Much “Foreign Aid” Is Taxpayer-Funded Plundering of the Global South
If at first you don’t succeed, try, try again.” That 1840 slogan seems to be the modus operandi of President Trump when thwarted by Congress. Trump has tried twice to cut foreign aid not just for humanitarian causes, but to nations balking at being U.S. puppets.
His first effort was in August 2018 when Mick Mulvaney, director of the White House Office of Management and Budget, was blocked by Secretary of State Mike Pompeo from sending Congress a set of suggested foreign aid cuts.
Trump’s second effort occurred last month, when the president tried to cut $4 billion in foreign aid by rescinding it from the federal FY2020-21 budget. Trump dropped this effort after a barrage of objections from both congressional parties, including several key allies, and Pompeo.
The third effort is now afoot. Early this month, Politico acquired a copy of Trump’s proposed presidential policy directive to “redirect, reconfigure, reduce or eliminate foreign assistance that is supporting governments and non-state actors under the strong influence of U.S. competitors and adversaries” (e.g., China, Russia). The draft also says foreign aid should support U.S. economic interests, and should pass to the private sector.
Now, the principal “pass-through” agency for most foreign aid from the Treasury Department since 1961 has been the U.S. Agency for International Development (USAID). Its mission was to turn global South countries into successful manufacturing and marketing meccas, buying and selling around the world. Profits from such industrialization, exports and tariffs were to build their economies. U.S. business profits were to be a significant tax source for the Treasury Department.
In actuality, USAID has been a taxpayer-supported program for neocolonial exploiters requiring long-term protection at public expense.
The Birth of USAID
President John F. Kennedy signed an executive order creating USAID in November 1961, following passage of the Foreign Assistance Act. Congress allocated $2 billion ($16.9 billion in 2019 dollars) for the agency’s operations.
USAID merged all State Department foreign-aid entities, ending duplications and making operations more efficient, effective and ending local corruption that had previously siphoned up tax dollars. At its inauguration, President Kennedy relied heavily on the U.S.’s claimed tradition of generosity abroad and its self-designated role of global policeman, saying:
There is no escaping our obligations: our moral obligations as a wise leader and good neighbor in the interdependent community of free nations — our economic obligations as the wealthiest people in a world of largely poor people, as a nation no longer dependent upon the loans from abroad that once helped us develop our own economy — and our political obligations as the single largest counter to the adversaries of freedom.
As to humanitarian and economic needs in recipient countries, the agency’s funding focus argued that a strong economy would improve people’s “health, agriculture, population planning, education and energy.”
More than 100 nations are still receiving USAID. The World Bank and International Monetary Fund (IMF) list many countries as “Heavily Indebted Poor Countries.” Burma, for instance, has been on that list since 1970, and the agency has requested $70 million for the country in FY2020.
However, most global South countries have failed to achieve economic growth even after expelling exploiters, principally because most lack credit worthiness for foreign loans. As a result, their leaders and parliaments tend to borrow from today’s global “payday lenders”: the World Bank and the IMF. Because payments soon become prohibitive, they borrow more rather than default on their loans, similar to common debt traps run by loan sharks.
Another failure, according to economist Dean Baker, is that the IMF often advises leaders courting foreign firms to permit ease of local bank withdrawals in case of uprisings, nationalization of private assets, or business losses. The result is “capital flight,” stripping global South banks of loan reserves for local economic growth.
Additionally, global South governments must provide ironclad guarantees of stability to attract loans, foreign corporations and investments. The result has usually been obedience to longtime, dictatorial regimes.
Small wonder Kenya has had only four presidents in 55 years, three serving an average of 16 years; the fourth, in his sixth year, is founder Jomo Kenyatta’s son. As a Council on Foreign Relations writer recently explained, African “leaders are increasingly securing longer terms through ‘constitutional coups,’ proposing amendments for approval by the legislature or judiciary, or in national referenda, that allow for additional terms in office.”
For all of USAID’s pronouncements about its peacekeeping, it can scarcely rely on local police or armies to protect U.S. corporations from civil strife. That seems to explain taxpayer dollars spent for U.S. military personnel at those 800 estimated overseas bases. They’ve been assigned to protect U.S. businesses from uprisings and, of course, track Chinese competitors. According to the Pentagon, they also perform services for the locals, such as humanitarian and disaster relief.
The Overseas Private Investment Corporation
Ten years after USAID’s start, President Richard Nixon apparently feared a growing army of political enemies would pounce on the agency’s failures in global South countries, and that its closure would significantly harm business interests. It appears he pressured congressional leaders into passing the Foreign Assistance Act of 1969 that included a section setting up a companion agency — Overseas Private Investment Corporation (OPIC) — dedicated to those business interests. With such a name, who could doubt its objectives?
It wasn’t long before U.S. corporations expanded operations, either seeking agency loans for financing infrastructure construction in global South countries or to own the finished projects. As a director at the Center for Strategic and International Studies think tank recently put it, “Aid donors should use their financial resources strategically to catalyze flows of private capital towards development challenges and build a robust private sector in developing countries.”
OPIC claims that it mobilizes “private capital to help address critical development challenges [in global South countries] and advances U.S. foreign policy.” Congress had capitalized it in 1970 for $20 million ($132 million in 2019 taxpayer dollars) and began operations by selling risk insurance to U.S. and foreign companies.
Gradual expansion led to taxpayers financing business loans and covering defaults. Most loans apparently didn’t go to women’s small cooperatives, but rather to giant multinational companies and banks. Foreign and private equity investments followed, so that by 2018, OPIC was serving corporations involved in 160 global South countries. Its website claims it has supported “more than $200 billion of investment in over 4,000 projects” and returned $3.7 billion to Treasury revenues.
Up until 2015, neither USAID nor OPIC had experienced a discouraging word from the public. But then came a seminal and scathing paper from economists Christopher Coyne and Abigail Hall Blanco about USAID operations. They accused the agency of failing to lift global South countries from poverty for half a century, finding USAID to be nothing more than an expensive, taxpayer-supported tool for helping U.S. businesses obtain billions in profits and become a global “illiberal hegemony.”
Coyne and Hall Blanco wrote that most USAID staffers regarded locals as backward inferiors (and were cordially detested in return). The authors concluded that the agency’s “noble rhetoric of humanitarian intervention and the desire to spread liberal values is simply cover for the true motivations behind foreign interventions.”
A New OPIC
Despite this, OPIC will continue its operations until this October. Fears of corporate outrage over the billions lost in potential overseas business seem to have led Trump to use Nixon’s tactic for preserving businesses’ essential support: Start a new one.
So sometime in late 2017, the Trump administration conceived of the U.S. International Development Finance Corporation (DFC). It was to be housed in Trump’s Better Utilization of Investments Leading to Development bill that was slipped into a reauthorization of Kennedy’s Foreign Assistance Act. The Assistance Act of 2018 passed by overwhelming majorities in both houses, and Trump triumphantly signed it into law last October.
Chartered until 2025 and backed by $60 billion from tax revenues for its first five years, the Development Finance Corporation also inherited OPIC’s “assets and obligations,” and mission “to meet development needs and advance U.S. interests.” Among the differences between the two agencies was doubling OPIC’s investment cap and, for global South countries, supporting “the creation of almost 380,000 jobs.”
But a telling and major difference was setting up the Development Finance Corporation’s “Corporate Capital Account” inside the Treasury. It was a taxpayer-funded, for-profit corporation with all its trappings and benefits: a CEO/president, board of directors, investments in equities, borrowings from and paying annual dividends to the Treasury, loan guarantees, establishing enterprise funds and “charging service fees.”
USAID has survived as an adjunct to Development Finance Corporation services but is confined to feasibility studies and other technical assistance in private-sector development, pre-exports and pre-investments.
At the very least, the State Department’s request for USAID funds in Trump’s proposed FY2020-21 budget envisions the day when foreign “assistance” is no longer needed, but in the meantime, it states that,
This Budget would provide necessary resources for USAID to continue its critical role in the U.S. Government’s efforts to promote American security and prosperity through investments that support more stable, resilient, and democratic societies that are self-reliant, capable of leading their own development journeys, and that open markets for U.S. businesses.
- $5,930,000,000 for Global Fund to fight HIV/AIDS, tuberculosis, and malaria
- $4,435,312,000 for international disaster assistance (includes $1,733,980,000 for Overseas Contingency Operations/Global War on Terrorism)
- $4,164,867,000 for development assistance
- $3,366,500,000 for global health programs
- $1,404,756,000 for operating expenses
- $770,334,000 for assistance for Europe, Eurasia and Central Asia
- $210,300,000 for construction and information technology
- $172,700,000 for the democracy fund
- $92,043,000 for transition assistance to democracy and long-term development of countries in crisis
- $75,500,000 for inspector general’s expenses
- $30,000,000 for the Complex Crises Fund to prevent emerging/unforeseen foreign challenges.
The Pentagon’s Overseas Contingency Operations covers those 800 overseas bases, it says, for peacekeeping duties. Those bases, however, house USAID field staff to provide humanitarian and disaster relief, and agency staffers have also been “helping” the military to understand “the political terrain or economic aspects of a given contingency environment.” Still, without accompanying disasters, it seems more likely that those bases were set up to help U.S. companies get their financial footholds in host countries.
Interestingly, the Government Accountability Office (GAO) has just called the budgetary arrangement a Pentagon “gimmick” to avoid caps or sequestration cutting Overseas Contingency Operations’ allocation (nearly $1.9 trillion since 2001). Whether the GAO ordered the Pentagon to pull Overseas Contingency Operations’ real allocations from the USAID budget has yet to be publicized.
The Cost of Foreign Aid, Amid Cuts
In the meantime, darkening financial clouds have begun to hover over the U.S.’s domestic arena, which once again could beggar millions. Since the 2008 financial crash, little seems to have been spent to aid thousands still recovering from the financial industry’s criminal collusion.
Incredibly, despite a nearly $17 trillion loss to Treasury revenues, in 2017, Trump and congressional majorities passed a budget with $1.5 trillion in permanent tax cuts for corporations (from 35 percent to 21 percent), and temporary tax cuts (from 39.6 percent to 37 percent) for the rich. He said the recipients would spend and spend to boost the economy 4 percent by expanding industrial production, but that hasn’t happened. Nor have the wealthy invested in promising startups.
The antidote preventing those tax cuts from increasing the $22.8 trillion national debt was slashing domestic programs serving millions. Trump sent Congress a record-setting $2.7 trillion budget. To avoid sticker-shock on Capitol Hill, it was to cover two years, and non-defense cuts would be spread out over 10 years.
Within hours of the budget’s public release in mid-March, the cuts triggered an explosion of opposition from affected departments and agencies, advocacy groups, progressive media and opposition from some in Congress. Trump and his aides had counted on the millions of those affected in his voting base to realize this only after his re-election, when the cuts would come home. Nevertheless, Congress passed the budget almost intact (Senate: 67-28, House: 284-149), and Trump signed off on it on August 2.
Perhaps to stave off more protests and media attacks, Trump and his team tossed taxpayers a bone: Foreign aid would be cut, starting with $4.3 billion from the U.S. contribution to the United Nations’ “humanitarian programs and other forms of foreign aid initiatives” (peacekeeping) and the UN’s funding core. More would follow.
U.S. corporations in global South countries are well established. They are protected and thriving, with new ventures capturing outside capital. The new DFC agency’s corporation could privatize itself to provide loans, risk insurance and absorb USAID’s staff. In Trump’s mind, the $19.2 billion saved from USAID’s allocation alone would also help offset those immense tax-cut losses to Treasury revenues.
Of course, Trump and his aides never considered reprogramming that savings to rescind non-defense cuts — particularly the administration’s butchery to domestic programs.
In rescinding that UN budget allocation last month, Trump had to use what’s known as the “rescission” device. Under a 1974 law, rescission is the only way a president or Congress can add or subtract sections from a passed budget. Congress then has a 45-day deadline to vote on it. If it does nothing, the rescission is automatically voided.
Dozens of advocacy groups and several key bipartisan voices in Congress, such as House Speaker Nancy Pelosi, Sen. Lindsay Graham and Rep. Nita Lowey, pushed back, arguing that without UN peacekeepers, millions would face violence and terrorism. Those 800 bases apparently were forgotten. Pelosi reminded Trump she could ensure no vote would be taken, yet she never threatened to use rescission for rescuing the domestic cuts in the budget.
Ultimately, though, it’s not surprising that the enormous power of what Trump calls “great American companies” depends on Americans’ empathy, generosity and gullibility for the less fortunate abroad. It’s enabled the administration to conceal how Americans’ tax dollars have been used to earn billions, often in tax-free profits, from global South countries. Corporate influence and political donations have always guaranteed obedience from most presidents, congressional majorities and the well off.
U.S. taxpayers have unknowingly handed off billions of dollars to U.S. neo-colonialists since USAID’s start in 1961, followed by OPIC and, now, to the Development Finance Corporation.
In these uncertain times, charity does indeed begin at home.