AID's Idea: Cut Costs By Leveraging Development Dollars

AID'S IDEA: CUT COSTS BY LEVERAGING DEVELOPMENT DOLLARS

January 1996
EXECUTIVE MEMO

AID's Idea: Cut Costs By Leveraging Development Dollars

L

ast fall, the U.S. Agency for International Development found itself caught in the crossfire of a foreign aid battle between Senate Foreign Relations Committee Chairman Jesse Helms, R-N.C., and the Clinton Administration. Helms hijacked ambassadorial nominations and an arms-control treaty in his battle to eliminate AID, the U.S. Information Agency and the Arms Control and Disarmament Agency. Meanwhile, behind the scenes, an innovative idea to reduce costs at AID in the face of substantial budget cuts was quietly in the works.

The idea is to replace outright grants to about 10 higher-income developing nations with credit authority, in the form of direct loans and loan guarantees. These nations otherwise would probably be cut off from AID funding as the agency copes with a shrinking budget. The credit programs would allow them an orderly wind-up of projects American aid has supported.

According to an AID report, such loans would be used "in lieu of grants whenever the same foreign aid development objectives can be met and where, under credit reform, the transactions are expected to be financially sound."

AID Administrator Brian Atwood likes the idea. "In those situations where the economic performance of the country at the macro level is strong, we feel that enhanced credit programs, loan programs of various types, can help us leverage money, and we can spend $1 million and get $20 million worth of benefits," he said in an interview with Government Executive. "Those kinds of programs are very, very positive." Atwood hasn't yet had a chance to make a strong case before Congress for increased credit authority. But Republicans might look with favor on the hardening of assistance terms and the shift to bankable development projects that would be entailed in the credit deals.