Foreign Aid Budget Cuts: Who Pays for Development?

April 14th, 2011: During a time of tight federal spending and increased private sector influence, the role of governments in foreign aid funding and regulation is at a crossroads. Last Friday, in an effort to prevent a government shutdown Congress passed a stopgap budget bill that agreed to reduce the State Department and foreign assistance budget by $8 billion for the remainder of FY2011. However, recent research suggests that a reduction in government foreign assistance will give way to an increase in private investments abroad.

According to Hudson Institute’s “Index of Global Philanthropy and Global Remittances 2010” only 25% of the total aid provided to developing countries this past year came from foreign governments. The additional 75% of resources, services and financial assistance provided to the developing world came from “global philanthropy, remittances and private capital investment.” The report predicts private investors and non-profit organizations will increase spending in 2011.

In the report the United States is ranked last in net ODA (Official Development Assistance) as a percentage of GNI (Gross National Income) among all developed countries. However, Hudson Institute researchers discovered that Americans provide the most assistance to developing countries when philanthropy and private investments are considered. Although this report proves the U.S. is not as “miserly” as critics suggest, American foreign aid supporters continue to organize against federal budget cuts.

On February 8^th over 1,100 foreign aid advocates gathered in Washington D.C. for the 2011 CARE conference, soon after the House and Senate first proposed significant cuts to State Department and USAID operations as a solution to the federal budget crisis. In 2010 CARE, a non-profit humanitarian organization, supported 768 poverty-relief projects in 70 countries. USAID Administrator, Rajiv Shah was a keynote speaker at this year’s CARE conference. Government foreign aid programs “are a tremendous part of a bi-partisian legacy to make the world a better place and currently at huge, huge risk,” Shah told the audience.

For the final day of the conference CARE supporters lobbied for Congressional support of foreign aid and federal funding for CARE programs. I followed the Virginia group who met with House Majority Leader, Eric Cantor. One of Cantor’s legislative aides, Katherine MacGregor, welcomed the group into a small conference room. MacGregor nodded and smiled throughout the group’s presentation, but explained that Cantor’s priority was “getting control of spending.” In response to asks for federal support of women’s education and microsavings programs, Cantors aide replied, “We would love to see these projects funded by private donors.”

The House Committee on Appropriations released a comprehensive list detailing specific areas of government affected by Friday’s agreement, including 32 state and foreign operations programs. The budget for the remainder of FY2011 will be decided on this Thursday. That is if Congress can meet its own deadline for an official vote. As the 2012 budget debate begins, politicians should investigate possible effects of a shift in foreign aid funding. Does privately funded aid relieve government responsibility? Can private and voluntary sectors create sustainable models of development? Although the Hudson Institute’s report provides us with a more complete picture of foreign aid, decreasing government involvement in development and diplomacy efforts could negatively impact international trade and national security, despite the generosity of private investors.