Agency for International Development Is Established

Date November 3, 1961

The Agency for International Development coordinated U.S. foreign assistance programs and expanded private-sector investments in developing countries. It brought to those countries both investment capital and American models of successful business practices.

Also known as AID; Executive Order 10973

Locale Washington, D.C.

Key Figures

• John F. Kennedy (1917-1963), president of the United States, 1961-1963
• Everett Dirksen (1896-1969), U.S. senator from Illinois, 1951-1969, and minority leader, 1959-1969
• Allen J. Ellender (1890-1972), U.S. senator from Louisiana, 1937-1972
• Harry F. Byrd (1887-1966), governor of Virginia, 1926-1930, and U.S. senator, 1933-1965
• Bourke B. Hickenlooper (1896-1971), governor of Iowa, 1943-1944, and U.S. senator, 1945-1969

Summary of Event

The Agency for International Development (AID) provided the framework for central coordination of U.S. foreign assistance programs. As a quasi-autonomous agency within the Department of State, AID symbolized the institutional consolidation of foreign assistance as a tool in U.S. foreign policy. AID provided the bureaucratic pivot for the apportionment and delivery of benefits under the Foreign Assistance Act of 1961 and for the containment of communism abroad.

Congress passed the Foreign Assistance Act (Public Law 195, 87th Congress) to promote the foreign policy, security, and general welfare of the United States, and to assist the less-developed areas of the world in achieving self-reliance and economic development. On the basis of the act and the recommendations of the presidential task force on foreign economic assistance, AID came into existence by Executive Order 10973 of November 3, 1961.

The creation of AID was a milestone in American foreign assistance, which began as a stopgap measure and gradually acquired institutional permanence as a tool of economic diplomacy. The earliest offer of U.S. foreign assistance was in 1778, under Article I of the Treaty of Alliance, by which the United States agreed to render assistance to France in a war with England. A recognizable framework of global assistance did not emerge until after World War II. President Harry S. Truman’s Truman Doctrine conditioned U.S. bilateral and multilateral assistance in the postwar era.

Prior to the establishment of AID, foreign assistance passed through multiple agencies established on the basis of postwar exigencies. These agencies included the Economic Cooperation Administration (1948), the Technical Cooperation Administration (1950), the Mutual Security Agency (1951), and the Foreign Operations Adminstration (1953). In 1955, the International Cooperation Administration (ICA) was established by Executive Order 10610 as a quasi-independent agency in the Department of State. In 1957, the Mutual Security Act authorized the Development Loan Fund (DLF), which became a corporation in 1958.

The creation of AID in 1961 underscored the transitory nature of its predecessors and brought stability to the programming and implementation of assistance. Congress abolished the ICA. Its functions, together with the DLF program, were inherited by AID. In 1962, AID assumed responsibility, in cooperation with the Department of Agriculture, for the Food for Peace program under the Agricultural Trade Development and Assistance Act (Public Law 480) of 1954. AID also consulted with other aid-providing agencies, including multilateral agencies, the Peace Corps, the Department of Defense, and the Export-Import Bank. AID’s Development Loan Committee included the chairman of the Export-Import Bank, so lending policies would be coordinated.

The act of 1961, much like the Act for International Development of 1950, responded to what President John F. Kennedy saw as a special moment in history by providing assistance to developing nations in their quest for self-reliance, economic growth, and political stability. Unlike previous instruments, however, the act deemphasized military assistance in favor of country-specific needs, long-range planning, self-help, and multilateral involvement in the developing countries.

The administrative structure of AID, based on recommendations of the presidential task force, departed significantly from previous arrangements. Four regional bureaus, headed by assistant administrators, were created for Latin America, Europe and Africa, the Near East and South Asia, and the Far East. The regional administrators worked in cooperation with mission directors and ambassadors in the beneficiary countries. A range of specialized offices and advisory groups provided depth and definition to programs.

The basic resources for assistance included development loans, grants and technical cooperation, supportive assistance, contingency funds, food, surplus government stockpiles of materials, and private-sector resources. AID’s priority shifted to long-term development assistance, although it continued to house the Office of Foreign Disaster Assistance (OFDA), including support for the Alliance for Progress, formed in 1961 to improve the quality of life in Latin America through loans, grants, and technical cooperation.

The premise for assistance remained fairly consistent over the years. U.S. policy requires beneficiaries of development assistance to show progress toward self-reliance or the capacity to reach that point. Program loans, which may cover payments for imports, appropriately strengthen private-sector efforts and governmental initiatives. Project loans cover specific capital projects from design to completion. Development assistance has been based on a recipient country’s ability to mobilize available resources, both domestic and external.

Development grants and technical cooperation provide specialist and other technical support and do not substitute for development loans. Generally, grants and technical cooperation have gone toward the development of education, agricultural extension, health service, sanitation, and general welfare. As with other programs, assistance is based on the strategic interests of the United States, including the impact of aid on the domestic economy. AID will consider whether a country has alternative sources of assistance. Developing nations have received bilateral and multilateral assistance from other sources, including the European Organization for Economic Cooperation and Development (OECD), through its Development Assistance Committee.

Supportive assistance provides loans and grants for internal security, defense, capital expenditure for relief, and projects that contribute to economic growth or political stability. The military aspect ordinarily involves the Department of Defense. AID’s Economic Support Fund supports countries and areas unable to meet the specific criteria for development assistance. The support is based on the strategic and foreign policy interests of the United States and often is a preliminary step toward an offer of long-term assistance.

Significance

Foreign assistance programs provided a platform for the expansion of U.S. private direct investment in developing areas. AID encouraged and nurtured private-sector participation in long-term assistance projects and worked to harmonize business goals with the developmental aspirations of the beneficiary countries. AID’s policies steered developing economies toward long-term growth, self-reliance, and the traditions of Western capitalism.

Because development assistance involved the monitoring of programs and projects in recipient countries, foreign assistance provided a vehicle for the achievement of foreign policy objectives. The programs supported efforts of policy makers to integrate precapitalist economies into the free enterprise system. The effort, however, was at a cost to private U.S. investors, whose assets in foreign countries became the target of expropriation in the 1960’s and 1970’s.

In developing areas, the sudden influx of foreign investment and aid elicited nationalistic sentiments and reactions. Between 1961 and 1975, there were 260 reported cases of investment disputes arising from the expropriation of U.S. private investments in Africa, Asia, Latin America, and the Middle East. Economic nationalism among developing nations led to capital disinvestments as well as efforts among the capital exporters to establish a regulatory mechanism for the protection of foreign investments. In 1969, Congress authorized the establishment of the Overseas Private Investment Corporation for the purpose of providing investment guarantees and other services to business proprietors in developing countries.

AID, on its part, provided a package of incentives and investment guarantees to investors, including subsidies for feasibility surveys, dollar loans, local currency (Cooley) loans under Public Law 480, and investment guarantees. A specific-risk guarantee covered such risks as the inconvertibility of foreign currencies, confiscation, expropriation, or loss of investment resulting from war or insurgency. Extended-risk guarantees protected investments from political and unusual investment risks. The incentives contributed to the expansion of private-sector participation in foreign development. The Office of Development Finance and Private Enterprise prepared entrepreneurs for foreign investment. The Development Loan Committee, headed by AID’s administrator, formulated lending policies and standards for profitable investment. The office worked with AID’s regional bureaus to promote trade and investment.

Because aid was tied to trade, U.S. domestic exports and industrial capacities expanded with foreign assistance. Under the programs, beneficiary countries purchased capital goods and services from U.S. sources except when technical or other factors necessitated otherwise. In the 1980’s, however, AID increasingly nudged beneficiary countries toward self-reliance by encouraging and sustaining local productivity and private-sector enterprises. AID supported the privatization of state-owned enterprises in developing countries.

AID afforded American investors the opportunity to expand abroad. More than any other nation, the United States provided developing nations with the capital base for economic growth. In the fiscal year of 1962, the transitional period, Congress appropriated a total of $4.515 billion in assistance, including $600 million for Latin America. In 1961, bilateral assistance to developing areas from France, Germany, the United Kingdom, Japan, Belgium, Italy, Portugal, Canada, and the Netherlands combined amounted to $1.986 billion in loans and grants. By 1985, the value of U.S. bilateral assistance exceeded $12 billion.

The Development Fund for Africa has tackled food deficit and development barriers on the continent. Under Titles II and III of Public Law 480, surplus stockpiles of food were applied, with significant success, to relief and economic assistance in the developing areas. AID’s administrator has coordinated international disaster assistance. AID programming has enhanced the status of women abroad. The Office of Women in Development, which implements the mandate of Congress for inclusion of women in the development process, ensured that programs of assistance gave both urban and rural women ways of participating in the economic development process. Housing programs have supported urban development and housing investments in Latin America, Asia, and other developing areas. In the 1970’s, rural development projects expanded. The agency developed schemes for commercial home ownership for medium- to low-income families.

In spite of criticism of AID as a pork-barrel agency and dispenser of charity with strings attached, the agency has been a crucial contributor to the economics of international development and the dissemination of U.S. business traditions abroad. Of crucial importance is the fact that aid appropriations give Congress a measurable influence and oversight in the conduct of foreign policy and the direction of U.S. private investments overseas.

Bibliography

Chilcote, Ronald H., and Joel C. Edelstein, eds. Latin America: The Struggle with Dependency and Beyond. Cambridge, Mass.: Schenkman, 1974. The analyses are thought provoking and show the extent of problems to be overcome by Latin American states in their search for economic stability.

Cohen, Stephen D. The Making of United States International Economic Policy. New York: Praeger, 1977. Provides in-depth analysis of factors and considerations that have shaped U.S. foreign economic policy over the years.

Duignan, Peter, and L. H. Gann. The United States and Africa: A History. New York: Cambridge University Press, 1984. See chapter 22 for a summary and insightful discussion of U.S. economic and other assistance to Africa, including aid.

Lancaster, Carol, and Ann Van Dusen. Organizing U.S. Foreign Aid: Confronting the Challenges of the Twenty-First Century. Washington, D.C.: Brookings Institution Press, 2005. A study of the distribution of U.S. aid to foreign nations. Includes a chapter on the AID. Index.

Parrini, Carl P. Heir to Empire: United States Economic Diplomacy, 1916-1923. Pittsburgh: University of Pittsburgh Press, 1969. Offers good background reading and excellent perspectives on early application of economic resources to diplomatic goals.

Tendler, Judith. Inside Foreign Aid. Baltimore: Johns Hopkins University Press, 1975. Useful analysis. Helpful in understanding the scope and implications of economic and development assistance, as conditioned by politics and national interest.

Thorp, Willard L. The Reality of Foreign Aid. New York: Praeger, 1971. Sheds light on the benefits and burden of foreign assistance for the donor and the beneficiary.

Todaro, Michael P. Economic Development in the Third World. 4th ed. New York: Longman, 1989. Identifies and discusses the patterns and problems of economic development in developing areas, including global efforts to meet the challenges and prospects of development in the underdeveloped world.

Wennergren, E. Boyd, et al. The United States and World Poverty. Cabin John, Md.: Seven Locks Press, 1989. Contains useful discussions and quantitative data on global growth patterns, including income distribution, agricultural output, and food supply.