Foreign Assistance

The Agency for International Development (AID) has slowly come to view private-sector development in the Third World as a high priority and now devotes significant resources to this goal. AID's ability to focus on this area is constrained by several factors, however, including competing priorities and a lack of staff expertise. AID's private-sector assistance has had mixed success, with best results obtained in supportive environments when enough resources and appropriate expertise were applied. AID has had difficulty creating self-sustaining institutions to deliver services after assistance ends. The future role of the agency in this area is uncertain. The nature and extent of AID's role, if any, in directly promoting U.S. trade and investment relations with developing countries must be defined relative to its other objectives and to other agencies' responsibilities.

GAO found that: (1) since 1981, AID has become committed to assisting developing countries move away from state-led economic models to private-sector economic models; (2) AID devoted nearly $1.3 billion or 25 percent of its fiscal year 1991 program funds to serve private-sector development programs; (3) private-sector program constraints included the need to address competing priorities, an inability to control allocations, a lack of private-sector specialists, and an agencywide lack of private-sector-oriented skills; (4) host country cooperation, the elimination of institutional barriers, sufficient resources, technical assistance, and staff expertise provided the most positive program results; (5) AID missions were supported by cash grants and technical assistance aimed at privatizing government-held enterprises, increasing competitiveness of indigenous businesses, and improving financial markets; (6) AID has not developed a specific model to replace development financing institutions in addressing the credit needs of underserved populations; (7) AID had difficulty in creating institutions that would continue to support private-sector growth when donor assistance ends; (8) increased AID attention to private-sector growth could detract attention from programs targeted for the poor; (9) private-sector development did not directly or indirectly benefit poor people; (10) AID private-sector programs advanced open markets where all firms had an opportunity to prosper; (11) AID lacked the ability to adequately advance U.S. business interests; and (12) reallocating funds, staff, and mission goals to advance direct U.S. business interests would likely detract from other AID initiatives and goals.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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