USCCB - (SDWP) - Foreign Aid and the New Millennium Challenge Account

Foreign Aid and the New Millennium Challenge Account

June 2002

Issue

Poverty and disease plague the poorest countries of the world and impede economic growth, development, and international stability. To address these concerns adequately, significant foreign aid is vital, with particular emphasis on funding to combat global poverty and promote development through education, global health, other development assistance, and debt relief. The United States is the wealthiest country in the world, but its foreign assistance is lower, as a percentage of its wealth, than that of any other major donor country. Under the Administration's budget for 2003, foreign aid as a percentage of the country's economy would be at its second lowest level since World War II.¹

Recent Developments

On March 14, 2002, President Bush announced a proposal to create a "Millennium Challenge Account" (MCA) that would significantly increase foreign aid for the first time since 1985. The President's proposals would increase annual foreign aid funding to combat global poverty and promote development by 50 percent, or $5 billion, in the year 2006, with gradual increases beginning in 2004. The details of the proposal are still being formulated, but it is clear that criteria will be established to determine which countries are eligible for assistance from the MCA, and that there will be other criteria established to measure progress in meeting development and poverty reduction goals. The country eligibility criteria are to be based broadly on just governance, investment in people, and encouraging economic freedom.

USCCB Position

Support the Millennium Challenge Account.
Urge substantial increased funding ($1 billion) forpoverty reduction immediately (for 2003), while the MCA is being further defined.
Emphasize that careful attention must be given to ensure that country eligibility and performance criteria are appropriate and are developed through transparent processes with local participation.
Suggest that the World Bank and IMF's Poverty Reduction Strategy approach would be a reasonable vehicle for assessing country eligibility under the MCA.
Urge that creative approaches be developed to channel resources to the poor who live in poor-performing countries that do not meet the country eligibility criteria of the MCA.
Urge that the funds committed to the MCA will be in addition to, and not a substitute for, other significant increases needed this year, on the order of $2 billion, to fight the global HIV/AIDS pandemic.

Why is more poverty-focused development assistance needed?

A significant international investment is needed to bring hope and possibilities to the poorest and most vulnerable of our world. For global health alone, estimates are in the range of an additional $10 billion to $15 billion each year. However, investments to address health crises will not succeed if they are not part of a comprehensive development strategy that addresses some of the root causes of disease. At least an additional $4 billion per year is needed from the international community just to halve hunger by the year 2015. Another $2.5 billion to $5 billion is estimated to be needed annually to help the 47 poorest countries provide universal primary school education for their children, a goal recently reaffirmed by the United States.

Why is an increase in U.S. investment in foreign aid needed immediately?

The current U.S. investment in foreign assistance is severely low. For the past three years, the United States has given just 0.01% of gross national product, lower than any other major donor country. This figure represents a 45% drop in U.S. official aid as a percentage of GNP since 1990-1994 (average 0.18 percent of GNP).

The European Union, with a slightly lower combined GNP than the United States, gives 2-1/2 times as much aid by volume, and Germany, France, and Italy, with only half of U.S. GNP, together give the same volume of aid as the United States. Even with the increases proposed in the MCA, the annual volume of U.S. foreign aid in 2006 would still be $10 billion less than the level currently invested by the European Union – and the disparity is likely to grow even larger as the EU implements proposals to increase its foreign assistance substantially.

How does foreign assistance relate to national security?

Global poverty, while not a direct cause of violence and provides a breeding ground or fertile field in which violence thrives. The symptoms of poverty are many and varied, including lack of education, economic infrastructure, proper health care, food security, and access to clear water. These symptoms assault human dignity, destabilize regions, and can provoke anger, hostility, and fierce anti-American sentiment. In the globalized world, the destabilization of other nations threatens American and international security. It is short-sighted and counter-productive to consider only the military aspects of national security without providing adequate funding for sustainable development essential to international stability and peace.

For further information:

USCCB Testimony on 2003 Foreign Assistance, www.usccb.sdwp/international/festap02.shtml
Kelly Hicks, 202-541-3153 (ph); 202-541-3339 (fax); khicks@usccb.org
Gerry Flood, 202-541-3167 (ph); 202-541-3339 (fax); gflood@usccb.org