Q&A: Why Should the U.S. Provide Foreign Aid to Another Country?

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Matthew Rooney

Economic growth expert Matthew Rooney shares why U.S. foreign aid is critical to regions like Central America and how much of the U.S. budget is actually impacted by this assistance.

What does it mean to provide foreign aid to another country?

Foreign aid is driven by compassion and strategy. The U.S. Congress budgets a certain amount of U.S. dollars—taxpayer dollars— each year to provide aid and influence foreign government policies so that they support American priorities. 

For example, the U.S. budgeted $2.6 billion in assistance to Central America from 2015 to 2018, or about $650 million per year, divided among the seven countries of Central America (Belize, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama). That may sound like a lot, but it is less than $100 million for each country, which is a modest amount compared to those governments’ overall budgets.  El Salvador’s government budget, for example, is almost $4 billion, 40 times greater than U.S. assistance.

In providing these funds, the U.S. presses those countries to prioritize American goals for the region:  improve governance by advancing the governments’ ability to collect taxes and prosecute criminals; enhance public security by training police, improving border management, and attacking organized crime and gangs; and promote prosperity by encouraging pro-growth policy reforms, improving worker training, and encouraging regional economic integration.

These funds are not given to the government of the recipient country; rather, the U.S. contracts with third parties like non-governmental organizations (NGOs) or educational institutions to provide goods and services directly to the citizens of the country. Generally, these contractors must be American entities. For example, to help train police in Central America, the U.S. will contract with a third party like the Federal Law Enforcement Training Center in Georgia to train police officers from Central America, who are selected by the U.S. after a background investigation to ensure that the trainees are not corrupt or vulnerable to blackmail.

How much money has the government set aside for foreign aid in 2019?

The Trump Administration requested $27.7 billion in worldwide foreign assistance funding for fiscal year 2019. That sounds like a lot of money, until you consider the total U.S. government budget requested by the Trump Administration is $4.746 trillion. As a result, foreign assistance amounts to a little more than half of one percent of the federal budget – about one-half cent of each dollar.

For reference, proposed assistance to Central America in 2019 would be about 2.3 percent of total U.S. foreign assistance, or about one-one-hundredth of one percent of the overall federal budget – one-one-hundredth of a cent of each tax dollar.

What happens if the U.S. cuts foreign aid?

The first thing that happens is that the recipient country government’s commitment to supporting U.S. goals weakens, both financially and politically.  They have less resources to improve law enforcement training, or fight organized crime, or improve their business environment, which compete with all the other priorities they face, like housing and health care and education and road infrastructure – and they begin to wonder if they should be committed to those goals at all.

The second thing that happens is they look elsewhere for those resources. They may borrow more money, further weakening their financial stability, or they may turn to another donor. Sometimes the Europeans will step in, but these days it is often China or Russia. In any case, that aid would go to support those governments’ goals, not ours: the Europeans are our allies, but we have different views on the role of regulation in the economy; the Chinese may not share our desire to see pro-market economic reforms enacted; and the Russians may not see the benefit of prosecuting organized crime.