The United States Freezes Foreign Aid Programs
Quick Hit: January 26, 2024
On January 20th President Trump signed an executive order entitled “Reevaluating and Realigning United States Foreign Aid.” In it he ordered a 90 day freeze to all foreign aid programs in order to conduct an “assessment of programmatic efficiencies and consistency with United States foreign policy.”
Throughout last week people working in the international development space remained uncertain about what this meant but not necessarily panicked. There was a basic assumption that ongoing contracts and in-process projects would not be affected but all new spending and allocations would be paused for a review. That assumption held until Friday when Secretary of State Marco Rubio sent out a cable to all diplomatic posts ordering a near total freeze in new spending and a full “stop work” order for ongoing project in all departments involved in American foreign aid. At this point chaos and panic set in.
This order is the first critical intersection of the Trump Administration and Moldova and will likely be Moldova’s first test of diplomacy in the new Trump era. In the United States this news barely registered - Trump withdrew the US from the WHO and the Paris Climate Accords; he suspended (pending firing) all federal employees working on diversity initiatives; he removed civil service protections from some federal employees and required all of them to return to the office in 30 days1; and Friday night he conducted a mass firing of Inspectors General in a move being universally called “blatantly illegal.” Meanwhile, Trump spoke to the Danish Prime Minister demanding that he ceed Greenland in a call that has been described as “horrendous” and “aggressive” by local government officials.
So it’s been a busy week in the US and foreign aid is, and will remain, low on the priority list for most Americans and most of the press.
In Moldova however this is going to have a seismic impact starting tomorrow. So let’s dive in.
What the Order Envisions
The process outlined by the State Department calls for an immediate “stop work” order for all international aid projects. It includes a waiver for emergency food assistance and for military financing for Israel and Egypt. There is no explicit waiver for any other countries including Ukraine. Under the executive order, Secretary of State Marco Rubio is responsible for granting emergency waivers where he sees fit.
The executive order called for a 90 day freeze and the cable outlined a plan to conduct the review in 85 days in order to meet this deadline. This envisions a 30 day process of developing a methodology for the review and then 55 days to conduct this review.
What this Means Right Now
The United States is the largest single donor to foreign development programs in the world. That aid is supplied through a variety of channels and organizations in an extraordinarily complex web. Because of this, and because projects and financing commitments are all at different stages, this order is going to hit each stakeholder differently.
From what we know right now direct assistance projects such as those dispersed by US Embassies and new awards from USAID will freeze. But the freeze will trickle down further than that as well. USAID is a major aid supplier in Moldova and works via companies that are called implementing partners. These companies bid on multi-year projects and are responsible for actually doing the work while the USAID office monitors them and develops new projects.
In this freeze implementing partners with ongoing contracts are being told to “stop work” but will be able to continue paying their staff. How exactly this will work is unclear but it appears as if they will be sending their teams on paid leave.
For projects that provide technical assistance / advisory and consultancy services this means that the projects will simply stop. Technical experts and advisors will not be able to continue advising the Moldovan government or their assigned partners.
For projects that supply sub-grants to local NGOs the freeze is likely to impact them in different ways. If a local NGO has money in their accounts they can likely continue working. If they are waiting for a funding tranche, dispersement or new contract then they may be waiting for a while.
There is no one size fits all way to describe the impact of this. Each program is likely to have a different process based on where their project is at. What is clear is that this stop order is maximalist in nature.
If work can be stopped, it will be stopped.
The Impact in Moldova
If these aid programs remain suspended in Moldova for the full 90 days the impact will be catastrophic. Most pressing in the near term will be impacts on Moldova’s struggle to manage the energy crisis.
USAID has multiple programs assisting Moldova on energy security questions with budget allocations over $300 million dollars. This includes a $144 million dollar project assisting Moldova with connecting to the EU energy grid and attracting investments in renewables and energy infrastructure. It also includes projects providing technical expertise for energy market regulation and international market interactions including contracting and purchasing.
As the country races to connect directly to the Romanian grid by the end of the year a 3 month pause in critical elements of this process could severely endanger the country’s ongoing energy security.
USAID additionally funds dozens of programs supporting justice reform, rule of law efforts, efforts to combat disinformation, economic digitization and reform, structural market reforms, rural tourism and competitiveness, cybersecurity resilience, independent media support and much much more.
In addition to USAID other programs managed by the US Embassy also provide assistance in a variety of critical areas.
Medium term, major funding disruptions or program cancelations could seriously endanger Moldova’s ability to counter Russian disinformation at a critical time. The United States is the largest supporter of independent media in Moldova by far.
What Programs Will Survive the Review?
A three month freeze is a disaster by itself. Many people will go without pay and organizations reliant on donor funds will scramble to try and keep the lights on. But what happens in 90 days? Does everything start back up again?
What the actual review itself will entail is unknown. Republican priorities such as eliminating diversity programs, promotions of LGBTQ+ rights, etc will almost certainly drive decisions about what programs to eliminate. Back in December we wrote about how the incoming Trump Administration had outlined plans for reforming foreign aid to refocus it on more transactional relationships and towards countering China. Strategic considerations like this are also likely to drive the review and new administration’s policies.
At the core though, we have no idea right now what will reemerge at the other end of the review process.
Yesterday Ukrainian President Volodymyr Zelenskyy held a joint press conference with Moldovan President Maia Sandu as part of her recent visit to Kyiv. In it, he was asked whether aid to Ukraine was frozen and he replied:
“I am focused on military aid; it has not been stopped, thank God,”
Zelenskyy pointedly dodged questions about economic and humanitarian aid. In part this situation likely reflects efforts of the outgoing Biden Administration to provide final tranches of support structured to make it hard for Trump to recall it2.
So it is likely that the reported text of the cable is accurate and there is no carveout for Ukraine - just residual funds that are already in motion.
The fact that Ukraine does not have any exemption in this process is an extremely alarming sign for Moldova.
What Comes Next?
The Trump Administration has set up a situation whereby massive financial resources are frozen under unclear orders and with broad discretion given to the Secretary of State to determine what should restart when. So now the lobbying begins.
Countries that receive aid, companies that implement programs, pressure groups interested in specific causes (e.g. critical HIV/AIDS programs in Africa are frozen) and other stakeholders with financial, political, health and moral investments in this process will all try and make their voices heard.
USAID and other major agencies will probably be tasked with conducting their own technical review under guidelines from the State Department. The Secretary of State will be responsible for emergency waivers. Congress will likely put pressure on this whole process as they set up most of these programs in the first place. There is about to be a global race to grab the ear of someone, anyone, who can get your specific program moving again - or to prevent it from being canceled in the review process.
In addition to this, EU based donors are already getting overwhelmed with calls from orphaned projects and initiatives. Organizations with payroll to make and projects at risk of collapsing will all rush towards other donors who will themselves be overwhelmed. This is already happening for those paying close attention. When donors start returning calls on Monday a rush will turn into a stampede.
So this is the first test of Moldova’s ability to manage the Trump Administration. As I wrote in December the United States is moving towards a more transactional foreign policy and will be making decisions outside the traditional norms and channels that have governed the nation for decades. How Moldova chooses to make the case for its interests here will give us some idea of how this very small country will try and navigate the turbulent years to come.
Meanwhile, while Americans are paying attention to the massive political turbulence at home, the United States has chosen to torch its credibility and soft power abroad. Whether or not this drives the EU to aggressively fill the gap remains unclear.
One week into the Trump Administration one thing that is clear is that things are changing fast.
These actions understood to be designed to push large number of Federal employees to resign so they can be replaced by political loyalists.
For example, $20 billion dollars in Ukraine loan funds were transferred to the World Bank back in December for them to administer.
Dave, thanks for a very thorough and unbiased explanation of this very serious and critical policy.
May I suggest, with your excellent understanding of such policy moves that Moldova has you on whatever policy team as an advisor for your excellent understanding.