U.S. aid chief faces Republican budget cutters

WASHINGTON (Reuters) - With Republicans ready to slash foreign aid, the head of the U.S. development agency pledged on Wednesday to cut millions of dollars in costs as the Obama administration seeks to salvage foreign assistance as a key plank of U.S. foreign policy.

Rajiv Shah, the administrator of the U.S. Agency for International Development (USAID), said administrative reforms, procurement changes and better contract management would save hundreds of millions of dollars -- but only if USAID is allowed to push ahead with its plan to expand and restructure.

“We’re making those hard decisions and tough changes,” Shah told Reuters in an interview, saying skeptics on Capitol Hill must be persuaded that overseas aid is an essential part of U.S. security strategy for coming decades.

“We need our partners on the Hill in both parties to recognize that, done well, development saves lives and improves economic opportunities, and needs to be elevated and not cut.”

Republicans took control of the U.S. House of Representatives in November and some, including the new chair of the House Foreign Affairs Committee Ileana Ros-Lehtinen, have promised to take a tough new look at President Barack Obama’s plan to nearly double the U.S. aid budget to $52 billion by 2015.

By contrast, the Pentagon’s budget request for fiscal 2011 was more than $700 billion -- although U.S. military planners are also looking at spending cuts in the future as U.S. political leaders grapple with the ballooning deficits.

The cost-cutting drive is a challenge to Obama and Secretary of State Hillary Clinton, who have both said that the United States needs to employ “smart power” such as overseas assistance to stabilize poor countries and fend off future threats such as those posed by Islamic militants.

The administration has sought $52.8 billion to cover both State Department and foreign assistance in the 2011 fiscal year, about two-thirds of which is earmarked for aid spending, chiefly in Iraq, Afghanistan and Pakistan.

Shah, in a speech on Wednesday, outlined steps USAID is taking to improve its balance sheet, including moving costly senior jobs from places such as Paris and Tokyo, reducing its real estate portfolio and doing more work with in-house experts rather than expensive contractors.

REFORMING A BUREAUCRACY

Administrative changes alone can save about $65 million in operating expenses, Shah said, adding that the “leaner, meaner” aid agency he is trying to create will ultimately be a more effective tool of U.S. foreign policy.

“We’re actually embarking on perhaps the most aggressive operational reform of a major federal bureaucracy,” Shah said. “If we get the support for it, we will save American taxpayers hundreds of millions of dollars over time.”

USAID is accelerating plans to “graduate” countries from U.S. assistance packages. The first of these, Montenegro, can expect to see U.S. development support end in 2012 and at least six others are also likely to see U.S. money dry up, he said.

Shah has faced challenges since taking the helm at USAID in 2009, particularly in Afghanistan and Pakistan where U.S. hopes to bolster civilian development to support the military campaign against Islamic militants have been dogged by security problems.

Haiti’s catastrophic earthquake in January 2010 also put USAID on the spot, with U.S. promises to help the impoverished country “build back better” hitting hurdles including storms, a cholera outbreak and a political crisis.

In both cases, Shah said USAID was focused on a longer timeline, hoping to improve Afghanistan’s rural economy and to put the building blocks in place for Haiti to emerge with a stronger and more resilient economy.

“Many of the wins and the benefits that we want to put in place to build back better materialize over several years, not on a six-month time horizon,” he said.

Shah said that further reforms this year would help USAID improve efficiencies, including shifting more work from established multinational development contractors to smaller, local groups which can work more cheaply.

But he said the basic message to Republicans, made recently both by Obama’s Democratic appointees and key military leaders, was that overseas development aid makes America safer.

“Our military colleagues refer to us as ... high value partners,” Shah said. “(But) we as a country make a decision to dramatically underfund development time and again.”