DAC Data Doesn’t Tell All

Global aid flows fell by nearly 3 percent in 2011 according to a recent announcement from the Organization for Economic Cooperation and Development (OECD). The drop in development assistance is considered a result of the global recession and fiscal-tightening as governments trim expenditures to balance budgets. Altogether, aid flows fell by $3.4 billion to a total of $133 billion, the first decrease in development assistance since 1997 (disregarding years of exceptional debt relief).So where does U.S. foreign assistance fit into the picture? Like many of its DAC compatriots, the U.S. reduced its aid spending by 0.9 percent compared to 2010 levels. Still, the U.S. gave more aid than any other donor in 2011, with flows totaling $30.7 billion. But it’s important to remember that what we give is only a fraction of what we have. U.S. aid represents a paltry 0.2 percent of our gross national income, much lower than the majority of our DAC peers.Naturally, this drop in aid has a lot of members of the aid community concerned. The OECD Secretary-General Angel Gurria has encouraged donors to meet their commitments, warning that, “the fall of ODA is a source of great concern, coming at a time when developing countries have been hit by the knock-on effect of the crisis and need it most.” Others scolded governments for attempting to balance their books on the backs of the poor. On the whole, these comments are justified: U.S. foreign assistance makes up less than 1 percent of the budget. As Jeremy Hobbs, Executive Director of Oxfam International recently said, “cutting aid is like cutting your hair to lose weight.”Despite the doom and gloom, there’s still room for putting these data into context. First, as astutely noted by Laurie Lee in this Guardian blog (see comments section) the “golden age” of aid is not really over. A 3 percent decrease in total allocations is not too shabby considering the magnitude of the financial crisis, and we are coming off of 14 years of growth in total aid given. We’re also witnessing the rise of the BRICS and other emerging donors and their increasing involvement in the aid game, though their current contributions may be relatively small.In terms of the U.S. in particular, our engagement with developing countries goes well beyond official development assistance (ODA). In 2009, U.S. private philanthropic giving totaled $37.3 billion, remittances provided $90.7 billion, and U.S. private capital flows invested roughly $69.2 billion in developing countries.[1] Altogether that’s at least $197.4 billion dollars more than all DAC donors’ ODA in 2011 combined.Finally, according to the research of Michael Clemens and Todd Moss, the goal for donors to devote 0.7 percent of their national income to development assistance is a questionable target based on outdated and discredited assumptions about aid. Our team made the point last year that if the U.S. were to give 0.7 percent of U.S. GNI as aid, there would be a myriad of concerns regarding the absorptive capacity of recipients, declining effectiveness, and aid dependency, among others.Still, the new OECD numbers bring up a number of questions: What is U.S. foreign assistance doing to make ends meet? How are we adjusting to a tighter budget, and what are we doing to get more impact from every tax dollar spent on foreign aid? While there is much more work to be done, the USG is moving in various ways to capitalize on this emerging aidscape:

• Learning to live within its means has helped encourage the government to make its aid more effective. USAID Forward represents a concerted effort to improve the Agency, and the administration has made attempts to bring more selectivity and focus to bear on the allocations of its resources. Honing in on Africa, the U.S. increased its bilateral assistance to the continent by 17.4 percent last year and aid to least developed countries rose by 6.9 percent. This year, the FY2013 request called for less aid to Latin America and Eastern Europe to focus funds on other regions.
• Making more of an effort to leverage the funds and expertise of the private sector to augment its ODA. Specifically, Administrator Shah has placed a new focus on public-private partnerships to marry development objectives with those of the corporations operating in developing countries. There is still a lot of room for improvement and the government needs to work on building a better “partnership mindset” with the private sector, but movement in this area is nevertheless encouraging.

• Developing expanded arrangements with new emerging market donors. Trilateral cooperation – understood in its basic form as a partnership among a traditional donor, an emerging donor, and a low income country – is a new way for the USG to leverage funding and enhance the effectiveness of our aid. Just this week, in connection with Brazilian President Dilma Rousseff’s visit to the U.S., USAID and the State Department highlighted efforts to work with Brazil on a variety of trilateral efforts to tackle food security, HIV/AIDS, environmental conservations issues, and more.

Just to be clear, cutting development aid to solve a budget crisis makes very little sense for any country, and we have openly lamented plans for balancing America’s checkbook on our aid account. But the recent release of DAC ODA numbers has drawn attention away from the ways in which U.S. foreign assistance is learning to make more out of less and adapt to this new austere environment.