26 February 2004
Source: http://usinfo.state.gov/usinfo/Archive/washfile_feature5.html

USAID Proposing New Foreign Assistance Strategy, Natsios Says

Would meet recipient countries' divergent needs

The U.S. Agency for International Development (USAID) is proposing to redirect foreign aid in ways that would meet the "divergent needs" of countries with varying income levels, the agency's director says.

In a February 25 address to USAID's Advisory Committee on Voluntary Foreign Aid in Washington, Andrew Natsios, the agency's administrator, said the proposed aid strategy would focus on five categories starting with what he termed "transformational development," or helping countries achieve far-reaching fundamental changes in institutional capacity, human capacity and economic structure so that further economic and social progress can be made without dependence on foreign aid.

This part of the strategy extends beyond reducing poverty to areas such as promoting gender equality and environmental protection, according to a discussion paper Natsios presented at the meeting.

The U.S. emphasis on a new way of thinking of foreign aid already has had effects as countries are learning that good governance, investments in people and economic reform can qualify them for more U.S. aid funding from the new Millennium Challenge Account (MCA), he said.

The proposed strategy includes measures to help strengthen fragile countries, the administrator said. Fragile countries include those unable or unwilling to provide basic services to their populations and those still weak but making progress on stability and basic governance, according to the paper.

USAID would work with Congress and other parts of the administration to identify resources separate from those devoted to development to be dedicated to promoting stability, recovery and governance reform in failed or failing countries, Natsios said.

A third focus of the strategy is providing humanitarian assistance where there is an urgent need, "without penalty for weak government commitment." This would include an emphasis on disaster prevention, building local capabilities to respond to a disaster and protecting internally displaced persons, the paper states.

The fourth part of the strategy is support for strategic countries based on foreign policy priorities. Another is a focus on global issues such as HIV/AIDS and human trafficking, Natsios said.

Saying "foreign aid is no longer a stand-alone operation," Natsios emphasized that USAID is now represented at the highest levels of U.S. government decision-making and has developed a joint strategic plan with the State Department to harmonize foreign policy and development goals.

USAID is welcoming comments on the paper, posted online at http://www.usaid.gov/policy/pdabz3221.pdf, Natsios said.

Following is an excerpt from the paper, the overview:

U.S. Foreign Aid


The 2002 National Security Strategy assigns development a new prominence in U.S. national security, along with diplomacy and defense. At the same time, there is an intense debate in the foreign policy community, about how to enhance the effectiveness of foreign aid.

This paper addresses both of these issues. It clarifies the evolving role of U.S. foreign assistance in a rapidly changing global context; and it suggests ways to increase aid effectiveness and policy coherence through greater clarity of purpose, alignment of resources with objectives, and strategic management.


Given many threats to national security in the post-Cold War, post-9/11 world, U.S. foreign assistance must address more than humanitarian and developmental goals. Conditions of instability and insecurity that arise from terrorism, transnational crime, failing states, and global disease must be mitigated for sustained economic and social development to take root and flourish.

Thus, U.S. foreign assistance now must be understood as addressing five core operational goals:

-- Promoting transformational development
-- Strengthening fragile states
-- Providing humanitarian relief
-- Supporting U.S. geostrategic interests
-- Mitigating global and transnational ills

Each goal presents distinct challenges, and achieving each will require different knowledge and responses. While all require a deep understanding of the local context and drivers of change, each must be approached with different considerations for risk, program design, and accountability.

From the perspective of long-term U.S. interests, the goal of transformational development remains the best investment. Only through building good policies, stable institutions, and local capacity will developing countries create their own prosperity and assume responsibility for their own security. As a nation develops, it has less need for external aid to deal with disasters and conflict or to address disease pandemics and transnational crime. Stable, prosperous, democratic nations make better partners for the United States as they address their own interests from a foundation of interdependence. And, such countries offer growing opportunities for mutually beneficial trade and investment.

Not all countries enjoy the conditions needed for transformational development. In countries that are not committed to reform, conventional development programs are unlikely to advance development. In fact, assistance actually may mask underlying instability or contribute to state fragility. Hence, it is critical to invest resources in these countries very carefully, with clear expectations as to what is possible in the short term, and with flexibility tailored to changing circumstances.


Donors have learned much about development and aid effectiveness in the past five decades, including the following:

-- Foreign aid is essentially supportive, while local leadership, ownership, and participation are critical.
-- Progress is primarily a function of commitment and political will to rule justly, promote economic freedom, and invest in people.
-- Institutions, not resources, matter most.
-- Foreign aid and trade are complements to -- not substitutes for -- each other.

There are clear avenues for improving U.S. foreign aid effectiveness, including:

-- Clarify the goals of aid and align the resources with those goals.
-- Allocate aid across and within countries more selectively.
-- Emphasize strengthening institutional capacity.
-- Place more emphasis on host country partnership, ownership, and internal participation.
-- Pay more attention to the constraints of absorptive capacity.
-- Improve donor coordination and harmonization.
-- Ensure more timely and effective graduation from traditional development assistance.


Important changes are already underway, including:

USAID and State coordination -- Building on the National Security Strategy, USAID and the State Department have recently created a Joint Strategic Plan to harmonize foreign policy and development goals. Both are increasing administrative and policy coherence through the creation of the joint Management Council and Joint Policy Council. In all core goal areas, State and USAID will work more closely to build the political commitment that underpins reform and progress.

USAID and Millennium Challenge Corporation [MCC] coordination -- USAID will assure strong complementarity between its development portfolio and that of the MCC, employing principles of selectivity based on commitment and performance in countries that can aspire to MCC eligibility or are good candidates for transformational development.

USAID Fragile States Strategy -- USAID will improve its strategic analysis of state fragility and conflict vulnerability. USAID will also identify new program approaches for use in selected fragile states and increased organizational responsiveness to the internal dynamics of these states.

Resource rationalization -- Strategic management of resources (including policies, strategies, resource allocation, program guidance, and results reporting) will be phased in to better distinguish and align resources by specific goal area within USAID's strategic budgeting process.

With support from key executive and legislative decisionmakers, further reforms could help achieve even greater effectiveness and coherence:

Increased availability and flexibility of resources for transformational development and fragile states are needed to achieve the core foreign aid goals. With the current budget structure, geostrategic concerns and transnational issues are well funded. In countries that will not immediately benefit from the MCA [Millennium Challenge Account], sufficient resources appropriate for transformational development are quite limited relative to needs. In particular, funds that support country economic growth strategies are scarce.


"Transformational" development is development that does more than raise living standards and reduce poverty. It also transforms 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. The primary determinant of progress in transformational development is political will and commitment to rule justly, promote economic freedom, and make sound investments in people.

For foreign aid to most effectively contribute and support recipient self-help efforts donors should: allocate aid among countries based on selectivity criteria; allocate aid within countries based on recipient needs and priorities; emphasize partnership, ownership, and participation in the selection and design of programs; focus on strengthening institutional capacity and dealing with absorptive capacity issues; and reinforce donor coordination and harmonization.

While earmarks, directives, and initiatives arguably make positive development contributions, such funding is often associated with restrictions and provisions that make it difficult to adhere to principles of aid effectiveness. They often get in the way of allocating aid selectively; eliciting recipient ownership and participation; focusing on institutional development to alleviate absorptive capacity constraints; reinforcing donor harmonization and coordination, and encouraging timely graduation. Accordingly, for aid to best support transformational development, donors need flexibility to adhere to best practices.

Created:25 Feb 2004 Updated: 25 Feb 2004