Foreign Policy Budget Trends: A Thirty-Year Review
Released: 2006-06-20T00:00:00

Overview

There have been sharp debates over the past three decades in Congress and differencesbetween the executive and legislative branches on the appropriate level of funding for U.S. foreignpolicy programs. These debates are continuing in 2006 as Congress reviews the President's FY2007budget proposal.

The past 30 years have witnessed wide swings in the amounts of resources the United Stateshas committed to advancing foreign policy and national security interests, reflecting changes inglobal challenges faced by the United States. Efforts to promote peace in the Middle East, toconfront Soviet influence, especially in the developing world, to support new democracies in thepost-Cold War era, to fight poverty and disease affecting poor nations, to combat global terrorism,and to stabilize fragile or failed states have had a substantial impact on levels of foreign policyresources.

International affairs funding decisions, however, are influenced not only by overseasrequirements, but also by the overall U.S. budget environment and constraints that exist particularlyduring periods of deficits or when unforseen events demand reallocation of spending priorities. Congress and the executive branch have reduced foreign policy resources -- occasionally to a greaterextent than other sectors of the budget -- when fiscal austerity or domestic requirements weredeemed to be of greater importance. Likewise, during times of international crisis and especiallysince the terrorist attacks of September 11, 2001, international affairs spending has been one of themost rapidly increasing areas of the U.S. budget.

Foreign policy spending supports a variety of U.S. government programs and activities,including foreign economic and military assistance, contributions to international organizations andmultilateral financial institutions, diplomatic operations, public diplomacy, counter-terrorism andnarcotics initiatives, and export promotion.

This report serves as a resource for the annual congressional debate on foreign policyspending, providing context and a trend analysis of the past 30 years. It considers the full scope ofthe International Affairs Budget, or Budget Function 150, as foreign policy spending is designatedwithin the context of the Congressional Budget Resolution. It also illustrates spending trends of themajor components that make up Budget Function 150. Other relevant "snapshots" of internationalspending are also examined, including how foreign aid resources have been allocated across severalsub-categories and trends that are especially applicable to current funding priorities such asconfronting global health problems and increasing aid to Africa.

Data Scope and Sources

Unless otherwise noted, dollar figures are expressed as discretionary budget authority,representing the amount of funds Congress maintains direct control over through enactment ofannual appropriation bills. Data trends begin with FY1977 due to the consistency and availabilityof figures. While some data on Federal spending regarding outlays and mandatory programs areavailable prior to FY1977, OMB publishes discretionary budget authority figures only beginningwith FY1976. Because FY1976 was a 15 month "transition" year in which the beginning date of thefiscal year changed from July 1 to October 1, this analysis starts with FY1977 so that each yearcovers the same period of time.

In addition, beginning in FY1996 the data include foreign policy resources available for theState Department derived from fees collected through the Machine Readable Visa, Enhanced BorderSecurity/Visa Fraud, Expedited Passport, Commercial Service, Visa Fingerprint, Affidavit ofSupport, Diversity Lottery, Defense Trade Control, and International and Educational Exchangeprograms. Excluded are amounts for mandatory Foreign Service retirement programs, as well asresource flows of the Foreign Military Sales Trust Fund and other mandatory accounts that are notregulated through the appropriations process. Data also exclude funding for International MonetaryFund quota increases and for other IMF facilities, amounts that Congress has approved on fiveoccasions in the past 30 years. (1)

Each figure illustrates major events influencing sharp changes in foreign policy spendinglevels and identifies a few key budget trends over the past three decades. The discussion alsoreferences a baseline representing the 30-year annual average of spending that can be compared withactual amounts for any specific year, thereby providing a degree of context for assessing the currentbudget request. For the most part and unless otherwise noted, data are expressed in constant FY2006dollars taking into account the effects of inflation over time. Tables attached to the report as anappendix provide specific numbers used in the analysis, expressed in both current and constantterms.

Much of the data are drawn from the Office of Management and Budget's (OMB) annualHistorical Tables volume that accompanies each new budget request made by the Administration. Other sources, where appropriate, include the Department of State, the U.S. Agency for InternationalDevelopment (USAID), the Congressional Budget Office (CBO), and House and SenateAppropriations Committees. Constant dollar calculations are made by CRS.

Budget Scorekeeping Changes and Problems with Precise Analysis of Spending Trends

Following enactment of the Budget Enforcement Act of 1990, the United States beganapplying in FY1992 different procedures for appropriating funds for credit programs. Prior toFY1992, Congress would appropriate the full value of direct loans issued by the U.S. government. For commercial loans guaranteed by the United States, Congress placed annual limitations on thetotal amount of these guarantees, but was not required to appropriate any funds. Under the terms of"credit reform," Congress began in FY1992 to appropriate the subsidy value of both direct loansissued and loan guarantees backed by the government. In simple terms, the subsidy value, asdetermined by OMB, is an amount that represents the risk to the U.S. government in issuing orbacking the loan, plus the extent to which, if any, the loan carries a concessional interest rate belowmarket value. Accordingly, there are inherent problems with comparing trends before and afterFY1992 for any element of discretionary spending that includes credit programs.

Several credit programs operate within Budget Function 150: direct loans under ForeignMilitary Financing (FMF) and (prior to FY1999) P.L. 480 food programs; loan guarantees issued byUSAID; and direct loans and loan guarantees managed by the Export-Import Bank and the OverseasPrivate Investment Corporation. Two examples illustrate the mixed impact on appropriationrequirements of the "credit reform" policy changes that took effect for FY1992. In FY1997,Congress enacted a $60 million subsidy appropriation for FMF direct loans , an amount that allowedthe Defense Department to issue military aid loans with a total face value of $540 million. Prior toFY1992, Congress would have had to appropriate the full $540 million instead of the $60 millionsubsidy that backed the loans. On the other hand, in the case of a loan guarantee , Congressapproved in FY1997 a $3.5 million subsidy appropriation permitting USAID's Urban andEnvironmental Credit program to guarantee $29.4 million in loans. These represent loans issued bycommercial lenders for which the United States government guarantees repayment. Before FY1992,no appropriation would have been required. Thus, Congress appropriated in FY1997 $63.5 millionin support of these two programs, whereas budget rules that existed prior to the 1992 credit reformwould have required an appropriation of $540 million to implement these same two activities.

Because OMB has not adjusted its figures for pre-FY1992 credit programs, comparisonsbetween the two time periods cannot be totally precise. Nevertheless, an assessment of fundingtrends before and after FY1992 is still useful in identifying an illustrative pattern of spendingdecisions. While the application of post-credit reform procedures, on balance, probably tends tooverstate somewhat the degree of reductions in Function 150 spending during the mid-1990s, theextent of this overstatement does not appear to be sufficient to override the general conclusion thatcuts in the international affairs budget were substantial during that period. Comparison of theincreases in FY1999- FY2006 for Function 150 resources with pre-1992 levels face the samemethodological problems. For selected sub-categories of the international affairs budget, however,where no credit programs exist, such as for State Department and public diplomacy programs, thecredit reform changes have no effect on measuring and comparing discretionary spending.

International Affairs Discretionary Budget Authority

International Affairs discretionary budget authority, measured in real terms, has experiencedseveral cycles over the past three decades. There were periods of rapid growth followed immediatelyby sharp declines during the mid-1980s. After several years in the late 1980s and early 1990s ofrelative stable budget levels, amounts fell -- at first gradually, and then sharply -- through FY1997. The foreign policy budget rose slightly in FY1998 but significantly in FY1999 and FY2000compared to amounts during the mid-1990s. Growth in the Function 150 budget continuedfollowing the terrorist attacks of September 11, 2001, reaching by FY2004 the highest level offoreign affairs spending in three decades.

The early-to-mid 1980s were marked by a steady increase in foreign policy spending, largelythe result of rising amounts of security aid allocated for strategic purposes in Central America,Pakistan, and "military base rights countries" such as the Philippines. At the same time that growthin security aid peaked in FY1985, Congress approved two major supplementals: a $2.25 billioneconomic aid package for Israel, Egypt, and Jordan, and about $1 billion in famine relief for Africa. All of these factors combined to set foreign affairs discretionary budget authority at $38.96 billion,in FY2006 dollars, a level about 5% higher than the FY2006 amount.

Absent the unique combination of these international demands that spiked aid spending inFY1985, and with intensifying pressure in Washington to reduce the federal deficit, Function 150discretionary spending, like other federal spending, fell abruptly in FY1986, and declined further inthe next two years to a point more than 25% less than where the foreign policy budget had stood justthree years earlier.

The following period -- FY1988 through FY1993 -- marked a relatively stable level offoreign affairs budget authority, ranging in most years roughly between $28 and $29 billion annually,as calculated in FY2006 dollars. To a considerable extent, this steady period can be attributed toannually negotiated budget agreements between the Administration and Congress for majordiscretionary spending categories, one of which was international affairs. A small, temporaryupsurge occurred in FY1990/1991, primarily the result of a supplemental appropriation for aid toPanama and Nicaragua, additional costs associated with the Persian Gulf War, includingsupplemental assistance for Israel and Turkey, and added expenses for U.S. agencies operating inthe Gulf region.

Although the foreign affairs budget had been on a long downward trend since FY1985, thedrop in FY1994 was the first significant annual decrease in real terms since FY1988. The 3.8% realcut for FY1994 was followed by two years of increasingly larger reductions for foreign policyprograms. FY1995 discretionary budget authority dropped 5.5% below FY1994, followed by an11.3% cut in FY1996. Reductions continued for FY1997, although at a more modest 1.3% level.

This downward cycle reversed in FY1998, with international affairs budget authority risingby 4% in real terms over FY1997, followed by a far more significant rise -- 21.4% -- in foreignpolicy spending for FY1999. In addition to approving modest increases for programs throughout theFunction 150 account, Congress further agreed to nearly $1 billion for U.S. arrearage payments tovarious international organizations and multilateral development banks, about $1.5 billion forsecurity upgrades at American embassies and missions around the world following the embassybombings in Kenya and Tanzania, and large supplementals for Central American victims ofHurricane Mitch ($1 billion) and for Kosovo humanitarian aid relief ($1.1 billion). A similarly largesupplemental in FY2000 supporting a $1.8 billion one-time aid package in support of the WyeRiver/Middle East peace accord and about $1 billion for a Colombian counternarcotics program, plusrising budgets for a number of regular and continuing foreign affairs programs in FY2001 keptforeign policy spending at around $27.4 billion during the FY1999-2001 period, one-quarter higherthan the low point of FY1997.

The most defining change in U.S. foreign policy spending, however, came following theSeptember 11, 2001, terrorist attacks in the United States. Since 9/11 American foreign aid anddiplomatic efforts have taken on a more strategic sense of importance and have been cast frequentlyin terms of contributing to the global war on terrorism, including assistance to about 30 "front-line"states in the terrorism war -- countries that cooperate with the United States in the war on terrorismor face terrorist threats themselves. (2) Through a series of emergency supplemental appropriations, byFY2003 Congress had boosted the international affairs budget following the 9/11 attacks to $37.4billion, in real terms.

At roughly the same time that fighting terrorism became the leading concern of U.S. foreignpolicy, the Bush Administration announced other significant initiatives that have added to a growingforeign affairs budget. The Millennium Challenge Account (MCA) is a new aid delivery concept,authorized by Congress and established in early 2004, that is intended to concentrate significantlyhigher amounts of U.S. resources in a few low- and lower-middle income countries that havedemonstrated a strong commitment to political, economic, and social reforms. MCA funding hadbeen expected to grow to $5 billion annually by FY2006, although actual appropriations -- $1.77billion in FY2006 -- have been far more modest.

Addressing global health problems has further become a core U.S. aid objective in recentyears. Congress created a separate appropriation account for Child Survival and Health activitiesin the mid-1990s and increased funding for international HIV/AIDS and other infectious diseaseprograms. President Bush's announcement at his 2003 State of the Union message of a five-year,$15 billion effort to combat AIDS, malaria, and tuberculosis (Presidential Emergency Plan for AIDSRelief -- PEPFAR) has added greater emphasis to this primary foreign assistance objective andcontributed to higher international affairs spending.

Resources committed to fighting terrorism and rebuilding Afghanistan and Iraq, plus thelaunch of the MCA and PEPFAR initiatives pushed U.S. foreign policy spending in FY2004 to $53.8billion, in real terms, the highest level in over three decades. Even excluding the $18.45 billion forIraq reconstruction from the total, FY2004 remains one of the largest international affairs budgetsduring this period. Without the significant Iraq reconstruction appropriation of FY2004, the FY2005foreign affairs budget dropped back to $36.8 billion, although it represented an 11% increase forinternational activities other than Iraq. Another large emergency supplemental for FY2005 dealingwith other foreign crises -- tsunami disaster relief, a Palestinian aid package, conflict in the Darfurregion of Sudan, and accelerated Afghan reconstruction efforts -- pushed Budget Function 150 toits highest level (excluding Iraq) since FY1985.

As overall budget pressures increased in the 109th Congress and the unanticipated emergencyto address the victims and destruction of Hurricane Katrina, for the first time during the BushAdministration, Congress reduced -- by $2.1 billion or 6.4% -- the President's regular foreign policyrequest. Subsequently, however, Congress approved emergency supplemental spending of $4.25billion for Iraq, Afghanistan, and various humanitarian crises around the world. At $36.96 billion,the international affairs budget for FY2006 is one of the highest in three decades and is 21% higherthan the annual average over the past 30 years.

Figure 1. International Affairs Spending

KEY TRENDS

The $36.96 billion FY2006 foreign policy budget is the largest for all but four years during the past threedecades.

Spending in FY2006 is 21% higher than the $30.48 billion annual average level since 1977.

International affairs spending for FY2006 is nearly two-thirds higher than in FY1997, when the budget reached its lowest point in30 years.

The five foreign policy budgets since 9/11 represent the largest sum total of any period since 1977.

FY2004, which includes $18.4 billion for Iraq reconstruction, was by far the largest budget in 30 years.

Due to embassy security and Central American disaster aid supplementals, spending surged by 21% in FY1999 from the previousyear, the largest increase in a decade.

Foreign policy resources declined steadily for six years following the end of the Cold War.

Budget reduction pressures pushed foreign policy and most Federal resources down sharply during the late1980s.

Large Middle East and Africa aid supplementals, coupled with continued growth of security assistance, pushed the FY1985 foreignpolicy budget to the highest level, except for FY2004, over the 30 year period.

Spending grew during the early 1980s largely due to increasing security aid for Central America and countries that granted the U.S.military base access.

International Affairs Budget as a Percent of Total U.S. Discretionary Funds

Another way of analyzing trends in international affairs resources is to drawrelationships between foreign policy spending and overall funding for total federaldiscretionary programs. This is relevant especially for the present debate overbudgetary priority-setting decisions since it is within the roughly $840 billionnon-emergency discretionary budget for FY2006 that international affairsrequirements must compete.

One of the most striking differences between measuring the internationalaffairs budget as a percent of total federal discretionary spending (shown in Figure2) or as the level of total dollars appropriated (Figure 1) is the trend for each inrecent years. Although the amount of spending for international activities has grownsignificantly since September 11, compared to changes in the overall size of thefederal budget, the share allocated for foreign policy programs has declined (with theexception of FY2004 and the $18.45 billion supplemental for Iraq). The estimatedlevel for FY2006 is 3.41%, the lowest level for any year in the last three decades andabout one-eighth less than the 3.96% annual average since FY1977. If, however, the"surge" in spending for Iraq in FY2004 is folded into the entire post-9/11 period, theannual average of the past four years equals the historic 3.96% average for theinternational affairs account.

This recent trend, which is somewhat counter-intuitive, results from evenlarger increases in U.S. government spending in non-international sectors, especiallyfor defense, homeland security, and domestic disaster relief. Defense spending,which accounted for roughly half the discretionary budget authority prior to 9/11,grew to more than 54% by FY2004. What the United States now defines as"homeland security" spending, a category that did not exist prior to 9/11, has risenby about one-third. A series of emergency supplementals -- totaling about $82.1billion -- for relief of Hurricane Katrina victims pushed shares for other budgetactivities, including Function 150, down for FY2005 and FY2006.

For the period prior to the terrorist attacks of September 11, the patterns inFigures 1 and 2 for foreign policy spending are similar, although the degree of sharpgrowth and decline are muted somewhat when measuring discretionary BA as a %of total budget authority. One of the most notable trends is the substantial continuityin the amount of the budget authority devoted to international affairs during an eightyear period, FY1988 to FY1995. Although dollar amounts for foreign affairs mayhave risen somewhat in FY1991 due to the Gulf War, and fallen through the nextfour years, Function 150's proportion of total discretionary budget authority deviatedonly slightly from a sustained level of 4% annually. In short, even though the foreignpolicy budget fell steadily in the early- to mid-1990s, it declined at roughly the samepace as the total for all other programs funded through discretionary spending. Butin FY1996, this 4% share that had been sustained for eight years ended, and Function150's proportion fell to 3.63%. In FY1997 and FY1998 it fell further to about 3.6%of discretionary BA. Thus, at a time when Congress and the President had reducedtotal discretionary budget authority, resources for foreign policy programs declinedfaster than other federal programs.

Figure 2. International Affairs Budget as a % of Total U.S. BudgetAuthority

KEY TRENDS

The FY2006 foreign policy budget's share of total Federal discretionary budget authority is 3.41%, substantially smaller than the30 year annual average of 3.96%.

Including the Iraq reconstruction supplemental, the FY2004 5.54% share of total spending was the largest for Budget Function 150in three decades.

Despite the significant increases in foreign policy resources since September 11, except for FY2004, the share of Function 150 oftotal U.S. discretionary spending has declined. This is largely due to a more rapid rise in defense and homeland security appropriations, and, in FY2005and FY2006, relief for victims of Hurricane Katrina.

With the exception of the years following two large "spikes" associated with the Camp David/Middle East peace accord (FY1979)and Iraq reconstruction (FY2004), the single-year cut for foreign policy spending of 11.3% in FY1996 was the largest in three decades and nearly six timeslarger than cuts for the rest of the budget.

Foreign Assistance Component of the International Affairs Budget

The largest single element of the foreign policy budget supports a broad rangeof development, humanitarian, security/economic, and military assistance programs. In most years, foreign aid makes up about two-thirds of Budget Function 150. (3)

With such a large portion of the international affairs budget supportingforeign assistance, the patterns and trends for foreign aid are quite similar to theentire Function 150. Following the September 11 terrorist attacks, reconstructioninitiatives in Afghanistan and Iraq, plus more general assistance to countriessupporting U.S. efforts in the global war on terror, have pushed foreign aid spendinglevels up significantly. During this same period, President Bush launched two majoraid initiatives: the President's Emergency Plan for AIDS Relief (PEPFAR), a fiveyear, $15 billion activity; and the Millennium Challenge Account, anticipated togrow to a $5 billion annual program concentrating on countries that have performedwell on governance, economic, and social measures. Combined with responses tounanticipated international emergencies in recent years, including the Indian Oceantsunami and conflict in the Darfur region of Sudan, the foreign aid budget has grown from $18.4 billion just prior to 9/11 to $25.2 in FY2006 (constant dollars), more thana one-third increase in only four years. FY2004 was the largest year, post-9/11, at$43.3 billion, although this included an unusually large $18.45 billion supplementalfor Iraq.

Prior to 9/11, foreign aid spending had already been growing since FY1997when funding hit its lowest point over the past 30 years. While resources forcontinuing foreign aid programs rose modestly during the period, levels were pushedhigher -- nearly 21% between FY1997 and FY2001 -- by a series of new initiativesand humanitarian crises. Considerable amounts were programmed for the WyeRiver/ Middle East peace effort; the United States cleared most of its accumulatedarrears owed to the U.N. and World Bank; the Clinton Administration joined otherdonors in expanding debt relief for the world's poorest nations; and the BushAdministration launched a major counter-narcotics effort in Colombia -- that laterevolved into a program for the entire region -- the Andean Counterdrug Initiative(ACI). The United States also responded to several humanitarian emergencies,including those for the victims of Hurricane Mitch in Central America and theviolence in Kosovo.

The low point in foreign aid spending -- FY1997 -- came following a steadydecline over a decade-long period that began with passage in 1985 of theGramm-Rudman-Hollings deficit reduction act. The foreign aid budget fell by nearly24% (real terms) between FY1985 and FY1986, and continued to decline insubsequent years as Congress and the President worked towards reducingdiscretionary spending. With the fall of the Berlin Wall, the collapse of the SovietUnion, and the end of the Cold War, much of the rationale used for supporting U.S.foreign assistance during the previous four decades disappeared. With the exceptionof FY1991 when Congress approved additional resources for countries affected bythe Persian Gulf War, the foreign aid budget continued its steady decline throughFY1997. By that point, foreign assistance resources, in real terms, stood 54% belowlevels of a decade earlier.

The first term of the Reagan Administration saw a steady, large increase inforeign aid spending culminating in FY1985 when resources reached $33 billion, thethird highest single year level in the past three decades. Growth occurred not becauseof policy consensus over the importance of foreign assistance, but rather because ofsignificant policy differences between the executive and legislative branches. Earlyin the Reagan Administration, officials attempted to reduce multilateral developmentcontributions, while at the same time increasing strategic types of foreign assistance. Congress blocked efforts to cut multilateral and other economic aid, but alsoapproved much of the funds sought by the executive for security assistance programsin Central America and aid to countries that provided U.S. access to military bases. The peak year of FY1985 included a large supplemental package for Israel, Egypt,and Jordan, payment of arrears owed to the World Bank, and humanitarian relief forvictims of a severe famine in Africa.

Figure 3. Foreign Aid Discretionary Budget Authority

KEY TRENDS

Foreign aid spending -- the combined resources for development, humanitarian, security/ economic, and military assistance -- hasgrown significantly since 9/11, augmented by the launch of two major aid initiatives for HIV/AIDS and the Millennium ChallengeAccount.

The $25.2 billion total for FY2006 is about 9% higher than the $23.1 billion annual average since FY1977.

FY2004, including Iraq reconstruction, was the highest foreign aid budget in 30 years.

Foreign aid spending declined substantially following the collapse of the Soviet Union and the end of the Cold War. BetweenFY1990 and FY1997, funding for foreign assistance fell by 31%, to a 30-year low of $15.2 billion.

During the first term of the Reagan Administration, foreign aid grew at a steady pace. Larger contributions to the World Bank,increased assistance to Central America and countries providing the U.S. with military base access, famine relief in Africa, and an economic stabilizationpackage for Israel culminated in FY1985 with the third largest foreign aid budget in 30 years.

The following year, Congress enacted the Gramm-Rudman-Hollings deficit reduction act and foreign assistance, like most otherfederal spending programs, fell sharply.

The one-year costs of security assistance in support of the Camp David Accord pushed foreign aid in FY1979 to the highest point,other than FY2004.

Breaking Down Bilateral Foreign Aid Spending Patterns

As noted above, foreign assistance includes a wide-breadth of programmatictools utilized in support of various, and in some cases, divergent U.S. foreign policyobjectives. Spending patterns for different components of foreign aid have variedconsiderably over the past three decades, as illustrated in the charts that follow.

Although there is no precise definition of major bilateral foreign aidcategories, this discussion divides programs into four clusters: 1) "core" developmentassistance that generally employs long-term poverty reduction and economic growthstrategies; 2) humanitarian relief activities that aim to save lives and provide basicservices immediately following a natural or man-made disaster, or support the needsof refugee populations over an extended length of time; 3) political/securityeconomic aid, intended to help bolster the economies of countries of special strategicinterest to the United States or nations undergoing transitions to democratic andmarket economic systems, such as the states of the former Soviet Union; and 4)military assistance that helps American friends and allies strengthen their defensecapabilities.

"Core" Bilateral Development Assistance

The growth in spending since FY2000 on "core" bilateral developmentassistance programs represents perhaps the most dramatic increase of any componentof the international affairs budget. (4) The $6.9 billion total for FY2006 is the largest in30 years and more than three times larger, in real terms, than the $2.13 billion budgetfor FY2000. Current spending is also well more than double the annual averagefunding level over the past three decades.

The most important components of for this sizable increase have been thelaunching of two new bilateral development aid initiatives by the BushAdministration. The Millennium Challenge Account (MCA), promising toeventually total $5 billion annually, and the President's Emergency Plan for AIDSRelief (PEPFAR), adding $10 billion in new assistance over five years, each beganin FY2004 and has grown in subsequent years. Annual increases over the previousyear level of spending on bilateral development aid have risen, in real terms by 44%in FY2004, 21% in FY2005, and 13.5% in FY2006.

While the MCA and PEPFAR contributed significantly to "core" bilateraldevelopment assistance spending, funds were rising prior to FY2004. Congressbegan increasing the President's request for both the Development Assistance Fundand the Child Survival and Health account in FY2001, adding resources for suchprograms supporting basic education, HIV/AIDS, malaria, and tuberculosis. Following the September 11, 2001 terrorist attacks, the Administration addedDevelopment, along with Defense and Diplomacy, as the three pillars of U.S.national security, which also assigned greater importance to bilateral developmentassistance and its role in the global war on terrorism. Annual increases over theprevious year, FY2001-FY2003, totaled 19%, 9%, and 24%, respectively.

Prior to the most recent surge in bilateral development aid spending, levelsfor much of the period beginning in FY1977 remained relatively stable. In realterms, development assistance resources experienced small increases in the late1970s when the Carter Administration made Africa an aid priority and during theearly 1980s when all components of U.S. foreign aid rose during the first term of theReagan Administration. After falling to $2.6 billion in FY1986, development aidbudgets remained steady, growing somewhat to $3 billion by FY1991as Congresssought to double U.S. development assistance to Africa over a period of years. Withthe end of the Cold War and shifting congressional budget priorities in themid-1990s, however, development aid, like most other categories of Americanforeign aid, declined sharply, dropping to $2.03 billion (FY2006 dollars) by FY1997,the lowest point during the past 30 years.

Figure 4. "Core" Bilateral Development Assistance Spending

KEY TRENDS

"Core" bilateral development assistance funding accounts -- currently consisting of the Development Assistance Fund, ChildSurvival/Health, Global AIDS Initiative, and the Millennium Challenge Account -- have increased by more than 3 times sinceFY2000.

The FY2006 level of $6.9 billion is the largest during the past 30 years, and is well more than twice the size of the annual averageover this three decade period.

Development aid spending fell sharply following the end of the Cold War, reaching a 30-year low point in FY1997 at $2.03billion.

For a 13 year period beginning in FY1977, development assistance resources remained relatively stable, ranging in several of theseyears between $2.7 billion and $2.8 billion.

Humanitarian Assistance(5)

The United States, consistently a large contributor to international disasterand humanitarian relief operations, has spent unprecedented amounts on globalhumanitarian emergencies in recent years. The confluence of several naturaldisasters -- Hurricane Mitch which struck Central America in late 1998, drought inEthiopia and elsewhere in Africa since 2002, the Indian Ocean tsunami which struckin December 2004, and the October 2005 earthquake in Pakistan -- plus continuingconflicts around the world -- Kosovo (1999), Liberia (until 2003), Afghanistan(2002), pre-Iraq war (2003), Haiti (2004), and Darfur (since 2003) combined to pushforeign aid spending on humanitarian crises to their highest levels in threedecades. (6) The $3.83 billion humanitarian aid budget for FY2003 was the largest since FY1977,and slightly higher than the $3.73 billion funding level for FY2005. Resources forFY2006 ($3 billion) are lower than the recent peak years, although they remain oneof the largest totals over the past 30 years.

In only two years prior to FY1999 have humanitarian aid funding levels comeclose to recent totals. For FY1980-FY1981, large supplementals for Indochina andSoviet/East European refugee resettlements brought amounts to around $2.8 billion. In FY1985 humanitarian relief spending exceeded $2.75 billion, largely due to asubstantial U.S. response to a major famine in Africa. Assistance to populationsaffected by the Gulf War in 1991 and to victims of conflict in Bosnia, Haiti, andRwanda in 1994 represented other "surge" years for humanitarian aid budgets.

Figure 5. Humanitarian Assistance Spending

KEY TRENDS

Due to the unforeseen and unpredictable nature of events requiring humanitarian relief, spending patternshave been highly erratic over the past 30 years.

In general, however, resources committed for food, disaster, and refugee support have been growing for thepast two decades. Amounts have been especially large in several years since FY1999.

FY2006 appropriations for humanitarian aid programs, at $3 billion, fall below recent years -- FY1999,FY2003, and FY2005.

For the entire 30-year period, FY2006 spending on humanitarian relief operations is nearly 30% higher thanthe $2.32 billion annual average, but only slightly larger than the annual average since FY1999.

Political/Security Economic Assistance(7)

The United States utilizes several types of economic assistance in pursuit ofstrategic objectives that do not have as their primary goal long-term economicgrowth, poverty reduction, or humanitarian relief. These latter purposes may be ofsecondary importance in providing strategic assistance, but nevertheless, the ways inwhich either type of aid is delivered may be the same. In general, the specificrationale of why the assistance is provided determines whether it falls into primarilydevelopment/humanitarian aid accounts or into another set ofpolitical/security-related assistance programs.

The primary channel for transferring political/security economic assistanceis through the Economic Support Fund (ESF), an account previously referred to asSecurity Supporting Assistance and Defense Support. ESF resources have been usedin support of Middle East peace efforts since Camp David in FY1979, for helping theU.S. gain access to military bases in the Philippines and elsewhere during the 1980s,for backing Central American governments during conflicts in the mid-1980s,assisting Panama and Nicaragua stabilize following government changes in 1990, andmost recently, supporting a group of about 30 nations regarded as the "front-line"states in the Global War on Terror (GWOT). Other types of political/securityeconomic programs include those authorized in the early 1990s for helping thecountries of Eastern Europe and the former Soviet Union transition to democratic andmarket economic states. Counter-narcotics efforts, which became a major initiativein Colombia and elsewhere in the Andean region, non-proliferation programs, andanti-terrorism activities are other types of political/security economic assistance. Thelarge amount of reconstruction assistance provided to Iraq in FY2003, FY2004, andFY2006 also falls within this category.

Budget "spikes" for political/security economic assistance tend to occurfollowing major new international events, including peace agreements and thetermination of hostilities in conflict-stricken areas, several of which are noted aboveand illustrated in Figure 6 below. Continuing, year-to-year political/securityeconomic aid, on the other hand, has remained more steady than other types of U.S.foreign aid, ranging in "non-peak" years between $4 billion and $6 billion, in realterms.

The current (FY2006) $6.9 billion political/security assistance budget is notlarge compared with levels approved in FY2003 and FY2004, but is the sixth highestamount during the past 30 years. FY2006 levels are 4.5% larger than the 30-yearannual average, although if Iraq reconstruction funds are excluded, FY2006 is nearly10% below the three decade annual average.

Figure 6. Political/Security Economic Aid Spending

KEY TRENDS

Political/security-related economic programs generally focus on countries or initiatives of strategic importance to the United States,and funding levels tend to "spike" due to new circumstances, including peace agreements or post-conflict aid.

FY2006 spending on political/security economic aid, at $6.9 billion, is lower than FY2003 and FY2004, but 4.5% larger than the30-year annual average.

Peak years for political/security economic aid spending coincide with specific events: Iraq reconstruction (FY2004 and FY2006);pre-Iraq war aid for "front-line" states in the Global War on Terror (FY2003); the Wye River/Middle East Peace Accord (FY2000); large supplementalfor Russia and other states of the former Soviet Union (FY1993); government changes in Panama and Nicaragua (FY1990); a large supplemental for Israel,Egypt, and Jordan (FY1985); and the Camp David Peace Accord (FY1979).

Other than these peak years, political/security economic aid resources have remained relatively stable at between $4 billion and $6billion per year.

Military Assistance(8)

Through its military assistance programs, the United States provides friendsand allies with defense equipment and training, as well as contributing to non-U.N.peacekeeping operations. Although low by historical trends, military aid budgetsduring the post-September 11 period have been higher than at any time since the endof the Cold War. Nevertheless, amounts for FY2006 -- $4.9 billion -- are nearly 30%less than the annual average since FY1977.

Military assistance spending in FY2005 and FY2006 would have beensignificantly higher if not for an Administration decision, backed by Congress, tofund with Defense Department resources $11 billion in programs to train and equipAfghan and Iraqi security forces. In the previous three fiscal years, such activitieshad been financed through the Foreign Military Financing (FMF) program and theIraq Relief and Reconstruction Fund (IRRF), both of which fall within theinternational affairs budget function. Although this represents a substantial shiftfrom traditional State Department policy and budgetary authority over militaryassistance, the Administration says that it intends to continue this financing structurein future years.

Levels of military assistance declined steadily in the period following the endof the Cold War as the United States ended most defense support to countries otherthan Israel, Egypt, and a few East European/former Soviet states. This reduction,however, had actually begun in FY1987 when countries such as Spain and SouthKorea "graduated" as military aid recipients.

The early part of the 1980s witnessed a steady increase in military assistancewhich became a primary tool for advancing the "Reagan Doctrine" policy ofsupporting anti-communist insurgents around the world. This included a sharp risein military support to El Salvador and Honduras in Central America, to thePhilippines and other nations providing the United States access to overseas militarybases, and to Pakistan, a front-line state on the border with Soviet-occupiedAfghanistan.

Since the signing of the Camp David Peace Accord in 1978, promotingMiddle East peace has been a cornerstone of U.S. military assistance. In FY1979,military aid reached its 30 year peak of $15.2 billion (in real terms), largely becauseof a substantial military support package offered to Israel and Egypt as part of thenegotiations. From that point, these two countries have accounted for roughlytwo-thirds of total U.S. military assistance.

Figure 7. Military Aid Spending

KEY TRENDS

Even more so than political/security-related economic assistance,military aid focuses on countries and international initiatives of strategic importance to theUnited States.

The military aid budget for FY2006, at $4.9 billion, is the sixth lowestspending level in the past three decades. It falls nearly 30% below the annual average for thisperiod.

A significant factor as to why military assistance has not been higherin the post-9/11 period, and especially for FY2005 and FY2006, is the Administration'sdecision to shift funds to train and equip security forces in Iraq and Afghanistan from theinternational affairs budget to the defense budget. In these two years, Congress appropriated$11 billion for such purposes managed by the Defense Department, which in previous yearshad been funded under State Department accounts.

Military assistance spending in FY2003 and FY2004 was the highestsince the end of the Cold War.

During the first term of the Reagan Administration military aidresources more than doubled with significant increases for friends in Central America,countries that provided military base access to the United States, Israel and Egypt, Greeceand Turkey, Pakistan, and other strategic partners under the "ReaganDoctrine."

FY1979, the year following the signing of the Camp David PeaceAccord, represented the highest level of military aid funding during the past 30years.

Foreign Assistance to Africa

Over the past three decades, countries in sub-Saharan Africa have received$72.2 billion (constant FY2006 dollars) in economic and military assistance from theUnited States. While aid to the continent is sizable, Africa has never been theprimary target of American resources, especially compared with the Middle Eastthroughout the entire period and Asia and Latin America during the 1980s. In 2005,however, considerable international attention focused on African development issues,leading to appeals to sharply increase assistance for poverty reduction, post-conflictstabilization, health needs, and other challenges facing the continent.

At the G-8 Summit in July 2005, the Bush Administration announced apledge to double U.S. bilateral assistance to Africa from $4.3 billion in 2004 to $8.6billion by 2010. (9) If achieved, this would accelerate what has alreadybeen an increasing emphasis and priority of American foreign aid resources to theregion in recent years. Already, U.S. assistance to Africa has more than doubledsince FY2001, rising from $2.4 billion to $5.9 billion in FY2006, and more thantripled since a $1.6 billion total in FY1997.

The sizable increase in U.S. assistance to Africa since the late 1990s has beenthe result of three factors. First, sub-Saharan Africa has been a principal beneficiaryof several new American foreign aid initiatives in recent years. A series of relativelymodest, but targeted aid activities launched during the Bush Administration haveincluded the Africa Education Initiative ($200 million over five years, beginning inFY2001 (10) ), the Congo Basin Forest Partnership ($53million, FY2002-FY2005), the Initiative to End Hunger in Africa (2002), Trade forAfrican Development and Enterprise Initiative (2001), Women's Justice andEmpowerment in Africa, among others. Selected African nations will also benefitfrom the Millennium Challenge Account (MCA) which began operations in FY2004. Madagascar, Benin, and Cape Verde are among the eight countries selected thus farto receive multi-year grants in recognition of sound economic and governanceperformance. A $1.2 billion, five-year anti-malaria program, launched in FY2006,is also expected to provide substantial amounts of additional assistance to the regionthrough FY2010.

The President's Emergency Plan for AIDS Relief (PEPFAR), however, hasbeen the most expansive of the Bush Administration foreign aid policies benefittingAfrica. Begun in FY2004, much of the five-year, $15 billion program will assist 15"focus" countries that face the most serious threats from HIV/AIDS. Twelve of thefocus nations are in sub-Saharan Africa, receiving over $2.2 billion in the first threeyears of the initiative for the prevention and treatment of the AIDS pandemic. Likethe MCA and malaria programs, PEPFAR resources are expected to rise in the nearterm, providing additional amounts of aid to the region.

A second factor in the growing volume of U.S. assistance to Africa has beenthe response to a number of humanitarian crises, including food shortages in Ethiopiaand elsewhere, and conflict in Liberia and Sudan. Food aid to countries in Africagrew from an average of about $400 million annually in the late 1990s throughFY2002 to an annual average of about $1.1 billion, FY2003-FY2005.

A third reason for the rising level of assistance to Africa in recent years hasbeen the growing size of contributions to various peacekeeping operations in theregion. Funding for activities in Sierra Leone, the Democratic Republic of Congo,Liberia, Sudan/Darfur, and Cote d'Ivoire, and efforts to better train and equippeacekeeping forces of the African Union have been especially large. U.S. costs insupport of these missions have averaged about $835 million annually beginning inFY2002, or about five times the annual average of the four previous years.

U.S. assistance to Africa fell sharply in the mid-1990s following the end ofsupport for a U.N. peacekeeping operation in Somalia, cuts in bilateral developmentassistance, and a temporary suspension of contributions to the African DevelopmentBank and African Development Fund due to concerns over management issues at theinstitutions. The $1.6 billion total U.S. aid package to Africa in each of FY1996 andFY1997 was the lowest amount in real terms since FY1979.

During the 1980s, U.S. assistance to sub-Saharan Africa peaked in FY1985at $2.9 billion, largely due to a sizable food assistance supplemental responding toa major famine in the region, plus higher levels of security-related economicassistance (ESF) being programmed in African countries. Assistance, however, fellsharply the next two years as ESF transfers declined or were re-directed to other,more strategic areas of the world. Reflecting concern over the transfer of economicaid from Africa to other regions, in FY1988 Congress created a separateappropriation account for the region -- the Development Fund for Africa (DFA) -- sothat aid levels for Africa would be more clearly designated in spending bills. DFAresources grew from about $500 million to nearly $800 million by FY1993, beforebeginning to slide downward the next several years. Congress ended the separateDFA appropriation account in FY1996.

Figure 8. Africa Assistance

KEY TRENDS

The Bush Administration announced in July 2005 that the United States would double bilateral aid to Africa, increasing it from $4.3 billion in FY2004 to $8.6 billion by FY2010.

The $5.9 billion in U.S. aid to Africa estimated for FY2006 is the largest level in three decades and totals nearly three times the $2.2billion annual average since FY1977.

Humanitarian crises in Ethiopia, Liberia, Sudan, and elsewhere, large contributions to U.N. peacekeeping operations in Sierra Leone,Democratic Republic of Congo, Liberia, and Sudan/Darfur, and the launch of the President's Emergency Plan for AIDS Relief (PEPFAR) resulted insignificant increases in U.S. assistance to Africa since FY2002.

Reductions in development and food aid, coupled with a suspension of contributions to the African Development Bank and Fund(AfDB) pushed U.S. assistance to Africa in FY1996/97 to a near three-decade low.

Following a two-year sharp reduction in U.S. aid to Africa in the mid-1980s, Congress created in FY1988 a separate appropriationaccount -- the Development Fund for Africa -- to bring more clarity to funding decisions for the region.

Increasing demands for food due to famine conditions in Africa, plus the growing use of the security-related Economic Support Fund(ESF) pushed U.S. aid higher during the early 1980s.

State Department and Public Diplomacy

Besides foreign aid, the other major component of the international affairsbudget supports diplomacy and American engagement in the internationalcommunity. Roughly one-third of the Function 150 budget targets salaries andexpenses of the U.S. diplomatic corps; the construction, maintenance, and securityof American embassies around the world; educational and cultural exchanges,international broadcasting, and other aspects of public diplomacy; the costs of U.S.membership in the United Nations and other international organizations; andassessed contributions to U.N. peacekeeping operations. (11) In additionto appropriated funds, this category also includes beginning in FY1996 fees that theState Department collects for visa processing and other services. Over time, thesehave become a source of sizable amounts of resources for the Department, growingto an estimated level of nearly $1.2 billion in FY2006.

Over the past three decades, the funding level for the State Department andpublic diplomacy has reflected generally an upward trend. Although there have beena few brief periods of declining resources, appropriations continually climbed to theirhighest level in FY2006 of $12.2 billion. Even without the $1.3 billionsupplemental for U.S. embassy operations in Bagdad, FY2006 represents the secondlargest spending amount -- behind FY2005 -- for the State Department and publicdiplomacy in 30 years. The FY2006 total is more than 75% higher than the thirtyyear annual average of $6.9 billion.

From the outset of the George W. Bush Administration, then-Secretary ofState Colin Powell argued strongly within the executive branch and before Congressthat State Department resource needs had been neglected during the previous decadeand that significant increases were needed to improve technology and staffingchallenges. The Bush Administration's first budget saw a jump from $8.7 billion inFY2001 to $9.9 billion for FY2002 in State Department and public diplomacyspending. By FY2004, the $10.3 billion (excluding Iraq) was 18% higher, in realterms, than at the beginning of the Bush Administration.

Many of the spikes in funding for the State Department and public diplomacyover the past 30 years have been related to overseas security issues. Since theVietnam War, American embassies have increasingly been the targets of hostileaction. Terrorist attacks grew in number in the 1970s, the decade ending with thetaking of American hostages in Tehran in 1979. Similarly, in the early 1980s, theState Department recognized a greater need to tighten security after the 1983bombing of the U.S. Marine barracks in Beirut, Lebanon, and the bombing of theembassy annex in Beirut in 1984. In 1985, a report by the Advisory Panel onOverseas Security, headed by Admiral Bobby Inman, set new standards for securitymeasures at U.S. facilities around the world. In 1986 Congress provided an embassysupplemental appropriation to meet those standards, and State Department/publicdiplomacy resources grew to $6.7 billion, in real terms. Again in August 1998,another major attack occurred on U.S. embassies in Kenya and Tanzania. Later thatyear, Congress passed an emergency supplemental that sharply increased total StateDepartment spending to $8.94 billion.

The Clinton Administration generally believed in a multilateral approach tohandling international problems and sought an expansion of U.N. involvement ininternational peacekeeping. In 1994, the Administration requested supplementalfunding for U.N. peacekeeping to provide more help with Cyprus and Africanregional efforts, as well as Angola, Iraq, Yugoslavia, Somalia, Haiti, andMozambique. Congress appropriated $670 million for the peacekeepingsupplemental in 1994, more than doubling the international peacekeeping accountthat year. Overall this raised the State Department and public diplomacy budget to$7.9 billion (FY2006 dollars).

During this same period in the 1990s, both Congress and the Administrationstruggled to reduce the federal deficit. Some Members contended that, with the endof the Cold War, a peace dividend could be derived, and believed that foreign policyagency funding could be trimmed to help meet growing budget pressures. Reorganization of the international broadcasting entities, beginning in 1994, and laterthe consolidation of the foreign policy agencies into the Department of State inFY1999, reflected the mood in Congress to streamline these foreign policy agencies,thereby realizing some degree of budgetary savings. Reductions in broadcasting andeducational and cultural exchange programs were especially large during themid-1990s when funding for these programs fell by more than 30%, bringing the $6.3billion State Department/public diplomacy budget in FY1996 to a six-year low.

Figure 9. State Department & Public Diplomacy Spending

KEY TRENDS

Funding for State Department personnel, embassy security, public diplomacy, and dues for international organizations has increasedsteadily over the past three decades, peaking in FY2006 at $12.2 billion (constant dollars), including costs for a U.S. embassy operations inIraq.

Emphasis on State Department staffing and technology upgrades during the early Bush Administration pushed spending upwardfrom $7.8 billion in FY2000 to $9.5 billion by FY2003.

The bombings of U.S. embassies in Kenya and Tanzania (1998) and the Inman Report on embassy security standards (1985) ledto sizable supplemental spending.

During the mid-1990 decline in overall U.S. foreign policy spending, resources for international exchange programs and broadcastingfell by over 30%.

Significant contributions to UN peacekeeping operations, including Somalia, pushed funding for State Department and publicdiplomacy to $7.9 billion in FY1994, the highest level in 18 years.

Budget Data Appendix

Table 1. International Affairs Discretionary BudgetAuthority

($s - billions)

Sources: OMB, House and Senate Appropriations Committees, and CRScalculations. FY2006 includes supplemental appropriations and 1% rescission ofregular appropriations.

Table 2. International Affairs Budget As a % ofTotal Discretionary Budget Authority

Sources: Office of Management and Budget, Congressional Budget Office, and CRScalculations.

Table 3. Foreign Assistance Discretionary BudgetAuthority

($s - billions)

Sources: OMB, House and Senate Appropriations Committees, and CRScalculations. FY2006 includes supplemental appropriations and 1% rescission ofregular appropriations.

Table 4. "Core" Bilateral DevelopmentAssistance Discretionary Budget Authority

($s - billions)

Sources: Department of State, USAID, House and Senate AppropriationsCommittees, and CRS calculations. FY2006 includes supplemental appropriationsand 1% rescission of regular appropriations.

Table 5. Humanitarian Assistance DiscretionaryBudget Authority

($s - billions)

Sources: Department of State, USAID, House and Senate AppropriationsCommittees, and CRS calculations. FY2006 includes supplemental appropriationsand 1% rescission of regular appropriations.

Table 6. Political/Security Economic AidDiscretionary Budget Authority

($s - billions)

Sources: Department of State, House and Senate Appropriations Committees, andCRS calculations. FY2006 includes supplemental appropriations and 1% rescissionof regular appropriations.

Table 7. Military Assistance ProgramSize

($s - billions)

Sources: Department of State, House and Senate Appropriations Committees, andCRS calculations. FY2006 includes supplemental appropriations and 1% rescissionof regular appropriations.

Table 8. Africa Assistance

($s - billions)

Sources: Department of State, USAID, House and Senate AppropriationsCommittees, and CRS calculations. FY2006 includes supplemental appropriationsand 1% rescission of regular appropriations.

Table 9. State Department and Public DiplomacyBudget Authority and Fee Collections

($s - billions)

Sources: Department of State, House and Senate Appropriations Committees, andCRS calculations. FY2006 includes supplemental appropriations and 1% rescissionof regular appropriations. Beginning in FY1996, figures also include fees collectedby the State Department for Visa processing and other services.