THE BLOG

Reducing the Deficit Through Foreign Aid

A few days ago, at a Las Vegas-based conference sponsored by the U.S. Global Leadership Coalition, former Pennsylvania governor and Department of Homeland Security Secretary Tom Ridge summed up a key challenge we face in the development community. As reported by the Las Vegas Sun, in making a strong argument for investments in foreign aid, Ridge observed: "Good times or bad there will always be some political resistance to foreign aid: 'Oh my God, we have all these problems here, how can we spend that money overseas?'"

Indeed, the shifting tides of public opinion pose a challenge. A February poll by the Pew Research Center suggests almost half of Americans agree on cutting the international affairs budget, with 48 percent agreeing specifically on cutting "foreign aid." And yet, a Gallup poll conducted during the same month finds that 57 percent of Americans consider international trade to be an opportunity for growth.

The fact is that aid and trade are inextricably linked. And amid recent Congressional Budget Office estimates showing that the federal deficit has decreased, it's worth pointing out that investments in these areas present a rare opportunity for advancing this economic momentum.

It's fairly well known that foreign aid comprises less than 1% of the federal budget, and that cuts to foreign aid would have little impact on deficit reduction. But, under the right circumstances, foreign assistance can in fact go further, contributing to deficit reduction, greater mobility, and improved global security.

For sixty years, aid has been a smart investment for the U.S. Long-term U.S. prosperity and security are closely tied to economic growth in developing countries. Of our top 20 trading partners, 18 were once major recipients of U.S. aid, including South Korea, Taiwan and Poland. Facing the manifold security threats around the world would be a far lonelier business were it not for the support of these former aid recipients, many of which are now important markets for U.S. private direct investment and exports.

But we need not look to the long term to see returns on our aid dollars.

One often overlooked federal agency is the Overseas Private Investment Corporation (OPIC) which, since 1971, has served as the U.S. government's development finance institution. OPIC works with the U.S. private sector and ensures investment in areas where the market fails to invest appropriately. These programs help create and sustain jobs, and build new markets for U.S. goods and services. Since its creation, OPIC has supported more than $200 billion of investment in developing markets - at no cost to the U.S. taxpayer. And in fact, OPIC has returned money to the U.S. Treasury for 35 consecutive years, and has already reduced the deficit by almost $2 billion over the past five years.

My own organization, Global Communities, works with OPIC in the Middle East and North Africa. With loan guarantees from OPIC, we partner with local banks, which are incentivized to lend funds to entrepreneurs and small and medium enterprises to help create jobs, stimulate home ownership and diversify economies - all key ingredients to creating stronger economies and more stable countries. For example, in response to the Arab Spring, and in partnership with OPIC and the U.S. Agency for International Development (USAID), we launched a loan guarantee facility in Jordan. At a very low cost, this facility supports local banks in mobilizing local capital to support traditionally underserved small and medium sized businesses in the Middle East, enabling them to grow and create jobs.

Providing foreign aid means making a long-term investment in developing our aid partners, which results in both trade and security benefits for the U.S. And, as the OPIC model shows, private sector-led assistance has a multiple bottom line, contributing to deficit reduction while having positive social impact. Here in the U.S., we should expand and improve our development finance capabilities so that private investment can be even more sharply focused upon key development sectors that will benefit both the U.S. and emerging economies.

Looking to OPIC as a prime example, I hope our leaders in Washington will seize this opportunity to further our economic progress and plan a more strategic approach toward foreign aid - an approach that capitalizes on the tremendous opportunities it presents. As we are already seeing, minimal investments can result in maximum returns for the U.S. and our friends abroad.

Subscribe to the World Post email.