Foreign Aid Follies|
The New American, November 19, 2001
America sends billions of taxpayer dollars overseas in the form of foreign aid. Yet more often than not the money ends up aiding oppressive regimes and our nation’s enemies.
On May 17th of this year, Secretary of State Colin Powell announced a new $43 million aid package for Afghanistan. “We will continue to look for ways to provide more assistance for Afghans,” Powell said, “including those farmers who have felt the impact of the [Taliban-imposed] ban on poppy cultivation.” The new aid package, Powell continued, brought the year-to-date total U.S. aid to Afghanistan to more than $124 million, making the United States the world’s largest donor to Afghanistan for the second year running.
Shelling out millions to acknowledged producers of opium, much of which finds its way to American streets, is itself a strategy of questionable wisdom. But even in the wake of September 11th, with a war raging between the United States and Afghanistan and the blood of thousands of innocent American citizens quite possibly on the hands of the Afghan government, the foreign aid cornucopia continues to shower the Afghans with food and other forms of “humanitarian” aid purchased with dollars taken from U.S. taxpayers — the same taxpayers who are footing the bill for the war and the tens of billions of dollars’ worth of devastation wrought by the terrorist attacks. On October 4th, President Bush announced another aid package to Afghanistan and Afghan refugees in neighboring Central Asian republics. This latest gift, totaling $320 million, according to a fact sheet issued by the White House, brought the year-to-date total aid to Afghanistan to about $504 million.
The ongoing saga of U.S. aid to Afghanistan is but one episode in a long record of foreign aid waste and abuse. For decades, billions of taxpayer dollars have been sent overseas, allegedly for humanitarian causes. From massive military interventionism to bailouts of bankrupt Third World despots, Washington’s budgetary priorities suggest that our leaders have been more concerned about the citizenry and governments of foreign nations than about their own:
- Over the years, our elected officials, Republican and Democrat alike, have dispatched military forces to the likes of Iraq, Somalia, and the Balkans to promote regional “stability” — yet decisive measures to close our own borders to a flood of illegal immigrants from Mexico and Central America have not been taken.
- Washington frets about building a national missile defense system, even in the wake of the September 11th attacks — but spends billions maintaining military bases overseas to protect allies like Japan and Germany.
- American foreign aid programs dole out vast sums to cash-strapped governments in Asia, Latin America, and Africa, to alleviate poverty and malnutrition — even as the federal government cuts off irrigation water to, and destroys the livelihoods of, thousands of farming families in the Klamath Basin of southern Oregon and northern California.
- Billions in taxpayer dollars go to assist Third World governments in building dams and modernizing energy-providing infrastructures, while America’s once-promising nuclear-power industry is pushed to the brink of extinction by regulatory overkill.
- Much of the money taken from America’s taxpayers is sent directly to regimes, like the Taliban, openly hostile to the U.S. Overall, taxpayer dollars have become America’s number one export.
Despite its supposedly lofty ideals, foreign aid seldom if ever achieves its intended, or publicly stated, purposes. This is because foreign aid is not charity but international socialism. Hard-earned money is taken from U.S. taxpayers and redistributed abroad according to the whims of globalist micromanagers. It is viewed by its most doctrinaire supporters not just as a remedy for the suffering of the world’s huddled masses, but as a just imposition on the greedy, exploitive, unfairly affluent societies of the West.
In practice, like all socialist delusions, international wealth redistribution has precisely the opposite effect from that claimed. Instead of punishing the rich in America and elsewhere, foreign aid is yet another tax burden afflicting the middle class. The aid almost always goes directly to governments, not to individuals or private entities, and nearly always enriches and strengthens primarily the wealthy and the politically connected in recipient nations. They in turn use the funds to line their own pockets, build monuments to their own vanity, and enlarge their military, economic, and police-state capabilities. The suffering poor, meanwhile, continue to endure disease and poverty under the heel of their oppressors, with salvation always just a bailout away.
Roots of Foreign Aid
In the beginning, globalists understood that the American public would not accept an overt dole of tax monies to foreign governments. They therefore conceived the idea of using international currency manipulation as a cover for diverting public funds to overseas beneficiaries. In 1934, an obscure government agency known as the Exchange Stabilization Fund (ESF) was created to “stabilize” foreign currency exchange rates in the wake of President Franklin Roosevelt’s unconstitutional confiscation of privately owned gold. Before long, the ESF began issuing “stabilization loans” to prop up bankrupt foreign governments, something it was neither constitutionally nor statutorily authorized to do. The first such loan, to the Mexican government in January 1936, was designed as a currency “exchange” between the United States and Mexican treasuries, for which Mexico paid interest in pesos on the resulting American account. From that day forward, the ESF has quietly but steadily enlarged its authority to issue bailout loans to anemic Third World economies. Because the secretary of the treasury enjoys the sole discretionary power to authorize ESF financial activities, Congress, according to researcher Anna Schwarz, “has ceded to the executive branch the power to extend foreign aid without prior congressional approval.”
In 1995, the infamous Mexican bailout abruptly brought the ESF’s activities to public attention. After Congress firmly rejected the White House’s demand for funding, the Clinton administration created widespread outrage by handing Mexico $12 billion in ESF funds, by far the largest amount of aid the ESF had ever given. Yet despite the bad publicity, the ESF continues to ply its dubious trade. In 1997-98, for example, it was a major contributor to the international bailout of the stricken economies of East Asia.
Better known than the ESF is the International Monetary Fund (IMF), which was founded in 1946 as part of the Bretton Woods Act. Its architects were socialist economist John Maynard Keynes and Assistant Secretary to the U.S. Treasury Harry Dexter White, a Soviet spy. Stabilization of foreign exchange rates was the IMF’s stated purpose. But like the ESF, the IMF soon began expanding its range of activities to include bailout loans to bankrupt regimes.
In the wake of World War II, government-subsidized international compassion was an easy sell. But White, a subversive with a subtle mind for international finance, was well aware that the IMF had a purpose very different from its alleged humanitarian goals. In early drafts of his IMF proposal, White urged that the IMF “pierce at the weakest points … extreme nationalism” and that “a breach must be made and widened in the outmoded and disastrous economic policy of each-country-for-itself-and-the-devil-take-the-weakest.” As White’s notes imply and its subsequent history shows, the IMF is meant to act as an international economic leveller, siphoning money from the citizens of “unjustly” wealthy nations and redistributing it among the political classes of poor countries. The IMF is also intended to be an instrument for attacking economic sovereignty by wresting fiscal autonomy from debtor nations in return for keeping the money spigots open.
IMF loans are typically issued at well below market interest rates, at attractive terms of payment, and are thus a powerful inducement for fiscally irresponsible regimes to go on the international dole. But there is a price to pay for U.S.-backed IMF largesse. Associated with such loans are terms of “conditionality” that usually undermine the financial sovereignty of the debtor and further socialize the economy. Borrowers are often required to raise revenue through tax hikes, to reform and enlarge the government regulatory apparatus, to restrict imports, and to submit to periodic international inspection and review of government policies. Such statist measures both dilute national sovereignty — as White originally intended — and dampen economic performance, ensuring that the country in question will continue to require international assistance to stay afloat. In a recent article in The New Republic, economist Joseph Stiglitz described the IMF’s modus operandi:
The IMF likes to go about its business without outsiders asking too many questions. In theory, the fund supports democratic institutions in the nations it assists. In practice, it undermines the democratic process by imposing policies. Officially, of course, the IMF doesn’t “impose” anything. It “negotiates” the conditions for receiving aid. But all the power in the negotiations is on one side — the IMF’s — and the fund rarely allows sufficient time for consensus-building or even widespread consultations with either parliaments or civil society. Sometimes the IMF dispenses with the pretense of openness altogether and negotiates secret covenants. When the IMF decides to assist a country, it dispatches a “mission” of economists. These economists frequently lack extensive experience in the country.... They work hard, poring over numbers deep into the night. But their task is impossible. In a period of days or, at most, weeks, they are charged with developing a coherent program sensitive to the needs of the country. Needless to say, a little number-crunching rarely provides adequate insights into the development strategy for an entire nation.
The modern IMF derives revenue from several sources. Its reserves are expressed in terms of SDRs, or “Special Drawing Rights,” which are officially derived from a basket of weighted major currencies. IMF members are required to pay a “subscription quota” whose amount is determined by the IMF on the basis of its perceived economic position relative to the rest of the world. The pool of quota subscriptions is the IMF’s primary source of revenue, amounting to more than $270 billion. Of this total amount, the United States, predictably, pays the lion’s share, a sum of roughly $48 billion. In addition, the IMF has an emergency borrowing pool for expedited bailouts known aptly as NABs (New Arrangements to Borrow). The total amount of NAB funds available is roughly $44 billion, of which the United States accounts for about one fifth, or $8.7 billion.
The IMF also spent several decades quietly stockpiling gold, which according to the original Articles of Agreement was required as a percentage of subscriptions and for payment of membership charges. Thus, during the decades when the U.S. government forbade its own citizens to invest in gold, and worked ceaselessly to rid the world of precious metal currency standards, the IMF was confiscating gold from member countries, including the United States. The IMF closed its own “gold window” in 1978 — but not before it had accumulated gold reserves worth about $7.5 billion, which it continues to hold “for prudential reasons [and] to meet unforeseen contingencies,” according to an IMF fact sheet.
Also created as part of the Bretton Woods agreement was the World Bank, a labyrinth of regional lending banks, a dispute settlement agency, a finance corporation, a pair of global development funds, and various subsidiary organizations. Like the IMF, the World Bank specializes in loans below market terms. As with the IMF, the United States financial commitment to the World Bank is enormous. Our capital stock in the World Bank’s International Finance Corporation (IFC), for example, was more than $569 million as of June 2000, or more than one-fourth of the total of $2.3 billion.
The foreign aid racket, though, is not confined to the machinations of multilateral vehicles like the IMF and the World Bank. The U.S. taxpayer also pays for billions of dollars of unilateral aid administered directly by the United States Agency for International Development (USAID) to every conceivable species of deadbeat regime. President John F. Kennedy, who set up USAID in 1961, said at the time that:
there is no escaping our obligations: our moral obligations as a wise leader in the interdependent community of free nations — our economic obligations as the wealthiest people in a world of largely poor people.... To fail to meet those obligations now would be disastrous; and, in the long run, more expensive. For widespread poverty and chaos lead to a collapse of existing political and social structures which would inevitably invite the advance of totalitarianism into every weak and unstable area.
Yet 40 years later, those areas of the world most dependent on USAID and other sources of foreign aid are generally worse off than ever, relative to the rest of the world. As USAID administrator Andrew Natsios recently lamented, “we have been losing the war against hunger in sub-Saharan Africa.... [I]n Africa, [estimates] indicate that the number of hungry … will increase by about 10 million a year over the next decade.” This, despite the countless billions in foreign aid that have poured into Africa decade after decade.
The situation is the same in South Asia, especially India, which has been the world’s number one recipient of foreign aid since the ’60s, yet has fallen further and further behind the rest of the world in development. Even as countries in East and Southeast Asia modernize, South Asia remains a tragic sinkhole of war, disease, and poverty unmatched anywhere else in the world.
Then there are the permanent international welfare-roll states of Latin America, utterly and inextricably dependent on foreign aid in its various forms. When this writer lived in Argentina in the late ’70s, that country had a semi-modern, unstable economy with a crippling load of international debt. Inflation was so high that Argentines could not generally save money at all, but had to protect their wealth by buying land and converting it to more stable currencies. More than 20 years later, Argentina’s debt is higher still, and her inflation rate has investors and savers alike scurrying to convert evaporating pesos into dollars and more stable investment mediums. Much the same could be said of Brazil, Mexico, and most of the rest of Latin America.
Despite all the financial and political turmoil in the Third World, American investors continue to move their business outside U.S. borders, to the low-cost labor markets of Latin America, Asia, and, to a smaller degree, Africa. This is partly because America’s regulatory climate has caused the costs of doing business at home to skyrocket. But more importantly, American corporations that move their operations and jobs abroad are shielded by taxpayer dollars from the consequences of risky overseas investments.
The Overseas Private Investment Corporation, or OPIC, was created at the same time as USAID, to use taxpayer dollars to protect multinational corporations from investment risk overseas. In conjunction with the availability of IMF and World Bank bailouts, OPIC helps to artificially protect overseas investors from shouldering investment risk in what would otherwise be unstable political and economic climates. Wealthy American multinational corporations may be secure in the knowledge that their investments are insured by taxpayer funds, and that high-risk economies where they market their products will stay open for business — courtesy of money “loaned” to risky regimes by the U.S. government.
Aid and Comfort
Foreign aid was instrumental in supporting many of the Communist regimes arrayed against the United States and her allies, including Ceaucescu’s Romania and the former Soviet Union itself. Foreign aid demonstrably abetted and reinforced African dictatorships like Zaire’s Mobutu and Ethiopia’s Mengistu. And of course, the spigots have been open for the benefit of Afghanistan’s Taliban.
American foreign aid continues to prop up the economies of America’s two major foes, Russia and Communist China. In the case of the latter, the U.S. president has renewed China’s Most-Favored Nation trading status year after year, permitting that Communist regime to flood American markets with cheap goods manufactured by slave laborers in the Laogai system. We shell out millions of dollars to China for development, and turn a blind eye to China’s occupation of Tibet, its open threats to invade Taiwan, its programs of forced abortion and religious persecution, and other totalitarian practices. “For far too long the American people have been forced to subsidize the communist Chinese, under the false guise of free trade,” fumed Congressman Ron Paul (R-Texas) recently. “Free trade is allowing individuals to exchange goods and services, not forcing Americans to subsidize with their involuntary tax dollars a brutal regime that runs completely contrary to our system of government, and has apparently been working to actually subvert our laws and our institutions.” Aside from the Taliban, nowhere more than in China are we so clearly subsidizing an enemy of the United States, yet large numbers of Americans seem to accept reassurances that our “investments” in China will somehow redound to our long-term benefit.
The widespread perception persists among Americans, encouraged by internationalists in both major parties, that foreign aid is essentially benign, despite its dismal track record of promoting poverty, strengthening dictatorships, and benefiting the rich and well-connected at the expense of America’s middle class. Foreign aid still has vigorous defenders in Congress, among corporations that do business overseas, and in what journalist Graham Hancock termed the “aristocracy of mercy,” the UN-dominated network of international aid agencies.
Internationalist apologists often claim that foreign aid, at around 1 percent of the national budget, is fiscally inconsequential and not worth the hype and rhetoric of its opponents. But this figure neglects the tens of billions of dollars of foreign aid laundered via the IMF and the World Bank. It also ignores legions of other government projects that certainly fall under the rubric of foreign aid, but are usually reckoned as something different, for budgetary or political purposes. Who can accurately compute the full cost of America’s annual overseas military commitments, our OPIC guarantees to overseas investors, our preferential trade policies encouraging unfair foreign competition against American business, and the cost of defending the United States against foreign perils like Communism, which were built up in large measure by American dollars and technology transfers in the first place?
But even if government-administered foreign aid worked as advertised, Congress is nowhere authorized by the Constitution to send U.S. taxpayers’ money overseas, however benevolent the reason.
Government-sponsored foreign aid must be terminated. When America’s middle-class taxpaying public demands of Congress an end to government foreign aid in all its corrosive, insidious forms, the world’s deserving poor will be better off. The tax burden on America’s beleaguered middle class will be lightened. Most importantly, freedom will proliferate more decisively across the world as corrupt governments are forced to account for their profligacy, and American national sovereignty is reasserted.