Foreign Aid: An Introductory Overview of U.S. Programs and Policy

Publication Date: January 2005

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: International relations

Type:

Abstract:

Foreign assistance is a fundamental component of the international affairs budget and is viewed by many as an essential instrument of U.S. foreign policy. Since the end of the Cold War, many have proposed significant changes in the size, composition, and purpose of the program, several of which have been adopted. The focus of U.S. foreign aid policy has also been transformed since the terrorist attacks of Sept. 11, 2001. This report provides an overview of the U.S. foreign aid program, by addressing a number of the more frequently asked questions regarding the subject.

There are five major categories of foreign assistance: bilateral development aid, economic assistance supporting U.S. political and security goals, humanitarian aid, multilateral economic contributions, and military aid. Due largely to the implementation two new foreign aid initiatives — the Millennium Challenge Corporation and the Global AIDS Initiative — bilateral development assistance has become the largest category of U.S. aid.

In 2005, the United States is providing some form of foreign assistance to about 150 countries. Israel and Egypt continue, as they have since the late 1970s, as the largest recipients, although Iraq, receiving over $20 billion for reconstruction activities since mid-2003, was the biggest recipient in FY2004. The importance of Latin America counter-narcotics efforts is also evident, with Bolivia, Peru, and more recently, Colombia, among the top U.S. aid recipients. The impact of the terrorist attacks on September 11, 2001, and the subsequent use of foreign aid to support the war on terrorism is clearly seen in the estimated country-aid levels for FY2005.
Afghanistan, Pakistan, Turkey, Jordan, and Indonesia are key partners in the war on terrorism. Some countries that are the focus of the five-year, $15 billion HIV/AIDS initiative are also among the leading recipients.

By nearly all measures, the amount of foreign aid provided by the United States declined for several decades but has grown in the past few years. After hitting an all-time low in the mid1990s, total foreign assistance (but excluding Iraq reconstruction) for FY2003-2005, in real terms, has been larger than any three-year period since the early 1990s. The 0.16% of U.S. gross national product represented by foreign aid obligations for FY2005, however, is among the smallest amounts in the last half-century. The United States is the largest international economic aid donor in dollar terms but is the smallest contributor among the major donor governments when calculated as a percent of gross national income.

The U.S. Agency for International Development (USAID) manages the bulk of bilateral economic assistance; the Treasury Department handles most multilateral aid; and the Department of Defense (DOD) and the State Department administer military and other security-related programs. The Millennium Challenge Corporation is a new foreign aid agency created in 2004. The House International Relations and Senate Foreign Relations Committees have primary congressional responsibility for authorizing foreign aid programs while the House and Senate Appropriations Foreign Operations Subcommittees manage bills appropriating most foreign assistance funds.