Foreign Assistance:

U.S. Use of Conditions To Achieve Economic Reforms

NSIAD-86-157: Published: Aug 25, 1986. Publicly Released: Aug 25, 1986.

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GAO discussed the conditions the Agency for International Development (AID) set as part of its Economic Support Fund (ESF) balance-of-payments assistance to Costa Rica, the Dominican Republic, Jamaica, and Liberia, focusing on whether the: (1) countries complied with the conditions and what factors affected their compliance; and (2) United States can achieve its objectives in these countries through compliance with the conditions.

GAO found that: (1) Costa Rica complied with the conditions AID set because AID provided a high level of assistance; (2) Costa Rica reduced inflation and its current account deficit from 1980 through 1984 and registered gains in real gross domestic product (GDP) from 1983 through 1985, but its foreign debt increased; (3) the Dominican Republic was reluctant to undertake economic reforms because of political considerations, but when AID provided higher levels of assistance, its government adopted appropriate reforms; (4) the Dominican Republic still faced high inflation, its 1985 real GDP growth rate declined, and its foreign debt increased from 1980 through 1984; (5) while AID credited Jamaica with compliance, U.S. political interests in Jamaica weakened AID leverage; (6) despite some improvements, Jamaica continues to have economic difficulties because of declines in tourism and traditional exports, and its foreign debt is increasing; (7) while the Liberian government undertook some reforms and complied with ESF conditions, extrabudgetary expenditures by its leader and external market conditions have hampered its economic recovery; and (8) Liberia is experiencing massive economic problems because of arrearages in its external debt obligations, and its foreign debt is increasing. GAO believes that, given current economic conditions in these and other countries, and the rising debt-service burdens the countries face, it is likely that the United States will need to increase levels of ESF balance-of-payments support in the foreseeable future.

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