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Fox News: Foreign Aid Creates Dangerous Co-Dependency

The government program that Americans most want to slash is foreign aid, in part because of a common misperception, that the U.S. spends much more than it actually does. Now Senator Tom Coburn (R-Okla.) is calling attention to a seeming incongruity in public policy: We are borrowing from some of the countries that are recipients of foreign aid. While that might seem strange on the surface, a closer look reveals that it's perfectly logical. Here's a report from Fox News on the subject:

U.S. Offers Foreign Aid to Countries Holding Billions in Treasury Securities, The United States is providing hundreds of millions of dollars of foreign aid to countries that it borrows billions from, according to a report by Congress's research arm.
The Congressional Research Service released a report last month, a copy of which Fox News exclusively obtained, showing that in fiscal year 2010, the latest year that data was available, the U.S. handed out a total of $1.4 billion to 16 foreign countries that held at least $10 billion in Treasury securities, including China ($27.2 million), Brazil ($25 million), Russia ($71.5 million), India ($126.6 million), Mexico ($316.7 million) and Egypt ($255.7 million). ...
The foreign aid to these countries is earmarked for a variety of causes, such as HIV/AIDs prevention, combating weapons of mass destruction, fighting tuberculosis, and counterterrorism efforts.
Sen. Tom Coburn, R-Okla., who requested the report, sounded the alarm. "Borrowing money from countries who receive our aid is dangerous for both the donor and recipient," Coburn said in a written statement. "If countries can afford to buy our debt, perhaps they can afford to fund assistance programs on their own.
"At the same time, when we borrow from countries we are supposedly helping to develop, we put off hard budget choices here at home," he added. "The status quo creates co-dependency and financial risk at home and abroad." ...
Notice the amount they are talking about, "hundreds of millions of dollars of foreign aid," -- a total of $1.4 billion is given for 16 countries. That's a drop in the bucket for the federal debt -- it makes no practical difference to the overall budget picture whatsoever. Thus, cutting this amount from the budget would not do much to help with the budget problem -- the benefits are minuscule.

The other benefit mentioned -- the end of the "co-dependency" between foreign aid and financing the deficit -- is hard to understand. This isn't a tit-for-tat situation where China and other countries buy our debt in return for foreign aid. They are purchasing T-Bills because they believe this is the safest reserve currency to have on hand, and ending aid won't change that at all. There is no co-dependency -- these countries will still be willing to lend us money foreign aid or not.

But what are the potential costs?

One thing to note is that if we withdraw foreign aid for things like fighting diseases and terrorism, there's no guarantee that these countries will do this on their own. Thus, these important efforts may be lost altogether and that could be very costly.

More important, however, is the fact that much of our foreign aid is political, not economic. We use it to get support for international initiatives that are important to us as a nation. We can hope that if we withdraw aid, the support will continue, but that hope is unlikely to be realized in many cases. The "hundreds of millions of dollars" we save may cost us far more than that in terms of lost momentum on important international initiatives.

Republicans should realize, for example, that cutting aid may hurt one of their top priorities, the fight against terrorism. And, while this may not be as important to Republicans as it is to Democrats, the fight against HIV/Aids, tuberculosis, malaria, and other diseases, along with other health and social initiatives, would be hurt as well.

The benefits of reducing aid are low, and the costs potentially high. I don't like that our "friends" have to be bribed in this way to get out support, but I also see no reason to endanger international initiatives and cooperation when there is so little to be gained.

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