Aid Without A.I.D.

hen J. Brian Atwood decided to finally call it quits after a 25-year career in the government, he was a frustrated man. His six-year tenure as head of the Agency for International Development had not been a happy one. He'd fought bitterly with then-Senate Foreign Relations Committee Chairman Jesse Helms, R-N.C., to keep AID independent of the State Department. He'd watched AID's budget and staffing dwindle. In a parting speech in June 1999 at the Overseas Development Council, a Washington think tank, Atwood lambasted the isolationism of Congress, and wondered what it would take "to wake up our political leaders" to the need for increased foreign assistance. "More failed states? More wars? . . . More terrorism?" he asked. Spoken before the Sept. 11 attacks, Atwood's words proved prophetic. Foreign aid is back on the political map in Washington. "This is the first time in years we've had the opportunity to debate foreign aid as an essential aspect of our foreign policy, and not the issue of whether or not we should have a foreign aid program," he says. But even as a renewed consensus is emerging that foreign assistance is a critical part of the war on terrorism, there is no consensus on whether AID is the agency to manage it or on the agency's future role in implementing foreign policy.

In his 2002 national security strategy report, President Bush argued that the U.S. approach to foreign development was broken. "Decades of massive development assistance have failed to spur economic growth in the poorest countries," the report said. "Results of aid are typically measured in dollars spent by donors, not in the rates of growth and poverty reduction achieved by recipients. These are indicators of a failed strategy." Many in the development community viewed the report as an indictment of AID, the nation's primary distributor of foreign aid.

And in March 2002, when Bush laid out his plan for boosting foreign aid by 50 percent, or $5 billion a year, by 2006, he made it clear that a new independent agency, the Millennium Challenge Corporation, not AID, would oversee the funding. Of the $2.5 billion in new foreign aid requested by the Bush administration for 2004, AID would get less than 1 percent.

Nonetheless, for now AID remains, as Atwood says, the "only game in town" when it comes to foreign development expertise. As a result, AID has been a visible player in the reconstruction of both Iraq and Afghanistan, awarding hundreds of millions of dollars in development contracts and grants to firms and nonprofit humanitarian relief organizations. But a wide array of people, including officials at humanitarian relief groups as well as former House Speaker Newt Gingrich, have criticized AID's performance. Andrew Natsios, AID's current administrator, defends his agency and says he has made strides in correcting its management deficiencies. He insists that the administration does see a role for AID in the future. But, as several development experts at the Brookings Institution argued in an April report, "The Other War: Global Poverty and the Millennium Challenge Account," the facts seem to indicate otherwise. The prominent role of the military in the Iraq and Afghanistan reconstruction efforts, for example, has raised eyebrows in the development community. Indeed, in neither country is AID the lead agency. And Bush's proposal to create the Millennium Challenge Corporation indicates that the president would rather "design around the agency than reform it," according to the Brookings report.

FOREIGN AID ANGST

Foreign aid long has been a conundrum for Washington policy-makers. Members of Congress have faced a difficult task in justifying it to their constituents, especially considering the general perception-mostly correct-that foreign aid has failed to lift developing countries out of poverty. Partially as a result, Congress for years has reduced aid spending. According to a December 2002 study by the Organization for Economic Cooperation and Development, the United States for the last five years has given a smaller percentage of its national income in aid than have 21 of the world's other wealthiest nations. The percentage of the U.S. budget devoted to development aid has declined in every decade since the 1960s.

Still, there have been successes. Even critics note that AID stacks up well against other development agencies worldwide. For example, they concede that AID has proved to be a creative promoter of projects aimed at encouraging entrepreneurship, democracy, family planning and disease prevention in some of the world's most dysfunctional countries. In addition, the agency was a key player in sparking the 1960s "Green Revolution," which brought more efficient farming techniques to the developing world, and is widely credited with averting widespread hunger today. In the last 50 years, critical gauges in the developing world-such as life expectancy, per capita income, infant mortality and literacy rates-have moved in the right direction. But the failures of international development have been more stark. For example, Natsios, at a June hearing of the House Financial Services Committee, acknowledged that of the 48 countries considered the "least developed" in the world, only one-Botswana-has escaped that status in the last 25 years.

Part of the reason is that AID, created in 1961 in an effort to unify disparate government assistance programs, has been just as confused about its goals as were its predecessors. "Foreign aid actually serves four or five different purposes," explains Natsios. "So when people say AID is not working, I traditionally say, 'Which one of the AID programs are you talking about?'" Indeed, over the years, Congress has asked AID to fulfill at least three separate missions: to serve as an instrument of U.S. foreign policy by providing assistance to strategic allies, to provide humanitarian relief, and, finally, to act as a development agency working to spur economic growth in the world's poorest countries. To make matters worse, Congress has micromanaged AID's expenditures, loading up the agency's appropriation with earmarks requiring it to work in particular countries or with particular contractors, rather than allowing AID's experts to decide how best to spend the agency's money. Natsios says congressional meddling has had the effect of putting "a huge straightjacket on our people in the field." At the same time, the annual funding cycles of Congress, and the short political cycles of congressional and presidential elections, also have hurt AID's efforts, which require long-term commitments.

Natsios acknowledges that AID's multiple objectives have prevented it from focusing exclusively on development. Meanwhile, Congress' long-standing ambivalence about foreign aid has also hurt the agency. As Atwood notes, AID can provide developing countries with "resources to improve their agriculture and manufacturing sectors, but if we then subsidize our own products and keep theirs out, what have we achieved for development?"

After years of declining budgets and staffing-AID's workforce shrank by more than a third during the 1990s-the number of agency personnel with field expertise has dwindled. "We don't have enough officers to do the work," acknowledges Natsios. Even so, in the last year, the agency has stretched its limited resources further in order to respond to the need for development aid in countries that have spawned terrorism. It has opened five new missions to cover Southeast Asia, Pakistan, Afghanistan, Yemen and Iraq. "Congress is being helpful to us, but we are having to scale back up what we lost in the 1990s," Natsios says.

OVERWHELMED

As a result, many former AID staffers and development experts worry that the agency is in over its head in Afghanistan and Iraq, where it must watch over huge reconstruction contracts. Even if conditions in the countries were ripe for development, AID's management deficiencies and lack of staffing would hold back its efforts, they say, but the security problems in both Iraq and Afghanistan have made it all the harder. "With no additional resources, we've been asked to let $1.7 billion in [contracts in] Iraq," says Timothy Beans, AID's top procurement officer. That's a huge new responsibility for the agency, he admits, pointing out that AID in recent years has spent about $3.8 billion annually on development activities. Beans has four contracting officers on the ground in Iraq to oversee eight contracts with U.S. firms to do everything from rebuilding Iraqi infrastructure to setting up democratic institutions. "My biggest concern is oversight," Beans says. "These are U.S. taxpayer dollars, and I want to ensure that the taxpayer is getting a bang for the buck."

Asked whether he has enough manpower and expertise to oversee the work, Beans says he "feels comfortable now." But with three more contracts soon to be awarded, Beans wonders whether four officers can provide adequate vigilance. Already, the agency has given the Army Corps of Engineers responsibility for handling the largest contract-the $600 million construction deal awarded to San Francisco-based Bechtel Corp. And Beans says AID will hire an outside firm to help it oversee contracts that don't involve construction. Oversight, Beans says, is a "constant concern."

Members of Congress, led by Rep. Henry Waxman, D-Calif., and Sen. Joseph Lieberman, D-Conn., are investigating the circumstances under which AID awarded the contracts for Iraq. In all cases but one, AID limited competition on the contracts to a few firms. Beans says the limitations were necessary-and legal under federal procurement rules-to speed the procurement process while U.S. forces were fighting in Iraq. The agency's inspector general has thus far found no problem with the expedited process, but the IG has questioned AID on two of the contract awards. For reconstruction of the Iraqi port of Umm Qasr, the agency mistakenly awarded a contract to a Seattle firm that lacked the required security clearance, then quickly waived the requirement. The error was an honest mistake made by an AID contracting officer, according to an agency procurement official, and the subsequent waiver was granted after the Defense Department determined that the security clearance was no longer necessary. At the same time, for a contract to rebuild Iraqi schools, the agency did not perform required market research to identify the most capable potential contractors, according to the IG. The agency says it did adequate research, but admits that it failed to properly document its work.

Meanwhile, the prominent role of the U.S. military in reconstruction of Iraq is of great concern to humanitarian relief groups, as is the fact that in neither Iraq nor Afghanistan is AID the lead agency. "It's a dangerous thing for AID to be pushed around by the White House and the Pentagon," Atwood says, arguing that AID's lack of direct, on-the-ground involvement bodes ill for reconstruction. In Atwood's mind, it's clear that the Pentagon would have let the Iraq contracts itself but for "appearances."

Mary McClymont, president of InterAction, a group that represents humanitarian relief groups in Washington, says it's too early to tell how AID's Iraq efforts are going. But several of her most prominent members have protested AID's diminished responsibilities. World Vision, CARE, and the International Rescue Committee, for example, have refused to work under the current arrangements, objecting to the military's prominent role. In June, Mercy Corps and Save the Children refused to accept AID funding after the agency asked that they clear any media contacts with AID's press office. An AID spokeswoman told a Newhouse News Service reporter that the requirement was routine and was included to ensure that the American public receives a consistent message from AID, its contractors and grant recipients.

Meanwhile, in Afghanistan, AID has failed after nearly two years to make headway in rebuilding the war-torn country, says Peter Tomsen, a former U.S. ambassador to Afghanistan who traveled there recently. Reconstruction teams run by the U.S. military have rebuilt schools and engaged in other small-scale projects, he says, but AID has failed to set up the large reconstruction and rural development projects for which it was once known. In an April speech at the American Enterprise Institute, Gingrich said that AID had so badly failed to speed the reconstruction of Afghanistan-he cited as an example AID's failure to make progress on a major road project-that the agency should be abolished. He called its performance an "absolute failure of American entrepreneurial effort."

A June General Accounting Office report (GAO-03-607) provided a mixed review of AID's Afghanistan work. It said that AID and other U.S. and international agencies helped avert a famine in Afghanistan with a well-managed relief effort after the 2001 U.S.-led war against the Taliban. But GAO also reported that AID had not taken an active role in developing a long-term strategy to boost agricultural production. Such a strategy is crucial to Afghanistan's development, according to the report.

Natsios says AID is spending $150 million over three years to increase agricultural production in Afghanistan and, through the introduction of new seed varieties, already has helped the country boost its yield by 82 percent. Meanwhile, he says, AID contractors have helped rehabilitate health clinics, rebuilt schools and trained teachers. By 2004, he says, the agency will complete the road project cited by Gingrich. The 300-mile road will connect Kandahar, a major city in southern Afghanistan, with the capital, Kabul, in the East.

LONG-STANDING PROBLEMS

Though Natsios insists otherwise, many development experts and members of Congress believe the White House's hesitation to entrust AID with more responsibility is an indication of the administration's dissatisfaction with the agency. At a June hearing of the Senate Appropriations Committee, for example, Sen. Patrick Leahy, D-Vt., told Natsios it was clear that the administration's Millennium Challenge proposal indicated that the "White House sees you as increasingly irrelevant."

And to be sure, AID's management problems have existed-and frustrated presidents-for decades. In an article in the spring issue of Washington Quarterly, a journal published by the Center for Strategic and International Studies, a Washington think tank, Lael Brainard, a senior Brookings Institution fellow, noted that presidents for the last 30 years have struggled to reform AID, with little success.

Some of the problems have been exasperating. During the 1990s, AID spent about $100 million to develop a new financial management system, but the software never worked. As a result, even today, agency managers overseeing contracts cannot see how much contractors have spent, or how close they are to exhausting the appropriated funding. That's a big problem considering that, today, AID is primarily a contract oversight organization. And while AID was one of the first agencies to roll out results-based contracts and grant awards in the 1990s, its procurement system still is considered slow and bureaucratic, and the agency is often caught between warring for-profit contractors and humanitarian relief organizations. Each argues the other gets a bigger piece of the agency's contracting budget. Exacerbating the problems, AID has long been plagued by an inability to hire new staff quickly or to retain its top workers.

Another problem, says Natsios, is that AID is "seen as sort of a closed society." The perception is that "only a few big businesses do business with us," he says. As a result, Natsios has taken steps to simplify the agency's bidding process by reducing the number of different contract models it uses. In April, AID decided to award bonus points to bidders that agree to subcontract a higher percentage of their awards. That's because, in the past, organizations going after contracts would bring in numerous subcontractors for the bidding process, tout the subcontractors' expertise, but then never actually give the subcontractors any work. The new rule, Natsios says, will "substantially broaden the base of organizations that do business with AID."

In Washington, Natsios says AID has installed new financial management software and is now working to extend it to 79 field offices. Once that is complete, he says, the agency will launch a new procurement system. In addition, Natsios has hired John Marshall, a former IBM consultant who worked with government clients, including AID, to oversee management at the agency. Marshall has assembled a group of top agency officials to advise him on necessary changes. He and Beans have met regularly with members of InterAction and the Professional Services Council, a Washington trade group that represents companies that work with AID.

In the area of personnel, Natsios says the "hemorrhaging" of AID staff stopped in 2002, the first time in more than a decade that the agency hasn't lost employees. And for 2004, Natsios has asked Congress for authority to hire 30 to 50 new Foreign Service officers. "Our plan is to put more people in the field, fewer in Washington," he says. A new personnel system has cut the time needed to bring on a new hire from six to eight months to 28 days. Natsios also has implemented a standard procurement curriculum to train the agency's contracting officers and program staff. The training, according to one agency official, is "a huge undertaking" that "reflects the new thinking that the procurement and grants process is the responsibility not only of contracting officers and their staffs but of the whole agency."

The efforts appear to be yielding results. The Office of Management and Budget still calls AID's management systems inadequate, but recently praised the agency for taking steps to overcome its problems. OMB noted that AID has made progress in financial management, for example, achieving unqualified audits for the first time in 2001. The agency also has improved its oversight of information technology investments, according to OMB, and made positive strides in managing food aid programs, and in matching budget requests with performance goals. As a result, Natsios says employee satisfaction with management systems has improved dramatically in the last year, as have customer service evaluations of the procurement office.

Still, many AID-watchers remain unconvinced. Tomsen, the former ambassador to Afghanistan, insists that unless and until AID rebuilds its on-the-ground expertise by hiring more Foreign Service officers, the agency will "continue to fail." And because of poor staffing and management challenges, many development experts believe it was wise for AID to contract out oversight of the Iraqi reconstruction contract to the Army Corps of Engineers, which managed a successful rebuilding program in Kuwait after the first Persian Gulf War.

In contrast with AID, the Corps has "an extraordinary reputation for understanding difficult projects and moving quickly, and for financial oversight. I would describe them as a model in that regard," says Michael Hershman, a former AID deputy auditor general.

SHEDDING AID'S BAGGAGE

In proposing the creation of the Millennium Challenge Corporation, President Bush envisions a new, results-oriented approach to international development that is free of AID's mission confusion. "AID now reports directly to the State Department," explains Natsios, and "there is an opinion within some elements of the administration that State and AID tend to look at issues from a geostrategic point of view." By contrast, Natsios says, Millennium Challenge funding "is supposed to be purely based on performance." Under Bush's plan, the new government corporation would identify developing countries that have exhibited a commitment to democracy, human rights and economic development. Only the most promising would be extended assistance, and the corporation would report annually on their progress. Bush says the corporation could work with as few as 125 staffers, but would rely on AID personnel to oversee development work in the field. The corporation would have more flexibility in hiring, firing and issuing contracts than does AID.

Bush's plan has sparked enthusiasm on Capitol Hill, both from proponents of foreign aid, who rejoice in the proposed new funding, and from aid skeptics, who are intrigued by Bush's emphasis on development results. Bush has won over doubters-who question whether the new corporation could really improve on AID's performance-by promising that the new funding and corporation would not replace AID, and that AID's mission would be recast.

Under the Bush plan, AID would work with countries that narrowly miss qualifying for Millennium Challenge funding; with failed and failing states, such as Iraq and Afghanistan; and with countries of key strategic importance, such as Egypt, Jordan and Pakistan. Both the House and the Senate Foreign Relations Committee have approved bills to implement the new program. The full Senate has yet to act. The House bill would set up Bush's Millennium Challenge Corporation to oversee the funding, while the Senate bill would have the State Department distribute the money. It's not yet clear whether the Senate will appropriate the full $1.3 billion that Bush has requested for the new program in 2004. The House appropriated the full amount.

The effect of the Millennium Challenge program on AID remains to be seen. In testimony before the House Appropriations Committee last May, Natsios said the president's plan "marks a revolution in foreign assistance," and AID welcomed the new program "as the strongest possible commitment by the Bush administration to making development a core element of our foreign policy." Natsios says the Millennium Challenge Corporation, if created, would serve as a model for restructuring AID.

But like many development experts, Stephen Radelet, a senior fellow at the Center for Global Development, a think tank in Washington, is a skeptic. Radelet told the Senate Foreign Relations Committee in March that the creation of the Millennium Challenge Corporation could help AID if it allows the agency to focus on a single mission. But, he added, "It could also further fragment foreign aid policy. It could lead to redundancy, to more confusion. It could impede coordination and create rivalries." And, as many development experts are quick to note, past efforts to recast U.S. foreign assistance-including the creation of AID-have quickly reverted to old patterns and poor results.