The Scandal That Is Foreign Aid

Just two weeks after the US Embassy in Egypt was ransacked by terrorists and a band of Egyptian thugs, President Obama announced that he would provide Egypt’s new Muslim Brotherhood government with an emergency infusion of $450 million in US aid.

Two weeks may be too long for the Administration to remember these things, but Obama’s announcement came just hours after Egypt’s new president Morsi delivered, from the podium of the UN General Assembly, a 37 minute pro-Palestinian anti-Israeli rant, in which he appealed to the United Nations to use its “principal responsibility” to help stem free speech that might offend what Islamic sanctities hold sacred. In other words, he called to rein in the hated American people’s ability to say and write what they like – or, put another way, attack the First Amendment to the US Constitution.

Within hours of Obama’s announcement, Congressional Republicans, led by Kay Granger of Texas, Chairman of the House Appropriations Subcommittee that oversees foreign aid, raised enough of a stink to slow it down, if not derail it permanently.

Egypt has received more US foreign aid, since 1979, than any country except Israel – about $2 billion a year (and excluding military aid to Iraq and Afghanistan). After Egyptians overthrew former President Hosni Mubarak last year and installed the Muslim Brotherhood, the Obama Administration pledged an extra $1 billion to bolster the new government’s transition to democracy, largely to relieve Egypt’s debts to the United States. The $450 million Obama pledged last week is intended to further relieve Egypt’s faltering economy and would be in addition to a $4.8 billion loan to Egypt from the International Monetary Fund.

Obama’s new Egyptian pledge is just a drop in the bucket in a $19 billion boondoggle that is so laden with corruption and waste that the entire enterprise should be a public outrage, and it ought to be abolished or completely restructured. 

Former Reagan-era Ambassador Eugene Douglas, who has visited Africa dozens of times both as a diplomat and as a businessman, and who has closely observed US foreign aid and its impact for years, told me, “the system is rotten and has become just another piggy bank for the ‘one world’ progressive college graduates who find it so uplifting to act out fantasies with taxpayer funds and virtually no practical accountability.”

US foreign aid is no stranger to criticism. It was originally intended to promote US foreign policy but is increasingly used for political and humanitarian purposes which often have little to do with American interests. It is questionable whether it has any positive impact on US foreign policy; nobody knows how much of what we send abroad is stolen, converted to another use, or actually reaches its intended destination.

The US Agency for International Development (USAID), the State Department entity that administers foreign aid, has admitted that it really has no idea how much US taxpayers’ money is used for its intended purpose and how much lines the pockets of corrupt politicians or winds up in Swiss banks. According to USAID’s Inspector General, the agency failed, in 2009, to conduct mandatory annual audits of about $500 million in funds transferred to 52 foreign countries because “it was unable to produce an inventory of all organizations it gives money to.” People familiar with the way USAID works believe the Inspector General’s comment is vastly understated.

Excepting Israel, eight countries receiving the most US foreign aid are the eight most corrupt countries in the world – Sudan, Kenya, Pakistan, Uganda, Nigeria, Ethiopia, Egypt, and Columbia, according to www.AIDMonitor.com, a watchdog group. Even worse, nobody has any idea whether US aid actually does further US national security interests. A 2006 report from the Government Accountability Office, for example, criticized both the State Department and the Defense Department for failing to measure how the funding actually contributes to U.S. goals.

One thing US aid does not do is instill any sort of loyalty to the United States. During September of this year, anti-US demonstrations unfolded in 29 countries, all with large Muslim populations. Those 29 countries received, over three years between 2008 and 2010, a total of $29 billion dollars in assistance from the US (excluding Iraq and Afghanistan, which between them received $44 billion over the same period). And did any of those countries support us in their votes in the United Nations? Only one – Turkey – voted, during 2011, with the US more than half the time, and only four – Georgia, Ukraine, Peru, and El Salvador – more than 25%. 

Or how about Bashar Assad’s Syria, one of the most repressive regimes in the region engaged in killing tens of thousands of its own innocent civilians, including women and children, and who is host to a regular infiltration base for jihadists into Iraq – jihadists whose calling is to murder US soldiers. Over the past three years, Syria received $84 million in US aid.

And what does the Obama Administration want to do about it? Give them more money. In a speech last week to the Group of 8 Nations in New York, Secretary of State Hillary Clinton said we needed to provide more support to governments that have emerged from the Arab Spring, citing specifically Egypt, Libya, and Tunisia.

Corruption has always been the bane of foreign aid. Consider Sudan, a sub-Saharan country that gets close to $1 billion a year and which ranks first on the list of corrupt governments. A researcher for the Council on Foreign Relations reported just a couple of months ago: 

[S]ince 2005, [Sudanese] state officials and government contractors have stolen an estimated $4 billion from treasury coffers—an amount equivalent to 30 percent of the country’s annual economic output. In a particularly egregious example, the Ministry of Finance and Economic Planning squandered millions of dollars as grain contracts, meant to stave off an anticipated food shortage, was instead awarded to shell companies. 

The African Union estimated as long ago as 2002 that corruption of foreign assistance was costing the continent $150 billion a year. Since then it has only gotten worse.

Nobody really knows how much aid money just disappears, but it is a sizable part of the budget. Perhaps even worse, a large portion of aid is administered through “Beltway Bandit” contractors, enriching former bureaucrats with the money intended for poverty-stricken and destitute parts of the world. These firms administer a great percentage of USAID money and; together with their army of high-priced and well-connected Washington lobbyists, lawyers, public relations experts, accountants, and money managers; keep international aid at levels way beyond where it should be, and for purposes that have little to do with US national security or humanitarian needs. Call them, if you will, the international poverty pimps, whose mission is to do well by making Congress think they are doing good.

These are not small entrepreneurs undertaking little projects in the African bush. Ten American for-profit government contractors each received over $200 million from USAID last year and together received $3.19 billion to administer “development” projects; those companies are often run and staffed by former USAID employees under what might be described as a second retirement system. By the time they take out their overhead, fees for the lawyers, lobbyists and public relations specialists, conduct environmental and feasibility studies, pay for first class travel for inspection visits and to attend high-end conferences at the world’s best watering holes, little of the taxpayers’ money is left to do what the dollars were intended for. 

Worse, these Beltway bandits become a breeding and feeding ground for left-leaning, progressive, anti-capitalist do-gooders to spread their gospel among the downtrodden countries of the world. To its credit, the Obama Administration has at least argued that the contractors’ roles should be reduced, although little has actually happened. And USAID is itself virtually incapable of running the projects, meaning without the middle men, it is likely that even more of the money would disappear.

A case in point is a 120 mile-long road built in South Sudan with USAID money last year connecting Jubo, the capital, with Uganda – the only paved road in the country – by the Louis Berger Group, a multi-million dollar international government contractor. The initial budget was $87 million, but the project wound up costing $225 million, most of which went to non-Sudanese contractors. 

According to former US Diplomat Eugene Douglas, now a regular visitor to South Sudan and involved in several companies doing business there, "it would have been far better, instead of building just one $225 million road, to have built a gravel road, using local contractors and at a fraction of the cost, and repaired hundreds of miles of feeder roads, essential to provide access to markets and other services by the bulk of the population.” But USAID officials just don’t think that way.

Although US foreign aid may be very good for the contractors, it is very bad for poor countries – or at least the general population of poor countries. Economist Dambisa Moyo, a native of Zambia and an expert on foreign assistance in Africa wrote recently in The Wall Street Journal that over the past 60 years some $1 trillion has been transferred from Western countries to Africa. But real per-capita income is lower today than it was in the 1970s, and more than one half of the population of the entire continent lives on less than one dollar a day – nearly twice the number of 20 years ago.

Moyo makes no bones about the fact that foreign aid is “an unmitigated political, economic and humanitarian disaster… it has made the poor poorer, and the growth slower. It has left African countries debt-laden, inflation-prone, vulnerable to the vagaries of the currency markets and unattractive to higher quality investment.”  

With that indictment, should we be surprised that Obama wants to throw even more money at it?


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