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Commentary: U.S. Foreign Aid: It's Stupid To Pinch Pennies (Int'l Edition)


International -- Intl' Business: COMMENTARY

COMMENTARY: U.S. FOREIGN AID: IT'S STUPID TO PINCH PENNIES (int'l edition)

Since the fall of the Berlin Wall, more than $12 billion in U.S. foreign aid has bankrolled programs in the former Soviet Union to start privatization, create securities markets, and reform the legal system. The money has had some influence. More than half of Russia's labor force is now privately employed. Russian brokers are starting to trade shares through a NASDAQ-like exchange system, and Moscow is slowly adopting a Western-style commercial code.

While corruption and crime are still huge problems, U.S. companies are managing to navigate the former communist country's tricky markets, which were once completely off-limits.

But just as such foreign-aid investments are starting to pay dividends, the ruling Republicans on Capitol Hill are poised to tighten the financial spigot. In mid-May, Senate and House committees plan to unveil resolutions that would chop more than $3 billion from the $21.2 billion in international-affairs spending that President Clinton has proposed for fiscal 1996.

That's just for openers. House Budget Committee Chairman John R. Kasich (R-Ohio) intends to prune roughly $24 billion over five years. Aid to all but Israel and Egypt would take big hits. In addition, Republican budget czars are considering making deep cuts in trade and investment programs at the Commerce Dept., the Export-Import Bank, and the Overseas Private Investment Corp.

To the GOP, determined to hack away at the budget, trimming the tiny foreign-aid account is one of the least politically painful cuts to make. The U.S. Agency for International Development, the government's main foreign-aid arm, is an easy target because of its bloated bureaucracy and history of mismanagement.

But such penny-pinching could cost a bundle in the long run. That is because less international spending undercuts U.S. influence on political and economic affairs around the globe.

Spending millions to dismantle Russian nuclear weapons is a small price to pay to guard against "loose nukes" winding up in the hands of terrorists. Some Republicans want to ax $371 million budgeted for such disarmament project in 1996. Yet regardless of the public's general bias against foreign aid, when disasters strike abroad, Americans want their government to pitch in to alleviate suffering. So why kill investment in drought-resistant crop strains and other agricultural research that might prevent famines in the first place?

Increasingly, the debate over U.S. aid is seen through the prism of self-interest. U.S. businesses, for example, receive 79% of all foreign assistance contracts. Cutbacks in aid and trade finance could slow economic reform and handicap U.S. companies in emerging markets from Russia to India. That would undermine a U.S. export drive that both political parties have endorsed.

Moreover, commercial banks are skittish about underwriting deals in shaky markets, so the Export-Import Bank loan guarantees and OPIC political risk insurance are critical commercial and diplomatic tools. "We already have the weakest support system for business abroad," maintains R.K. Judge Morris, senior policy director at the National Association of Manufacturers. "We shouldn't weaken it further."

FAT WALLET. What is ultimately at stake is U.S. global influence. "The measure of American leadership is not only the strength and attraction of our values but what we bring to the table to solve the hard issues before us," argues Anthony Lake, the President's National Security Adviser. That's especially true in the post-cold war era, when a fat wallet often counts for more than military muscle.

By that measure, the U.S. is becoming a lightweight. Steady cutbacks in assistance over the past decade pushed the U.S. to last place among the Group of Seven industrial nations. America's nonmilitary aid as a share of its gross domestic product in 1993 was 0.15%, compared with 0.26% for Japan, 0.37% for Germany, and 0.63% for France.

At a time when nearly all developing countries are embracing some version of market-oriented reform, the U.S. has a chance to shape a more open global economic system. It would be a shame if America missed out on the party because lawmakers thought the price of admission was too high.By Amy Borrus and Peter Galuszka


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