State Department quietly releases fiscal transparency report

AOL – by Theresa Welsh

President Barack Obama released his federal budget this week to much publicity, analysis and politicking. But before the federal budget was the release of the State Department’s annual Fiscal Transparency Report, a document that analyzes budget transparency of governments that receive U.S. assistance – and reveals that certain countries still receive aid from the U.S. even though they don’t meet fiscal transparency requirements.

A provision in the Appropriations Bill requires the State Department to produce the report examining all 140 countries that were potential recipients of bilateral allocations in fiscal 2014. The report, quietly released Jan. 14, rated them based upon transparency of budget information and natural resource extraction contracting and licensing.  

The State Department and USAID funding for fiscal year 2014 was $46.9 billion. Fifty countries that year did not meet the minimum requirements of fiscal transparency. Thirty-nine of those 50 countries – including Afghanistan, Egypt, Haiti, Nigeria and Saudi Arabia – were found not to have made “significant progress” toward meeting those requirements, but will still continue to receive aid. Cutting them off, experts told U.S. News, could have devastating political and strategic consequences.

Ryan Crocker served as ambassador to Afghanistan from 2011 to 2012 and says understanding why the U.S. gives aid to the country must be considered in context of its history. Since 1919, Afghanistan has relied on foreign assistance to operate, but the country collapsed a few years after the Soviet Union withdrew in 1989. This paved the way for the Taliban to take control of Afghanistan until the U.S.-led invasion in 2001.

“What we’re giving is a pretty small installment on an insurance policy without which we could see a return to the utter chaos that brought us 9/11,” Crocker says.

Although the U.S. combat operations in Afghanistan ended in 2014, a small number of personnel remain there. Continuing aid to the country is in U.S. interest, Crocker points out, but the Afghan government must do a better job with accountability and transparency.

Egypt receives items, not cash, from the U.S., and continues to do so because it is a vital partner for the U.S. in the volatile Middle East. “The actual physical, geographic location of Egypt is important for U.S. projection of power around the region,” explains Amy Hawthorne of the Rafik Hariri Center for the Middle East at the Atlantic Council. It is also one of few Arab countries at peace with Israel, a major U.S. ally, and much of what the U.S. sends to Egypt is dedicated to encouraging that peace.

The U.S. continues to send aid to Haiti, not only to help the tiny island nation rebuild after the 2010 earthquake killed 222,750 people and decimated government buildings, but also because Haiti “was not like other countries,” says Bob Perito, executive director of consulting firm The Perito Group. The Haitian government doesn’t have an education system or health system; it doesn’t provide a sewer system or running water. Perito says that the government has been very corrupt and ineffective, but the U.S. has worked to strengthen it and make it operate even if some of the money isn’t used the way it should be.

“One of the ways that that happens is to pump money through the government system and force the finance ministry to create a budget, to administer its budget and to fund government agencies, and to force those government agencies then to go out and to actually do things that you’d expect the education ministry or the health ministry or the justice ministry to do,” Perito says. “We’re never going to solve the problems of Haiti if Haiti does not have a functioning government.”

Despite the increasing threat posed by terrorist group Boko Haram, the U.S. provides little defense-based aid to Nigeria. Instead, U.S. aid to Nigeria is overwhelmingly earmarked for health, says John Campbell, ambassador to Nigeria from 2004 to 2007. Most of it is provided as a part of the President’s Emergency Plan for AIDS Relief, or PEPFAR.

“The point about PEPFAR money is once that you start you can’t stop,” Campbell says. “In other words if you withdraw funding for PEPFAR in a country like Nigeria, what you end up with is soaring deaths from HIV/AIDS.”

Saudi Arabia continues to receive assistance, despite its wealth and lack of fiscal transparency, because it’s a secure petroleum exporter and plays a critical role in the Gulf Cooperation Council, a political economic union of Arab states in the Gulf, according to Anthony Cordesman, a chair in strategy at the Center for Strategic and International Studies. It’s also a key U.S. ally in the Middle East as part of a coalition working to defeat the Islamic State group.

“It’s a key partner in the Gulf, a key partner in terms of overall security issues, in terms of areas like Syria, Iraq, quite a number of other structures,” Cordesman says. The U.S. has sold the Gulf country military equipment and provides training in the use of such weapons, as well as other security-related assistance. New Saudi King Salman, who took office after the death of King Abdullah in January, is likely to continue to closely cooperate with the U.S.

Provisions that required the department to assess transparency and link assistance to those findings has been included in past budgets in various forms, but 2014 was the first year State was required to make the report public. So far, it hasn’t generated the type of attention produced by the annual Human Rights Report, which details human rights conditions in nearly 200 countries and territories.

Sen. Patrick Leahy, D-Vt., has long been an advocate for closer examination of foreign assistance funds and is responsible for the provision requiring the fiscal transparency report. Tim Rieser, a foreign policy aide to Leahy, says the senator and other Members of Congress have concerns about foreign governments that misuse their own resources and then ask the U.S. for aid to take care of their people.

“Senator Leahy does not want to give aid to governments whose officials spend public funds to enrich themselves rather than to address the needs of their people, so that was genesis of the law,” Rieser says. “He’s felt that for too long we have been helping countries without insisting that their governments be transparent about how they are spending their own resources. He believes that we should stand for the principle that they should be accountable to their people.”

The State Department Report says transparency is a key element of effective public financial management and can help countries achieve economic sustainability. Still, in the proposed edits in the budget for fiscal year 2016 released Feb. 2, the administration requested the fiscal transparency report requirement be removed. They did the same in fiscal year 2015. The department says this it is standard practice for it not to request imposing reporting requirements on itself. Congress makes them law by including the provisions in the Appropriations Bill.

The report’s purpose is also to “help ensure U.S. taxpayer money is used appropriately,” but failure of a government to be found transparent does not mean funds will be cut off. In the past, many countries that were not found to be transparent received waivers from the secretary of state.

A State Department official told U.S. News on background that a lack of fiscal transparency doesn’t necessarily mean that a government is corrupt.

“It’s more of an enabling factor for corruption, so it’s not necessarily the case that countries that have failings in fiscal transparency are not using U.S. taxpayer money well,” the official says. “It’s just the more information that is public about how countries craft their budgets, the better people are able to evaluate how money is being used.”

Vivek Ramkumar directs the Open Budget Initiative at the International Budget Partnership, says waivers issued by the Secretary of State for countries not found to be transparent were previously “grossly misused.” The State Department official said “quite a lot” of countries received waivers.

“Fiscal transparency is seen as an inconvenience here,” Ramkumar says. “So they have found reasons to constantly continue aid to countries, even when my organization conducts fiscal transparency assessments and we don’t agree with their assessment in previous years.”

The Open Budget Index, an independent assessment of budget transparency produced by the International Budget Partnership, found 77 of 100 countries examined did not provide significant budget information to their citizens in 2012.

Ramkumar says that while his organization also has problems with this year’s assessment, one of the benefits of delinking aid with the report findings is that State can give a more honest assessment of foreign government budget transparency in the report as a part of a “naming and shaming.”

“We’re finding in fact this is probably a more effective tool in terms of encouraging countries,” the State Department official says. “There seems to be more attention this year from countries we asses than maybe we’ve seen in previous years.”

“Governments like to know where they stand,” Rieser says. “They don’t like being on lists that show them falling short compared to their peers.”

Countries found to be insufficiently transparent but want to improve can benefit from $10 million in funds set aside in the same Appropriations Bill provision. The State Department and the U.S. Agency for International Development coordinate in using the money to support programs and activities aimed at improving public financial management and fiscal transparency standards. The State Department official calls this the “carrot to the stick of the report.”

In fiscal year 2013, the department used $5 million from the fund for 11 projects in Chad, Democratic Republic of the Congo, Gabon, Guinea, Haiti, Malawi, Nicaragua, Niger and Somalia, as well as one regional and one global project.

“If the U.S. is serious about seeking improvements in fiscal transparency in countries around the world then most important thing to do would be to ensure that governments buy into this agenda, that there’s country ownership, and that the agenda for fiscal transparency improvements is not based on a one size fits all,” Rathkumar says.

He says the report should be elevated to the status of the Human Rights Report so countries take the findings more seriously.

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