Foreign Aid

FOREIGN AID

FOREIGN AID. Foreign aid only emerged as a significant and institutionalized aspect of U.S. diplomacy and international relations during the Cold War. After 1945 the United States and the Soviet Union presided over expanding alliance systems and increasingly disbursed large quantities of economic as well as military aid to the developing nations of the emerging Third World. During the Cold War, the International Monetary Fund (IMF), the International Bank for Reconstruction and Development (the World Bank), and the United Nations also played growing roles in distributing foreign aid and promoting economic development. The IMF and the World Bank have been heavily financed and influenced by the United States and, prior to the end of the Cold War, the governments of the Soviet bloc generally refused to participate in those organizations. While most observers acknowledge that the disbursement of foreign aid by the United States has been driven by the interaction of politico-strategic and economic interests, the relative importance of these factors has been a subject of ongoing debate. There are also commentators who emphasize the importance of humanitarian impulses in the distribution of foreign aid.

The Truman Doctrine, the Marshall Plan, and the Point Four Program

One of the first indications of the role that foreign aid was to play in the Cold War came with the announcement of the Truman Doctrine on 12 March 1947 by President Harry S. Truman. The Truman Doctrine was a response to the growing influence of Communist parties in Greece and Turkey and included the extension of $400 million in economic and military aid to the Greek and Turkish governments. This was soon followed by the implementation of the European Recovery Plan, known as the Marshall Plan, which was launched on 6 June 1947. The Marshall Plan sought to protect Western Europe from any further worsening of the post-1945 economic and political crisis. It was driven by a concern that a destabilized Western Europe would result in a power vacuum, providing an opportunity for the Soviet Union to expand its influence westward. The United States made it clear that the Marshall Plan was aimed at preventing or containing the appearance in Europe of governments, or groupings of governments, that would threaten the security interests of the United States. Washington also insisted that it have complete information as to how the aid money was used and that it had to be used to help build "free and democratic institutions." Although the plan was initially offered to the USSR and Eastern Europe, Moscow and its client regimes rejected it.

The Marshall Plan involved the disbursement of $12.5 billion towards the reconstruction of Western Europe over a four-year period. By 1952 the Marshall Plan was a key factor in increasing industrial production to 35 percent and agricultural production to 18 percent above the levels they had been at in Western Europe before World War II. The Marshall Plan also drew attention to the benefits of foreign aid for the U.S. economy. One of the requirements of the Marshall Plan was that the bulk of the aid money be used to purchase U.S. exports, which provided an important push to the U.S. economy and bolstered trade linkages that favored U.S. manufacturers. The Organization for European Economic Cooperation (OEEC) was set up to coordinate the Marshall Plan. With the cessation of aid in the 1950s, the OEEC continued to operate as a focus of economic cooperation amongst the governments of Europe. In 1960 it changed its name to the Organization for Economic Cooperation and Development (OECD). The U.S. and Canada joined the OECD, which also began to act as a vehicle for the distribution of foreign aid from North America and Western Europe to the so-called developing nations of the Third World.

More broadly, from the outset the Marshall Plan demonstrated U.S. economic prowess, and it represented an important precedent for subsequent U.S. aid to Asia, Latin America, the Middle East, and Africa. In the late 1940s, the Truman administration became increasingly concerned about political and economic turmoil in the emerging nations of the Third World. It was hoped that an extension of U.S. foreign aid to them would help to undercut the influence of the Soviet Union and "international communism." On 20 January 1949 Truman delivered his Inaugural Address at the start of his second term as president. In it he sketched out an expanded foreign aid policy that became known as the Point Four

program (enacted as the International Development Act). Point one pledged continuing U.S. support for the United Nations. Point two emphasized U.S. support for world economic recovery, while point three reiterated the U.S. commitment to supporting "freedom-loving nations." Point four set out a U.S. commitment to providing American technical and scientific expertise and capital to "underdeveloped" nations in an effort to improve their living standards. The program started with a budget of $45 million. By early 1951, 350 technicians working under U.S. auspices were engaged in over one hundred cooperation projects in almost thirty countries. In 1953 Congress increased the budget of the Point Four program to $155 million.

Foreign Aid and the Cold War in the 1950s and 1960s

Apart from Western and Southern Europe, a major focus of Washington's foreign policy and its foreign aid strategy immediately after 1945 was northeast Asia. By the late 1940s foreign aid was important to the U.S. effort to turn Japan, South Korea, and Taiwan into capitalist bulwarks against the Soviet Union and Maoist China. After the Korean War the sustained American economic and military aid that went to South Korea and Taiwan in the 1950s and 1960s played an important role in strengthening the capabilities of their emergent national security states. Between 1945 and 1973 U.S. economic aid to South Korea was $5.5 billion, while U.S. military aid was $7 billion. The economic assistance to South Korea was more than all U.S. economic aid to sub-Saharan Africa and half the figure for all of Latin America over the same period. In the 1950s more than 80 percent of South Korean imports were financed by U.S. economic assistance.

Southeast Asia, by contrast, did not attract as much sustained attention in the early years of the Cold War. Washington also took a limited interest in South Asia. However, the United States began to change its assessment of Southeast and South Asia in the 1950s. For example, following the onset of the Korean War, it began participating in the Colombo Plan, which coordinated the disbursement of development aid to governments in those regions and the Pacific. This initiative was spearheaded by the British government and supported by other governments of the Commonwealth. While America was not involved in the immediate establishment of the Colombo Plan in 1950, much of the financing over the years came from the United States. A total of $72 billion was disbursed via the Colombo Plan between 1950 and 1983, with over 50 percent of that amount ($41.2 billion) coming from the United States.

By the end of 1950, meanwhile, the United States had already disbursed at least $133 million to the French colonial authorities in Indochina in support of their war effort. U.S. assistance went on by late 1952 to make up 40 percent of the overall cost of the French government's war in Indochina, while by the beginning of 1954 the U.S. contribution had risen to 80 percent. For the administration of Dwight D. Eisenhower and its immediate successor, the regime of Ngo Dinh Diem (1955–1963) was to be a "showcase for democracy" and the site for a definitive nation-building effort. Between the collapse of French colonial power in 1954 and the end of Eisenhower's presidency at the beginning of 1961, Washington disbursed over $2 billion worth of military and economic aid to the government of South Vietnam. As the 1960s began, the Diem regime was the fifth-highest recipient of U.S. foreign aid worldwide (and the third-highest recipient—after South Korea and Taiwan—among non-NATO countries). When President John F. Kennedy entered the White House in 1961, Saigon had already become the site of the biggest U.S. economic aid program worldwide.

Kennedy and influential advisers such as Walt Whitman Rostow—who served as chair of the Policy Planning Council in the State Department—increasingly advocated a shift in U.S. foreign policy towards taking the initiative in Asia and Latin America (and the Third World more generally) via infusions of economic and military aid as part of an increasingly ambitious set of national development and counterinsurgency programs. In a West Point address on 18 April 1963, Rostow declared that the key to winning the guerrilla war in South Vietnam was to "create at forced-draft the bone structure of a modern nation." In the early 1960s the Strategic Hamlet Program became the focus of Washington's wider aid and counterinsurgency strategy in South Vietnam. Drawing on previous French colonial initiatives and earlier efforts by the Diem regime, as well as British counterinsurgency programs in Malaya in the 1950s, the Kennedy administration encouraged and facilitated the removing of peasants from widely dispersed villages and the placing of them in concentrated settlements that could be controlled more directly by the government in Saigon. The State Department scheduled almost $90 million to be spent on the Strategic Hamlet Program for fiscal year 1963. Employing this approach the U.S. Military Assistance Command Vietnam (MACV) and the Agency for International Development (USAID) sought to undermine the National Liberation Front's ability to get intelligence, food, and other supplies as well as recruits from the population. The National Liberation Front (NLF) quickly responded by promising the peasants that following the revolution they would be allowed to return to their old villages. The NLF also intensified its military attacks on, and its recruitment activities in, the strategic hamlets.

Despite the apparent failure of the Strategic Hamlet Program by the end of 1963, subsequent efforts to resettle and control the rural population did little but rework the basic approach while excising the term "strategic hamlet" from the counterinsurgency lexicon. Meanwhile, following the overthrow and assassination of Diem and his brother, Ngo Dinh Nhu, in a military coup in late 1963, the successor programs to the Strategic Hamlet Program were increasingly overshadowed by full-scale warfare. The United States had hoped that the overthrow of the Diem regime would improve the stability of South Vietnam; however, the deterioration in the military situation following the coup paved the way for the escalation of U.S. involvement and direct military intervention by 1965. That led, in turn, to immense human, material, and environmental destruction, but failed to solve the fundamental political problems of the Saigon regime and the fragile nation-state of South Vietnam. The pervasive reliance on U.S. aid generated growing possibilities for government and private corruption. With the Tet offensive in early 1968, any idea that U.S. power could turn South Vietnam into a viable capitalist nation-state and achieve military victory against the North disappeared. With the election of Richard Nixon as U.S. president at the end of 1968, the United States began to look for ways to withdraw "with honor," placing growing emphasis on what was called the Vietnamization of the war.

As part of its wider emphasis on foreign aid, the Kennedy administration also set up the USAID in 1961 to coordinate government foreign aid initiatives. Established as a semi-autonomous body operating in the State Department, it was responsible for disbursing and administering aid in South Vietnam and around the world. Apart from South Vietnam, a large percentage of the aid this new body disbursed initially went to the Alliance for Progress, another ambitious modernizing initiative that the Kennedy administration hoped would contain the "communist threat" to Latin America following the revolution in Cuba in 1959. The Alliance for Progress began as a decade-long program of land and economic reform that was expected to cost $100 billion and was aimed at bringing about an annual growth rate for the region of at least 2.5 percent. It also sought to achieve greater productivity in the agricultural sector, eradicate illiteracy, stimulate trade diversification, generate improvements in housing and bring about a more even income distribution in the region.

However, its major, if unstated, goal was the protection of North American investments in Latin America at the same time as many of the Alliance's proposed reforms endangered those investments. Trade diversification would undermine the monopoly of primary agricultural products and mineral extraction enjoyed by a number of U.S.-based corporations. Meanwhile, land reform threatened the power of the still largely land-based ruling elites in Latin America. This contradiction was apparent in the way that Kennedy's reformism went hand in hand with Washington's ever-deepening commitment to military and police aid and counterinsurgency to defeat peasant-based rebellions in the region. There were sixteen military coups within eight years of the launch of the Alliance for Progress. By the late 1960s high rates of economic growth in many Latin American countries had been achieved. However, high growth rates exacerbated social inequality while politics, instead of becoming more democratic, moved increasingly towards authoritarianism. American support for counterrevolutionary military and political activity in Latin America grew in the 1960s in the form of U.S. military, CIA, and civilian advisers and U.S. military aid and economic and technical assistance for counterinsurgency programs.

New Directions, the New Cold War, and Foreign Aid after the Cold War, from the 1970s to the 1990s

By the Nixon era, U.S. foreign aid policy was in disarray. In the context of the U.S. defeat in Vietnam and the wider critique of U.S. foreign policy that emerged, a growing movement to reform American economic assistance programs resulted in the passage of various reformist pieces of legislation under the heading of what was called New Directions. This led briefly to an emphasis on both the basic needs of the poor and direct grassroots participation in the process of development. At the same time the Foreign Assistance Act (1961), which had been central to the Kennedy administration's approach to foreign aid, was amended significantly between 1973 and 1978 to provide for an increased focus on human rights in the disbursement of foreign aid. However, by the late 1970s influential free-market critics of New Directions were in the ascendant. Their views were consolidated during the administration of President Ronald Reagan. In the 1980s USAID's main focus was the Private Enterprise Initiative (PEI), which promoted private-sector development and encouraged market-oriented reform. Furthermore, U.S. foreign assistance policy in the 1980s, as in earlier periods, was still firmly grounded in strategic interests. The 1980s actually saw the percentage of foreign assistance going to development-related programs decline and the amount spent on security-related projects rise.

This trend was readily apparent in the approach to Central America taken by the Reagan administration. Central America was the object of more American economic and military aid during Reagan's first term than in the entire period from 1950 to 1980. For example, between 1981 and 1984 inclusive, the El Salvadoran government received $758 million in economic aid and $396 million in military aid, compared to only $6 million in military aid in 1980. El Salvador had emerged as the recipient of more U.S. aid than any other country in Latin America by the middle of Reagan's first term. In fact, during this period El Salvador (with a total population of less than 5 million by the end of the 1980s) was the third-largest U.S. aid recipient worldwide, behind only Israel and Egypt. (Reflecting the ongoing strategic significance of the Middle East, Israel and Egypt received about one-third of all U.S. foreign aid disbursed in the 1980s.) The level of foreign aid for El Salvador in the 1980s was on a scale reminiscent of the U.S. nation-building effort in South Vietnam in the 1960s, minus the direct American military intervention. By the end of the 1980s the U.S. had disbursed upwards of $3 billion in economic and military aid to El Salvador, the equivalent of about $800,000 a day for ten years.

With the end of the Cold War, the direction of U.S. foreign assistance policy again shifted. The administration of President William Jefferson Clinton introduced a range of reforms that were again (as in the 1970s) aimed at displacing security as the key focus of foreign aid as reflected in the Cold War–era Foreign Assistance Act. The Clinton administration outlined four overall goals for U.S. foreign aid in the post–Cold War era. While USAID was still expected to promote economic development via market-oriented reform and the encouragement of trade and investment, it was also enjoined to set up programs oriented towards building democratic political institutions. A greater emphasis was also placed on humanitarian assistance and sustainable development. Ultimately, however, the foreign aid bill passed by Congress in 1994 was a major compromise and for many observers appeared to reflect a continued commitment to geostrategic concerns. In the year the bill was passed, Israel and Egypt continued to receive over one-third of all U.S. foreign aid. The figure for Israel was $3 billion and for Egypt it was $2.1 billion, while the amount for sub-Saharan Africa as a whole was $800 million. Foreign aid was also directed increasingly at the former Soviet bloc, again for security reasons. For example, more than $2.2 billion of foreign aid was disbursed to Russia between 1992 and 1997 under the Freedom Support Act (FSA). Over the same period more than $2.6 billion was also disbursed to Russia via programs not covered by the FSA. The figures for the Ukraine were over $1 billion in FSA funds and $652 million in non-FSA funds, while the former Soviet republics in the Caucasus and Central Asia together received over $1.9 billion in FSA funds and $2.4 billion in non-FSA funds between 1992 and 1997 inclusive. While there have been many changes and adjustments, the disbursement of U.S. foreign aid continues to be closely connected to wider strategic and economic objectives. In the context of the "war on terrorism" initiated in 2001, and the reorientation and increase in foreign aid that has followed, this pattern appeared set to continue.

BIBLIOGRAPHY

Adams, Francis. Dollar Diplomacy: United States Economic Assistance to Latin America. Aldershot, U.K.: Ashgate, 2000.

Dacy, Douglas C. Foreign Aid, War, and Economic Development: South Vietnam, 1953–1975. Cambridge, U.K.: Cambridge University Press, 1986.

Hogan, Michael J. The Marshall Plan: America, Britain, and the Reconstruction of Western Europe, 1947–1952. Cambridge, U.K.: Cambridge University Press, 1987.

Lancaster, Carol. Transforming Foreign Aid: United States Assistance in the 21st Century. Washington, D.C.: Institute for International Economics, 2000.

Latham, Michael E. Modernization As Ideology: American Social Science and "Nation Building" in the Kennedy Era. Chapel Hill: University of North Carolina Press, 2000.

LeoGrande, William M. Our Own Backyard: The United States in Central America, 1977–1992. Chapel Hill: University of North Carolina Press, 1998.

Rabe, Stephen G. The Most Dangerous Area in the World: John F. Kennedy Confronts Communist Revolution in Latin America. Chapel Hill: University of North Carolina Press, 1999.

Ruttan, Vernon W. United States Development Assistance Policy: The Domestic Politics of Foreign Economic Aid. Baltimore: Johns Hopkins University Press, 1996.

Wedel, Janine R. Collision and Collusion: The Strange Case of Western Aid to Eastern Europe, 1989–1998. New York: St. Martin's Press, 1998.

Wiegersma, Nan, and Joseph E. Medley. US Economic Development Policies Towards the Pacific Rim: Successes and Failures of US Aid. London: Macmillan, 2000.

Mark T. Berger

See also Africa, Relations with ; Egypt, Relations with ; El Salvador, Relations with ; Israel, Relations with ; Korea, Relations with ; Latin America, Relations with ; Vietnam, Relations with .