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	Statement of the Administrator Summary of FY 2006 Budget Request Program Highlights Management Improvements USAID Support Budget Operating Expenses Capital Investment Fund Working Capital Fund Operating Expenses, Inspector General Foreign Service Retirement and Disability Fund International Disaster and Famine Assistance Transition Initiatives
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Statement of the Administrator

In January 2005, President Bush visited the headquarters of the United States Agency for International Development (USAID) to thank our employees and partners in nongovernmental organizations (NGOs) for their work in relief and reconstruction following the tsunami in South Asia. During that visit, the President stated that "(t)he efforts of USAID [are] essential for the foreign policy of the United States of America. Your efforts and the efforts of others, especially to create jobs, promote markets, improve health, fight HIV/AIDS, and help democracy take root, are instrumental to making the world a better place and to protecting the American people."

The Fiscal Year (FY) 2006 budget reflects the 2004-2009 State-USAID Joint Strategic Plan that incorporates U.S. foreign policy and national security. It also reflects USAID's strategic realignment to increase the impact and effectiveness of U.S. assistance by structuring it around the following five operational goals:

• 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 geo-strategic interests to achieve specific U.S. foreign policy goals in countries of high priority from a strategic standpoint; 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.

To make progress on these goals, USAID is requesting $3.4 billion for its FY 2006 programs. We anticipate working with the Departments of State and Agriculture on joint programs that total $5 billion in Economic Support Funds, Assistance to the Independent States of the Former Soviet Union, Assistance for Eastern Europe and the Baltic States, Andean Counterdrug Initiative and P.L. 480 Title II food aid. We will also manage a portion of the $2 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 $802.4 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 the $8.3 billion in program funds.

This FY 2006 request reflects USAID's multiple goals in development, relief and recovery and advancing U.S. national security. We are introducing in the request two strategic reforms to increase the effectiveness of bilateral foreign aid. The first is to reward low-income countries that show good commitment and performance by giving priority in the budget to these countries. The second is to recognize that some countries need help to overcome instability and weak governance before they are able to grow and prosper. USAID has launched a new and different strategy for promoting stability, security, reform and basic institutional capacity development in those countries.

As President Bush stated in 2002 in Monterrey, Mexico, "When nations respect their people, open markets, invest in better health and education, every dollar of aid, every dollar of trade revenue and domestic capital is used more effectively. . . .We must tie greater aid to political and legal and economic reforms." This request proposes tying Development Assistance to countries' own development efforts, allocating the greater share to needy countries that are not yet eligible for the Millennium Challenge Account, but that are demonstrating through sustained good performance that they are striving for the conditions that the President set forth. In this budget we propose a performance-based approach, comparing need and performance across regions, to allocate a share of the Development Assistance account based on standard criteria.

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, more focused strategies and programs, and greater flexibility to respond to changing conditions. An important component of this approach is USAID's request that the Transition Initiatives account be expanded to improve programmatic flexibility in four countries that are at various stages of recovery, transition and addressing vulnerability and instability - Afghanistan, Ethiopia, Haiti and Sudan. All four countries are strategically important to the United States.

Use of the flexibility inherent in the Transition Initiatives account in certain bilateral programs will increase our ability to respond quickly and effectively to the special economic and governance needs in these states. The more immediate response and shorter-term work of supporting transitions worldwide will continue to be funded under this account, and carried out by the Office of Transition Initiatives. The expansion of the TI account reduces the requirement for DA for the Afghanistan, Ethiopia, Sudan and Haiti programs. Excluding those four country programs in both years, the DA account request for FY 2006 is slightly increased over the request in the FY 2005 President's Budget.

To provide effective program management, USAID is strengthening its diplomatic and program capabilities through its management reform initiatives. USAID's management priorities to strengthen the workforce, improve program accountability, and increase security will help build the foundation of sound management and organizational excellence. We are also reaching out to new, non-traditional partners, often using the Global Development Alliance model of public-private partnerships.

Program Priorities

This approach to strategic management enables USAID to put into operation the goals of promoting transformational development, strengthening fragile states, supporting strategic states, providing humanitarian relief, and addressing global issues and special concerns in a more rational and deliberate way. This allows us to achieve maximum impact by effectively allocating U.S. development assistance resources, complementing strategic priorities identified in the Joint Strategic Plan.

Transformational Development. USAID's priorities for the use of Development Assistance include stimulating economic growth to move countries into the global trading system, and promoting human rights and democracy. Based on an analysis of country need, commitment and performance, we have allocated assistance on a priority basis to needy countries that are manifesting strong commitment and making good development progress.

The FY 2006 request reflects the increase of support for Africa seen since FY 2001 with an emphasis on expanding access to quality basic education and growth in agricultural productivity and trade capacity. Furthermore, USAID will support the U.S.-Central American Free Trade Agreement (CAFTA) to implement sound policy, trade liberalization, and economic reforms. In South Asia, tsunami recovery and reconstruction will continue to be a priority. Worldwide, we are working closely with the Millennium Challenge Corporation to coordinate our efforts. USAID will particularly support Millennium Challenge Account (MCA) countries on the threshold of eligibility to overcome their individual performance constraints.

Stability, Reform and Recovery. USAID will support peace and stability in the Greater Horn of Africa, - particularly in Sudan. We will continue the effort begun in 2004 as a Group of Eight (G8) initiative to end famine and increase agricultural development and rural productivity in Ethiopia, the most populous country in the region, and one of the most famine-prone countries in the world. In Latin America, USAID will similarly work to stabilize Haiti, laying the foundations for economic, social and political reform and recovery. In the Near East, USAID will support Afghanistan's continued progress toward a stable and democratic country that is poised for economic growth and poverty reduction.

Geo-strategic priorities. USAID will support U.S. foreign policy goals with special emphasis on Iraq, Afghanistan, Pakistan and Sudan, as well as other front-line states in the War on Terror in the Asia, Near East and Africa regions. The Agency's Iraq programs will be funded from the Economic Support Fund (ESF) and other appropriations. USAID will also target resources to the Muslim World Initiative to support countries' own efforts at social transformation.

Humanitarian Response. The Administration is requesting a shift of $300 million from P.L. 480 Title II to the International Disaster and Famine Assistance (IDFA) account for those instances in which the rapid use of cash to purchase food aid locally is critical to saving lives or stabilizing countries that are experiencing a food crisis. These funds will improve our efficiency and effectiveness, save time and result in more food aid for emergencies because commodity and transport costs will be lower. Purchases can be made locally or regionally in developing countries for emergency food aid, thus supporting local farmers, encouraging local production, and stimulating local trading networks. Safeguards will prevent local purchase from distorting local, market-driven prices. Local purchase is particularly important in fragile states that are experiencing food crises in certain parts of the country but have surplus production in other parts, and where raising incomes of farmers in rural areas under these circumstances can help sustain agricultural production in their economies. USAID can purchase food surpluses for use within a region for emergency purposes where rapid purchase is critical to saving lives. Based on USAID's preliminary estimates, this shift in funds conservatively, in acute situations, could save 50,000 lives.

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

Combating HIV/AIDS. The HIV/AIDS pandemic is more than a health emergency. It is a social and economic crisis that is threatening to erase decades of development progress. The pandemic has tended to hit in the most productive age groups and in developing counties that are least able to respond. Under the leadership of the State Department's Global AIDS Coordinator, USAID will continue working to prevent HIV transmission through a balanced "ABC" approach to behavior change that stresses Abstinence, Be faithful, and, as appropriate, correct and consistent use of Condoms. The President's Emergency Plan, from the very beginning, has recognized that to implement an effective "ABC" prevention strategy, our approach must be tailored to the culture and circumstances of each place we are working. In addition to prevention, USAID will scale up its work in expanding access to anti-retroviral treatment, reducing mother to child transmission, increasing the number of individuals reached by community and home-based care, and providing essential services to children impacted by HIV/AIDS.

Management Reforms and Initiatives

The demand to meet complex foreign policy and international development challenges requires a USAID with modern business systems, organizational discipline, an expansion in both types of partnerships and range of partners and the right number of qualified, well-trained people to manage its programs. To meet this demand, USAID's FY 2006 management priorities are to strengthen and right-size the workforce, improve program accountability, and increase security. With significant continued investments in people, systems and business processes, and security, USAID will build a foundation of sound management and organizational excellence.

Staffing. USAID faces increasing requirements for surge capacity to respond to critical new demands while maintaining programs elsewhere with capabilities weakened by a direct-hire workforce drastically downsized during the 1990s and a large workforce contingent reaching retirement age. To address the critical need to increase human capacity, USAID has made the Development Readiness Initiative (DRI) a priority, which builds on the State Department's Diplomatic Readiness Initiative. In its third year of implementation, DRI will strengthen the workforce and rebuild the Agency's diplomacy and development capacity. This effort will help USAID meet OPM's mandate to get the "right people in the right jobs with the right skills at the right time" and continue increasing the direct-hire workforce to better manage Agency programs.

In addition to increasing overall numbers, DRI will strengthen the Agency's capacity to respond to crises and emerging priorities, cover staffing gaps, fill critical vacancies, and provide appropriate training. More critically, DRI will maintain the Agency's quality and flexibility of human resources and ensure that staff maximizes the professional skills needed to grow with job requirements. DRI will make the Agency more agile and better able to respond to changing foreign policy concerns.

In recognition of USAID's staffing crisis, Congress enacted legislation to help the Agency meet the development challenges of the future. To supplement the Agency's DRI, the FY 2005 Foreign Operations legislation provides USAID with a Non-Career Foreign Service Officer hiring authority. This authority allows USAID to use program funds to hire up to 175 individuals, with a requirement to correspondingly decrease non-USDH staff. With this authority, the Agency will increase its USDH workforce by up to 350 by FY 2006 while realizing savings to its program accounts as a result of a decrease in the overhead costs it pays contractors and USG agencies for the services of USAID non-direct hire employees.

USAID is currently undertaking a detailed workforce analysis that will identify the critical skill gaps that the agency must address. USAID will use both the DRI and the Non-Career Foreign Service Officer authority to address these critical gaps, and to begin to homogenize its workforce by reducing the large number of less efficient and effective hiring mechanisms it currently uses.

DCHA Bureau Restructuring. To better integrate work on crisis, transition and recovery, the Bureau for Democracy, Conflict and Humanitarian Assistance (DCHA) will be restructured in FY 2005. The DCHA bureau will be charged with strategic interface between USAID and other U.S. Government Departments and Agencies, particularly the Departments of State and Defense, in emergency and crisis response. In task force modality, DCHA will work closely with relevant USAID bureaus to more effectively address requirements for each major event. USAID is also taking steps to develop a more robust crisis response capability. This includes recruiting, training and deploying a new cadre of Crisis, Stabilization and Governance Officers.

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 2004, USAID has funded over 290 public-private alliances with over $1 billion in USAID resources and has leveraged over $3 billion in alliance partner contributions. USAID also achieved an important alliance mainstreaming success by creating a new obligating instrument - the collaborative agreement - that provides an alternative to traditional grants and contracts for relationships with non-traditional partners. The instrument will be operational in FY 2005. USAID has recruited nearly 200 US non-profit organizations and companies to promote international voluntary service by highly skilled American professionals in support of the U.S. global health and prosperity agenda. Three-quarters of these entities are new to USAID. Of these, 30 are counted among the GDA figures noted above. About 20 of the entities are faith-based organizations.

Branding. USAID is undertaking a campaign to ensure that the American people are recognized for the billions of dollars spent on foreign assistance. To this end, we have developed a new standard "identity" that clearly communicates that our aid is from the American people. The "brand" will be used consistently on everything from publications to project plaques, food bags to folders, business cards to banners. Our goal is to create a unified image that creates an instant recognition, and to communicate that the assistance comes from the American people.

Business Transformation. To address significant management challenges and improve our accountability to the American taxpayers, the Agency will continue to modernize its business systems and support joint State-USAID goals for information technology management. Joint procurement and financial management systems will serve both agencies' needs and improve program accountability as will better integration of budgeting and performance information.

Security. By enhancing worldwide security operations and infrastructure, USAID will continue to protect USAID employees and facilities against global terrorism and national security information against espionage. The Agency will increase physical security measures, such as building upgrades, emergency communications systems, and armored vehicles; personnel security, such as background investigations and security clearances; and information security.

The Budget Request

The FY 2006 budget request for the new USAID supports U.S. foreign policy goals and national security interests. The request responds to the President's priorities, including support for the Global War on Terrorism, and helping Iraq, Afghanistan and Sudan toward stability and security. It sets priorities that use aid effectively to promote real transformation in developing countries committed to reform. It also helps states that are more vulnerable or crisis-prone to advance stability, security and reform as well as develop essential institutions and infrastructure. The assistance supports individual foreign policy objectives in geo-strategically important states, continues USAID's premier capacity to offer humanitarian and disaster relief to those in need, and addresses global ills and special concerns.

To achieve these goals, the Agency is improving its operational efficiency through its management reform initiatives. The DRI, a key human capital initiative, is providing the additional human resources necessary to staff overseas locations that are on the front line in the war on terror. The recipients of USAID's assistance, USAID employees and the U.S. taxpayers all benefit from this and other Agency business transformation initiatives such as the strategic allocation of resources, and enhanced financial management and procurement systems. USAID is also improving administrative efficiencies through collaboration with the Department of State.

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