U.S. GOVERNMENT PUBLISHING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Publishing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

27–873 PDF 2018

S. HRG. 114–744 

AN ASSESSMENT OF 

U.S. ECONOMIC ASSISTANCE 

HEARING 

BEFORE THE

COMMITTEE ON FOREIGN RELATIONS 

UNITED STATES SENATE 

ONE HUNDRED FOURTEENTH CONGRESS 

SECOND SESSION 

JULY 7, 2016 

Printed for the use of the Committee on Foreign Relations 

( 

Available via the World Wide Web: 

http://www.fdsys.gpo.gov 

FOREI-42327 with DISTILLER

COMMITTEE ON FOREIGN RELATIONS

BOB CORKER, Tennessee, Chairman

JAMES E. RISCH, Idaho 

MARCO RUBIO, Florida 

RON JOHNSON, Wisconsin 

JEFF FLAKE, Arizona 

CORY GARDNER, Colorado 

DAVID PERDUE, Georgia 

JOHNNY ISAKSON, Georgia 

RAND PAUL, Kentucky 

JOHN BARRASSO, Wyoming 

BENJAMIN L. CARDIN, Maryland 

BARBARA BOXER, California 

ROBERT MENENDEZ, New Jersey 

JEANNE SHAHEEN, New Hampshire 

CHRISTOPHER A. COONS, Delaware 

TOM UDALL, New Mexico 

CHRISTOPHER MURPHY, Connecticut 

TIM KAINE, Virginia 

EDWARD J. MARKEY, Massachusetts 

TODD WOMACK, Staff Director

JESSICA LEWIS, Democratic Staff Director

JOHN DUTTON, Chief Clerk

(II)

FOREI-42327 with DISTILLER

C O N T E N T S 

Page 

Corker, Hon. Bob, U.S. Senator From Tennessee ................................................. 1 

Cardin, Hon. Benjamin L., U.S. Senator From Maryland ................................... 2 

Herbst, Dr. Jeffrey, president and chief executive officer, Newseum, Washington, DC ............................................................................................................. 4 

Prepared statement .......................................................................................... 5 

Moss, Dr. Todd, chief operating officer and senior fellow, Center for Global 

Development, Washington, DC ........................................................................... 7 

Prepared statement .......................................................................................... 8 

Mandaville, Alicia Phillips, vice president, Global Development Practice, 

Interaction, Washington, DC ............................................................................... 10 

Prepared statement .......................................................................................... 12 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

‘‘Bringing U.S. Development Finance Into the 21st Century,’’ Ben Leo and 

Todd Moss, Center for Global Development, 2016 ............................................ 42 

(III)

FOREI-42327 with DISTILLER

FOREI-42327 with DISTILLER

(1) 

AN ASSESSMENT OF 

U.S. ECONOMIC ASSISTANCE 

THURSDAY, JULY 7, 2016 

U.S. SENATE, COMMITTEE ON FOREIGN RELATIONS, Washington, DC. 

The committee met, pursuant to notice, at 2:15 p.m., in Room 

SD–419, Dirksen Senate Office Building, Hon. Bob Corker, chairman of the committee, presiding. 

Present: Senators Corker [presiding], Gardner, Cardin, Shaheen, 

Coons, Kaine, and Markey. 

OPENING STATEMENT OF HON. BOB CORKER, 

U.S. SENATOR FROM TENNESSEE 

The CHAIRMAN. Senate Foreign Relations Committee will come to 

order. 

We thank our distinguished witnesses for being with us today. I 

will introduce you in just a moment. 

Today’s hearing will consider whether our foreign assistance intended to promote economic growth in developing countries is 

working as intended. When Congress passed the Foreign Assistance Act of 1961, economic development was a core priority of our 

overall aid policy. The Act specifically calls for the promotion of 

conditions enabling developing countries to achieve self-sustaining 

economic growth as one of the five principal goals of U.S. foreign 

aid. 

Today, 10 percent of our aid, by category, goes to economic development, but the question is, can we really say that we are achieving concrete results? Various commissions over the past decades 

have affirmed an unfortunate reality: our foreign assistance programs largely lack strategic focus and are not accomplishing their 

intended objectives as well as they could. More optimistically, there 

is also a consensus that focusing on long-term economic growth and 

job creation contributes the most to sustainable development. Our 

foreign aid policies today seem mired in a Cold War mindset that 

values buying friends in the developing world over establishing the 

right environment for foreign economic growth to occur. 

For us to maintain support at home for these programs, obviously we need to demonstrate to the American people that this assistance can work and benefits our country. And, obviously, I think 

there is a lot of question about that. 

We thank all three of you, again, for being with us and sharing 

your insights in that regard. This hearing will examine how we 

have lost our way on this important goal of fostering economic 

FOREI-42327 with DISTILLER

2 

growth with our limited foreign aid dollars. I am sure you can assist us in helping think about it in a little bit different way. 

With that, I will turn it over to our distinguished Ranking Member, and my friend, Ben Cardin. 

STATEMENT OF HON. BENJAMIN L. CARDIN, 

U.S. SENATOR FROM MARYLAND 

Senator CARDIN. Well, Mr. Chairman, thank you very much for 

calling this hearing. It is an extremely important subject. 

And I thank our panelists for sharing their thoughts in this discussion. 

I share your goal of getting development assistance right. And I 

believe we all agree that sustainable economic growth must be a 

top priority for U.S. foreign assistance. Development assistance is 

one of the most important tools we have to ensure that we are promoting economic growth, stability, and security in the developing 

world. It is part of our toolbox for national security. It includes our 

soldiers and our weapons, certainly the Department of Defense. It 

also includes diplomacy, but it also includes our foreign aid. And 

a significant part of our foreign aid is devoted towards economic development. The question is, ‘‘Are we doing it the right way?’’ 

We, here in Congress, have laid out a number of clear mandates 

to guide our foreign assistance programs. The one we are examining today calls for the promotion of conditions enabling developing countries to achieve self-sustaining economic growth with equitable distribution of benefits. Today, we will look at a wide array 

of programs, under the jurisdiction of the committee, that are intended to fulfill this mandate. We are here to see whether we are 

getting things right, and what we can do better. 

I want to make a couple of points before we hear from our witnesses. 

First, I must point out that our foreign assistance is just 1 percent of our budget, but it pays large dividends. It is important to 

remember, with these relatively small investments, we have set 

goals of reducing maternal and child deaths, creating an AIDS-free 

generation and scaling up our investments to combat a host of global health challenges. We must make these investments not just because it is the right thing to do, but also because it helps contribute 

to economic growth and, just as importantly, stability. 

Second, we must be clear-eyed to remember that fostering economic growth, especially in extremely poor and unstable countries, 

requires strategic investments and strategic patience. Former 

USAID Administrator Raj Shah used to say that the aim of our development assistance is to eventually put ourselves out of business. 

This is achievable in countries ripe for growth, but, in other countries, such as Haiti or Nepal, constraints to growth are monumental. It will take time. We do need strategic patience. 

Third, while economic growth is, and must be, an important priority, it can be advanced through a variety of programs that contribute to the foundation of a functioning economy. 

Mr. Chairman, when we look at our own economic success in the 

United States, still the model and envy of the world, I am struck 

by all of the many things we do right, the things that contribute 

to our economic success. At the top of the list, I think we all would 

FOREI-42327 with DISTILLER

3 

agree, are open markets, property rights, a strong financial sector, 

the things that we all think of when we think—talk about economics. But, I also think our healthcare system, our educational system, our ongoing work to make our society open to everyone so that 

everyone can benefit from their own energies and talent is a critical part to the growth of our economy. Take any of these away, 

and our economy is weaker. 

The same goes for countries where we are trying to promote economic growth. We cannot think just about the important elements 

of good business climate. If we do not help them fight corruption— 

we had a hearing on that last week, and I thank you for that—or 

to abide by the rule of law, to protect basic rights, then we will 

never attract the private investments or grow the workforce that 

is critical to ensuring the long-term success of our investments. 

Our development programs, such as nutrition, global health and 

education programs, as well as traditional economic programs that 

foster entrepreneurship and help get goods to the market, like 

those supported by MCC and Trade-Africa, are all important contributors to a sustainable economic growth. We know that our governance programs in developing countries help create enabling policy environments that are absolutely critical to economic growth 

and stability. As we learned last week at our corruption hearing, 

anticorruption programs, in particular, are essential to effectively 

implementing economic policy reforms. By tackling these fundamental issues, we are getting at the root cause that constrains 

growth in so many countries. 

I want to point to Feed the Future as an example of a development program that is getting it right when it comes to fostering 

sustainable economic growth. And, Mr. Chairman, I thank you for 

your leadership in the Global Food Security Act, which, yesterday, 

passed the House of Representatives, and is now on the way to the 

President of the United States for signature. That is a great accomplishment of this committee. And I thank you for your leadership 

on it. Feed the Future works with the private sector, governments, 

and civil societies to help countries develop their agricultural sectors to generate opportunities for broad-based economic growth and 

trade, which, in turn, supports increased incomes and helps reduce 

hunger and malnutrition, major impediments to economic growth. 

And I hold up Feed the Future as the gold star because it is also 

an example of how our development dollars yield compound interest by investing in women. Women make up a large percentage of 

the world’s small-holder farmers. And if women farmers have the 

same access to resources and land rights as men, it is estimated 

that the number of hungry in the world could be reduced by 150 

million. Furthermore, decades of research and experience prove 

that when women are able to fully engage society, they are more 

likely to invest their income in food, clean water, education, 

healthcare for their children, and, by the way, to further build their 

businesses. This is just another example of the way our development investments are down payments on the building blocks for 

economic stability. 

I look forward to examining how we can best support the full 

spectrum of policies that underpin inclusive economic growth. 

FOREI-42327 with DISTILLER

4 

The CHAIRMAN. Thank you so much. It was a team effort, on both 

sides of the Capitol, to make happen what happened yesterday. It 

is a great step forward, and I thank you so much for everything 

you did to make that happen. 

So, today we have one panel with three private witnesses with 

significant experience in U.S. foreign aid programs. We will now 

turn to them. 

Our first witness is Dr. Jeffrey Herbst, President and Chief Executive Officer of the Newseum, here in Washington. Our second witness will be Dr. Todd Moss, Chief Operating Officer and Senior Fellow at the Center for Global Development. And our third witness 

will be Ms. Alicia Phillips Mandaville, Vice President of Global Development Practice at InterAction. 

I want to thank you all for being here. I think you all understand 

you can summarize your comments in about 5 minutes. Your written statement will be, without objection, entered into the record. 

And, with that, if you would just begin in the order that I introduced you, we would appreciate it. And we look forward to your 

comments. 

STATEMENT OF DR. JEFFREY HERBST, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, NEWSEUM, WASHINGTON, D.C. 

Dr. HERBST. Mr. Chairman, Ranking Member Senator Cardin, 

thank you very much for inviting me here today on this very important topic. 

Addressing global poverty is a critical issue right now. In the 

past 10 or 15 years, we have seen massive reduction in global poverty. More people have been lifted out of poverty in the last few 

years than at any time in human history. Most of that has occurred 

in China and Asia, and not associated with foreign aid. 

I have concentrated, in my career over the last 30 years, with the 

48 countries of sub-Saharan Africa, where an increasing percentage 

of the world’s poor people, given what has happened in Asia in poor 

countries, will be. Africa is an increasing focus of U.S. foreign assistance, and will be so in the future. 

At the same time, we have seen two other critical developments. 

Population increases in Africa will continue. Most countries will see 

a doubling of their populations in the next 25 to 30 years. And the 

commodity boom which fueled high economic growth in the last 

decade is over. The role of foreign assistance, and well-designed foreign assistance, is therefore especially critical. 

The overwhelming point I want to make to you is that, while it 

is important to focus on the design of our policies and to execute, 

as well as we can, the necessary condition for economic assistance 

is the political commitment of recipient governments to good governance. If the recipient country is not committed to private-sector 

growth in a dynamic economy, then, no matter what the design of 

foreign assistance is, no matter how well-intentioned the donor, the 

aid is not going to have a significant effect. It is much more important what they do, in many ways, than what we do. That goes 

against much of the thinking in this town, where we always think 

we are the primary movers, but it is critical to understand the governance record in other countries. 

FOREI-42327 with DISTILLER

5 

I should also note that we have often been wrong about the underlying commitment of good governance to countries, especially 

when the commodity boom of last decade covered up many flaws 

in many government policies. In Mozambique, for instance, which 

had been a recipient of significant amount of aid, an aid darling of 

the international community, we now see that public finance was 

badly mismanaged during the commodity boom. For United States 

economic assistance to be effective, we must recognize that, if a 

country is not committed to an economic policy that promotes, especially, private-sector growth and good infrastructure development, 

nothing else really matters. 

The design of U.S. economic policy is complex because, of course, 

it goes hand-in-hand with other aspects of U.S. foreign aid. As the 

Chairman noted, economic assistance which concentrates on 

growth is only one component of our overall foreign aid portfolio. 

As a result, we often face conflicting priorities between economic 

growth, governance and democracy, investing in people, disaster relief, and other worthwhile priorities that the U.S. Government has. 

It is, therefore, very difficult at times for managers and executives 

in AID and elsewhere to make decisions to allocate aid solely on 

the basis of good governance. 

If we are to have an economic policy which allows for a sunset 

of foreign assistance at some point, that we somehow get out of this 

business, then we will have to first make sure that we and recipient countries agree on the metrics necessary for improvement. 

There is only something of an agreement now, and a consensus is 

often missing between what the donor wants and what the recipient country is actually going to do. We will also have to have the 

discipline to reduce aid if we believe that the consensus is violated. 

So far, I would say, over many years, we have evidence only of partial discipline in cutting aid when countries violated their express 

commitments, because there are bureaucratic initiatives to promote 

and continue aid, and because there are many other priorities of 

the U.S. Government. 

Overall, as my time is running to an end, I would say to you that 

the world is, in fact, awash with aid at the moment. The problem 

is not that there is not enough foreign aid. Over the last 10 years 

since the Gleneagles Summit, many Western countries, including 

the United States, have increased their assistance, and China and 

other actors have also come on board. Aid is, in fact, chasing 

projects which deserve to be funded. The question, going forward, 

is, can we manage that aid so that it only goes to those recipient 

countries that have a good governance record? 

Thank you very much. 

[Dr. Herbst’s prepared statement follows:] 

PREPARED STATEMENT OF JEFFREY HERBST

Mr. Chairman, Ranking Member Senator Cardin, other distinguished members of 

the Committee, it is a great honor for me to testify before the committee on the 

panel ‘‘An Assessment of U.S Foreign Economic Assistance.’’ My observations are 

mainly based on my own academic work that has focused on the political economy 

of sub-Saharan Africa over the last thirty years. 

Without a doubt, the necessary condition for economic growth in a developing 

country is the commitment of the government to create the enabling conditions for 

growth. In particular, governments must create policy environments that are attracFOREI-42327 with DISTILLER

6 

1 A good review of overall trends can be found in Curt Tarnoff and Marian L. Lawson, ‘‘Foreign Aid: An Introduction to U.S. Programs and Policy,’’ Congressional Research Service, June 

17, 2016. 

tive to local and foreign investors. We have seen, in Africa and elsewhere, that governments (e.g., Ethiopia, Rwanda) that create the necessary conditions are able to 

attract private investment even if there are very challenging historical legacies. We 

have also seen that countries that may seem more attractive (due to infrastructure 

and the existing private sector) but with a poor governance climates (e.g., South Africa) do not attract investment. Governments must also be able to make hard decisions, including a focus on building infrastructure rather than spending on consumption and be able to close state enterprises that are not viable. Finally, corruption must be kept to a low and predictable level. 

Absent the necessary will to make economic reform, it can be guaranteed that 

there will not be sustainable economic growth. There are several dozen countries in 

the developing world that are currently trying to attract investment and many recognize that they are in a global competition for investment. There are only a few 

cases (mostly in mining but even then there are often choices) where a company has 

to invest in a particular country. 

Whether U.S economic assistance promotes growth is a complicated question. It 

must first be noted that economic growth is not the primary goal of U.S foreign policy. The largest component of bilateral assistance (61% in FY2015) is devoted to 

global health, notably to support treatment of HIV/AIDS. 1 According to the State 

Department’s own framework, promoting economic growth is a priority but so is promoting peace and security, investing in people, governing justly and democratically, 

and humanitarian assistance. Underneath these major priorities are no less than 

twenty-four sub-goals ranging from counter-terrorism to agriculture to health to 

good governance. 

Many of these goals are aligned but not all. There are, for instance, some African 

countries that are growing but who cannot be considered democratic (again Rwanda 

and Ethiopia are examples). While all of these goals are admirable, it must be noted 

that the breadth of such priorities spread over many countries makes it very hard 

for U.S government agencies to focus on any one priority and therefore tie aid to 

results. For instance, the U.S was constrained from using aid to protest the unfair 

elections held in Uganda in February 2016 because of the important security role 

that Kampala plays in the region. 

More generally, aid will be used well by countries that are committed to economic 

growth and will be wasted in countries where the government has other priorities. 

Outsiders can never instill a seriousness of purpose that is lacking in the national 

government. 

As the U.S government has so many stated priorities it would be all but impossible to say that aid was sufficiently tied to outcomes and objectives. The U.S, 

whether deliberately or not, has developed a very broad portfolio of aims spread 

over a large number of countries. There are strategic advantages to such a posture—displaying American involvement globally, participating in a broad range of 

issues, and flexibility to move across different sectors depending on felt need—but 

policy coherence naturally suffers. 

Economic assistance should only be expected to succeed when government is committed to having a private sector that thrives. Once that basic commitment is discerned, economic aid can be used in a variety of ways that would be productive, including building infrastructure, rationalizing and enhancing the competency of government ministries and state-owned enterprises, and fostering entrepreneurs. Foreign economic assistance cannot be expected to substitute for local political will. 

A policy stance which aimed for a sunset on American assistance in a given country is an attractive idea but would have to be based on a much smaller set of priorities than is currently the case and greater discernment in the disbursement of 

funds. Greater capacity-building will only occur with governments that want to enhance their fundamental structures, as opposed to enrich leaders, develop patronage 

networks, or pump up the economy for an upcoming election. 

A policy framework with a clear sunset would have to have well defined metrics 

that would be announced in advanced and then tracked. The U.S would also have 

to have the discipline to reduce aid if progress was not being made on the metrics. 

The CHAIRMAN. Thank you. 

Dr. Moss. 

FOREI-42327 with DISTILLER

7 

STATEMENT OF DR. TODD MOSS, CHIEF OPERATING OFFICER 

AND SENIOR FELLOW, CENTER FOR GLOBAL DEVELOPMENT, WASHINGTON, D.C. 

Dr. MOSS. Thank you, Chairman Corker, Ranking Member 

Cardin. I appreciate the opportunity to highlight ways the United 

States can be more effective in supporting private-sector growth 

and promoting economic opportunity around the world. 

I proudly served in the State Department, and I continue to work 

closely on global economic policy issues at the nonpartisan Center 

for Global Development. I have three points today. And this draws 

largely on my work at CGD with my colleague Ben Leo. 

First, it is development finance, rather than traditional aid, that 

is the future. Aid is the right tool for tackling health challenges 

and for dealing with humanitarian crises, but aid has been much 

less effective at generating broad economic growth. However, when 

carefully targeted, aid can be useful in addressing very specific barriers to business and issues in the enabling environment. The Millennium Challenge Corporation model, which uses 5-year compacts 

to explicitly attack constraints to growth, is a great example of 

doing this. So, too, are the U.S. Treasury’s technical assistance programs and also USAID’s very laudable coordination of the Power 

Africa Initiative. Yet, it is development finance or the deployment 

of commercial capital for public policy purposes that is the most potent weapon we have for expanding markets and for spurring private-sector growth. 

When the United States wants to encourage job creation in Tunisia, when we want to catalyze infrastructure investment in Nigeria, when we want to bring Pakistani women into the banking sector, we turn to development finance. And development finance is 

the future, because of the changing global landscape. Many previously poor countries are much richer today, and they are looking 

for more than aid. They want to partner with the United States to 

deliver jobs and roads and electricity. Development finance is the 

future, because of the rise of China, India, and other emerging 

powers. These countries, along with our traditional allies in Europe, are already using development finance to bolster their influence and to expand investment opportunities. The United States 

has made a start, but we risk falling further behind. 

Most of all, development finance is the future because of who we 

are as a country. Americans believe in a model of private-sectorled capitalism. Our deep capital markets, our culture of entrepreneurship, and our belief in free markets all provide a unique platform for using development finance to promote prosperity. 

Now, fortunately, the United States already has a very good development finance institution, the Overseas Private Investment 

Corporation. Since 1971, OPIC has provided political risk insurance 

and largely debt capital to private-sector projects around the world 

in support of U.S. foreign policy and U.S. development objectives. 

And for 38 years in a row, OPIC has returned money into the U.S. 

Treasury. 

Our recent analysis at CGD has shown that OPIC has been investing principally in the exact sectors that are the leading constraints to growth in developing countries. Those are infrastructure 

and access to finance. 

FOREI-42327 with DISTILLER

8 

While some have worried that OPIC could become a boon for 

large U.S. corporations or could encourage corporate welfare, our 

recent analysis of OPIC’s portfolio has shown this to be patently 

untrue. Instead, we find that less than 8 percent of OPIC commitments over the last 5 years have involved any of the Fortune 500 

companies. 

My second point is that, while OPIC is small and high-performing, it could be even better with a few tweaks that Congress 

could enact at no additional cost to U.S. taxpayers. Chief among 

these reforms is allowing OPIC limited authority to make equity 

investments rather than being restricted to only issuing debt. 

Many projects in the riskiest markets where the U.S. Government 

needs OPIC the most are at a stage where they require equity, not 

debt. And nearly every other development finance institution in the 

world has equity authority. OPIC is an exception, largely because 

of a holdover from a rule during the Nixon administration. 

Another simple reform that would bring large benefits at no cost 

is multiyear authorization. Large, complex infrastructure projects 

take years to negotiate and implement, yet OPIC has been forced 

to rely on annual authorizations since 2007. 

A final minor reform that would allow OPIC to—would be to 

allow OPIC to retain a slightly larger portion of its profits to add 

staff to clear a big backlog of potential projects. OPIC does not 

need more capital, it needs a few dozen more people to deploy that 

capital. The agency covers more than 150 countries, yet currently 

has only about 200 staff or less than what we would deploy to a 

midsized embassy. 

My final point, if the United States is serious about promoting 

market solutions to poverty and insecurity, we need a modern, fullservice U.S. development finance corporation that is worthy of the 

world’s largest economic power. In the annex to my testimony, Ben 

Leo and I provide a series of options for how Congress could structure just such an institution, consistent with broad bipartisan support and budgetary realities. A U.S. development finance corporation could bring OPIC into the 21st century by consolidating all the 

existing tools and instruments that are currently spread across 

multiple Federal agencies, and enable their much more strategic 

deployment to promote private-sector growth. If we fail to update 

our development finance tools, the United States stands to lose out 

to other countries on potential opportunities. We would also be neglecting one of our most powerful levers to support prosperity and 

stability abroad. Modernizing America’s development finance tools 

would cost nothing. It would bolster our fight against the remaining pockets of global poverty, and it would support our most pressing national security goals. 

Thank you. 

[Dr. Moss’s prepared statement follows:] 

PREPARED STATEMENT OF DR. TODD J. MOSS

Thank you Chairman Corker, Ranking Member Cardin, and other members of the 

Committee. I appreciate being invited to testify again and the opportunity to highlight ways the United States can more effectively support private sector growth and 

economic opportunity around the world. I proudly served in the State Department 

under Secretary Condoleezza Rice and continue to work closely on global economic 

FOREI-42327 with DISTILLER

9 

1 Ben Leo and Todd Moss, ‘‘Inside the Portfolio of the Overseas Private Investment Corporation,’’ CGD Policy Paper, April 2016. 2 Ben Leo, ‘‘Is OPIC Corporate Welfare? The Data Says . . .’’ CGD blog post, April 19, 2016. 

3 Ben Leo, Todd Moss, and Beth Schwanke, ‘‘OPIC Unleashed: Strengthening US Tools to Promote Private-Sector Development Overseas,’’ CGD Policy Paper, August 2013. 

policy issues at the nonpartisan Center for Global Development. I have three points 

today, drawing on my work at CGD with my colleague Ben Leo. 

First, development finance, rather than aid, is the future. 

Aid is the right tool for tackling health challenges and humanitarian crises. Aid 

has been much less effective at generating broad economic growth. However, when 

carefully targeted, aid can be useful in addressing specific barriers to business. The 

Millennium Challenge Corporation model, which uses five-year compacts to explicitly attack constraints to growth, is a great example. So too are the U.S. Treasury’s 

technical assistance programs and USAID’s laudable coordination of the Power Africa initiative. 

Yet it is development finance—or the deployment of commercial capital for public 

policy purposes—that is the most potent weapon we have for expanding markets 

and spurring private sector growth. When the United States wants to encourage job 

creation in Tunisia, wants to catalyze infrastructure investment in Nigeria, wants 

to bring Pakistani women into the banking sector, we turn to development finance. 

Development finance is the future because of the changing global landscape. Many 

previously poor countries are richer today and are looking for more than aid. They 

want to partner with the United States to deliver jobs, roads, and electricity. 

Development finance is the future because of the rise of China, India, and other 

emerging markets. These countries, along with our traditional allies in Europe, are 

using development finance to bolster their influence and to expand investment opportunities. The United States has made a start, but risks falling further behind. 

Most of all, development finance is the future because of who we are as a country. 

Americans believe in our model of private sector-led capitalism. Our deep capital 

markets, our culture of entrepreneurship, and our belief in free markets all provide 

a unique platform for using development finance to promote prosperity. 

Fortunately, the United States already has a very good development finance institution, the Overseas Private Investment Corporation. Since 1971, OPIC has provided political risk insurance and debt capital to private sector projects around the 

world in support of U.S. foreign policy and development objectives. For 38 years in 

a row, OPIC has returned money into the U.S. Treasury. Our recent analysis at 

CGD has shown that OPIC has been investing principally in the very sectors that 

are the leading constraints to economic growth: infrastructure and access to finance.1

While some have worried that OPIC could be a boon for large U.S. corporations 

or engender corporate welfare, our recent analysis of OPIC’s portfolio has shown 

this to be patently untrue. Instead, we find that less than 8 percent of OPIC commitments over the last five years have involved Fortune 500 companies.2

My second point is that while OPIC is small and high-performing, it could be even 

better with a few tweaks that Congress could enact at no additional cost to taxpayers.3 Chief among these reforms is allowing OPIC limited authority to make equity investments rather than be restricted to only issuing debt. Many projects in the 

riskiest markets where the U.S. Government needs OPIC the most are at a stage 

where they need equity, not debt. In fact, nearly every other development finance 

institution in the world has equity authority, which accounts for nearly all of their 

project commitments in the poorest countries. OPIC is an exception because of a 

holdover from the Nixon administration. 

Another simple reform that would bring large benefits at no cost is multi-year authorization. Large infrastructure projects take years to negotiate and implement, yet 

OPIC has been forced to rely on annual authorizations since 2007. OPIC should be 

authorized for an initial five-year period, with the goal of moving to permanent authorization. 

A final minor reform would be to allow OPIC to retain a slightly larger portion 

of its profits to add staff to clear the backlog of potential projects. OPIC does not 

need more capital. It needs to hire a few dozen more people to deploy that capital. 

The agency covers more than 150 countries yet currently has only about 200 staff, 

or less than what we deploy to a mid-sized embassy. 

My final point: if the United States is serious about promoting market solutions 

to poverty and insecurity, we need a modern, full-service U.S. Development Finance 

Corporation worthy of the world’s largest economic power. In the annex to my testimony, Ben Leo and I provide a series of options for how Congress and the next 

FOREI-42327 with DISTILLER

10 

4 Ben Leo and Todd Moss, ‘‘Bringing U.S. Development Finance into the 21st Century Proposal for a Self-Sustaining, Full-Service USDFC,’’ CGD Policy Paper. March 2015. 

President could structure such an institution consistent with bipartisan support and 

budgetary realities. 4 A U.S. Development Finance Corporation could bring OPIC 

into the 21st Century by consolidating existing tools and instruments—currently 

spread across multiple federal agencies—and enable their strategic deployment to 

promote private sector growth. If we fail to update our development finance tools, 

the United States stands to lose out to other countries on potential opportunities 

in the next wave of emerging markets. We would also be neglecting one of our most 

powerful levers to support prosperity and stability abroad. Modernizing America’s 

development finance would cost nothing, it would bolster our common fight against 

the remaining pockets of global poverty, and it would support our most pressing national security goals. 

Annex: Ben Leo and Todd Moss, ‘‘Bringing U.S. Development Finance into the 

21st Century,’’ CGD Policy Brief, White House and the World 2016 Briefing Book, 

July 2015. [The Annex is located in the Additional Material Submitted for the 

Record section at the end of this trancript.] 

The CHAIRMAN. Thank you. 

Ms. Mandaville. 

STATEMENT OF ALICIA PHILLIPS MANDAVILLE, VICE PRESIDENT, GLOBAL DEVELOPMENT PRACTICE, INTERACTION, 

WASHINGTON, D.C. 

Ms. MANDAVILLE. Chairman Corker, Ranking Member Cardin, 

and members of the committee, thank you for the opportunity to 

speak today about U.S. economic assistance and the pursuit of inclusive economic growth. 

I would like to recognize, on behalf of InterAction and its members, the leadership of this committee with regards to foreign assistance in general. We recognize it as a vital part of our values 

abroad and our national interests, and so I want to thank you for 

that. 

I should also say up front that InterAction is an alliance of about 

180 different U.S.-based, nonprofit organizations that are working 

around the world, both in humanitarian and development settings. 

Our membership’s views are as diverse as the membership itself, 

so my remarks today should not be construed as reflective of the 

views of any individual organization. I will take responsibility for 

them myself. 

With that said, and recognizing the written testimony has been 

submitted for the record, I would like to make three brief points. 

The first is to call out that, over the last several years, we have 

seen increasing evidence that, if we want targeted economic assistance to be effective, we need to put economic analysis at the center 

of things. And I appreciate that is possibly the most deadly-boring 

statement that you will hear, so let me give you an example that 

will bring it to life a little bit and show you why it is important. 

If you look at several landlocked countries in West Africa, it is 

obvious that a major constraint to economic growth is the high cost 

of getting goods from point A to point B. And if you visit any of 

these countries, you will find that when you look at the road system, they are too narrow to hold modern trucks, they are two-lane 

with no bypass in case of an accident, and they are in a condition 

that suggests slow speeds are the way to drive. So, if you went and 

you looked at this, you could conclude right away, ‘‘Well, this is an 

infrastructure problem. If I want to reduce costs, I need to make 

FOREI-42327 with DISTILLER

11 

an infrastructure investment.’’ And we would be right—but only 

partly. Because if you follow the economic analysis down into what 

is actually driving high transport costs over one particular transit 

corridor, what you find is that, in the first segment, the problem 

is that there are three different ministries allowed to set up safety 

checkpoints. This has tripled the instances for graft and slowed 

down speeds by threefold. And if you look at the second segment 

of the transit corridor, you find that the single greatest problem in 

terms of cost, is that there is a trucking monopoly. So, if we had 

acted before the analysis level, we would have done the high-dollar 

investment in infrastructure, but missed the thing that is actually 

constraining businesses’ ability to grow by moving goods from point 

A and point B. 

So, if the first point is that economic analysis matters, and matters dramatically, for targeting assistance, then the second point 

has to be that we have tools available to do this. We have seen 

them deployed more and more frequently in the cases of U.S. bilateral assistance, and that they can be deployed even more frequently. 

In this category I would put things like growth diagnostics 

(which is what I just described), looking specifically at the items 

that either constrain or drive economic growth in a particular geographic area. But also things like basic cost-benefit analysis, which 

tell you a lot about value for money over time. I would also put in 

this category something you have already moved on through the 

passage of the Foreign Assistance Transparency and Accountability 

Act. And by that I mean rigorous and transparent monitoring and 

evaluation practices. Transparency and rigor in monitoring and 

evaluation not only provide accountability, ‘‘Have we done through 

a program what we set out to do?’’—but they also tell us lessons 

for the future, ‘‘What should we do more of, what should we do less 

of?’’ 

Point three is one of context. Economic assistance is one part of 

the broader U.S. foreign assistance portfolio, which also includes 

things like security assistance, humanitarian relief, and democracy 

support. And all of these are things that we hold dear as advancing 

U.S. values abroad and our own national interests. When they 

come up, I think people tend to talk about them in terms of their 

own intrinsic merit. And I wholeheartedly support those intrinsic 

merits and the case for that based on them. What I want to elevate 

in the context of an economic conversation, however, is that sometimes making investments in things that do not immediately appear to be economic can have positive economic consequences and 

outcomes for the very economic goals we have set for ourselves 

with the economic assistance. 

So, for example, if you look at measures to prevent stunting, 

those measures prevent the long-term mental and physical impairments that can haunt a workforce for a generation and fundamentally reduce productivity levels. So, preventing that outcome is 

wholly growth oriented and economically very favorable. Or if you 

consider programs that are designed to promote social accountability, social accountability matters dramatically in cases of 

pandemics, when you need citizens to trust their governments 

enough to follow public health instructions. And following those inFOREI-42327 with DISTILLER

12 

structions not only prevents the spread of a disease, but prevents 

economic losses over time. 

So, as you look at ways to make sure U.S. economic assistance 

is maximally effective, I would ask you to bear in mind that there 

are some investments that the United States makes through other 

vehicles or other instruments, that do not appear to be immediately 

economic, that have intrinsic value of their own and are supported 

by the American public—Americans give something like $15 billion 

a year to charitable causes abroad. And, sometimes these other 

USG investments support the very favorable economic outcomes 

that we have set for ourselves through the economic portfolio, as 

well. 

With that, I thank you for the opportunity to speak, and I look 

forward to our discussion. 

[Ms. Mandaville’s prepared statement follows:] 

PREPARED STATEMENT OF ALICIA PHILLIPS MANDAVILLE

Chairman Corker, Ranking Member Cardin, and Members of the Committee, 

thank you for the opportunity to appear before you this morning to speak about 

something as critical as the shape and impact of the U.S. Governments’ foreign economic assistance programs. 

I serve as Vice President for Global Development at InterAction, an alliance of 

nongovernmental organizations (NGOs). Our 180-plus members work around the 

world and in every country that receives economic assistance from the United 

States. What unites us is a commitment to working with the world’s poor and vulnerable, and a belief that we can make the world a more peaceful, just, and prosperous place—together. InterActions’ members range in size from 4 employees to 

40,000 employees and—through a combination of private fundraising and official 

donor financing—they are collectively responsible for the delivery of billions of dollars in development and relief programs around the world. 

InterActions’ membership is as diverse as it is strong, and the views of our membership organizations are equally extensive. Consequently, my remarks today are 

informed by the experiences and lessons of InterActions’ members, but they should 

not be taken to represent the specific view of any individual member organization. 

Because the specific key drivers and constraints to inclusive economic growth vary 

by country, the U.S. can maximize support for positive economic outcomes with a 

diverse portfolio approach to economic assistance. In essence, this is the same approach taken by any investor who diversifies his or her assets to ensure some level 

of return. To be effective, this requires more purposeful application of analysis, 

transparent evaluation and reporting, and a willingness to add legislative authorities that would allow existing assistance mechanisms to be responsive to global economic changes. Finally, given the ever deepening relationships among global economic, political, and societal changes, it remains in the U.S. national interest to provide both economic development assistance, as well as other types of support. 

In order to inform your assessment of U.S. economic assistance, I have organized 

my remarks around responding to three broad questions: 

♦ What drives and constrains economic growth in developing countries? 

♦ What does a diverse portfolio approach for U.S. economic assistance entail? 

♦ How can U.S. assistance respond to todays’ reality that economic and non-economic issues are deeply intertwined? 

WE KNOW THAT DRIVERS AND CONSTRAINTS TO

INCLUSIVE ECONOMIC GROWTH VARY BY COUNTRY

Questions about what drives or constrains national, inclusive, economic growth 

are the fundamental basis of an ever growing collection of economic research. While 

others on the panel are better positioned to provide details on the breadth and 

depth of current research, it is worth noting here two key research findings that 

continue to have significant implications for how the U.S. constructs its economic 

assistance programs, both in policy and in practice. 

The first is a tangible shift in recognizing the variety of policy combinations that 

other countries can adopt to effectively drive sustained and inclusive economic 

FOREI-42327 with DISTILLER

13 

1The Growth Report: Strategies for Sustained Growth and Inclusive Development. The Commission on Growth and Development. The World Bank. 2008. Overview: p 2. 2 Burnside, Craig and David Dollar, ‘‘Aid, Policies, and Growth,’’ American Economic Review 

90(4) (September 2000): pp. 847-68. 3http://www.cgdev.org/blog/1385-billion-question-when-does-foreign-aid-work. 

4Presidential Policy Directive #6. http://fas.org/irp/offdocs/ppd/ppd-6.pdf. 

5Quadrennial Diplomacy and Development Review http://www.state.gov/documents/organization/153139.pdf 6 2015 Quadrennial Diplomacy and Development Review http://www.state.gov/ 

documents/organization/241430.pdf 7 https://www.mcc.gov/our-impact/constraints-analysis. 6The results of these analysis further supported the notion that individual countries have distinct binding constraints to growth by ranging from a lack of electricity, to poor population 

health outcomes, to over-regulated labor markets. 7http://www.state.gov/r/pa/prs/ps/2011/11/177887.htm. 

8http://www.state.gov/p/af/rls/2016/253906.htm. 

9 ‘‘USAID increasingly looks to inclusive growth diagnostics (IGD) to sharpen its strategy development process.’’ https://www.usaid.gov/who-we-are/organization/bureaus/bureau-economicgrowth-education-and-environment/office-economic. 

growth. While macroeconomic research in the 1980s and 1990s often focused on a 

specific combination of policies that correlated with growth and stability, research 

in the 2000s began to recognize more diverse paths to growth. The World Bank 

Growth Commission, for example, concluded in 2008 that, ‘‘. . . . no generic formula 

exists. Each country has specific characteristics and historical experiences that must 

be reflected in its growth strategy.’’ 1 This recognition of countries’ unique drivers 

and constraints to growth is significant because it opened a new door to how growth 

diagnostics can shape assistance programming outside of multilateral economic institutions. 

The second key development was a growing body of research on the effect of foreign assistance itself on economic growth. A seminal American Economic Review article in 2000 by Burnside and Dollar found that assistance leads to more growth in 

countries with good policies, but is ineffective elsewhere.2 The article was so influential that many credit it with inspiring the establishment of the Millennium Challenge Corporation, which is explicitly focused on promoting economic growth as a 

model of foreign assistance, and uses a data driven approach to make large investments in ‘‘the most well governed poor countries.’’ Since then, the field has seen a 

proliferation of econometrically rigorous studies, ably summarized by my fellow panelists’ colleagues from the Center for Global Development in 2014 as, ‘‘the majority 

of studies on aid are positive—but the impact of aid is often modest.’’ 3

Based on this, we cannot say that a single type of foreign assistance intervention 

is the one silver bullet for all countries that produces sustainable, inclusive economic growth. However, in policy terms, over the last 10 years there has been a 

clear recognition that inclusive growth fundamentally underpins a variety of foreign 

assistance, and therefore foreign policy, goals. Whether looking at the 2010 Presidential Policy Directive on Global Development, or either of State and USAIDs’ first 

two Quadrennial Diplomacy and Development Reviews (QDDR),45 advancing inclusive economic growth is stated as a clear U.S. foreign policy priority.6

Practically speaking, this sentiment also informs the way providers of economic 

development funds consider the structure of their programs. Specifically, the last 

ten years brought greater application of preliminary economic assessment as a 

means of designing assistance programs that better contribute to sustainable, inclusive economic growth. 

While economic analysis in general is certainly not new to U.S. foreign assistance 

agencies, the MCCs’ ‘‘growth diagnostics,’’ first implemented in 2007,7 put research 

about a countrys’ binding constraints to growth at the center of decision making 

about how to allocate assistance dollars. By transparently basing the entirety of its 

(often half billion dollar) investments on economic research into what specifically 

constrained inclusive economic growth in a country, MCC provided a proof of concept that U.S. bilateral assistance programming could be based on publicly available 

evidence.8 Similar diagnostics were subsequently adopted by a variety of presidential initiatives (PFG, SGI), and now play a key role at USAID as well.9

Over this same time frame, the notion of inclusive growth as a precursor to nearly 

all human development outcomes has also been increasingly recognized by non-profits, foundations, and advocates. While individual organizations may disagree on the 

best way to promote inclusive growth, or how to manage the gains from economic 

growth, there is clear recognition that inclusive growth itself is a fundamental element of global development and poverty reduction. 

FOREI-42327 with DISTILLER

14 

10https://www.mercycorps.org/sites/default/files/Mercy-Corps-Social-Venture-Fund-OverviewMay-2016.pdf. 11http://www.habitat.org/sites/default/files/2015-microbuild-fund-annual-report.pdf. 

AS AN INVESTOR, THE U.S. NEEDS A PURPOSEFUL, 

DIVERSE, ECONOMIC ASSISTANCE PORTFOLIO

Because the specific drivers and constraints to inclusive economic growth vary by 

country, the U.S. can maximize support for positive economic outcomes with a diverse portfolio approach to economic assistance. In essence, this is the same approach taken by any investor who diversifies his or her assets to ensure some level 

of return. 

This does not imply that we want a haphazard proliferation of overlapping programs. Capacity constraints in partner countries are real at the human resource, 

organizational, and system levels, and disorganized U.S. efforts to simultaneously 

support economic activity with all available tools are likely to lead to both haste and 

waste. Maintaining a diverse economic assistance portfolio means recognizing the 

primary value of different tools and deploying them in the country contexts in which 

they can have maximum impact. Key to this is the continued recognition of the different roles for public and private investments in stimulating economic activity, 

such as: 

♦ Non-profit initiatives to identify and expand financial tools for traditionally 

under-banked populations: Although sometimes not directly supported by USG 

assistance, non-profit implementers of economic development programs are increasingly experimenting with new financial services. For example, Mercy Corps 

launched an early stage impact investment fund focused on East Africa in 

2015,10 while Habitat for Humanity used its own seed money and expertise to 

partner with OPIC and the Omidyar Foundation to create MicroBuild, a mortgage fund for low income families in the developing world.11

♦ Funding for public goods: MCC provides public capital for large scale, multiyear investments in public goods such as infrastructure, sustainable public services, or institutional and market reform. Such funds support investment in 

large, often multifaceted public works that are unlikely to be independently 

supported by private sector actors because the gains cannot be captured, or 

even realized in the absence of government led policy reform. These investments 

are prioritized for the greatest growth potential through a politically-insulated 

cost-benefit analysis tool that estimates the return for each dollar investment 

♦ Integrated approaches: USAID, present in nearly every country and capable of 

supporting year on year programming and sustaining long term relationships 

is perhaps the most flexible. In recent years USAID has not only provided both 

public funds and technical capacity building, but has also prioritized efforts to 

bring private sector actors to the table for joint investment. Whether looking at 

the agencys’ big push to build public-private partnerships for investment in 

Power Africa, the way USAID moved ahead with USAID forward reforms to 

better align its operating styles with the private sector, or new momentum at 

the Global Development Lab to bring break through innovations to bear in development, the agency has taken significant steps over the last several years 

to maximize the economic growth impact it can have within its current mandate 

and earmarks. 

♦ Facilitation of U.S. private investment: OPIC leverages funding to stimulate 

U.S.-based private sector activity in a country by providing U.S. companies with 

debt financing, loan guarantees, political risk insurance, and support for private-equity investment funds. Such funds not only crowd in U.S. investors, but 

support expansion of U.S. businesses, and generate income for the U.S. treasury. 

♦ Focus Areas: Though they are not always economic growth focused, some recent 

sectoral initiatives explicitly recognize the need to address binding constraints 

to growth in multiple countries. This includes Power Africa as codified through 

the Electrify Africa legislation, or Feed the Future and the (pending) the Food 

Security Bill, which explicitly calls out the importance of functional markets in 

ensuring food security for populations and livelihoods for small holder farmers. 

To be effective without feeling chaotic, this approach requires more purposeful application of analysis and coordination, transparent evaluation and reporting, and a 

willingness to add authorities that would allow existing assistance mechanisms to 

respond to global economic changes. 

FOREI-42327 with DISTILLER

15 

12Getting Better: Why Global Development is Succeeding and How we can Improve the World 

Even More. Charles Kenny. Basic Books. 2012. 

Prioritizing the results of economic analysis over politically popular solutions can 

feel counter intuitive, but may serve as a tangible way to push greater coordination 

and impact. For example, over a particular transport corridor in West Africa, a visual inspection would suggest that the primary driver of high shipping costs was the 

roads’ condition (too narrow to bear the largest modern trucks, pot holes that required serious reduction in speed, and lack of shoulders for accident bypass). But 

deeper analysis shows that the greater constraint for the first stretch of transit was 

the sheer number of police check points at which bribes were solicited, and the 

greater constraint for the second stretch was the grip of a national trucking monopoly. Simply trusting the visual inspection would have led to a heavy dollar investment that feels satisfying to donors and is politically easy for recipient countries— 

but would have missed maximum impact by overlooking the effects of corruption or 

monopolistic behavior. Identifying the totality of the constraint also makes it possible to coordinate across actors who provide infrastructure funding, technical assistance, and support for regulatory reform. 

Once programs start, transparent, rigorous monitoring and evaluation is the most 

significant tool available to determine whether economic assistance is achieving intended outcomes. Impact evaluations and rigorous monitoring are more common at 

MCC and USAID, but are still mostly underfunded and therefore mostly un-adopted 

by other agencies responsible for funding or implementing economic assistance. This 

information, on whether programs achieved the specific impacts they set out to accomplish, is fundamentally necessary if the U.S. is to first understand the effectiveness of different interventions intended to support inclusive growth, and eventually 

make cost benefit decisions about subsequent investments. To this end, the passage 

of the Foreign Assistance Transparency Act is a positive step and has been broadly 

supported by InterAction and its members. 

Finally, keeping the portfolio up to date will also require more creative thinking 

about the authorities required for the U.S. to support national level financial instruments as tools, and to respond to evolving global trends. This may include new authorities for OPIC to self-fund expanded administrative services, regional or sub-national investment authorities for MCC, and greater flexibility for operational and 

program budgets for USAID so that it can begin a shift to the kind of systematic 

evaluation which would eventually allow the agency can to make evidence-based decisions about continuing and adjusting programming. 

U.S. ASSISTANCE AS A WHOLE MUST RECOGNIZE THAT ECONOMIC

AND NON-ECONOMIC ISSUES ARE EVER MORE INTERTWINED

Economic development assistance represents only one part of the broader U.S. foreign assistance tool box, which also includes humanitarian relief, security assistance, and support for democracy and good-governance. These other tools not only 

alleviate human suffering, but they remain critical pieces of maintaining U.S. leadership abroad. Interventions in traditional human development sectors have also 

had tremendous impact—scholars document the eradication of small pox, a near 

doubling of the proportion of children enrolled in school in Sub-Saharan Africa, and 

planet wide improvements in life expectancy.12

There are compelling and credible cases to be made for a each these of investments, from maternal health, to water and sanitation, to post-conflict community 

development. What may be less immediately intuitive is that there are also economic rationales for supporting the broader range of U.S. foreign assistance. Economic growth doesn’t happen in a social or political vacuum. Consequently, when 

considering the efficacy of U.S. economic assistance, it is worth bearing in mind the 

following inter-relationships, and the implications they have for how to ensure economic assistance funds generate positive economic outcomes. 

Reform, political will, and democratic societies 

When it comes to economic reform—even at the micro-regulatory level—no 

amount of U.S. economic assistance can compensate for a lack of political will. Because it is ultimately the other-country government that reforms and enforces new 

laws, decisions about which economic assistance tool to deploy should take incentive 

structures into account. Critical reforms—like subsidy reduction or tariff structure 

reform—are domestically controversial. In some places, a governments’ desire to secure public funding for infrastructure or to attract international investors serves as 

sufficient incentive. In other places, domestic politics may mean that governments 

can only take difficult reforms if they are accompanied by popular traditional develFOREI-42327 with DISTILLER

16 

13 Based on data from the Foreign Assistance Dashboard at http://beta.foreignassistance.gov/ 

opment programs that support health, education, or agricultural services. In this 

same vein, no amount of economic assistance to a government will fundamentally 

alter the degree of space for civil society actors, or respect for the rights of citizens. 

Democracy support remains a critical, and separate, way for the U.S. to support our 

values abroad. 

Exclusion, inequality, and economic opportunity 

Because there are fewer economic opportunities for traditionally excluded populations (women, youth, minorities, the elderly) many development programs designed to support these groups have an economic dimension to them. Consequently, 

a variety of development programs that appear non-economic at first glance may in 

fact directly support economic goals. For example, an agricultural program in the 

Sahel that focuses on small holder women farmers adopting more efficient irrigation 

practices may directly increase community incomes. 

Pandemics and economic loss 

While the health of a labor force has known implications for economic productivity, we have recently seen how the state of a countrys’ health system has deeper 

implications in the face of a pandemic. For example, the economic consequences of 

the Ebola outbreak in West Africa were staggering, with Sierra Leone, Liberia, and 

Guinea estimated to have lost some $2.2 billion in forgone economic growth in 2015. 

While traditional economic assistance before the outbreak would not have reduced 

the negative economic consequences later, health interventions might have (either 

long term support for health infrastructure systems or faster response to the initial 

outbreak). 

Our own national security goals 

In 2015, three countries received roughly 40 percent of U.S. economic development 

funding: Jordan, Afghanistan, and Pakistan.13 From a national security perspective, 

the U.S. has multiple goals for providing all types of assistance in these three countries, which not only affects the level of funding, but also the choice of aid vehicles 

through which the assistance is provided. When U.S. goals around economic growth 

converge with goals around stability and national security, many of the best practices implemented in other purely economic development programs cannot be replicated. 

This list goes on—urbanization, climate change, social accountability, demographic shifts—these are all intertwined with macroeconomic forces to affect the 

way U.S. economic assistance programs function. In that context, the U.S. must 

maintain a diverse portfolio of economic assistance tools while preserving other 

types of assistance which complement and deepen their impact. 

Conclusion 

I wish to thank the committee for this opportunity to provide testimony. InterActions’ diverse membership strenuously and unanimously supports the United 

States’continued engagement in the world. To a person, our members recognize that 

that U.S. global leadership must include assistance designed to lift people out of 

poverty—and the $15 billion in charitable donations that citizens direct abroad 

every year suggests the American people do too. In that context, we believe both 

in the economic necessity of growth, and the human imperative of ensuring that 

growth is inclusive. 

The CHAIRMAN. Thank you. 

I might ask just a couple of questions and then move on, and 

then interject some. 

But, in a sentence or two, could each of you tell me the purpose 

of United States giving economic assistance to other countries? Seriously, in just a sentence or two. 

Dr. MOSS. It should be about trying to generate economic opportunity, but all too often it is trying to do lots of things at once, and 

therefore, you wind up not achieving any of those goals. So, just— 

very briefly, just—— 

The CHAIRMAN. But, now you are more than a couple of sentences. 

Dr. MOSS. Okay, I will stop there. Yes. 

FOREI-42327 with DISTILLER

17 

The CHAIRMAN. Okay. 

Dr. HERBST. I think it has been to show that the United States 

is committed to a broad range of goals across a broad range of 

countries. Actual performance has taken backseat. 

The CHAIRMAN. Ms. Mandaville? 

Ms. MANDAVILLE. I believe it is to support actual generation of 

economic growth, and also to demonstrate our commitment to the 

factors that drive that growth. 

The CHAIRMAN. Okay. So, you think it is to—Dr. Herbst would 

say, to show; and you would say, to create actual. 

Ms. MANDAVILLE. I would—— 

The CHAIRMAN. I mean, it does appear that much of what we do 

is to gain influence. And I think all the people who serve on this 

committee, generally speaking, support us being involved around 

the world. I mean, it is the purpose. But, it does appear that much 

of what we do is—you say ‘‘actual,’’ I think Dr. Herbst will say it 

has been a total failure in sub-Saharan Africa. Would you—or a 

major failure, or—— 

Dr. HERBST. I would say the actual performance has been well 

below what we might think is reasonable. 

Dr. MOSS. It varies from country to country. Some countries have 

used that aid well—— 

The CHAIRMAN. Yes. 

Dr. MOSS [continuing]. But I think there have been a lot of disappointments along the way. 

The CHAIRMAN. Well, let me ask you this. Do we—do you think, 

as we begin at the top, when we look at economic aid, do you think 

that we have done a good job ourselves of internalizing what the 

purpose is, and then ensuring that, through all the activities that 

we carry out, that is carried through? 

Dr. HERBST. No. According to the State Department’s own rubric, 

we have over 20 subgoals in five different categories for our foreign 

assistance. By the way, I agree, all of those goals are laudable. 

However, the notion that they are all aligned, that all good things 

go together, seems implausible to me. And so, we face confusion internally, and we confuse our recipients also. 

The CHAIRMAN. Yes. 

Any other comments before—— 

Dr. MOSS. I would just add that I think the Millennium Challenge Corporation is a pretty big exception to this. It is pretty clear 

about what they are trying to achieve, and the metrics that they 

assign to their compacts are aligned with what the goals are. And 

that does not apply to a lot of our other assistance programs. 

Dr. HERBST. And I would agree with that. 

The CHAIRMAN. Dr. Herbst, if I could, you said something that 

I think was probably surprising to most people in our audience in 

here. And you said the same thing in our office, when we met a 

few weeks ago. Your comment was that the world is awash in aid. 

That is not something that you would think, based on the types of 

crises that we deal with around the world. But, do you believe that 

the fact is there is a vast amount of aid that is being delivered, 

probably more so than even is necessary, at present? 

Dr. HERBST. Well, more would be useful if governance was better 

and recipients could perform better. But, since the mid-2000s, 

FOREI-42327 with DISTILLER

18 

when there was a commitment on part of the Western countries to 

increase aid, aid has increased massively. The number of non-Western donors, China and the like, has come on board, increased. The 

absolute number of poor people decreased. On the ground, when 

you are talking to aid officials, American or otherwise—in my case, 

in a variety of African countries—they find it very difficult to deploy all the aid that they have been given. If the government’s 

records of the countries they are operating in was better, there 

would be more projects. But, they find it very difficult, in many 

cases, to allocate aid which they believe will have a high impact. 

They face other bureaucratic imperatives, of course, to spend the 

aid, but they find it very difficult to spend it on projects which they 

believe are worthwhile. 

The CHAIRMAN. And, if I could, we obviously have gone through 

a period of time where the fiscal situation in the West, generally 

speaking, has hugely deteriorated, right? I mean, balance sheets in 

developed countries have gone negative, not positive. What is it 

that is driving the fact that there is so much economic assistance 

that is available to countries around the world? What is driving it 

going in the opposite direction, if you will, of what is happening domestically within these countries? 

Dr. HERBST. Well, Mr. Chairman, as you—as I think the Ranking 

Member mentioned, the actual percentage of our budget going to 

foreign assistance is very small. It is bigger in other Western countries, but it is hardly driving the fiscal problems. I think the increased fiscal commitment has come through a really human-values commitment that we should try to do more to address poverty. 

That is laudable. Execution of that laudable aim has proven to be 

very difficult. 

The CHAIRMAN. Do you want to say something? 

Ms. MANDAVILLE. Yes. As—I think, also, that we need to distinguish between foreign direct investments and private capital flows 

and public support that is provided through direct—through overseas development assistance, in that private capital flows tend to 

focus on economic opportunities and business opportunities that 

are not necessarily always public in nature, and so there is a portion of the economy which can grow, but, in terms of long-term sustainable, inclusive economic growth, it can be hard to marshal 

those kinds of forces for the type of broadbased investment that is 

needed. If you think about, kind of, base public infrastructure as 

opposed to the infrastructure of an industrial park. 

That said, as a result, I think that, in instances where the 

United States has taken a specifically economic-focused approach, 

like the Millennium Challenge Corporation, made a decision that 

is targeting a particular economic outcome, a level of return on investment, and stayed the course over a period of time, over a 5- 

year duration, that is when we have seen success, in terms of actually contributing to the economic growth. I would agree that that 

does not necessarily characterize all of our assistance, but I do 

think that, in the last several years, we have seen, not just the 

MCC, but other parts of the U.S. economic and foreign assistance 

portfolio pick up some of that same analytical and selectivity elements of their investments. 

The CHAIRMAN. Thank you. 

FOREI-42327 with DISTILLER

19 

Senator Cardin. 

Senator CARDIN. Well, once again, thank you all for your testimony. 

I am following up on the Chairman’s point and your testimonies, 

and that is, there seems to be a common theme, here, that the way 

that a lot of our development assistance has been handled over a 

long period of time is layering additional programs upon, or commitments upon commitments, spread thin around the world, to 

show our interest around the world, since we are a global power, 

and with little accountability and little expectation that there will 

be a strict accountability on the use of those funds that they serve 

there. The difference with the Millennium Challenge Corporation 

grants is, these are defined, specific commitments, where you have 

defined, achievable goals, and they are competitive, from the point 

of view that there are not a lot of them around the world and they 

are a significant amount of funds. So, for all those reasons, it is a 

little bit easier to get the type of results we are talking about. 

I would suggest that, in the health arena, PEPFAR was a similar 

type of commitment, where we could see specific results from a significant commitment, where the U.S. dollars were dominant, at 

least in starting the programs in these countries. And it is the 

same thing on the specific projects under the MCC. The other development programs are not quite as easy to follow. 

So, Dr. Herbst, following your point and the point that was made 

by Ms. Mandaville, on accountability—I mean, I could not agree 

with you more that if there is corruption and you cannot get the 

good governance, you should pull out of a country, rather than just 

continue to pour money in which is not going to get the return for 

the investments that we are making. So, we passed, as Ms. 

Mandaville pointed out, the Foreign Aid Transparency and Accountability Act. It is now in the Senate. It requires the President 

to—establish and implement guidelines with measurable goals, 

performance metrics, and monitoring and evaluation plans. It also 

requires the public posting of information on the Internet by the 

Secretary on these individual projects. Will this help us in trying 

to establish more accountability and transparency in these programs? What is your confidence level that this could make a difference? 

Ms. MANDAVILLE. I do think that we are—things which encourage not just rigorous monitoring and evaluation, but also transparency of them, basically require learning. So, I think, in general, 

there can be a first-mover problem associated with publishing the 

results of work that you have done. If you are the only aid agency 

that is showing how effective your work has been, and no one else 

is showing how they are doing, then anytime you do not hit 100- 

percent success rate, it is very—there is—it is difficult for you to 

continue moving forward. 

You know, when you look at the success rate of small business 

in the United States, at the 5-year mark, 50 to 60 percent of them 

have shut their doors. But, if you have a foreign assistance program that is at less than 100 percent, then, accountability-wise, 

people are very concerned about it. 

So, I do think that requiring accountability and a publishing of 

the results and the analysis underneath it will fundamentally imFOREI-42327 with DISTILLER

20 

prove not just what that single agency itself does, but actually ability to learn across the portfolio. 

Senator CARDIN. Dr. Herbst, I will let you respond. We all know 

it is challenging, politically, to cut off funds, and there are reasons 

why economic assistance is given to countries, other than the specific purpose for which those dollars are made available. Can transparency and requirements of more direct expectations help us in 

trying to get greater governance-use changes in these countries? 

Dr. HERBST. I will have to admit, despite the good work of this 

committee, that I am skeptical. 

First, to the extent that money is fungible, governments move 

money around, you are not necessarily funding the project that the 

check goes to; you are funding the least—the lowest-priority project 

of the government, because it may have funded that project, the 

aid-recipient project, itself. You are freeing up money for project— 

you are freeing up money to go to other projects or to other purposes. 

Senator CARDIN. But, would not the transparency perhaps demonstrate that and, therefore, if there is proper oversight, not just 

by Congress, but by NGOs, that, with more transparency, we could 

get to the point—well, I agree with you, I am prepared to cut off 

funds if we are not getting the intended results and if we do not 

have governance improvement. 

Dr. HERBST. I think that level of oversight is very difficult. I 

think that we underestimate the degree to which we are played by 

our aid recipients. They read our legislation. They follow these 

hearings. They are very sophisticated. They provide us with what 

we want to hear. 

I think going down the path of ever greater accountability, Web 

sites, and the like, while it is appealing, it suggests a basic lack 

of trust between the donor and the recipient. And I would be more 

comfortable being able to say we trust this recipient government to 

use the money in a proper way. I am afraid ever more measures, 

Web sites, investigations—I do not know if that is not a rabbit hole 

down which we will go, where we just try to make ever more observations on a relationship—— 

Senator CARDIN. I would just point out that—— 

Dr. HERBST [continuing]. That we fundamentally do not believe 

in. 

Senator CARDIN. Yes. Well, if you look at past history, we have 

been continuing the programs, so I am not sure—and I think you 

and I would both agree that there are many countries that would 

not qualify if it was our dollars directly going into these countries. 

I want to get one final question to Dr. Moss, and that is—your 

point on leveraging the private investment, I think, is an extremely 

important point. And a lot of the programs that do that are working fairly effectively. On OPIC, your suggestions there are ones 

that I hope we will follow up on, because I think they make a great 

deal of sense. I just want to get your assessment on one program, 

and that is the Global Development Lab, it leverages the privatesector, NGOs, and local actors to solve development challenges. Is 

that a model that could be improved, or is that a model that is 

working well? 

FOREI-42327 with DISTILLER

21 

Dr. MOSS. I do not have any great insight into how well that is 

working, but one of the things that we have seen is a lot more experimentation. I think the frustration that the committee has with 

some of the ineffectiveness of our aid programs in the past has— 

one of the good things we have seen is a lot more testing of new 

models, piloting things, trying them out, and marrying that with 

good evaluation. So, you at least get a sense of, Did this project 

work, and what can we learn from it? So, I think as part of that 

effort, that has been positive. 

Senator CARDIN. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you. 

Senator Gardner. 

Senator GARDNER. Thank you, Mr. Chairman. 

Thanks, to the witnesses, for being here and your time and testimony today. 

Dr. Herbst, in your testimony, you state that, and I quote, ‘‘It 

must be—it must first be noted that economic growth is not the 

primary goal of U.S. foreign policy. The largest component of bilateral assistance is devoted to global health, notably to support treatment of HIV/AIDS.’’ Did you make that statement because you 

think that is the right priority? Is it the wrong priority? I mean, 

should we be doing more, or less, in terms of economic assistance? 

Dr. HERBST. That priority reflects the priorities of the legislative 

bodies and the President. And so, I take it as a—as important to 

the U.S. If—it came about because of a global health emergency, 

obviously, in the last two decades. And that program did save the 

lives of a significant number of people. I do not think there is any 

doubt about that. I am not sure how many other U.S. programs we 

could say about it. 

So, I applauded the development of the program. And I think 

that money is relatively well spent. I just do not think we should 

then say to ourselves that economic growth is the highest priority. 

Over time, as the Senator and the Ranking Member said, I think 

there is no escaping the conclusion that economic growth is the 

fundamental necessary condition for all of human improvement, 

that we can address other issues. They are important to address. 

But, if countries do not have a sufficiently high rate of economic 

growth, none of the other improvements we hope to see is—are 

going to occur. 

But, the HIV crisis was unique. We understand that. And the 

U.S. money was allocated accordingly. 

Senator GARDNER. Thank you, Dr. Herbst. 

And I recently had the chance to visit Myanmar—Burma—with 

a number of our colleagues, and we talked about the urgent needs 

that they face, in terms of economic and development assistance, 

to help make sure that the new democratic government can succeed. According to the State Department’s 2017 budget request for 

Burma, U.S. efforts—and I quote here, ‘‘U.S. efforts aim to 

strengthen political reforms, advance the national peace process, 

expand economic opportunity, and improve the health and welfare 

of all the people of Burma.’’ And I think these are obviously very 

important topics that I agree with, but wonder if we are properly 

aligning these efforts to address the most urgent needs in Burma 

that would result in the immediate deliverables for the new demoFOREI-42327 with DISTILLER

22 

cratic government. We also met with a number of key leaders and 

supporters of Aung San Suu Kyi, and we talked about what success 

looks like for—at the end of the 5-year period of this administration. For instance, according to the Asian Development Bank assessment in 2015, per-capita electricity consumption in Myanmar 

remains among the lowest in Southeast Asia, reflecting povertylevel per-capita incomes and an electrification rate of only 31 percent. Lacking electricity, most rural households burn firewood and 

animal dung for lighting and cooking, causing widespread acute 

respiratory problem. Yet the ’17—the fiscal year ’17 request does 

not speak to any initiatives in this area. 

So, which economic sectors do you believe should be the nearterm priority for U.S. development initiatives in Burma? 

And this should go to all the witnesses, if you would like. 

Ms. MANDAVILLE. Maybe, then, the right place to start—and I 

will confess to not being an expert in this particular—in Burma, in 

particular. But, I think this is a space where it is thinking about 

both efforts to actually promote actual economic growth and the 

conditions which, in the long term, support economic growth. And 

so, I think that is—those are the right pair of questions to ask 

around how to prioritize the investments. Whether the—if you are 

looking at it from an economic perspective, what are the things 

that, at this moment, for the next 3 to 5 years—these are the characteristics of that economy that an investment does alter its ability 

tto have a stronger growth path. But, in addition to that, there is 

a question about what sustains those conditions, or, as conditions 

change, given the world around it, given the country itself and its 

own changes over time, what supports those conditions in the long 

run. So, I think there are probably two stages to the investment. 

Senator GARDNER. And, given what you just said, can we more 

effectively utilize existing State and USAID programs, or can—better use them as they are today, or do we need to change course and 

establish a new program for Burma, itself? 

Ms. MANDAVILLE. In my view—and again, not being a specific expert in Burma—this is something where I think USAID’s more recent adopting of country-specific strategies, which dig in quite 

deeply into a variety of aspects about the different things that the 

U.S. Government is supporting over time in a country, be they economic or other, is possibly—is probably the right place to start 

thinking through this, which suggests that it also—these strategies 

also allow both State and USAID to look across the tools and instruments that they can use, and bring them together. 

Senator GARDNER. And so, I do not know if you want to answer 

the next question, or perhaps the other two, as well, but it kind of 

leads into what you were saying—or builds off of what you were 

saying. With that country-specific approach that we have been developing through our aid dollars, is something like the Power Africa Initiative—could that be useful to assist the needs of Burma as 

we talk about the electrification rate and economic development, 

those kinds of things—would that be a good approach to develop 

sort of a prescriptive Power Burma kind of approach? 

Dr. HERBST. Not—again, although I have been to Burma, not 

being an expert in it, I will say that President Obama was right 

to point out that electricity was a primary constraint to economic 

FOREI-42327 with DISTILLER

23 

growth, and that infrastructure development, which the aid community has had an ambivalent relationship to over many years, is 

an absolute necessity. So, if we or others are not going to be part 

of helping Burma grow its electrical power generation, assuming 

that it can do so efficiently, that is going to be a major constraint 

on growth. And we have seen that elsewhere in the developing 

world also. 

Senator GARDNER. Thank you. 

Dr. MOSS. If you look at what the Power Africa Initiative tries 

to do, which is—and this was Alicia’s point—you start from an 

analysis of what is holding back electricity. What is it that the U.S. 

could do? Is it put a technical advisor in a utility? Is it provide 

some political risk insurance to a private power producer? Is it investing something in the grid? It is starting from an analytical 

base and then figuring out what tools we need to bring to bear. 

That approach—I do not know if you need a White House initiative 

for it, but that kind of approach would certainly apply in a country 

with a 31-percent electrification rate. 

Senator GARDNER. Thank you, Mr. Chairman. 

Thank you. 

The CHAIRMAN. Thank you. 

There is no question that Electrify Africa is one of those things 

that can make a massive difference in people’s lives—over 50 million, we hope, in the next 4 years, 600 million people in sub-Saharan Africa without electricity. It is hard to have economic growth, 

hard to have healthcare, hard to have education without electricity. 

And the way this is construed with very little, from the standpoint 

of U.S. actual dollars, is fascinating, and a great model. And I appreciate Senator Gardner’s leadership on all things Asia, and his 

focus in that regard. 

Senator Coons. 

Senator COONS. Thank you, Chairman Corker, Ranking Member 

Cardin, both for convening this important discussion and for your 

real leadership in this committee. 

I was pleased to see the Foreign Aid Transparency and Accountability Act just passed the House, and the Global Food Security Act 

has also passed the House, both of which I hope will be signed into 

law by the President soon. It is a reminder of the solid, sustained 

bipartisan work done by this committee. 

The CHAIRMAN. You have been involved in a lot of good things 

as a freshman Senator from—— 

Senator COONS. The small State of Delaware. 

The CHAIRMAN. That is right. Very small State. [Laughter.] 

Senator SHAHEEN. No longer a freshman. 

Senator COONS. No longer freshman, my good colleague Senator 

Shaheen reminds us all. 

But—and Electrify Africa was one of the things I was proud to 

play some very small role in. 

Like many members of this committee, I am a strong believer in 

the potential of U.S. foreign assistance, not just to provide vital, 

even lifesaving, support, but also to strengthen our leadership role 

in the world. But, I also believe that U.S. taxpayers should not be 

committed indefinitely to assistance without reasonable metrics for 

its impact and its outcome. And there are ways we can, and should, 

FOREI-42327 with DISTILLER

24 

work together to strengthen the transparency, the accountability, 

and the impact of our aid. 

I have been particularly impressed with the Millennium Challenge Corporation, its metrics-based approach. And later today, I 

will be joining some House colleagues at an OPIC event, presenting 

awards at the U.S. Chamber of Commerce to companies that have 

made real progress through OPIC. 

So, let me ask two questions. First, if I might, Mr. Moss, about 

Electrify Africa. The Obama administration’s Power Africa Roadmap is very ambitious, 30,000 megawatts, 60 million connections 

by 2030. And yet, we have heard that, in some countries, business 

leaders I have met with do not feel that the governments are taking advantage yet of the strong incentives we have offered. There 

has been real progress towards a more market-based approach in 

some of the most active and engaged countries—competitive 

tenders, deregulation. But, I am concerned about meeting this aggressive timeline. 

Is it structured—the Power Africa Initiative—the right way to 

achieve this roadmap? Is it possible—this is what I think Senator 

Gardner was asking—to replicate this model in confronting other 

development challenges? And how do we get the public and private 

sector to work more closely together in addressing key challenges 

like power? 

Dr. MOSS. Thank you for that question, Senator Coons. 

You know, I think that the general approach of Electrify Africa 

Act and of the Power Africa Initiative, which is to try to tackle 

what—tackle the barriers, kind of, one at a time in each country. 

In Nigeria, the problems are very different than in Liberia, and we 

are going to need different tools to help countries get to their ambitious energy goals. I do not know whether the 2030 is—you know, 

it is ambitious. I think it is a—it is certainly achievable under certain conditions. I would say what my principal concern about it is 

that it relies on an extremely ad hoc set—a coordination mechanism that I worry will not last into the next administration. There 

is no—unlike PEPFAR, there is no strong home that is going to 

carry on the work of Power Africa in the same way—you know, the 

team at USAID, I think, has done a tremendous job. Their roadmap, I actually was expecting it to be a government whitewash. I 

thought it was a really honest, terrific, analytically solid document. 

I have been very impressed. But, if Power Africa and Electrify Africa is going to be sustained through 2030 and reach these ambitious 

goals, it needs to—it needs a bit more political heft. It needs to 

have a home. And I am definitely worried that, in the next year 

or two, we could see a lot of that momentum lost. 

I have heard, both from governments in Africa and from people 

in—power-sector executives, that some of that early excitement has 

been lost. The summit is over, we are toward the end of the administration, there is a natural tapering of energy. I am worried that 

that will not get sustained. 

Senator COONS. Well, let me ask one follow-on question about 

OPIC, if I might. You suggest, in your testimony, OPIC should be 

able to make equity investments. Why equity? And what is the difference, in terms of leveraging private capital? And why would 

FOREI-42327 with DISTILLER

25 

that, at, as you say, no cost to the taxpayers, significantly expand 

its reach? 

Dr. MOSS. So, it is kind of a wonky answer, but when you are 

crowding in lots of investors, say in a power project, and most of 

them are coming in with equity, OPIC is forced to come in and, by 

statute, has to issue first-tier debt, which means they have to get 

paid back first, which means you have just aggravated all of your 

other partners, and it actually means that OPIC often has to—it 

gets pushed out of deals—— 

Senator COONS. Right. 

Dr. MOSS.—and it is not able to leverage that in the same way. 

It is just a—it is a flexibility that you would want, especially in the 

poorest countries. When you look at development finance institutions, like the Germans, the Dutch, the British—in the poorest 

countries, they are doing almost entirely equity, very little debt, 

and the U.S. is just unable to have that capability, because of this 

rule that goes back to the Nixon administration. 

Senator COONS. One more question, if I might? 

Mr. Herbst, if I might, I just—I was struck by the forcefulness 

of your repeated statement that the world is awash in aid. Let me 

make sure I hear you right. Did you mean relative to the amount 

of human need, the world is awash in aid? Or did you mean relative to opportunities to make clear, high-impact investments that 

will have a positive outcome, the world is awash in aid? 

Dr. HERBST. The latter. 

Senator COONS. Because I—— 

Dr. HERBST. The latter. 

Senator COONS.—I just do not want those who might be watching 

or listening to get the mistaken impression that there is just huge 

amounts of excess aid. Given 65 million refugees, I am struck at 

just how much human need continues to spread into previously unexpected places in ways—and I think one of our biggest challenges 

now is confronting that humanitarian work and sustainable development need to blend in ways they have not previously, that we 

are confronting a generation of refugees living outside their home 

countries for 10 or 20 years, and we need to look differently at how 

we do emergency response for refugees and how we do sustainable 

development. 

Ms. Mandaville, have any closing comment on that convergence? 

Ms. MANDAVILLE. No, certainly. And I think, actually, this goes 

to a question about how—if part of our challenge is identifying the 

opportunities where resources can have the most impact, then I 

think that there is—this goes, actually, to a question about the 

Global Development Lab, and something that both the Global Development Lab and MCC are good at, which is structuring the way 

it thinks about a new undertaking or a new investment so that 

there is a point in time where you ask the question about whether 

the counterpart government or the recipient government has undertaken the policy steps it needs to for your own investment to 

proceed and have solid impact. And so, I think this actually supports this point that, you know, generating growth is not just about 

what the United States can bring to bear, it is also about what the 

country picks up and takes responsibility and brings to bear on its 

own. And so, something that Global Development Lab does quite 

FOREI-42327 with DISTILLER

26 

well and the MCC does quite publicly is to make this point that, 

if you look even at Power Africa investments, the power infrastructure that MCC has invested in, there are tariff reforms associated 

with that, there are regulatory body reforms associated with that. 

And they are politically difficult for many of these countries to undertake. But, it is when we pair them together that we are able 

to identify, given the possible things that we could direct our resources to, this is one where both parties have skin in the game. 

Senator COONS. Thank you. 

Thank you, to the panel. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you. 

Senator Shaheen. 

Senator SHAHEEN. Thank you. 

Thank you all very much for being here. And I am sorry that I 

missed your presentations, but—so, I think this question may be 

for you, Mr. Moss. 

I was on a presentation this morning, talking about the success 

of enterprise funds after the fall of the Soviet Union and some of 

the eastern European countries. And can you talk a little bit about 

what was it about those funds that made them a success, and 

whether there is the ability to duplicate that. And should we be 

looking at enterprise funds again as we think about some of the 

need in some of the places that we are looking at? 

Dr. MOSS. So, I have not looked in detail at the enterprise funds; 

however, there is a kind of general consensus among the development community that the initial fund in Poland was a great success. 

Senator SHAHEEN. Right. 

Dr. MOSS. And we have yet to see that replicated ever again. The 

southern Africa development enterprise fund, the post-apartheid 

fund, was a total disaster, a complete washout. I know that some 

of the other funds that have been tried have not worked out. Part 

of that, I think, is that they are not structured in a way that allows—you are essentially making venture capital into very, very 

risky markets. There is some reason you need to even organize 

that. And there are going to be a lot of losses. As Alicia mentioned, 

you have to have a very, very high tolerance for loss for venture 

capital to work, and you have to give the fund the autonomy and 

time to make those investments, and you hopefully—maybe you 

only have a 20-percent hit rate, but those—that 20 percent makes 

it worthwhile. USAID, as an agency, is not structured in a way to 

allow that to happen. They are in a 1-year, no-failure, no-corruption, no-problem mindset, in part because of congressional hammering. 

Senator SHAHEEN. Right. 

Dr. MOSS. And so, I have actually been much more impressed by 

the private equity funds that have been seeded and started by 

OPIC, where they will provide up to a third of the capital for a 

fund. They have done this very well in African infrastructure. They 

will provide up to a third of the initial capital if the third-party 

fund manager can go out and raise the other two-thirds, and they 

are given 10 years to go do that. And that has actually been a 

FOREI-42327 with DISTILLER

27 

much better model. And OPIC, because of its structure, is just better set up for that than USAID. 

Senator SHAHEEN. Well, I know that we have been talking about 

Africa and Asia. I happen to be the Ranking Member on the European Affairs Subcommittee, with—and there are still pockets in 

Europe—the Balkans, in particular—where there is significant 

need. So, talk about the model that you have seen that you think 

may be more—or maybe it is the same model, but maybe—may 

work better in place like Europe, the Balkans, where—where they 

have different challenges than Africa. 

And I do not know who wants to try and respond to that. 

Ms. MANDAVILLE. I spent the first part of my career at NDI 

working in the Balkans, so maybe I should go first. 

So, I think that, in some ways, it comes back to the same question about taking a country strategy approach. And one of the 

things that characterizes the Balkans is its proximity to an extraordinarily well-functioning, highly-dynamic market. And so, that 

has to be a fundamental piece of how you think about what countries in that space—what sustains their growth when they are in 

that context. 

And the, kind of, I think, relevant, maybe, Africa example, 

then,—or ‘‘comparison’’ is not the right word, but point to make 

would be—if you think about the way people invest in economic opportunity and growth in Lesotho, which is surrounded by a dynamic South African economy, it is much more focused on how you 

think about labor-force development, ability to work inside of markets that are around it, and work with markets that are around 

it, to take advantage of—comparative advantage. So, I think that 

that kind of lesson would probably be one of the best starting 

points. 

Senator SHAHEEN. You talked a little bit about the connection between incentive for reform and assistance. Can you talk about how 

the two are connected? Now, I appreciate that there has to be commitment in country to make those reforms, but how important is 

it for us to tie our economic assistance to the need to reform in the 

countries that we are supporting? 

Ms. MANDAVILLE. I think that there is, kind of, two different 

types of assistance. And one is most effective when it is quite closely connected to policy reforms undertaken by countries, and the 

other is what it makes sense to do when it is not possible to make 

that tie. So, to be more specific, I think that when we think about 

large-scale investments that have a macro-effect, large-scale infrastructure, things that would require, over the long-time regulatory 

reform or anticorruption efforts in order for them to be practical, 

in those instances—and, like I said, this is something both MCC— 

MCC does well, and Global Development Lab does well because it 

is an actual technical approach, right?—is to look at, what is the 

point by which, if a certain paired reform is not in place, the rest 

of the investment makes less sense? MCC does this well by looking 

first at the policy environment as a whole in the country, but even 

inside investments, also looking at the specifics of regulatory reform and: ‘‘Will our investment have a return if they do not put 

this in place?’’ 

FOREI-42327 with DISTILLER

28 

However, there are countries where—which are fragile, where we 

still care about economic activity for the population. And we may 

believe that it is not—it is not as possible to have high-level economic growth outcomes, but we believe strenuously in supporting 

economic activity and income-generation outcomes. And, in those 

spaces, that is where I think it is—it is more important to think 

through what allows for economic activity at a community or regional—local level, and put support behind programs that reach to 

that space. 

Senator SHAHEEN. Thank you. 

Dr. HERBST. I would be more skeptical of the latter’s programs. 

I think many of the poor, fragile countries that Ms. Mandaville 

mentioned are that way because of a lack of reform over time and 

that, while we cannot ignore human suffering and destitution, as 

a country and as a people, I do not think that countries—even poor 

countries—that do not take basic reforms will get themselves out 

of the trap of being poor and fragile. And I think we have seen this 

with Haiti for a very long time now. So, I do not think that the 

level of economic development should, at any point, give country 

immunity from us looking very carefully at what senior leadership 

government officials are doing. They may be asked to do different 

things, and the bar may be lower, but I think the—all countries 

should be on a reform trajectory. 

Senator SHAHEEN. I assume you would feel differently about 

countries that are in the midst of a crisis like Syria or Iraq? 

Dr. HERBST. Well, I do not think, there, you are talking—those 

countries—Syria a functioning country at the moment, so I think 

that those are different. But, if you look at a country I know fairly 

well, Zimbabwe, where I have been on and off for 30 years, they 

are in the midst of a crisis right now that has come about because 

of lack of government reform. And we will continue to give food aid 

and other things, because we care about the people there. But, we 

should be under no illusions that it was the very government’s policies that got them into this—— 

Senator SHAHEEN. Right. 

Dr. HERBST.—spot in the first place. 

Senator SHAHEEN. Thank you. 

I am actually out of time. 

The CHAIRMAN. Okay. 

Senator Markey. 

Senator MARKEY. Thank you, Mr. Chairman, very much. 

And we thank the panel for joining us here today. And we thank 

you for your expertise on ways that—of our foreign economic assistance can more effectively advance the growth of prosperous societies around the world. 

Here in America and throughout the developed world, Internet 

access has been an enormous driver of economic growth, including 

to a recent Boston Consulting Group report. This year, the Internet 

contributed an estimated $4.2 trillion in annual growth to the 

economies of the G20 countries, adding between a—5 and 9 percent 

to GDP. But, in February, a report from the Alliance for Affordable 

Internet found that, without immediate and urgent action, the 

world will miss the newly agreed global goal of universal Internet 

access by 2020, and, on current trends, the world’s least developed 

FOREI-42327 with DISTILLER

29 

countries will only achieve universal access by 2042. Even then, 

persistent income inequality within and between countries may 

mean that millions of people will continue to be priced out of participating in the digital revolution. In the modern era, the Internet 

is like oxygen to the economy of every single country and every single individual within those countries. 

So, the United States has multiple tools which can lead in this 

area, including the State Department’s Global Connect Initiative, 

USAID’s Global Development Lab, the Millennium Challenge Corporation, and the Overseas Private Investment Corporation, to 

name just a few. 

Can you give us, from your perspectives, how you view the role 

that the United States can play in pushing along this agenda and 

ensuring that universal Internet access is something that can be 

realized by every country on the planet? 

Dr. Moss. 

Dr. MOSS. I know this is not a very Washington thing to say, but 

I do not really have a strong view on that. I think a lot of the countries that I deal with, Internet access is far from the top of the list 

of people’s priorities. A lot of the countries I am—I work in, you 

know, less than half of the people have any meaningful electricity. 

And so, Internet is something that people aspire to, but would not 

be—you know, would not be—would not—probably not make the 

top five. I realize there are lots of markets where that is not the 

case, but I think the others are probably better placed to say. 

Senator MARKEY. Okay. 

Yes, sir. 

Dr. HERBST. I am pleased to report, Senator, that the Newseum, 

in conjunction with ITI, the internet trade association, is now conducting a project on expanding broadband access across the world. 

And we convened our first meeting, which included major technological companies as well as Ambassador-level representation of a 

variety of countries. And we will be having our second meeting in 

conjunction with the October World Bank meetings. 

I take a somewhat different approach to my friend, and agree 

with you, Senator. I think broadband access has become the fundamental avenue for free expression in the world, and is the link to 

the world economy. Our perception, after talking with companies in 

a certain number of countries in a project that is still going on, is 

that regulatory and political obstacles in developing countries are 

first-order problems, and that financing is a second-order problem, 

that there is money out there, some from official, a lot more from 

the private sector, but that the fundamental issue, when you look 

at countries where—and countries at the same per-capita income 

level do have different levels of broadband penetration. Some of 

that is geography, but some of it is regulation. And I think the role 

we can play is in providing models of how governments can regulate or deregulate their telecom sectors to allow for the kind of universal access which I think is going to be absolutely critical for the 

future. There are going to be further developments in mobile that 

are going to make this easier, but also going to raise the stakes, 

because the developed world’s Internet infrastructure is advancing 

at such a rate that, if the developing world does not get into this 

race, the actual digital divide is going to get worse. 

FOREI-42327 with DISTILLER

30 

Senator MARKEY. Ms. Mandaville. 

Ms. MANDAVILLE. Yes, I would agree with Dr. Herbst on the— 

a point that there is a lot of private capital, I think, interested in 

this space, largely because it is a big piece of how they move in 

through economies, as well. And so, I think the question, then, to 

ask about, What is the role of thinking through U.S. assistance, in 

terms of what it provides to increase accessibility, universal access, 

moving into spaces that are more remote and not just urban centers, is to really ask the question about what is—What is the role 

of, kind of, influencing and in—pressing for regulatory reform that 

allow for universal access, that allow multiple types of providers? 

This is—I was at a—spent a year at a tech company prior to joining InterAction, and this is a space where lots of people are very, 

very interested in how they reach markets in other places, specifically through the Internet. And so, thinking through what we do 

that leverages that interest, that leverages that force, is really critical. 

Senator MARKEY. Yes. And I—when I look back in 1996, when 

we passed the Telecom Act of 1996, not one home in America had 

broadband. In February of 1996, not one home. Twenty years later, 

for 12-year-olds, it is a constitutional right to have a 50-inch HD 

screen. Okay? They cannot even imagine life without it. But, for 

those people in 1996, it was unimaginable that there was such a 

thing as HDTV. It was such—that the screen could be interactive, 

that there could be a wireless device that they are carrying around 

in their pocket that is as powerful as the computers that put a man 

on the Moon, but it is in their pocket now. So, to a certain extent, 

I just think that the United States has to help these countries lift 

their gaze to the constellation of possibilities for their own people 

through the dissemination of technology. 

So, yes, on the one hand, electricity is important, and that is 

what Power Africa or Electrify Africa is all about, but electricity is 

just a means, then, to make sure that all these other devices that 

actually transform the country into a modern economy, into something that their younger citizens can compete, is absolutely essential. 

And so, in 1993, there were not any phones like this. They were 

the size of bricks. They cost 50 cents a minute. And Gordon Gecko 

had one, in Wall Street. Okay? But, by 1996, we had innovated, 

and, boom, we had one of these. By 2007, people have one of these. 

And 600 million people in Africa now have one of these, but the 

United States had to be the leader. We are the ones, ourselves, 

that had to get out of our own rut, the black, rotary-dial phone, 

and—a phone in your own pocket? Absolutely unimaginable. Now 

we wake up in the morning, and our first thought is, ‘‘I cannot forget my phone. I have got to have it in the car. I am going to work.’’ 

Well, those were not thoughts that anyone had up until 15 years 

ago, in our own country. But yet, we cannot leave behind all of 

these people in the developing countries without having access to, 

essentially, the global economy—— 

The CHAIRMAN. Okay. 

Senator MARKEY.—the skillset you need in order to be able to expand. And then, like the United States, or like the 600 million people in Africa right now, it happens overnight. 

FOREI-42327 with DISTILLER

31 

So, you need to kind of Power Africa, but you also have to Internet Africa. You have to Internet—— 

The CHAIRMAN. Okay. 

Senator MARKEY.—South America, their villages, and let these 

young people have these opportunities. So—— 

The CHAIRMAN. Good. 

Senator MARKEY.—towards that goal, I just think that we should 

work, you know, together to try to accomplish those goals, because 

I think that is the most powerful democratizing capitalistic, you 

know, idea that we can have in inducing, you know, a different 

kind of way of thinking that serves as a proper counter to that 

which seeks to pollute the minds of young people across the planet. 

I thank you all for everything you do. 

I thank you—— 

The CHAIRMAN. Thank you. 

Senator MARKEY.—Mr. Chairman. 

The CHAIRMAN. Thank you so much. I appreciate it. 

So, I know there are some additional questions. I want to get to 

the essence of what I think this hearing is really about. 

Ms. Mandaville, you kind of represent the aid industrial complex, 

I guess, at the intersection. And, in fairness—I travel around the 

world, and all of us do so extensively. So many of our Ambassadors 

tell me that we really do have a Cold War model that is tremendously ineffective, and that most of what we do as it relates to aid 

is wasted. So, the reason we are having this hearing is to ensure 

that that is not the case. And we certainly appreciate the work that 

the organizations you are a part of do. We really do. But, I think 

it is an outdated model. And Senator Markey was expressing some 

reference to outdated things. But, it is a problem. And I think it 

is just like what is happening in our country right now. I mean, 

there is tremendous upheaval because structures of government 

are not exactly responding to things in the way that people would 

like to see the same thing we know is happening in aid. And yet, 

we support being involved. 

So, you know, Dr. Herbst would talk about the fact that, in essence, we are pushing rope when we send money to countries that 

are not going through the reforms that need to occur. It is wasted 

money. I mean, the things that we want to see happen are not 

going to occur. 

Dr. Moss, I know, has talked a little bit about development finance. And I know our office is looking at ways of really increasing 

that so that you are focusing—and maybe diminishing some other 

things—so that you are focusing on things that are actually going 

to have an impact. 

And I just wonder if you might respond to what I just laid out 

and the concerns that we have from Ambassadors all over the 

world that represent us, that know that much of what we are doing 

really is just about buying influence, it is not about economic 

growth, it is not about affecting people’s lives in an appropriate 

way, and how you might respond to what so many of them say to 

me, that are out there on the ground, that that is a big part of 

their life. I mean, it is what they care about. It is what they are 

administering. 

Ms. MANDAVILLE. Thank you. 

FOREI-42327 with DISTILLER

32 

And I think that there are spaces where—I agree that trying to 

achieve certain types of economic outcomes in environments where 

governments are not willing to take reforms that fundamentally affect those outcomes is not—cannot be successful at the level that 

we hope for. I spent 9 years at the Millennium Challenge Corporation, often sitting across the table from Prime Ministers and Ministers of Finance and Ministers of Infrastructure, explaining to 

them why I was very sorry, but they were not eligible, because we 

had not seen the level of policy reform and commitment that was 

required. 

The CHAIRMAN. But that does not happen in the other areas of 

assistance. You had the freedom, at the Millennium—— 

Ms. MANDAVILLE. I did. 

The CHAIRMAN [continuing]. Corporation, to make a difference, to 

make sure that whatever you did was transformative. 

Ms. MANDAVILLE. Right. 

The CHAIRMAN. On the other hand, what we are doing at USAID 

on a daily basis is doling out money that is making no difference, 

in many cases, and they do not have the same mandate that you 

had at the Millennium Corporation. 

Ms. MANDAVILLE. I also would say that nobody wants to be implementing a program that they do not feel like is having impact. 

People go into development or humanitarian work because they 

want to affect people’s lives. And whether they are an implementer 

on the ground or there in the headquarters or at their—at USAID, 

nobody wants to be in that position. I just think—— 

The CHAIRMAN. Well, let me just ask you this. Does the aid industrial complex, though, that you are associated with, does it create resistance to change that might migrate dollars away to other 

things that would be more effective? 

Ms. MANDAVILLE [continuing]. I think that—I think we need to 

tolerate learning about what is effective. And I think that—— 

The CHAIRMAN. I think the answer, though, is, somewhat, yes, is 

it not? 

Ms. MANDAVILLE [continuing]. I think that, in the last 5 to 10 

years, we have seen more and more uptake of selectivity and analytical rigor, in terms of deciding what is going—what works and 

what does not in various places. I also recognize that, within our 

economic assistance portfolio, 40 percent of that assistance goes to 

three countries. I cannot speak to how those three countries affect 

the overall effectiveness of the portfolio, because even if you are extraordinarily rigorous in every other country in that portfolio, three 

swamp it. So, I do think that we have seen, over the last 5 to 10 

years, more and more adoption of this notion that you have to be 

selective up front. You cannot work everywhere on everything. I do 

think that kind of change takes time. 

The CHAIRMAN. Okay. 

Dr. Moss? 

Dr. MOSS. So, if we take my colleagues’ testimony, which—I 

know it is boring, but I agree with their opening statements—so, 

if we take Jeff’s premise that you have to focus on countries that— 

where there is a political commitment and governance is at least 

good enough, and we take Alicia’s idea that targeted economic analysis is what will allow you to make smart choices and make good 

FOREI-42327 with DISTILLER

33 

investments, you put those together, that means that the U.S. Government needs to be both highly selective and highly disciplined in 

turning off things when they do not work. Now, there are some experiments that work that way, but our budget process does not 

allow us to behave that way. Now, some of that is because other 

goals, like the State Department, as you suggest, likes to—I work 

there—we like to spread money around, because our job is to make 

friends, and one of the tools is the aid budget. It does not help if 

we are trying to get a—convince a country to send peacekeepers to 

turn off their—our aid program. Of course the State Department 

would fight against that. 

So, you have got other goals, you have got the budget process, 

which is often—there is no zero budgeting—you often start with, 

What was last year? And you spread it around a little bit differently, but there is a huge amount of inertia. And then there is 

also a big role from Congress. There are so many earmarks in the 

aid budget that there is very little flexibility for officials to say, 

‘‘You know what? It is not working in Kenya, so we are going to 

move it to Tanzania.’’ That is virtually impossible within our system. So, that is why you get these experiments, like MCC, like the 

Global Development Lab, that are trying to do it the new way, but 

the old, standard aid program run out of USAID, it just is not allowed to operate that way. 

The CHAIRMAN. You want to make a closing comment before I 

turn to Senator Cardin, Dr. Herbst? 

Dr. HERBST. I would just note that, as Senator Markey said, we 

have seen a revolution in telecommunications across the world, including in much of what we call the ‘‘developing world.’’ Hundreds 

of millions, billions of dollars have been invested, business practices have changed, lots of people have been brought online in poor 

countries. Almost none of that had anything to do with foreign aid. 

That was because governments made smart decisions. And we saw 

the same thing with the mobile phone revolution beforehand. Governments made smart decisions. Foreign investors found markets 

that were applicable. 

I think at all times we have to ask, Why are we investing this 

money, when the government of the day, or investors, private or 

foreign, cannot do it? There can be good answers to that. But, I 

would agree with Dr. Moss that selectivity and a portfolio which is 

more concomitant with the resources we are willing to develop and 

devote is necessary. 

I also believe, while I think, analytically, Dr. Moss is right, that 

it is hard, given all of our constraints, a few exemplary cases where 

we walked away or took highly disciplined measures would send an 

important signal, both across our government and across the world. 

The CHAIRMAN. Thank you. 

Senator Cardin. 

Senator CARDIN. I agree, as I indicated earlier, that we need to 

have accountability. We are not doing a country any favor if we 

give them aid and it is not being used for its intended purpose and 

it is—not on a path towards good governance. But, as I said also, 

the amount of resources we are putting into economic development 

assistance is relatively small. And then, when you take out the 

three largest countries, it is really a small amount of money. And 

FOREI-42327 with DISTILLER

34 

of the three major countries, the reasons for that aid—of course, 

Jordan is one, and I think most of us would say that there has 

been a pretty good return to the United States for what we have 

done in Jordan. The other two countries that receive a significant 

amount of aid, Afghanistan and Pakistan, there is a reason for 

that. And some of us question those reasons. But, it is not just the 

direct economic assistance. 

I do not think it is quite as simple as to try to take a look at 

this. What I said at the beginning, we should look at what has 

worked and what is our best chance to improve governance or put 

a country on a path towards good governance. And I think the 

MCC has been a really good model, and I think we need to build 

on that. I think PEPFAR has worked well. From the countries I 

have visited with PEPFAR investments, it has made a substantial 

difference. They know that the United States was there. And there 

is a generation, now, appreciative of what we did. And we have 

much more stable countries where these clinics have been able to 

produce the health results. 

And what has not worked as effectively—and the Chairman really alluded to this, and some of you have, also—and that is, ‘‘Are 

we prepared to really hold a country accountable by either reducing 

or eliminating their funds?’’ And that is very difficult in our political environment. 

So, we have used—let me just make a couple of suggestions—we 

have used the appropriation process to put conditions on aid. That 

has not worked. 

The CHAIRMAN. Yes. 

Senator CARDIN. It has not worked. I think this committee could 

be helpful, if we could get into a regular practice of State Department authorization. We could help the authorizers and we could 

then take up some of these issues, and we could look at what tools 

work. So, I know we are working on that. And the Chairman has 

made that one of his top priorities. And I strongly support that. 

I also believe that suggestions that have been made about 

leveraging private-public partnerships are good, and OPIC reauthorization and reform. I think their suggestions make a great deal 

of sense, and things that we could do to make a difference. 

And I also think transparency is critically important. I understand skepticism about how it would be used, but, without transparency, it is very difficult to get everybody on the same page. So, 

I am all for the transparency, and pleased that we have been able 

to deal with that. 

But, I think this panel has raised a lot of good questions, and 

some good areas that we could advance that would give us a better 

chance to achieve our objectives of really transforming a country’s 

economic capacity through the use of U.S. engagement. 

So, thank you all for your testimony. 

The CHAIRMAN. Thank you. 

Senator Shaheen. 

Senator SHAHEEN. Thank you. 

I just have one question. But, before I ask it, I want to make a 

point, Dr. Herbst, that I very much agree with the conversation 

that you all were having with Senator Markey about the importance of access to broadband and Internet technology. And I hope 

FOREI-42327 with DISTILLER

35 

that, as you are thinking about that the Newseum around the 

world, you are also thinking about it in terms of the United States, 

because there are parts of my home State of New Hampshire that 

do not have access to affordable broadband, and it is having a significant impact on their development. And I know that we are not 

the only State in the country with that problem. So, at some point, 

it is unfortunate that we are not looking at rural broadband access 

in the same way that we looked at rural electrification, because 

certainly that would make a significant difference in a number of 

the rural areas of this country. 

Now—but, to go to my question, the last visits that I have made 

to Africa, to parts of the Middle East, there—what I have seen has 

been significant investment by China in those areas. And as we 

look at the influence that that gives to China—you know, EU has 

also made investments in other parts of the world—are there other 

countries that are providing assistance that are being more successful than we are? And are there models that we should be looking to? I am not suggesting that China is one of those models, necessarily, but are there ways that other countries are doing this investment that is more successful than what we are doing? And who 

should we be looking to? 

To whoever wants to answer that. 

Dr. HERBST. I do not think so, except that I would say that the 

United States, as the superpower, is burdened by the broadest 

portfolio, both in terms of number of countries and number of sectors. If you look at the Nordic countries, for instance, their portfolio, geographically and in the sectors they are involved in, is 

much narrower. I think that gives them an inherent advantage in 

executing their policies. 

So, I do not know that they are any smarter or any more capable 

than us, but I think the global responsibilities that have so vitally 

influenced our aid portfolio have made it especially difficult for us 

to execute. I think other donors have an easier time of it. But, certainly I have had lots of conversations with almost every Western 

donor, where they will tell you an unhappy story. And I will also 

tell you that you can go back 50 years now and read exhortations 

that aid donors should coordinate so that they would—should learn 

more, address the sectors they are best doing at, and that has essentially failed for five decades now. 

Ms. MANDAVILLE. I would add just that I think partly the answer 

to this goes back to the very first question around what should be 

the purpose of economic assistance. And the—to my mind, that is 

still to both generate actual growth and to support the conditions 

that generate growth. And I do think we do a very strong job of 

thinking about some of the conditions which support growth, visa-vis, for example, Chinese investments, which have tended to be 

more infrastructure, which is immediately apparent—— 

Senator SHAHEEN. Right. 

Ms. MANDAVILLE [continuing]. But does not necessarily 

incentivize a reform process on the part of the government that is 

receiving it. 

Senator SHAHEEN. Not sure China wants to incentivize reform—— 

Ms. MANDAVILLE [continuing]. I suspect there is some—— 

FOREI-42327 with DISTILLER

36 

Senator SHAHEEN [continuing]. In the governments. 

Ms. MANDAVILLE [continuing]. Other incentivizing going on. 

Dr. MOSS. I would just add, you know, there is actually quite a 

broad range of countries involved. You know, India is very involved 

in sub-Saharan Africa, Malaysia, the Gulf states, Brazil. So, it is 

definitely much, much broader than just U.S., China, Europe. I actually—I would agree with Jeff that there really is no other model 

that fits the American—you know, with the way that we operate. 

Our—you know, it is absolute folly for us to try to mirror or to compete with the Chinese with what they are trying to do. Their model 

does not fit with the way that we view business, and the distinction 

between private sector and the state. 

Senator SHAHEEN. Well, given that, and given—you all mentioned the expanded role of American leadership in the world, and 

the interests that we have around the world. 

Is it realistic to think that we can focus our aid assistance in a 

way that accomplishes what I understood you to say? Are we really 

going to be able to cut off aid to people who are not doing what 

we think they ought to be doing, in terms of reform? I mean, is 

that really realistic? 

Dr. HERBST. I think it is. But, we will have to look at the internal incentives that we provide to our aid agencies, both at the personal level and at the governmental level. I think that if you encourage—set the right incentives and regulations internally, then 

that is possible. We have certainly made demands of other countries in other areas, and walked away from them, in the security 

sector and in other areas. So, I do think it is possible. But, we have 

to be much clearer than before about our preferences, in terms of 

encouraging actual performance, as opposed to showing the flag, as 

opposed to deploying other types of influence. If we are clear on 

what we want, I believe we can have the same discipline as we 

have demonstrated in other areas. 

Ms. MANDAVILLE. I think this is where the selectivity piece that 

Todd mentioned earlier really matters. I think we can credibly be 

clear about the expectations, both on investment on our side and 

policy reform on a country side—when it—when we are selective 

about where we are using that approach. And that is one of the 

reasons that I think MCC has been able to walk away from countries when they backtrack on reforms or when they do not take the 

steps that they are supposed to. So, there is a proof case that it 

is possible, but I would agree, it is probably not possible everywhere. 

Senator SHAHEEN. But, I guess you all would agree that we are 

looking at humanitarian assistance in one way, where it is probably not something that we want to think about, in terms of walking away. And the kind of economic assistance that most of the discussion is focused on is a different pot that—and we should be 

thinking about it differently. 

Ms. MANDAVILLE. Absolutely. 

Senator SHAHEEN. Thank you. 

Dr. HERBST. I would agree, although humanitarian assistance 

can also be given more or less effectively. 

FOREI-42327 with DISTILLER

37 

The CHAIRMAN. Senator Cardin needed to go to another hearing, 

and I just wanted to pursue a couple more questions, if you all 

have time to answer those. 

Dr. Herbst, you wrote, in a 2013 New York Times article. You 

made the point about the growing role of private capital. Can the 

three of you all respond to the impact, the difference that is occurring between what countries are doing around the world to help 

with economic aid through government entities and then, relatively, the impact that private capital is having doing the same 

thing? 

Dr. HERBST. Private capital is having an impact on more and 

more countries. We will see how it works out through the post-commodity-boom session. But, private capital is often more attractive 

than official aid, bilateral or multilateral, because it is not loaded 

with the same conditions that we, rightfully or wrongfully, add 

onto many of ours with regard to—take your pick: role of women, 

poverty reduction, climate change, environmental degradation, or 

lots of other admirable things, but which complicate the situation. 

So, if a government is looking to place paper, it might, quite often, 

want to place it on private markets. 

We are also seeing a world awash with capital. It is not only 

awash with foreign aid. There is a tremendous amount of capital 

out there looking for high returns. And increasingly, those high returns come from emerging or, as they say, frontier markets, where 

returns can be quite high. 

And finally, we are seeing a diversification of the private funds, 

no longer only from Western Europe and North America, but increasingly from Asia, not only China, where it is very significant, 

but we will see increases in India, Malaysia, Singapore, and the 

like. So, those—I think that is almost entirely good news, in that 

there will be more capital that will be available to more countries. 

It will mean that we have to recognize that our own place in this 

is increasingly diminished, and that we will be only one actors 

among many, and the capital we are willing to deploy, especially 

given the particular distribution of our aid, is not very high, and 

set our expectations accordingly. 

To me, this is just the world becoming more normal, that Africa, 

Asia, and other places are able to make commercial and economic 

ties—— 

The CHAIRMAN. Yes. 

Dr. HERBST [continuing]. With other places. We will just have to 

recognize that our impact, given what we are willing to invest, is 

going to be less. 

Dr. MOSS. I would just add that, you know, I think—obviously, 

private capital, the greater flows we can get into these regions, the 

better. But, private capital is already highly selective and highly 

disciplined, because they are focused on a rate of return, and nothing else. The United States Government, if you asked us, ‘‘What 

are our objectives in Kenya?’’—I will bet this room could come up 

with 50 different objectives that we have in Kenya. It is not a simple rate of return and ‘‘If we do not get X, we are out.’’ But, that— 

if you are a bond trader, that is exactly what you can do. So, I 

think we want to encourage it, but it is not going to meet all of 

FOREI-42327 with DISTILLER

38 

the U.S.—it is not going to replace all of the other things that we 

hope to achieve. 

The CHAIRMAN. Ms. Mandaville. 

Ms. MANDAVILLE. I agree with Todd—and to that I would add 

that I think the inflows of private capital demonstrate an ability 

to sustain economic growth, but they need to be preceded by the 

conditions that support private capital inflows. And so, whether 

that is support for regulatory reform, small business climate, import/export regulation, and trade capacity, I think those are the 

things that, as we see larger and larger private flows seeking high 

returns in some markets, there are still a large number of countries with large numbers of people living in poverty, where it is not 

yet a high-return environment. And so, in those instances, then the 

role for U.S. economic assistance becomes what is possible that cultivates the environment that can attract private capital in the long 

run. 

The CHAIRMAN. How concerned should we be?—People always 

refer to China and their aid. And, of course, their model is very different, very focused on infrastructure and Chinese jobs. There are 

other models that are out there. How much concern should we 

have? I mean, if a country is coming and helping an impoverished 

country increase its standard of living, is there a reason, that you 

can share with the American people who are tuning in, why we 

should want to be competitive in that regard? Or should we let— 

as some people might say, let them deal with that country, and 

maybe we focus on other places? Can you give an explanation, for 

people that might be listening in? 

Dr. MOSS. So, I think, in general, Chinese investment in developing countries is something that the United States should welcome. These country—especially given that the—there is a concentration in infrastructure, and the infrastructure gaps, particularly in sub-Saharan Africa, are so huge, we actually need the Chinese investment in there. I think there are two big exceptions, 

here. One is that there has been, generally, improved standards of 

economic transparency and better governance. Some kinds of Chinese investments can undermine that. For example, lending without disclosing the terms is a problem. The other is that there are 

occasionally rogue states, where we would rather see those regimes 

starved of capital and isolated, and the Chinese are willing to do 

business with tyrants. And Zimbabwe—thank you, Jeff, for mentioning that already—is one example of a country where Chinese 

engagement with Zimbabwe is counterproductive. 

Dr. HERBST. I agree. I think, in general, for the recipient countries, having more suitors, as it were, more potential investors, is 

a good thing, and the creation of infrastructure stock that the Chinese have focused on has filled the gap which Western aid agencies 

walked away from, in some ways, invested less in infrastructure. 

I think there are some worries. The Chinese have a different 

model that goes back to the fact that it is not a capitalist model, 

fundamentally, and concerns about governance, in particular, 

which should animate much of what we do, are largely absent, not 

only in dealing with rogue states, but in private deals with government leaders and the like. So, I think there is a real concern that 

FOREI-42327 with DISTILLER

39 

the Chinese may cause governance to decline, in some cases. And 

we will have to be very attentive to that. 

I think we also face, more generally, that there is a Chinese 

model of development which says that—democracy, human rights, 

later or never, apropos of their own experience. And I think that 

that message—as Chinese involvement on the ground in dozens of 

countries becomes more significant—that message is becoming 

louder, and is part of the explanation for the erosion of democratic 

performance that we have seen over the last 10 years. And I worry 

about that greatly. 

The CHAIRMAN. Very good. 

Ms. Mandaville. 

Ms. MANDAVILLE. I would just add, kind of from a market perspective, the idea of there being a competitor in the provision of assistance, although it tends to produce better results by the initial 

provider, right? So, I think, to that extent, and not only is the actual investment helpful for many countries, but it does force us to 

look at what we are doing and ask questions about what we are 

doing effectively. 

I think Chinese assistance also throws into relief where the U.S. 

is working in partnership with another country in pursuit of economic growth, and where the—our partner country is perhaps not 

as committed to the reform side of the equation, in that, in the absence of there being an alternative, the conversation around whether reforms are going to happen or not can drag on and on. And I 

have seen it do so in certain investments. 

When there is another alternative to go to for assistance that 

does not have the same regulatory or democracy or other concerns 

attached to it, some countries are willing to say, ‘‘That is fine, I am 

going to go here.’’ And then you know. And that is—while not necessarily uplifting, I think that is a practical way to think about 

how we understand working in partnership with countries in cultivating the types of policy environments that sustain growth over 

time. 

The CHAIRMAN. Let me just go to a whole other extreme. We are 

all impacted by the people we see around the world as we travel— 

the Ambassadors, in particular, that have been around for 30 years 

and have seen a lot of the same things occurring in our aid. I had 

one particularly impressive Ambassador tell me that our economic 

assistance ought to be about one thing, and that is promoting U.S. 

companies’ growth in these countries, and that is it, nothing else, 

that our focus ought to be making sure that U.S. economic interests are dealt with, that we are spurring that on, and that is what 

our foreign aid ought to be mostly about, other than dealing with 

the health issues that I think we have been so effective in dealing 

with. I would just like for you to respond, if I could. 

Dr. HERBST. Yes. I would disagree. I think that would be a detriment to overall governance in countries, if we were saying, basically, ‘‘We want our aid to be rigged, and we want the system to 

be rigged in favor or our companies.’’ That goes to old system—and 

that is an—a type of capitalism which you find in many developing 

countries, where a certain number of companies have privileged relations with government, they are monopolistic or favored, and they 

make a lot of money. 

FOREI-42327 with DISTILLER

40 

The CHAIRMAN. Not unlike, really, much of what China does. Is 

that correct? 

Dr. HERBST. Not—in many ways. 

So, I think we are better off, in the long term, promoting an enabling environment that allows countries to grow. And then I believe 

we should challenge our companies to go in and participate, and 

take the necessary risks, invest, and prosper in those countries. I 

think American companies, in many cases, have not been aggressive enough in investing in the developing world, even when there 

are legitimate economic opportunities. I think this would be a signal to them that the U.S. Government will take care of them. Instead, we should be signaling to the recipient countries, create a vibrant environment, and then we believe that our companies, on 

level playing field, will compete and do well. I think that would be 

better for all concerned. 

The CHAIRMAN. Dr. Moss. 

Dr. MOSS. I think that would be a recipe for our aid program degenerating into exactly what people worry about, which is a program of corporate welfare. I think it is absolutely antithetical to 

what our foreign aid program should be about, which is pursuing 

our national security, our development, and our economic interests 

abroad. 

I do think there is a role for the U.S. Government in ensuring 

that American companies have a fair playing field. Absolutely, that 

seems perfectly legitimate. But, using that as a hammer for mercantilism, I think, is—terrible idea. 

The CHAIRMAN. Ms. Mandaville. 

Ms. MANDAVILLE. No, I agree. And I think that, in addition to 

being antithetical to a lot of our goals, it is not terribly practical 

as a way to actually work forward, in that American companies are 

tremendously different, one from another. And so, what is particularly effective for this company to be able to move into a country 

is not necessarily the thing that is—facilitates this other company’s 

ability to move forward. 

And if you look at the things that, across the board, allow American companies, as a whole, to move into a country, it—they are 

the enabling environment, they are the conditions that promote 

economic growth, and they are free and fair practices. And so, if 

that is at the core of how we are thinking about economic assistance, then we are, by default, actually leveling the playing field for 

our own companies. 

The CHAIRMAN. Dr. Moss, you mentioned something about us 

being able to provide equity at OPIC. All three of you moved in the 

direction that I thought you would, relative to U.S. economic interests only. On the other hand, you were talking earlier about models 

that China and other countries have that are very different, focused on state-owned enterprises. One of the reasons, I think, that 

TPP, from a strategic standpoint, has been pursued, is to take advantage of those countries that are being pushed in our direction. 

In particular, in Southeast Asia, where China is dominant with 

their state-owned-enterprise model, and without us providing some 

way, whether it is bilateral agreements, if TPP is not what is going 

to be enacted, but, in some way, capturing that and dealing with 

them in a way that creates a more free-enterprise-oriented system. 

FOREI-42327 with DISTILLER

41 

But, you mentioned OPIC having the ability to do equity. So, for 

many Americans, that sort of brings back Solyndra, I mean, it is 

not a path I am particularly interested in going down, where government officials are making decisions about equity and which 

companies they are going to be investing in. And I wonder how, 

from your perspective, we might square that. 

Dr. MOSS. Yes. I think that is an excellent question, and it is 

definitely a concern that would get to the structure of how the equity would work within OPIC. You do not want civil servants making decisions about what the U.S. Government will have a chunk 

of a foreign private company. 

But, a way to get—if you look at the objectives of OPIC, OPIC 

is a development agency. Its goal is to help build markets abroad 

and to try to create economic opportunity. It is not like the ExportImport Bank, whose goal is U.S. jobs and U.S. exports. So, OPIC 

is not trying to get American companies into new markets, it is trying to build those opportunities. And if we hold OPIC to account, 

then there is—and that is their mandate, it is not changed to become mercantilist—I do not think that those concerns about equity 

positions within a limited capacity should really hold. 

Another way to get rid of that concern would be to remove a lot— 

some of the restrictions that are currently on OPIC for a U.S. 

nexus. If we loosen some of those constraints on OPIC investments, 

then the concern about potential corporate welfare or the concern 

about long-term U.S. ownership can disappear. 

The CHAIRMAN. Any other observations? [No response.] 

The CHAIRMAN. We are going to close the meeting out now. Is 

there anything that you felt needed to be addressed, that was not, 

in the hearing? [No response.] 

The CHAIRMAN. We thank you all—thank all of you for being 

here, and thank you for your testimony. 

There will be numbers of written questions that likely will come 

in. We will close the record as of the close of business on Monday. 

But, if you, in a fairly prompt manner, could respond to those, it 

would be much appreciated. 

And we thank all three of you for what you have done to advance 

our Nation’s interests and for being here today and helping us. 

And, with that, the meeting is adjourned. 

[Whereupon, at 4:00 p.m., the hearing was adjourned.] 

FOREI-42327 with DISTILLER

42 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

‘‘BRINGING U.S. DEVELOPMENT FINANCE INTO THE 21ST CENTURY,’’ Ben Leo and 

Todd Moss, Center for Global Development 

FOREI-42327 with DISTILLER

43 

FOREI-42327 with DISTILLER


~~ Th• Whit• oo~ oodth• WO<Id 2016 

cchidty, roads, water and sanitation), inequality. and 

e<:onomic and financial policies as the most pressing 

problems facing their nations (see figure 1),, In latin 

Amorka. roughly 60 percent of su!Wy respondents cite 

employment. economic, and financial policy issues, 

as well as crime and security concerns.. In contrast. 

only 20 percent of Africans and latin Ameri<ans are 

most worried about health, education. food Sf!(Urity, 

or environmental issues- the issues t hat existing US 

development policy targets the most. 

Second, busine-sses in emerging and frontier markets 

are most constrained by inadequate a<cess to capital. 

unreliable electricity. burdensome tax policies, and 

unstable political systems. Access to finance and reliable 

eledridty a re the most frequently dted issues in almost 

half of the 81 sutVeyed developing countries, and these 

issues negatively impact firms in all developing regions.! 

To i11ustrate, roughty two·thirds of surveyed Nigerian 

and Pakistani firms cite unreliable electricity as their 

biggest constraint, and nearty half of all firms surveyed 

in COte d'lvoire.lndonesia,. and Zimbabwe cite access to 

finance as their biggest challenge. 

Third. the relative and absolute importance of foreign 

aid has de< lined significantly over the past two decades. 

In 1990, aid exceeded 20 perc:;:ent of gross national 

income in 13 developing countries (out of 120 examined 

countries),, That figure had fallen to only four developing 

countries in 2012 (Afghanistan, Burundi, Liberia. and 

Malawi), despite a doubling of totalglobalaid during 

the same period from $59 billion to $133 billion. The 

exponential increase in government revenues, driven by 

both economic growth and improved tax administration, 

has been even more striking (sec figure 2).

4 

fourth, foreign government partners are increasingly 

focused on attracting private investment. especially in 

infrastructure and productive se<tors. Nearly every national 

development strategy emphasizes attracting private 

investment for physical infrastructure (e.g .. electricity and 

transport) and labor-intensive sectors (e.g., agriculture:, 

services, and manufacturing), reflecting the political 

imperative of establishing more inclusive e<onomic 

opportunities in the near and medium term for the rapidly 

expanding working·age populations in many regions. 

At the same time, the development finance landscape has 

changed dramatically with the entry of several emerging· 

market actors. The China Development Bank and the 

Export·lmport Bank of China were established in 1994. 

8oth now have major financing portfolios throughout 

lheworlcl particularly in latin America and Sub·Saharan 

Africa China is far from the only emerging-market actor 

in developing countries. India, Malaysia. Turkey. Brazil, 

and other countries now have public entities that provide 

project and trade finance, as well as guarantees. 

finalty, many well·established organizations in traditional 

donor capitals now provide integrated services for 

bu_sinesses that cover financing, risk mitigation, and 

technical assistance. These organizations include FMO 

Figure 1 African and latin American Development Priorities Are in Areas US Development Policy Targets the Least 

.IQOsllncornn lnft~st-nxt\. t ~/lntq\Uo

L icy konjfmA;ll~ ( rimt/St<urity Gc;o.otm~nc:" 

NQtt· figuTtS rtpttwnt ht-~ c~t.agt of 51.1Nt)'td rn.pondt'nt5dtfn9 tht •nut- u p thrft' iOfl~l ptQbltm. 

Sour ~Afroba.romt-t«. La.tmba.JOITlt'ttJ. a.nd a.uthors' ca1cula.t101\s 

... 
44 

FOREI-42327 with DISTILLER


'''"''"9 US D~•lopm<rn ""'"~ '"" th< "" ''"'"~ a 

Figure 2 Government Revenue Has Outpaced Net Aid Received in tow· Income Countries 

0 

0 

c 

a; 

S\ 

::> 

;: 

, 

~ 

u 

90 

80 

70 

60 

so 

40 

30 

20 

10 

0 

-

2002 2004 

Sourc~Wo ld Bo..nlr: and al.llhots'ulrulat10ns 

2006 

(Netherlands), DEC (Germany). PROPARCO (F,..n<e), and 

the International finance Corporation (IFC. the privatesector arm oft he World Bank Group). This model has 

strcamlin~d available private ~ctor-bascd dtV{>Iopmcmt 

tools t.rnd~r one institutional structure, thereby 

enhancing efficiency and effectiveness. 

Adjusting to US Political and 

Budgetary Realities 

The political and e<:onomk environment within the 

United States has also changed dramatically, particularly 

over the past five years. First. development dynamics 

are shifting rapidly from a traditional donor.recipient 

aid relationship to mutually beneficial partnerships 

involving public and private actors. An illustration 

of this trend is the Obama administration's Power 

Africa initiative, which uses a three-pronged approach 

Involving (1) country government reforms; (2) private· 

sector in~stm~nts ; and (3) US government cofinandng. 

risk mitigation, and technical assistance. 

S«ond, most US aid agendes typically are not positioned 

to addrtss many pressing dcve op~nt prioritlc-s, such as 

expanding economic opporrunities in frontier markets. 

In such places. the focus should be on promoting greater 

engagement by private investors and businesses. as 

noted earlier. This focus involves using non-aid agencie-s 

»ke the O""rseas Private Investment Corporation (OPIC), 

the Export-Import 8ank of the United States, and the 

private-sector \~ndOW$ oft he multilateral development 

Ne-t Official ~lopment Assistance 

2008 2010 2012 

banks. The Millennium Challenge Corporation {MCC) is 

the noteworthy exception to this aid agency dynamic. 

However, MCC is not scalable because of its grant-ba!:.ed 

model and its need for congressional appropriations, as 

'N('li as its ability to work in a limited num~r of countries. 

Third, the US development assistance budget has 

become increasingly constrained. with growing pressure 

to cut programs. At the same time. domesti< political 

constituencies have remained strong for many socialsector issues. such as <om bating infec:;tious dise.a_ses {e.g., 

HIV/AIOS, maJaria) and promoting access to education. 

This suggests that any future budgetary cuts will 

likely be focused on program areas that lack such vocal 

constituencie-s. such as economic development programs 

outside of frontline states. Colte<tively, this also means 

that the next US pr~ident will ~ highty<onstrained in 

promoting private sector-based development models 

through traditional dt.-wlopmcnt assistanc~ budgets. 

Existing US Private Sector- Based 

Development Programs 

The US govcmmcnrs primary development finance 

vehicle is OPIC. an independent government agency 

that mobilizes private capital in emerging and frontier 

e<onomies to address development challenges and to 

advance US foreign policy objectives. OPIC provides US 

investors with debt financing, loan guarantees. political 

risk insurance. and support for privll:te-equity investment 

funds. It operates on a, self-s,ustaining basis and has 

... 
45 

FOREI-42327 with DISTILLER


provided positive net transfers to the US Treasury for 

nearly 40 consecutive years. Since its inception. OPIC has 

helped mobilize more than S200 billion of US in,..,stment 

through more than 000deve opm~nt-re1a ed projMs. 

Wrth few exceptions, OPIC has not evotved. since it was 

first established 1n 1971. The most significant exception 

relates to debt seed <:apital for private-equity funds, 

whkh OPIC btgi>n providing in 1987. OPIC .-.mains highly 

constrained by 1Tladequate staff and outdated authorities. 

For instance, it must rely on congressional appropriations 

to~r a.nnua1 dminis rati~ ~penses (e.g .• salari~. 

travel, and office space) de-spite generating significant 

profrts on acons.istent basis. This de facto constraint. 

driven bycong rti!Sslonal unwflltngn~s to e)fp.and the 

number of stAff, has prcV<>n\ed OPIC from fully love raging 

its existing capttal base. 

Other program~ within US ag~ncies that promote 

private sectoH~ development approach~ are spread 

across mu)ti~e agencies. resulting in redundancies. 

incftidcncics, and. fr~ cntly a lad' of coherence. 

• The US Agency for InternAtionAl Oevelopment•s 

Development Credit Authority (DCA)o USAID's DCA 

provfdes partial risk guarant~ to unlock private 

financfngln support of US deV<>Iopment priorities. In 

2013, DCA approV<>d 26 new partial credit guarantees In 

19 co-untries, which may mobilize nearly SSOO million in 

private capital over lime.s 

• USAJ D Enterprise Funds: Sine~ 1989, Congress has 

appropriated resources for a range of enterprise f\.mds, 

which arc captta!lzed either entirety or partially by 

USAIO grants. This program, which ha.s a mixed track 

re<:ord,' originally began with a focus on promoting 

private enterp'l'ise In former Eastern Bloc: countries. 

Similar funds haw ~n launched fn other countries 

since then. such as in Egypt and Tunisia. 

• US Treasury Office ofTechnkaJ Assistance {OTA): The 

US r~asury's OTA embeds highly ~pertenccd advise~ 

into finan(e ministries and central banks to promote 

fin.ancfaJ.sector strengthening and to Improve public 

fmanda.l management. 

• US Trade and Development Agency (VSTDA): This small, 

a.utonomous agency is primarily focused on connecting 

US businesses to export opportunities In de..,loptng 

countries. However

1 it also promotes private sectorbased de,.,lop·ment through small-.cale finandng for 

feasibility studies and tec;hnkal assistance programs. 

-

lastly. the US government also supports large-<calegrant 

operations through the MCC, USAJD. and the US State 

Department. These programs help address a brood range 

of private sector-based dewlopment lssu~ such as 

infrastructure and business climate refot·ms. 

• Millennium Challenge Corporation: The MCC provides 

large-sulc grants towcll•performing QJuntries with low 

and lower mfddle lncorn.es to support poverty reduction 

\11rough sustainable economic growth. To date. the 

MCC has apprOV<>d more than S8 bl11ion In compact 

and threshold programs that haW> focused largely on 

infrastructure. agriculture, and enterprise development.' 

• Other USAIO Programming: USAIO has a range of grant· 

based programs within its Bureau for EconomfcGrowth, 

Education, and Environment that promote private 

enterprise in developing countries. These programs 

focus largely on four ~ey areas: {1) building skills and 

maMgement capacity, (2) d~pe ng access to finance, (3) 

supporting business climate form~ and (4) establishing 

lln kag~ with US businC!'Sscs and organizations.• 

Proposal for a Modern Scaled-Up US 

Development Finance Corporation 

A modern, scaled-up USDFC would promote US policy 

objecti~s by harnessing America's three greatest 

~trengths- nnoval;{on and technology, enhepreneurship, 

and a d~p capital ba~-at no addit,ona1 cost to US 

taxpayers. tt also would make a ~riow. contribution to US 

foreign policy goals by aligning stronglyw'rth d..,. loping 

countries'most pressing priorities (e.g .. employment and 

e<onomicopportunities).lastly. the proposed USDfC 

would promote America's commerdal policy objectives by 

facilitating investment and business opportunittes In the 

next wave of emerging markets. 

Products. Servkes.. and Tools. 

Almost all major OFls have be<:ome fuii vke institutions 

that promote private sector--based development (see table 

1). As wtth other institutions, the USOFC would o~r a 

ft1l1 suite of products_ services, and tools to promote such 

development approaches. Currently, OPIC can offer direct 

loans, loan guarantees, Tis\: insurance, and seed financing 

for independently managed investment funds. A full suite 

would add advisol)' seNices. feas!bil~y studies. direct 

investments including equity. and technical assistame for 

business-climate reforms. whkh other US agencies such as 

USAID, the State Department. USTOA. and the US Treasury 

Ocpartmentha~ the authority to support. The USDFC 
46 

FOREI-42327 with DISTILLER


'"'''"' us D~ op •" """' loto th• " " ''""ry M 

OPIC (US) No No 

FMO (Netherlands) Yes Yes 

PROPARCO (France} Yes Yes 

CDC Group (UK) Yes No 

DEG (Germany) Yes Yes. 

including via BMZ 

IFC (World Bank) Yes Yes 

Sowcot:: Dflannual repcrh 

would consolidate all of these authorities and programs 

within a single. efficient, market-based institution. This 

change would require congressional authoriution. 

The USDFC also should have the authority to support 

non-US investors in certain circumstances. OPIC 

currently can only support finns or investors with 

significant American ownership or operational control. 

No other major OFI ties their financial engagement 

to national firms. This flexibility enables other OFis 

to promote economic growth and job creation 

through local busine-sses in developing countrie-s. 

This restriction has prevented OPIC from supporting 

strategic objectives where US investors arc not active 

or prospective participants in a gi~n country's market 

or se<tor. The expanded authority could be limited to 

low-income countries and local firms domiciled in the 

respective developing country. firms from developed or 

middle-income countries. along with their respective 

subsidiaries. could remain ineligible for USOFC 

operations unless there were highly compelling benefits 

to US development or other foreign policy objectives. 

Size, S<al e, and Staffing 

The USDFC's siZ"e and scale should be determined by 

the combination of market demand. the ability to 

demonstrate clear "additionality" (sec further details 

below), and the maintenance of rigorous credit· 

quality standards and oversight. In addition. it must 

demonstrate tangible development results throughout 

its portfolio. As a result, there should not bt'an ex ante 

target size. Instead. the USOFC should have the ability 

to access significant sources of capital to respond to 

market dynamics and US development objectives, 

with appropriate oversight by the US Congress and the 

No No 0 

Yes Yes 17 

Yes Yes 

No Yes. for some impact funds 9S 

~ Yes 28 ea bil ty studies 

Yes Yes 36 

Office of Management and Budget. Currently, OPIC has 

legislative authority to support a $29 billion portfolio of 

loans, guarantees. and insuranee.

9 A$ of 2013. Sll billion 

of this capacity was undeployed because of insufficient 

staff and constrained authorities. 

EKisting bilateral Ofls provide a rough benchmark when 

considering the USOFC's potential scale. Their portfolios 

range from 0.15 percent of gross domestic product 

(GOP) in the United Kingdom to more than 1 percent 

in the Netherlands. tf these same simplistic ratios were 

applied to the United States. the USOFC could have a 

total portfolio ranging between OPIC's current statutory 

authority of $29 billion and $180 billion. 

The USDFC's staffing siZ'e and administrative expenses 

also should reflect its operational requirements and 

objectives. Currently. OPIC has nearty 230 employees 

and an operating budget of $67 million.10The average 

OPIC employee is responsible for approximately 

SS million in portfolio exposure. If OPIC's existing 

portfolio·to~mployee ratio remained constant. then 

the USDFC could require between 370 and 2,200 

employees. depending on its portfolio size. This 

in cr~as~ would entail an annual op~ ating budg~t of 

betwe-en $110 million and $665 million, which would 

bo self financed through the partial retention of USDFC 

profits (sec figure 3). n By <omparison, the current 

staffing siZ"e of peer DFis is a s follows: 4,000 in the 

World Bank's IF C., 499 in Germany's DEG. 336 in the 

Netherlands' FMO. 177 in France's PROPARCO, and 102 

in the United Kingdom's CDC. 

... 
47 

FOREI-42327 with DISTILLER


Governance Structure 

The USOFC would be an independent government 

agency led by a management team appointed by the 

Whtte House and overseen by a board of directors 

that SndudM both government and prfvate--sector 

represen atives~ In this manner. the board would reflect 

the Corporation's development and foreign policy 

objectives, as well as serve as a model for promoting 

private s.ctc>r-bas<d devolopmtnt. The Corporation 

also should inchJde an ~ual numbtr of public·sector 

representatives from each major political party. This 

would promote greater strategi<: continuity and help 

minimize short-term political pressures. Moreover, the 

board's composition should seek to ensure coverage 

of several core competencies. such as international 

dewlo-pment. rl sk management, human r~ources and 

legal matters. global financial Institutions, and specific 

priority sectors (e.g,, power and transportation), 

Monitoring, Evaluation, and Reporting 

The USOFC should establish a performance measurement 

system that is modeled on global best practk6." OPIC 

currently uses a Development Impact Matrix to evaluate 

and monitor both prospective and approved investment 

projects; however, the information is not reported 

publicly. The USOF-C's performance measurement 

system should expand upon OP!Cs existing approach 

by measuring, considering, and reporting on the 

"addltionality" of Its operations. This would require both 

ensuring that the institution does not compete with 

private sources of investment capital and maintaining 

appropriate financial performance within its portfolio. 

Lastly. the USOFC would collect and publicly r•port on a 

series of instiMional efficiency and performance metrics, 

such as finindal performance,operating budget ratios, 

and averAge investment transaction revfew time." 

Across Its operations. the USOFC should pubHcly 

disclose information by default and ha~ a high 

bar for withholdfn9 information In deference to 

commercial confidentiality concerns. At a minimum, 

this would include all project description summaries 

and D~lopment Impact Matrix s.core$ (at thC! time 

of project approval). Mor«M>r. the Corporation should 

publish ject-le~l de~ opment performance data on 

an annual basis. 

Figur* 3 OPIC Outperforms Other OFis on Portfolio Siz* and Operating Budget Per Employee 

• Po• tfollo per Employee 

• openling Budget per Employe• 

Sourc~.Oflannual totports and authol's uku a.t10n~ 

... 
48 

FOREI-42327 with DISTILLER


C1pit1l Structure 

The USOFC's capital structure should reflect its desired 

scale, comparattve advantage, and role within the US 

government's development and foreign policy toolkit. 

In particular, Its tructur~ should only represent its 

potential maximum portfo1io size. The actual size. as 

me~uured by total contingent liabilities. must reflect the 

instih.rtion's abllily to support 1ndividua1 transactions 

wfth strong d ..... lopment impact, prudently manage 

fini.ndal risks.1nd conststentlydemonstrate strong 

"addrtlonahty"llis-a..ts pnv.te-«<tor alternatives. 

• Status Quo Structure: Under this option. the USOK 

would ~ly upon OPIC's existing maximum contingent 

liabfl1ty hm1t of $29 billion." This limit has not ~n 

changed 'ince 1998, when it was increas!d from S23 

bfllion. Future adjustments to the USOFC's contingent 

U.bility limit would be considered on an ad hoc basis. 

Advisory servict'S and tec.hnical assistance activities 

would be financed out of retained earnings at no 

additional cost to taxpayers. 

• Revised OPIC Contingent liability Limit: Under this 

option, the USOFC would rely upon an updated 

version of OPIC's extst,ng contingent liabilit)4 This 

limit would be adjusted upward to roughly S42 

btl lion. thereby convtrttng the current exposure-limit 

from 1993 dollors to 2014 doUars.>>Going forward. 

the maximum contingentllability limft would be 

inRahon adjusted. which would pr...,nt the erosion 

of the USOFCs potenml portfolio size in realtenns. 

H would lil<elybe many years, if e.er, befe<e thatlimH 

is ._pproached. However. setting this limit would 

provide the USOFC with adequate flexibility to execute 

sco1led prtvate sector-bas~ development approaches, 

whne stmultaneously ~nsuring pro~r portfolio risk 

management and oversight. 

Policy Recommendations and 

Implementation Road Map 

The Implementation road map for the proposed USOFC 

will require actions by the US executive and legislative 

branches. These actions include the following: 

0 The next US president should put forward a proposal 

to establish A consolida.ted US Development Finance 

Corpontion, along with templAte legisl•tlon. 

This should t•b! place wfthin the ftrst 100 days In 

off>ce Such action would instfll an appropriate level of 

pol•t1al commitmem and help build momentum wfthln 

Congress. This proposal would be further fleshed out 

and amended as appropriate in dose partnership with 

Congress. 

@ The US Congress should pass legislation that 

will establish a USDFC to function as the premier 

development agency focused on private-sectorbased appr~ches. 

At 3 minimum, the legi~l.l.tion $hould 3ddre$~ the 

following components: product~. services, and tools; slzt. 

Kalt. and staffing requirement~; govern•nce structures 

and OYerstght functions; performance met rio (including 

stringent ·•dditionality"' requirements}; and co~prtal 

structure models. 

. .. 
49 

Æ 

FOREI-42327 with DISTILLER


II 

Further Reading 

Homi Kharas. George Ingram, Ben Leo, and Dan 

Runde. "Strengthening US Government Development 

Finance lnstitutions ... Washington: Center for Global 

Development, 2013, www.cgdev.org/sites/default/files/ 

strengthening-us-govemment-development-financeinstituUons.pdf. 

Sen Leo. Todd Moss. and Seth Schwanke. OPIC Unleashed: 

Strengthening US Tools to Promote Private Sector 

Development Ove~eas. Washington: Center for Global 

Development, 2013. 

Ted Moran and Fred Bergsten. "Reforming OPIC for 

t he 21st Century." international Ec:onomk Policy Brief 

Number 03·S. Institute for International Economics. 

Washington, 2003. 

Dan Runde, et al. Sharing Risk in a World of Danger and 

Opportunities: Strengthening US Development Finance 

Capabilities. Washington: Center for Strategic and 

International Studies, 2011. 

US National Advisory Board on lmpa.d Investing. 

Private Capital, Public Coed: How Smart Federal Policy 

Can Calva nile Impact Inverting - and Why It's Urgent. 

Washington: US National Advisory Board on Impact 

Investing. 2014. 

Ben Leo and Todd Moss . .. Bringing us Development 

Finance into the 21st Century: Proposal for a Self· 

Sustaining, Full-Service USOFC."Washington: Center for 

Global Development, 2015. 

Notes 

1 Sen }a min leo, s Anyone listening? Does US Foreign 

Assistance Target People's Most Pressing Prioritiesr CGO 

Working Paper 348, Center for Global O~lopment, 

Washingtol\ 2013. 

2 These figures c~r 81 low- and lower middle-income 

countrit"s with recent completed World Ban\: enterprise 

survtys.. For det;.ils. s~ the enterprise surveys at www. 

nterprisesur...eys.,org/d~ ~ 

, World Bank.. World ~!opment Indicators data set 2014. 

http!{fdata.worklb.an\:.org/dat,a-catalog/world-developmentindkators. 

• Excluding the BRICS (BTazil, Russia. India, China. and South 

Afric~). government revenues qu;.d:rupled from roughly S600 

bl1lion in 2000 to $2.6 trillion in 2012. This trend has been 

equalty as striking in low·-income countries, whi<h experienced 

a fourfold increase in government revenues between 2002 and 

2012. Source:World B.l.n't, World Development lndic-.tors. 2014. 

) For additional details. sec USAIO, "USAID Oevelopm~nt Cr~it 

Authority Activity in 2013,"www.usaid.ge:wjsitesjdefaultjtlles/ 

documen s/21SS/20 Dea Public mmaryfin al.pdf. 

6 GO'\Iemment Accountabl1ity Office. Enterprise Funds' 

Contrjbutions to Prfvate Sedor Devdopment Vary, GPCJ/ 

SIAD-9~22 1 (Washington:GAQ 199n 

1 For additional details, Sff MCC. '"About MCC. • www.mcc.gav/ 

pagcsjabout. 

• For additional details. see USAIO, "Supporting Private 

Enterprise,"W\vw.usaid.goY/wh~t-we-do/economic--growth+ 

and-ttide/supporting-private-enterprise. 

'This iuthority ts detailed in Section 2~5(1){~of the Foreign 

Assistance Ad. 

10 This figure includes Siilaries. benefits, travel. contractual 

services, and other general administr-atlve expenses. Source: 

OP!C, Annual Report 2013 {Washington: OPIC. 2013). 

11 Th.ese administrative budget estimates assume that OPIC's 

current cost structure would remain unchanged This is li\:cly 

a conservative auumption given tht- potential for greater 

~fficienciesdu~ to economies of scale. 

u eporting practices include performance metrics and 

requirements that arc regularly and prominently included in 

organizations· annual reports ot development impact reports. 

Ufhis would include the time required for each stage of 

hansaction process. This informationwoukl be reported at the 

project and portfolio levet. 

t•This limit \s outlined in Sedion 235(a)(1)of the Foreign 

Assistance Act of 1961. The relevant language was last revi~ 

thro\lgh Se<tion 581{0\) of tht Foreign Operations. Export 

Financing, and Related Programs Appropriations Act.l998 

(Public Law 10Hl8~ 

lS This figuTe is calculated using the US Bureau of Labor 

t<~t stics CPI C~lcu1<ttor toot which is <~v<til~ble ~t http:/ f<b,t.l. 

bls.gov/cgi-binjcpicalc.pl. The adjustment could~ based off of 

alternative rnethodo'ogies as well. such <~s the cost of capit.ll. 

For more information please contact Beth Schwanke, CGD senior policy counsel, at bschwanlte@cgdev.org . 

...