U.S. forming strategy on foreign aid

? There’s a remarkable consensus in the capital that, in the wake of the September terrorist attacks, the United States ought to provide more foreign aid. The Bush administration agrees but it also is arguing that the nation has to exert more influence over how that foreign aid is used.

Six years after ending welfare as we know it, Washington is girding to end foreign aid as we know it. Indeed, the Bush administration is set to apply the principles of welfare reform to foreign aid.

The American foreign aid budget has never been as large as its critics made it out to be; this year, for example, U.S. development assistance runs to about $10 billion, less than the Agriculture Department spends on rural development. President Bush now is proposing to spend an additional $10 billion over the next three years, but it is clear that the administration will also insist on more development bang for its foreign-aid buck.

American aid officials have no blueprint for how to measure that bang. But the administration and congressional leaders, including House International Relations Chairman Henry J. Hyde of Illinois, have shown interest in some of the elements of an index of economic factors prepared by the Heritage Foundation, the Washington-based conservative think tank.

According to these principles, U.S. aid would be directed to nations that are free of corruption in their judiciaries and bureaucracies, that have few trade barriers, that encourage the flow of capital and investment and that ensure property rights.

This sounds simple and reasonable, the foreign-aid equivalents of generally acceptable accounting principles. In truth, adapting these notions would be a dramatic departure for American aid.

“The way it used to work was that we gave the money away and nobody cared what happened,” said Allan Meltzer, an economist at Carnegie Mellon University and the American Enterprise Institute, who led a congressional commission designed to examine how international financial institutions distributed their funds. “This means that we’re going to give money easily to those who do good things and not give very much at all to those who don’t. We want performance from these countries. And we’re saying that our own performance in giving this money away was lousy.”

These proposals for more foreign aid are one of the signature ironies of the new century, for they come out of the heart of the conservative movement. Most conservatives have long been skeptics or even ardent opponents of foreign aid, believing that these programs have been wasteful and counterproductive, fostering corruption rather than economic development and, in many cases, providing assistance to American adversaries.

The big change came in 2000, with the release of the Meltzer Commission report. Some conservatives believed the report provided an opportunity for a new consensus: Make U.S. aid more generous and more constructive at the same time. Few subjects within the conservative movement spur more contention, but President Bush has weighed in heavily on the side of more aid.

He has also made it clear that he’s not willing to provide the sort of open-ended aid that was part of the foreign-policy consensus of the 1960s and 1970s, supported alike by Democrats such as Sen. J. William Fulbright of Arkansas and Republicans such as Rep. Barber B. Conable of New York, for years the ranking member of the House Ways and Means Committee who later served as president of the World Bank.

The administration is taking one of the arguments from the welfare-reform debate (the notion that aid is hurting the people it is designed to help) and is looking to adapt some of the fundamentals of welfare reform (not only requirements that the programs and projects that are underwritten by U.S. aid actually work, but also the foreign-aid equivalent of work requirements themselves). Countries, for example, that do little to reform their markets, the governmental institutions or their business policies will have little chance to win U.S. aid dollars.

Under these conditions, many of the Eastern European nations that have freed themselves from centralized, planned economies dating from the Warsaw Pact years would be strong candidates for American assistance. So would nations such as Chile, which has begun a program to reduce its tariffs by a percentage point a year until they reach 6 percent. There would be special rewards for nations that have low inflation rates, that encourage international development and assure social stability.

“This approach is using the carrot of additional money to get countries to do what is in their own interest anyway, or at least in the interest of their people,” said Gerald P. O’Driscoll Jr., a former vice president of the Federal Reserve Bank of Dallas and the director of Heritage’s Center for International Trade and Economics. “We do a lot of hectoring or preaching, but we don’t tell these countries what they will gain if they do certain things and what they will lose if they don’t. This comes out of the realization that there are very few things that a superpower can do other than to threaten to bomb someone.” The new consensus for a new foreign aid is one of the cornerstones of the new era in international relations.