Strategic Foreign Assistance Transitions Assistance Foreign Strategic a report of the csis project on prosperity and development Strategic Foreign Assistance Transitions enhancing u.s. trade and cooperation relations with middle-income countries 1800 K Street, NW | Washington, DC 20006 Project Director and Tel: (202) 887-0200 | Fax: (202) 775-3199 Principal Author E-mail: [email protected] | Web: www.csis.org Daniel F. Runde Runde Project Adviser Johanna Mendelson Forman Lead Author Amasia Zargarian Contributing Author Ilona Teleki June 2012 ISBN 978-0-89206-723-7 CSIS Ë|xHSKITCy067237zv*:+:!:+:! CHARTING our future Blank a report of the csis project on prosperity and development Strategic Foreign Assistance Transitions enhancing u.s. trade and cooperation relations with middle-income countries Project Director and Principal Author Daniel F. Runde Project Adviser Johanna Mendelson Forman Lead Author Amasia Zargarian Contributing Author Ilona Teleki June 2012 CHARTING our future About CSIS—50th Anniversary Year For 50 years, the Center for Strategic and International Studies (CSIS) has developed practical solutions to the world’s greatest challenges. As we celebrate this milestone, CSIS scholars continue to provide strategic insights and bipartisan policy solutions to help decisionmakers chart a course toward a better world. CSIS is a bipartisan, nonprofit organization headquartered in Washington, D.C. The Center’s 220 full-time staff and large network of affiliated scholars conduct research and analysis and de- velop policy initiatives that look into the future and anticipate change. Since 1962, CSIS has been dedicated to finding ways to sustain American prominence and prosperity as a force for good in the world. After 50 years, CSIS has become one of the world’s pre- eminent international policy institutions focused on defense and security; regional stability; and transnational challenges ranging from energy and climate to global development and economic integration. Former U.S. senator Sam Nunn has chaired the CSIS Board of Trustees since 1999. John J. Hamre became the Center’s president and chief executive officer in 2000. CSIS was founded by David M. Abshire and Admiral Arleigh Burke. CSIS does not take specific policy positions; accordingly, all views expressed herein should be understood to be solely those of the author(s). Cover photo: Top left—Presidents Barack Obama and Dmitry Medvedev at the July 2009 U.S.- Russia presidential summit in Moscow, photo by Mika Stetsovski, http://www.flickr.com/photos/ psyxek/3706143677/sizes/o/in/photostream/; top right—President Luiz Inácio Lula da Silva in- specting Brazilian peacekeepers in Haiti, photo by MATEUS_27:24&25, http://www.flickr.com/ photos/mateus27_24-25/5695377288/sizes/l/in/photostream/; bottom left—view of Old Delhi from the Jama Masjid; photo by Lee Williams; bottom right—the Gatun Locks of the Panama Ca- nal, photo by Roger Wollstadt, http://www.flickr.com/photos/24736216@N07/3160602223/sizes/o/ in/photostream/. © 2012 by the Center for Strategic and International Studies. All rights reserved. ISBN–pb: 978-0-89206-723-7; ISBN–ePub: 978-0-89206-736-7; ISBN–Mobi: 978-0-89206-737-4 Center for Strategic and International Studies 1800 K Street, NW, Washington, DC 20006 Tel: (202) 887-0200 Fax: (202) 775-3199 Web: www.csis.org 2 contents Acknowledgments iv Executive Summary v 1. Introduction 1 Transitional Instruments Other Than Official Development Assistance 3 Middle-Income Countries: Moving to a Non-150 Account Relationship 5 2. Historical Precedents and Current Candidates 6 Case Studies of Past Transitions 13 South Korea 14 Lithuania 20 Costa Rica 24 Portugal 28 Tunisia 33 3. Selected Opportunities for 2013 and Beyond: Brazil, India, Russia, and Panama 38 Brazil 39 India 53 Russia 63 Panama 71 4. Recommendations 79 5. Conclusion 86 About the Authors 88 | iii acknowledgments This report would not have been possible without a generous grant from the Smith Richardson Foundation and without the efforts of Nadia Schadlow. The project had as its foundation an event hosted at CSIS in February 2011, “Redefining U.S. Foreign Assistance Strategy for Middle-Income Countries,” and the authors are grateful for the participation of, among others, Heather Conley, Carol Peasley, and Ivan Vejvoda. The authors benefited greatly from the multitude of experts and opportunities available to them at CSIS and received tremendous support from throughout the institution. They are par- ticularly indebted to the CSIS regional programs, which provided invaluable assistance by helping organize working groups, facilitating travel to the relevant countries, and providing thorough re- views of the case studies. In addition to assistance with convening meetings and reviewing drafts, Andrew Kuchins of the CSIS Russia and Eurasia Program accompanied the authors to Russia. Karl Inderfurth and Persis Khambatta of the CSIS Wadhwani Chair in U.S.-India Policy Studies offered generous access to the wealth of India-related knowledge and contacts at their disposal. From the CSIS Americas Program, Stephen Johnson was a priceless resource for all questions regarding Panama, Brazil, and the broader region. Ashley Chandler and Elizabeth Denniston carried out much of the initial work to turn this project from concept into reality. This report was published, and in the process vastly improved, by the CSIS Publications team, under the direction of James Dunton. Eleanor Coates, Nikki Collins, Chelsea Holsopple, Veronique Lee, Corinne Stephenson, and Lee Williams contributed extensive research and writing, and the authors owe them a heavy debt of gratitude for making possible the successful completion of this report. Additional support was provided by Jordan Apfeld, Carmen Easterwood, Maria Khan, Christina Perkins, and Michelle Selim. The authors would also like to thank William Garvelink and Andrew Gossett for their steadfast guidance. A number of individuals lent their wisdom in reviewing earlier drafts of this report. Thelma Askey, Rodney Bent, Larry Cooley, William Reese, Conor Savoy, Barbara Turner, and Holly Wise all provided invaluable feedback that is reflected in the final product. Finally, the authors wish to offer their sincere gratitude to the many individuals who were interviewed or who participated in one of five roundtable meetings for this report, and this group includes experts based here in Washington and in each of the report’s four focus countries. These interlocutors, too numerous to name here, shaped the outcome of this project through their frank and generous insights on the topic. iv | executive summary Justifying traditional U.S. assistance to middle-income countries is an increasingly difficult proposition, and refocusing limited U.S. government development resources away from middle- income countries offers an efficient way to identify savings in the foreign assistance budget. This is not the first time that the U.S. government has faced such questions, and it can draw upon past transitions—not all successful—for a variety of valuable lessons for repurposing the United States’ relationship with middle-income countries. This report begins with a brief introductory chapter on the main issues and themes. Chap- ter 2 considers the experiences of South Korea, Lithuania, Costa Rica, Portugal, and Tunisia as case studies of countries with relatively successful U.S. assistance transitions. Chapter 3 examines Brazil, India, Russia, and Panama, four middle-income countries with which the United States can shift its assistance relationship toward a focus on bilateral trade and cooperation interests. Chapter 4 offers nine specific recommendations for shifting the United States’ relationships with middle- income countries from assistance to true partnerships. Chapter 5 concludes. This report and its recommendations are the product of extensive conversations with mem- bers of the development and diplomatic communities in the United States and in Brazil, India, Russia, and Panama. More than 200 individuals were consulted through working group discus- sions, personal meetings, and telephone interviews, all on a not-for-attribution basis. Apart from a few development implementers, no one suggested that the United States should maintain the status quo with respect to its assistance programs in these countries. The overwhelming consen- sus was that the United States is using inadequate instruments in a changing context, and that it should broaden its bilateral relationships with middle-income countries to reflect mutual inter- ests. These areas of interest are numerous, but in every case include cooperation on strengthening civil society, science and technology, “triangular” cooperation, people-to-people exchanges, and expanded trade. This set of transitions does not imply a larger budget funded by taxpayer money because the vast majority of new bilateral initiatives would not be inherently governmental func- tions and could be entrusted to nongovernmental entities. Foreign assistance is not going to be excluded from ongoing debates about fiscal restraint. The U.S. government’s development and foreign policy system should anticipate these transitions, pre- pare for them immediately, and convey its intentions to recipient countries. Otherwise, assistance transitions will be forced by the political and budgetary process that generally guides these deci- sions and overrides the development and foreign policy objectives that the transitions are intended to achieve. | v 1 introduction Middle-income countries