nations to
finance multilateral development projects. For FY2001, Congress appropriated $1.43
billion for such activities implemented by international organizations, like the United
Nations Children’s Fund (UNICEF) and the United Nations Development Program
(UNDP), and by multilateral development banks (MDBs), such as the World Bank.
The United States, however, is behind in its scheduled payments to several of these
organizations, with a current outstanding arrearage of about $212 million. Under a
three year plan initiated by the President in FY1998, Congress has appropriated nearly
$1 billion the past three years to clear the majority of U.S. overdue payments. On
average, U.S. contributions represent about 20% of total donor transfers to the
MDBs.
Military assistance. The United States provides military assistance to U.S.
friends and allies to help them acquire U.S. military equipment and training. Congress
appropriated $3.76 billion for military assistance in FY2001, 25.1% of total U.S.
foreign aid. There are three main programs. Foreign Military Financing (FMF), $3.58
billion in FY2001, is mostly a grant program that enables governments to buy
equipment from the U.S. government or to purchase equipment directly through U.S.
commercial channels. Like ESF, most FMF grants ($3.28 billion) support the security
needs of Israel and Egypt. The International Military Education and Training
program (IMET), $58 million, offers military training on a grant basis to foreign
military officers and personnel. Peacekeeping funds ($127 million in FY2001 are used
to support voluntary non-U.N. operations and training for an African crisis response
force.
Figure 2. Shifts in Program Emphasis, 1989-2001

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As Figure 2 indicates, there have been some gradual shifts in program emphasis
during the past decade. Military assistance as a share of total aid obligations
continued declining through FY1995, a trend that began after military aid peaked in
FY1984 at 42%. In FY1996-97, it rebounded from 24.8% to about a 30% share, not
because military assistance grew in absolute terms, but because other categories of
foreign aid fell significantly while military grants, especially for Israel and Egypt,
remained constant. The proportion of aid represented by military programs declined
further in FY1999 to roughly 26%, mainly due to the “graduation” of Greece and
Turkey as military aid recipients. Military assistance rose again in FY2000 (to nearly
30%) largely because of one-time Middle East peace supplemental for Israel and
Jordan.
Economic strategic and political aid remained fairly stable over the decade, but
climbed to over a 30% share in FY1999 and FY2000 due to the special Middle East
supplemental and an FY2000 counternarcotics initiative for Colombia and other
countries in the region. The proportion of foreign aid appropriated for this grouping
dropped to just below 30% in FY2001, reflecting somewhat the impact of a
continuing ten-year plan to reduce economic aid to Israel and Egypt.
Development-related assistance, including humanitarian, food aid and
contributions to multilateral institutions, steadily grew from the 44% share in FY1989
to over 52% by FY1993. The growth, especially in FY1994-95, of more politically-
driven economic programs in Central Europe and the former Soviet Union, plus
sizable cuts to development aid in FY1996/1997, and Middle East and
counternarcotics supplementals the past two years, drove the share of its allocation
down to 37% by FY2000. Funding rebounded in FY2001 due to special emphasis on
HIV/AIDS programs and debt relief for the world’s poorest nations.
Foreign Aid Spending
How large is the U.S. foreign assistance budget and what have
been the historical funding trends?
There are several methods commonly used for measuring the size of federal
spending categories such as foreign assistance. Amounts can be expressed in terms
of budget authority (funds appropriated by Congress), outlays (money actually spent),
as a percent of the total federal budget, as a percent of discretionary budget authority
(funds that Congress directly controls, excluding mandatory and entitlement
programs), or as a percent of the gross domestic product (GDP) (an indication of the
national wealth allocated to foreign aid).

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Figure 3. U.S. Foreign Aid, FY1946 - 2000
Figure 4. Foreign Aid as a Percent of GDP, 1946-2001

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Figure 5. Foreign Aid as a Percent of the Budget, 1977-2001
By nearly all of these measures, as shown in Figures 3-6, foreign aid resources
have been falling for over a decade, and by some standards FY1996 levels were the
lowest during the entire post-World War II period. The FY1996-98 annual average
obligation of about $14.4 billion for foreign aid programs, representing under 0.2%
of U.S. GDP, was the smallest in the last half-century. Funding levels rose in FY1999
and FY2000 – to around $16.8 billion or so – largely because of unanticipated
international contingency operations, such as those for Kosovo relief, Central
American hurricane assistance, Plan Colombia, and Middle East peace. Nevertheless,
foreign aid as a percent of U.S. GDP has remained well under 0.2%, with the 0.15%
estimate for FY2001 representing an all time low (Figures 3 and 4).
Foreign aid spending has declined, likewise, as a share of total federal
discretionary budget authority.2 From peaks of 4% and 4.5% of the total budget,
respectively in FY1979 (Camp David assistance) and FY1985 (special Middle East
aid and Africa famine relief), foreign aid’s share of the budget has fallen steadily,
dropping to under 3% since the mid-1980s and falling to its lowest amount in over 20
years – about 2.2% in each of FY1996-97. Foreign aid increased in FY1998 through
2 Discretionary spending represents the portion of the federal budget that Congress controls
through enactment of annual appropriations measures. It excludes mandatory spending
activities, such as entitlement programs. Currently, discretionary budget authority represents
about 32% of total federal budget authority.

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FY2000 faster than other discretionary budget programs, growing to 2.8% last year.
Due to sharp increases defense and some domestic discretionary spending for
FY2001, the share of foreign aid this year is estimated to have fallen back to about
2.3% (Figure 5).
Figure 6. Foreign Operations Appropriations, 1985-2001
Congress appropriates most foreign aid money through the annual Foreign
Operations appropriations bill. Each year it represents the most direct congressional
action on foreign assistance spending decisions, although small amounts of foreign aid
are funded in other legislation. Similar to the other measures of how much the United
States spends on foreign assistance programs, the $12.4 billion Foreign Operations
appropriations for FY1997 was the smallest funding level in over a decade. Congress
reversed this trend, however, for FYs 1998-2000, passing $13.15 billion, $15.4
billion, and $16.4 billion measures, respectively. While these are still well below the
nominal amounts approved in most Foreign Operations bills since the mid-1980s, the
amounts are significantly higher than for the previous two years. Absent special
supplementals that drove up appropriations in FY1999 and 2000, the current FY2001
level falls back to $14.9 billion, an amount, however, that could rise as the year goes
on (Figure 6).
How does foreign aid spending compare with other federal
programs?
As illustrated above in Figure 5, foreign aid spending is relatively small compared
with other discretionary programs funded by Congress. Within the context of total
federal spending – discretionary programs, entitlements, and other mandatory

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activities – foreign aid consumes an even smaller share of federal dollars – less than
1%. Figure 7 compares foreign aid outlays for FY2001 with those of other major
U.S. government spending categories.
Figure 7. U.S. Budget Outlays, 2001 Estimates
How much of foreign aid dollars are spent on U.S. goods?
How does this compare with other nations’ programs?
Most U.S. foreign aid is used for procurement of U.S. goods and services,
although amounts of aid coming back to the United States differ by program. No
exact figure is available due to difficulties in tracking procurement item by item, but
some general estimates are possible for individual programs, though these may differ
year to year. (See Figure 8.)
In FY2000, roughly 87% or $4.8 billion of military aid financing was used for
procurement of U.S. military equipment and training. The remaining 13% were funds
allocated to Israel for procurement within that country.
Food assistance commodities are purchased wholly in the United States and
most expenditures for shipping those commodities to recipient countries go entirely
to U.S. freight companies. Under current legislation, three-fourths of all food aid
must be shipped by U.S. carriers. On this basis, a rough estimate suggests that more
than 90% – at least $720 million in FY2000 – of food aid expenditures were spent in
the United States.

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Because U.S. contributions to multilateral institutions are mixed with funds
from other nations and the bulk of the program is financed with borrowed funds rather
than direct government contributions, the U.S. share of procurement financed by
MDBs may exceed the amount of the U.S. contribution. For example, the $2.66
billion in World Bank procurement from American sources for investment and
adjustment loans in FY1999 was over three times the $800 million U.S. contribution
to the IBRD and IDA, the Bank’s two largest facilities. The United States accounted
for about 18% of all World Bank foreign procurement in FY1999, the largest of any
country. Japan (12.6%) Germany (7.9%), France (5.5%), and Italy (4.6%)
followed.3
Most bilateral development assistance and the ESF, NIS and SEED
components of economic political and security assistance support programs in
developing countries and the new European democracies, respectively. Although a
small proportion of funding for these programs results in transfers of U.S. dollars, the
services of experts and project management personnel and much of the required
equipment is procured from the United States. According to USAID, 70% of total
USAID procurement between October 1999 and September 2000 under these
programs came from U.S. sources.
Although some might argue that a greater proportion of U.S. foreign aid than
is currently the case should be used for procurement of U.S. goods and services, a
100% level of reflows would be difficult if not impossible to achieve. Projects carried
out in the developing world by their nature require a degree of spending within the
recipient country – for local hire personnel, local building materials, and other
operational expenses.
Many argue that the foreign aid program brings significant indirect financial
benefits to the United States, in addition to the direct benefits derived from reflows
of aid dollars. First, it is argued that provision of military equipment through the
military assistance program and food commodities through P.L.480 helps to develop
future, strictly commercial, markets for those products. Second, as countries develop
economically, they are in a position to purchase more goods from abroad and the
United States benefits as a trade partner. In 1999, developing countries represented
41.6% of U.S. exports – up from 34.6% in 1990.4
Recipients of U.S. Foreign Assistance
Which countries receive U.S. foreign aid?
In FY2001, the United States is providing some form of foreign assistance to
more than 140 countries. Figure 9 illustrates the top 15 recipients of U.S. foreign
assistance estimated for that year. Assistance, although provided to many nations, is
3 World Bank Annual Report, 1999. Pages 212-216.
4 U.S. Foreign Trade Highlights, U.S. Department of Commerce, International Trade
Administration. Found at [http://www.ita.doc.gov/SmapFrameset.html].

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concentrated heavily in certain countries, reflecting the priorities and interests of
United States foreign policy. The most consistent thread connecting the top aid
recipients over the past decade has been continuing U.S. support for peace in the
Middle East, with by far the largest programs maintained for Israel and Egypt. The
top ten recipients of aid in FY2001 account for 41% of total U.S. assistance
appropriated worldwide and 63% of all assistance allocated to individual countries.
Figure 8. Leading Recipients of U.S. Aid, FY2001
* Note: As part of a special supplemental counternarcotics appropriation for FY2000,
Colombia received about $836 million in U.S. aid in that year, placing it third among the top
U.S. aid recipients. Because a large portion of these funds remained available for FY2001,
Colombia was not among the leading recipients for this year. Nevertheless, based on a two-
year average (FY2000/2001), Colombia would be the third highest recipient of American
assistance.

CRS-13
Figure 9. Leading Recipients of U.S. Aid, FY1990
Demonstrating a dramatic shift in priorities and international circumstances, most
notably the end of the Cold War, only 3 of the top 15 recipients of foreign aid in
FY2001 were on a similar list compiled for FY1900 (Figure 10). Four of the new
entries – Russia, Ukraine, Georgia, and Armenia – have only received assistance since
FY1992 following the dissolution of the Soviet Union. Kosovo, Serbia, and Bosnia
represent a large-scale U.S. response to ethnic conflict in the region. The departure
from the list of four Central American countries – Honduras, Nicaragua, El Salvador,
and Guatemala – illustrates the conclusion of conflicts in those places that dominated
U.S. interest in the 1980s. Providing substantial amounts of aid to countries allowing
U.S. access to military bases on their soil– Turkey, Greece, Portugal, and the
Philippines – has also largely ended. Using foreign aid to counter more highly
prioritized security concerns, including narcotics interdiction and weapons
proliferation, has elevated the rank of drug producing countries, Colombia (see note,
Figure 8), Peru and Bolivia, among leading recipients, while evidence of Pakistan’s
development of a nuclear capability led the United States to suspend most assistance.
On a regional basis (Figure 11), the Middle East and North Africa are receiving
the bulk of U.S. foreign assistance in FY2001 – 54%. Eastern Europe and the former
Soviet Union receive 18%; Africa, 13%; Latin America, 7%; and Asia and the
Pacific, 7%. Western Europe, previously a large aid recipient, receives negligible
amounts. As Figure 11 suggests, however, during the past ten years there have been
some significant shifts in regional allocation priorities. The Middle East proportionate
share remained dominant, while the allocation to Africa grew moderately. As aid
levels to Cold War allies in southern Europe and the Mediterranean – Spain, Portugal,
Greece, and Turkey – fell significantly in the 1990s, countries in Central and East

CRS-14
Europe and the former Soviet Union have now become to represent the second
largest area of regional concentration. Asia’s shares decreased by nearly half and
Latin America by more than half.
Figure 10. Regional Composition
U.S. aid priorities are also indicated in a ranking of recipients by their per capita
income level (Figure 12). Although per capita income is an inaccurate measurement
of development, and, as defined by the World Bank, the cut-off point between lower,
lower middle, upper middle, and high income may seem arbitrary, a breakdown by
income does provide some comparative sense of aid priorities. Of the fourteen top
recipients of U.S. aid in FY2001 (no data available for Serbia), nine are in the low
income category. In FY1990, when U.S. aid had a more clearly strategic focus, only
four countries were in the lowest category. Likewise, in FY1990, three of the top
recipients were classified as upper or upper-middle income nations, a number that has
fallen to one by FY2001.5
5 World Bank, World Development Report 2000, and World Development Report 1992.

CRS-15
Figure 11. Assistance by Income Level: FY1990
Figure 12. Assistance by Income Level: FY2001

CRS-16
Why do some countries receive grants while others receive
loans? How much of foreign aid loans have been repaid?
What incentives do foreign aid recipients have to repay U.S.
loans?
Under the Foreign Assistance Act of 1961, the President may determine the
terms and conditions under which most forms of assistance are provided. In general,
the financial condition of a country – its ability to meet repayment obligations – has
been an important criterion for the decision to provide a loan or grant. Some
programs – such as humanitarian and disaster relief programs – were designed from
their beginnings to be entirely grant activities.
Loan/grant composition. During the past decade, nearly all foreign aid –
military as well as economic – has been provided in grant form. Between 1962 and
1988, loans represented 32% of total military and economic assistance. This figure
declined substantially beginning in the mid-1980s, until by FY2000, loans represent
less than 2% of total aid appropriations. The de-emphasis in the amounts of foreign
aid loan programs came largely in response to the debt problems of developing
countries. Both Congress and the executive branch supported the view that foreign
aid should not add to the already existing debt burden carried by these countries.
Loan repayment. Between 1946 and 1998, the United States loaned about
$105.7 billion under the foreign aid program. Of that amount, $74 billion had been
repaid as of the end of FY1998, leaving $31.5 billion outstanding.6 Most recipients
of U.S. loans remain current or only slightly in arrears on debt payments. For over
two decades, U.S. foreign aid law (the so-called Brooke amendment) has prohibited
new assistance to any country that falls more than one year past due in servicing its
debt obligations to the United States. Afghanistan, Liberia, Somalia, and the
Democratic Republic of Congo are current examples of countries that are more than
one year in arrears. Selected humanitarian aid programs and drug producing
countries, however, are exempt from this debt payment requirement.
Debt forgiveness. The United States has also forgiven debts owed by foreign
governments and encouraged, with mixed success, other foreign aid donors and
international financial institutions to do likewise. In total, the United States forgave
or reduced about $14.5 billion owed by 38 countries between 1990 and 1998.7 In
some cases, the decision to forgive foreign aid debts has been based largely on
economic grounds as another means to support development efforts by heavily
indebted, but reform-minded countries. But the largest and most hotly debated debt
forgiveness actions have been implemented for much broader foreign policy reasons
with a more strategic purpose. Poland, during its transition from a communist system
and centrally-planned economy (1990 – $2.46 billion), Egypt, for making peace with
Israel and helping maintain the Arab coalition during the Persian Gulf War (1990 –
$6.7 billion), and Jordan, after signing a peace accord with Israel (1994 – $700
million), are examples.
6 USAID. U.S. Overseas Loans and Grants, July 1, 1945-September 30, 1996.
7 U.S. Department of the Treasury.

CRS-17
Most recently, the United States has been an active participant in the multilateral
debt relief initiative for the world’s most debt-strapped poor nations – the Heavily
Indebted Poor Country (HIPC) program, managed by the World Bank and the
International Monetary Fund. Along with other bilateral and multilateral creditors the
HIPC initiative is anticipated to cancel over $20 billion of debt (net present value)
owed by more than 30 countries, mostly in Africa. The United States has pledged to
contribute roughly $1 billion for the initiative, of which Congress has appropriated
$545 million.
How does the United States rank as a donor of foreign aid?
For decades, the United States ranked first among the developed countries in net
disbursements of economic aid, or “Official Development Assistance (ODA)” as
defined by the international donor community. In 1989, for the first time, Japan
supplanted the United States as the largest donor. The United States regained its
leading position in 1991, only to lose it again in 1993 and each year thereafter. In
1995, primarily because of technical data collection reasons, the United States fell to
fourth place, behind Japan, France, and Germany. The United States has fluctuated
between a second and third position since. In 1999, the U.S. was the second largest
contributor at $9.1 billion, well behind Japan’s $15.3 billion, but significantly higher
than Germany and France at $5.5 billion each. As a group, the 21 members of the
OECD’s Development Assistance Committee (DAC) representing the world’s leading
providers of economic aid, transferred $56 billion in 1999, up 5% in real terms from
the year before.
Figure 13. Economic Aid from Major Donors, 1999 (dollars)

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Even when the United States was the unquestioned leader in dollar amounts of
aid flows to developing countries, it was often among the last when aid transfers by
developed country donors were calculated by percent of gross national product. In
1999, as has been the case since 1993, the United States ranked last at 0.10% of
GNP. Denmark ranked first at 1.00% of GNP, while Japan dispensed 0.35%, France
0.38, and Germany 0.26%. The average for all DAC members was 0.24%.
Figure 14. Economic Aid from Major Donors, 1999 (% of GNP)
Congress and Foreign Aid
What congressional committees oversee foreign aid
programs?
Numerous congressional authorization committees and appropriations
subcommittees maintain primary responsibility for U.S. foreign assistance. Several
committees have responsibility for authorizing legislation establishing programs and
policy and for conducting oversight of foreign aid programs. In the Senate, the
Committee on Foreign Relations, and in the House, the Committee on International
Relations, have primary jurisdiction over bilateral development assistance, ESF and
other economic security assistance, military assistance, and international
organizations. Food aid, primarily the responsibility of the Agriculture Committees
in both bodies, is shared with the International Relations Committee in the House.
U.S. contributions to multilateral development banks are within the jurisdiction of the
Senate Foreign Relations Committee and the House Banking Committee.
Foreign
aid appropriations are provided entirely through subcommittees of the Appropriations
panels in both the House and Senate.

CRS-19
What are the major foreign aid legislative vehicles?
The most significant permanent foreign aid authorization laws are the Foreign
Assistance Act of 1961, covering most bilateral economic and security assistance
programs (P.L. 87-195; 22 U.S.C. 2151), the Arms Export Control Act (1976),
authorizing military sales and financing (P.L. 90-629; 22 U.S.C. 2751), the
Agricultural Trade Development and Assistance Act of 1954 (P.L. 480), covering
food aid (P.L. 83-480; 7 U.S.C. 1691), and the Bretton Woods Agreement Act
(1945) authorizing U.S. participation in multilateral development banks (P.L. 79-171;
22 U.S.C. 286).8 Congress usually schedules every two years debates on omnibus
foreign aid bills that amend these permanent authorization measures. Although
foreign aid authorizing bills have passed the House or Senate, or both, on numerous
occasions, Congress has not enacted into law a major foreign assistance authorization
measure since 1985. Instead, foreign aid bills have frequently stalled at some point
in the debate because of controversial issues, a tight legislative calendar, or executive-
legislative foreign policy disputes.9
In the absence of regular enactment of foreign aid authorization bills,
appropriation legislation considered annually within the Foreign Operations spending
measure has assumed greater significance for Congress in influencing U.S. foreign aid
policy. Not only does the bill set spending levels each year for nearly every foreign
assistance account, Foreign Operations appropriations also incorporate new policy
initiatives that would otherwise be debated and enacted as part of authorizing
legislation. The only foreign aid program not funded within the Foreign Operations
measure is food aid, which Congress includes in the Agriculture appropriations bill.
The Executive Branch and Foreign Aid
What executive branch agencies administer foreign aid
programs?
The bulk of the U.S. bilateral economic aid program is administered by the
Agency for International Development (USAID), working under the guidance of the
Secretary of State. USAID is responsible for most development assistance, Title II
of the food aid program, and, in conjunction with the State Department, ESF, SEED,
and NIS assistance. In FY2000, USAID had roughly 5,456 staff members, of which
8 Separate permanent authorizations exist for other specific foreign aid programs such as the
Peace Corps, the Inter-American Foundation, the African Development Foundation, aid to
Eastern Europe (SEED Act), and assistance to the former Soviet Union (FREEDOM Support
Act).
9 A few foreign aid programs that are authorized in other legislation have received more
regular legislative review. Authorizing legislation for voluntary contributions to international
organizations and refugee programs, for example, are usually contained in omnibus Foreign
Relations Authorization measures that also address State Department and U.S. Information
Agency issues. Food aid and amendments to P.L.480 are usually considered in the omnibus
“Farm bill” that Congress re-authorizes every five years.

CRS-20
only about 2,052 were U.S. citizens hired directly by the agency. The majority of
USAID staff consist of foreign nationals working in overseas missions and
representational offices who oversee the implementation of hundreds of projects
undertaken by thousands of contractors, consultants, and non-governmental
organizations (NGOs).10 Appropriations for USAID-managed programs amounted
to $7.76 billion in FY2000.
Most military assistance is administered by the Department of Defense (DOD)
in conjunction with the Office of Politico-Military Affairs in the State Department.
The Defense Security Cooperation Agency is the primary DOD body responsible for
foreign military financing and training programs. The Defense Department manages
about $3.6 billion of total foreign aid spending in FY2000.
The Departments of Treasury and State also administer several foreign aid
programs. Assistance to multilateral development banks is funneled through the
Treasury Department, whose Assistant Secretary for International Affairs manages
U.S. participation. Presidentially appointed U.S. executive directors at each of the
banks represent the United States point of view. Treasury also deals with foreign debt
reduction issues and programs. For FY2000, funding for activities falling under the
Treasury Department’s jurisdiction totaled about $1.2 billion. Several smaller,
discrete foreign aid programs are managed by specific offices in the State Department,
including those dealing with terrorism, narcotics control, weapons proliferation,
refugee relief, and voluntary support for a range of international organizations such
as UNICEF. FY2000 appropriations for these State Department-administered aid
programs totaled about $2.4 billion. The State Department also plays a major role in
management of the SEED and NIS accounts.
Other government agencies which play a role in implementation of foreign aid
programs are the Peace Corps, the Trade and Development Agency (TDA), and the
Overseas Private Investment Corporation (OPIC). The Peace Corps, an autonomous
agency with an FY2000 budget of $245 million, supports more than 6,000 volunteers
in 87 countries. Peace Corps volunteers work in a wide range of educational and
community development projects. TDA finances trade missions and feasibility studies
for private sector projects likely to generate U.S. exports. Its budget in FY2000 was
$44 million. OPIC provides political risk insurance to U.S. companies investing in
developing countries and the new democracies and finances projects through loans
and guarantees. It also supports investment missions and provides other pre-
investment information services. Its insurance activities have been self-sustaining, but
credit reform rules require a relatively small appropriation to back up U.S. guarantees.
Two independent agencies, the Inter-American Foundation and the African
Development Foundation, also administer U.S. foreign aid. Both organizations
emphasize grassroots development by providing financial support to local private
organizations in developing countries. For FY2000, Congress appropriated $5 million
and $14 million to the Inter-American Foundation and the African Development
Foundation, respectively.
10 USAID. Congressional Presentation, Fiscal Year 2001.

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Data Appendix
Table 1. Aid Program Composition, 2001
Aid Program
$s - billions
% of total aid
Bilateral Development
$3.489
23.3%
Food (non-emergency)
$0.400
2.7%
Humanitarian
$1.455
9.7%
Multilateral Development
$1.430
9.5%
Economic Political/Security
$4.443
29.7%
Military
$3.760
25.1%
Source: House and Senate Appropriations Committees and CRS calculations.
Table 2. Program Composition, 1987-1999
($s - billions and % of total aid)
Development/Food/Hu
Economic
Fiscal Year
manitarian
Political/Security
Military
1989
$6.467
44.0%
$3.417
23.2%
$4.828
32.8%
1990
$6.729
42.7%
$4.135
26.2%
$4.893
31.1%
1991
$7.388
44.2%
$4.570
27.3%
$4.759
28.5%
1992
$7.827
49.7%
$3.563
22.6%
$4.437
27.6%
1993
$8.538
52.5%
$3.510
21.6%
$4.200
25.8%
1994
$7.723
48.6%
$4.143
26.1%
$4.102
25.3%
1995
$7.664
49.9%
$3.876
25.2%
$3.815
24.8%
1996
$5.754
44.9%
$3.465
25.8%
$4.007
29.3%
1997
$5.646
41.1%
$3.823
28.4%
$3.879
30.5%
1998
$6.070
42.8%
$4.038
28.5%
$4.081
28.8%
1999
$7.033
41.9%
$5.724
31.6%
$4.448
26.5%
2000
6.205
36.5%
$5.797
34.1%
$4.998
29.4%
2001
7.594
45.2%
$4.990
29.7%
$4.217
25.1%
Source: USAID, House and Senate Appropriations Committees, and CRS calculations.

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Table 3. Foreign Aid Funding Trends
As % of total
Fiscal
Billions of
As % of
discretionary
Year
constant 2000 $s
GDP
budget authority
1946
$25.8
1.47%
–-
1947
$57.6
2.88%
–-
1948
$26.6
1.23%
–-
1949
$68.1
3.21%
–-
1950
$45.1
2.08%
–-
1951
$53.8
2.30%
–-
1952
$44.4
1.96%
–-
1953
$32.2
1.36%
–-
1954
$27.7
1.30%
–-
1955
$25.1
1.02%
–-
1956
$29.4
1.15%
–-
1957
$28.2
1.10%
–-
1958
$22.0
0.89%
–-
1959
$28.0
1.04%
–-
1960
$27.6
1.03%
–-
1961
$28.3
1.04%
–-
1962
$33.7
1.16%
–-
1963
$31.9
1.07%
–-
1964
$25.8
0.83%
–-
1965
$26.2
0.78%
–-
1966
$32.6
0.91%
–-
1967
$29.1
0.79%
–-
1968
$30.0
0.77%
–-
1969
$27.8
0.70%
–-
1970
$26.1
0.66%
–-
1971
$29.3
0.73%
–-
1972
$32.3
0.76%
–-
1973
$32.4
0.71%
–-
1974
$27.0
0.59%
–-
1975
$20.0
0.45%
–-
1976
$24.1
0.52%
—
1977
$19.4
0.41%
3.09%

CRS-23
As % of total
Fiscal
Billions of
As % of
discretionary
Year
constant 2000 $s
GDP
budget authority
1978
$21.2
0.42%
3.43%
1979
$30.1
0.57%
4.01%
1980
$19.2
0.37%
3.38%
1981
$18.9
0.36%
2.83%
1982
$20.1
0.40%
3.25%
1983
$22.9
0.41%
3.37%
1984
$24.1
0.43%
3.37%
1985
$27.2
0.43%
4.51%
1986
$24.3
0.39%
3.33%
1987
$20.9
0.33%
3.00%
1988
$18.9
0.28%
3.06%
1989
$19.3
0.27%
2.80%
1990
$19.9
0.28%
2.84%
1991
$20.3
0.28%
2.90%
1992
$18.6
0.25%
2.51%
1993
$18.6
0.22%
2.38%
1994
$17.9
0.23%
2.38%
1995
$16.6
0.21%
2.45%
1996
$13.8
0.18%
2.29%
1997
$15.0
0.19%
2.12%
1998
$15.0
0.15%
2.46%
1999
$16.8
0.17%
2.62%
2000
$16.9
0.17%
2.80%
Source: USAID, Office of Management and Budget, and CRS calculations.