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Statement of the Administrator

Development plays a critical role in implementing transformational diplomacy. Transformational diplomacy seeks "to work with our many partners around the world, to build and sustain democratic, well-governed states that will respond to the needs of their people and conduct themselves responsibly in the international system." As the Secretary of State said in a January 2006 visit to USAID, "I consider development to be one of America's most important priorities because our goal ought to be to use our assistance to help people better their lives, but also to help their governments to be better able to deliver for them." This budget proposes funds and programs that will help peoples and their governments to make progress toward this vision.

The FY 2007 program budget supports key Administration priorities.

• It continues efforts to build democracy and good governance in Iraq and Afghanistan, and requests funds in support of other frontline states in the Global War on Terror.
• It supports the President's Freedom Agenda through activities to strengthen effective democracies in programs that promote transformational development or address state fragility.
• To foster transformational development through economic growth, USAID proposes to sustain programs devoted to building trade capacity.
• It seeks authority in certain critical emergency situations to use P.L. 480 Title II funds for the local or regional purchase and distribution of food to assist people threatened by a food security crisis.
• It includes funds to robustly address the global issues of HIV/AIDS, malaria and the threat of avian influenza.

In the FY 2007 budget, USAID proposes to advance transformational diplomacy through five core strategic goals. These goals respond to the Joint State-USAID Strategic Plan's objectives to Preserve the Peace and Extend the Peace, and to the Administration's principles for restructuring foreign assistance, such as improved accountability, country-based strategies, effective use of U.S. resources, distinguishing among key challenges and encouraging eventual graduation from economic and governance aid.

The five core strategic goals that USAID has established are:

• promote transformational development to bring far-reaching, fundamental changes to institutions of governance, human capacity, and economic structure that help countries to sustain further economic and social progress without continued dependence on foreign aid;
• strengthen fragile states to enhance stability, improve security, advance reform and develop the capacity of essential institutions and infrastructure;
• provide humanitarian relief to meet immediate human needs in countries afflicted by violent conflict, crisis, natural disaster, or persistent dire poverty;
• support strategic states to achieve specific U.S. foreign policy goals in selected countries of high priority from a strategic standpoint, using the tools of development and reconstruction; and
• address global issues and special concerns including HIV/AIDS, global climate change, other infectious diseases, direct support for international trade agreements, and counter narcotics.

These goals support the overall reforms introduced by Secretary Rice to make foreign aid more effective.

To make progress on these goals, USAID is requesting $3.1 billion for its FY 2007 programs. We anticipate working with the Departments of State and Agriculture on joint programs that total $5.4 billion in Economic Support Funds, Assistance for the Independent States of the Former Soviet Union, Assistance for Eastern Europe and the Baltic States, Andean Counter-narcotics Initiative and P.L. 480. We will also manage a portion of the $2.9 billion requested for the Global HIV/AIDS Initiative by the Department of State's Global AIDS Coordinator and a portion of the $3 billion for the Millennium Challenge Corporation. USAID is requesting $857 million in Operating Expenses (OE), the Capital Investment Fund, the Development Credit administrative funds and the Office of the Inspector General to fund the administrative costs of managing slightly under $8.5 billion in program funds.

Many U.S. strategic partners are countries facing recovery or development challenges. The FY 2007 budget request continues support to Afghanistan and Iraq to build safe, stable societies that meet the needs of their peoples and eliminate environments that breed and harbor terrorism. The request includes assistance to other key frontline states in the Global War on Terror on the principle that democratic, well-governed states that provide opportunity and freedom to their citizens are inhospitable environments for terrorism to take root.

The FY 2007 request continues and expands the process begun in FY 2006 of tying Development Assistance to countries' own development efforts. Consistent with the country focus of foreign aid reform, we have allocated the greater share of resources designated for transformational development to needy countries that are not yet eligible for the Millennium Challenge Account (MCA), but that are demonstrating through sustained good performance that they are striving for the conditions that will lead to progress in democracy and governance, economic freedom and investing in people. This enables USAID to work in synergy with the Millennium Challenge Corporation (MCC). In this budget we have used a performance-based approach, comparing need and performance across regions, to allocate part of the Development Assistance account.

At the same time that we reward good performers in transformational development, we cannot ignore countries that are vulnerable to or recovering from crisis; many are managing fragile political and economic transitions. USAID has embarked on a new strategic approach towards these countries. This approach emphasizes better monitoring and analysis, country-based strategies and programs that address sources of fragility, and greater flexibility to respond to changing conditions.

We have also requested resources for humanitarian relief. No matter where or what the cause, USAID stands ready and able to come to the assistance of countries where lives are threatened due to natural or man-made disasters. For example, in FY 2005, USAID led the U.S. government's relief efforts after the Asian tsunami. We conducted assessments and oversaw the provisioning of India, Indonesia, the Maldives, Sri Lanka and Thailand with relief commodities, then funded programs to restore the livelihoods of affected populations and developed capacities critical to disaster early warning, mitigation and recovery.

Global ills and opportunities know no borders. USAID will continue to combat HIV/AIDS and ramp up malaria programs in targeted African countries as part of the President's Malaria Initiative. USAID will also help countries detect the incidence and control outbreaks of avian influenza. USAID will work with developing countries to take advantage of the globalizing economy and to play their roles in managing global climate change, including initiatives in using clean energy and preserving biodiversity, which may also offer sources of income.

USAID's development work puts us on the front lines of transformational diplomacy in some of the most challenging operating conditions around the world. Given constrained Operating Expense resources in FY 2006, the Agency has accelerated its efforts to restructure its business model to achieve more efficient, economical operations. In FY 2007, USAID will continue its restructuring efforts through rightsizing its overseas and Washington presence, regionalizing business functions, and consolidating administrative services with the Department of State.

Program Priorities

With this budget request, USAID responds to the principles of the Administration's restructuring of foreign assistance toward transformational diplomacy. These are:

• Set and measure clear outcomes and impacts for every dollar of foreign assistance;
• Develop and manage coherent, country-based strategies that integrate U.S. assistance programs with diplomatic initiatives;
• Make the most effective use of U.S. resources to achieve foreign policy, national security, and development objectives;
• Distinguish among the key challenges to and constraints on nations at different stages of stability and development, and select the most appropriate policy and assistance tools accordingly; and
• Encourage eventual "graduation" from foreign economic and governance aid.

USAID's Policy Framework for Bilateral Foreign Aid sets forth the five core strategic goals and establishes guiding principles that respond to the foreign assistance restructuring precepts. The FY 2007 budget proposes that programs be managed and resources allocated as much as possible strategically for distinctive results aligned with each of the five goals for maximum impact. This will implement transformational diplomacy in the following ways:

Goal: Support Strategic States. USAID's budget proposal emphasizes strengthening democratic governance and continued economic recovery in Iraq and Afghanistan and building national capacity in Iraq, so that Iraqis can transition to self-reliance. Using a combination of DA, CSH, ESF, FSA, and other accounts, USAID supports frontline states in the Global War on Terror, including Pakistan and Djibouti, using our development tools and knowledge.

Goal: Strengthen Fragile States. There are many sources of fragility in developing states. Recent conflict is one. Lack of preparation to govern in fledgling democracies is another. Corruption, spillover effects from instability in a neighboring country or financial crises are still others. The FY 2007 budget proposal will address the multiple and varied sources of fragility in sub-Saharan Africa, Asia and the Near East and Latin America. Programs to help a country stabilize, strengthen human security, begin a reform process and progress toward a government that helps its people better their own lives will be funded in countries such as Nepal and Sudan.

Goal: Provide Humanitarian Relief. USAID is the leading U.S. government agency in responding to overseas crises, whether natural or man-made. The FY 2007 budget enables USAID to respond to humanitarian crises around the world. It also allows us to strengthen developing countries' ability to mitigate future disasters through activities such as surveillance and planning, and to restore livelihoods after the immediate crisis period has passed. In addition, the request includes authority to use up to 25 percent of the P.L. 480 Title II funds for the local or regional purchase and distribution of food to assist people threatened by a food security crisis. This will permit USAID to provide food assistance in the most timely and efficient manner in certain types of emergency food crises. This authority will only be used in those instances where the rapid use of cash assistance is critical to saving lives.

Goal: Address Global Issues and Special Concerns. Prevention and treatment of disease, particularly those that are or threaten to be pandemics, is an emphasis in the FY 2007 budget.

• Under the leadership of the Department of State's Global AIDS Coordinator, USAID implements prevention, care and treatment programs in over 75 countries worldwide. In FY 2007, Emergency Plan programs will scale up access to treatment by 51% over FY 2006, reaching those who have not previously had hope in the fight against AIDS.
• The President's Malaria Initiative, focused on Africa, will be expanded to increase coverage from three countries, to seven. The goal of this initiative is to reduce malaria deaths by 50% in each of the target countries after three full years of full implementation by increasing coverage to 85% of the population with proven prevention and treatment interventions.
• Avian influenza programs will work to stem the spread of avian influenza and improve the ability of nations to respond effectively by promoting awareness of risks and appropriate behaviors to reduce virus transmission; strengthening surveillance and diagnosis systems to detect outbreaks more quickly; increasing rapid response capacity by training and equipping first responders, and supporting the development of effective national preparedness and response plans for both animal and human outbreaks.

Goal: Promote Transformational Development. The primary focus for USAID's promotion of transformational development are the nearly 50 low- and middle- income countries that are committed to good governance and sound policies and are not yet eligible for MCA funds, or do not have an approved MCC compact. Countries that are MCA-eligible as well as weaker performers may also receive transformational development assistance depending on resource availability and the scope for achieving significant results. To the extent possible, USAID programs in countries receiving MCC resources are designed to synergize, thus increasing the effectiveness of U.S. Government assistance.

The three core components of transformational development are ruling justly, promoting economic freedom and making sound investments in people. USAID pursues democratic governance, economic growth and health and education programs to help developing countries transform.

In support of the President's Freedom Agenda, USAID plans to help states become more democratic and well-governed, so that they can respond to the needs of their people.

Countries with open and streamlined trade and investment regimes tend to grow more rapidly thanks to greater efficiency, incentives, technology transfers, and improved access to growing world markets. Agency programs help reduce trade barriers, increase investment, and enhance trade capacity in partner countries. Trade and growth have direct, positive effects on reducing poverty. Over the last five years, USAID has assisted more than 80 countries to improve their trade capacity.

In FY 2007, USAID will initiate the $30 million Africa Global Competitiveness Initiative to further foster trade-led growth and development. This initiative will improve the policy, regulatory and enforcement environment for private sector trade; improve private sector actors' market knowledge, skills and abilities; increase access to trade-related financial services and leverage infrastructure investments.

The cornerstone of USAID's investment in people in transformational development is its education programs. We propose a $301 million investment in FY 2007 in basic and higher education. A small number of health programs contribute to the transformative policies and systems that countries need to sustain the improvements in health status that we gain with our vertical interventions in combating infectious disease, family planning and protecting vulnerable children. Under the Development Credit Authority, USAID is requesting $5 million for the Africa Housing and Infrastructure Facility. This innovative use of the credit facility will support the subsidy costs of partial guarantees for private sector financing of water, infrastructure and housing projects in Africa.

Supporting Key Administration Initiatives. The Agency also supports on-going commitments such as education initiatives in Africa and Latin America, the Broader Middle East and North Africa Initiative, Trade Capacity Building, Global Climate Change, the Initiative to End Hunger in Africa, and Water for the Poor. These initiatives achieve a range of results that complement USAID's goals in transformational development, fragile and strategic states, and are implemented in a variety of ways, from contributing to global funds, providing training, technical assistance or policy analysis bilaterally, and directly delivering services.

Management Reforms and Initiatives

The men and women of the U.S. Agency for International Development are on the front lines of America's transformational diplomacy….The people of USAID are bringing essential knowledge and resources and skills to distant corners of the earth. They are on the ground across the world, advancing liberty and democracy, security and prosperity, often in very dangerous places. Some have made the ultimate sacrifice in the service to our country.

- Secretary of State Condoleezza Rice
January 19, 2006

Transformational diplomacy requires people, systems and infrastructure that deliver programs as efficiently, effectively and accountably as possible. The challenges of working in difficult, often insecure environments are significant. During FY 2007, the restructuring of foreign assistance is expected to open new opportunities to improve management within this difficult context.

Staffing. After an interruption due to the FY 2006 enacted Operating Expense levels, USAID continues to rebuild its human capital in the wake of the dramatic downsizing of the direct-hire workforce in the 1990s and in anticipation of the large contingent reaching retirement age. USAID will use its corporate workforce planning model to rationalize and optimize its organizational structures and staff deployment. Targeted recruitment of technical staff and training will ensure we have sufficient complements of mission-critical skills to conduct development assistance. In addition, an employee performance assessment system will enable accountability.

Business Transformation. The reduced FY 2006 OE levels accelerated USAID's restructuring efforts, which focus on rightsizing overseas and Washington presence, regionalizing business functions, and consolidating administrative services. The FY 2007 request will allow the Agency to continue the long- term plan to restructure its business model to achieve more efficient, lower-cost ways of doing business. This will include restructuring Washington staffing to ensure the most efficient organizations support our missions and manage headquarters operations.

The Agency's workforce planning model is critical to developing our regionalization and rightsizing strategies. We are using the model to assess staffing needs worldwide and determine overseas staffing ceilings for all employment categories for FY 2007 and beyond. The ceilings will result in downsizing staff in several regions while increasing staff where current levels do not meet the model recommendations.

The Agency also will right size its overseas presence with moves to new embassy compounds. We are developing an action plan that merges State and USAID administrative services into a streamlined, unified operation in new embassy compounds that will contain costs while ensuring full programmatic support for all serviced customers.

We also are centralizing and further regionalizing business functions, making greater use of local staff, and outsourcing and eliminating areas of duplication as we work with the Department of State to consolidate administrative services overseas. Consolidation of administrative support and the subsequent merger of staff will result in costs savings through reduced total staff and costs to the USG.

The FY 2007 request will support investments in information technology (IT) that are fundamental to greater efficiency and accountability in Agency operations. We will continue to roll out our worldwide accounting and procurement systems, develop an Executive Information System, and strengthen collaboration and consolidation with the Department of State.

Partnerships. USAID is actively engaged in identifying and forging agreements with non-traditional partners, including faith-based organizations. Significant progress has been made in this area. The Global Development Alliance (GDA) is the centerpiece of our efforts to harness the power of public-private alliances to address challenges in the developing world. GDA represents a strategic approach to alliance building in order to bring significant new resources, ideas, technologies, and partners together to address development problems wherever USAID works. Through FY 2005, USAID has funded approximately 400 public-private alliances with over $1.6 billion in USAID resources and has leveraged over $4.2 billion in alliance partner contributions.

Security. By enhancing worldwide security operations and physical infrastructure, USAID will continue to protect USAID employees and facilities against threats from terrorism and espionage. Investments in FY 2007 include physical security upgrades, participation in the Capital Security Cost Sharing Program and relocation of physical facilities.

The Budget Request

Development is vital to the achievement of transformational diplomacy. The FY 2007 budget request responds to the President's priorities, including support for the Global War on Terrorism, and helping Iraq, Afghanistan and Sudan toward democracy and recovery. The budget sets priorities that use aid effectively to promote real transformation in developing countries committed to reform, but not yet MCA-eligible. It positions USAID to find synergies with the work of the Millennium Challenge Corporation. It also proposes that we help more vulnerable or crisis-prone states to advance stability, security and reform as the platform for transformational development. It sustains USAID's premier capacity to offer humanitarian and disaster relief to those in need, and contains the resources necessary to address global issues and special self-standing concerns.

The Agency continues to improve its operational efficiency, effectiveness and accountability through its management reform initiatives. It seeks the operating expense resources necessary to carry out its vital development work in support of transformational diplomacy. The recipients of USAID's assistance, USAID employees and the U.S. taxpayers all benefit from Agency business transformation initiatives such as the strategic allocation of resources, and enhanced financial management and procurement systems.

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