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Tuesday, February 26, 2013

Does Foreign Aid Work? Efforts to Evaluate U.S. Foreign Assistance



Marian Leonardo Lawson
Analyst in Foreign Assistance

In most cases, the success or failure of U.S. foreign aid programs is not entirely clear, in part because historically, most aid programs have not been evaluated for the purpose of determining their actual impact. The purpose and methodologies of foreign aid evaluation have varied over the decades, responding to political and fiscal circumstances. Aid evaluation practices and policies have variously focused on meeting program management needs, building institutional learning, accounting for resources, informing policymakers, and building local oversight and project design capacity. Challenges to meaningful aid evaluation have varied as well, but several are recurring. Persistent challenges to effective evaluation include unclear aid objectives, funding and personnel constraints, emphasis on accountability for funds, methodological challenges, compressed timelines, country ownership and donor coordination commitments, security, and agency and personnel incentives. As a result of these challenges, aid agencies do not undertake rigorous evaluation for all foreign aid activities.

The U.S. government agencies managing foreign assistance each have their own distinct evaluation policies; these policies have come into closer alignment in the last two years than in the past. The Obama Administration’s Quadrennial Diplomacy and Development Review (QDDR) resulted in, among other things, a stated commitment to plan foreign aid budgets “based not on dollars spent, but on outcomes achieved.” This focus on evaluating the impact of foreign assistance reflects an international trend. USAID put this idea into practice by introducing a new evaluation policy in January 2011. The State Department, which began to manage a growing portion of foreign assistance over the past decade, followed suit with a similar policy in February 2012. The Millennium Challenge Corporation, notable for its demanding but little-tested approach to evaluation, also recently revised its policy. While differing in several respects, including their support for impact evaluation, the policies reflect a common emphasis on evaluation planning as a part of initial program design, transparency and accessibility of evaluation findings, and the application of data to inform future project design and allocation decisions. Aspects of the three evaluation policies are compared in Appendix A.

Though recent evaluation reform efforts have been agency-driven, Congress has considerable influence over their impact. Legislators may mandate a particular approach to evaluation directly through legislation (e.g., H.R. 3159, S. 3310 in the 112
th Congress), or can support or undermine Administration policies by controlling the appropriations necessary to implement the policies. Furthermore, Congress will largely determine how, or if, any actionable information resulting from the new approach to evaluations will influence the nation’s foreign assistance policy priorities.


Date of Report: February 13, 2013
Number of Pages: 27
Order Number: R42827
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U.S. Manufacturing in International Perspective



Marc Levinson
Section Research Manager

The health of the U.S. manufacturing sector has long been of great concern to Congress. The decline in manufacturing employment since the start of the 21st century has stimulated particular congressional interest. Members have introduced hundreds of bills intended to support domestic manufacturing activity in various ways. The proponents of such measures frequently contend that the United States is by various measures falling behind other countries in manufacturing, and they argue that this relative decline can be mitigated or reversed by government policy.

This report is designed to inform the debate over the health of U.S. manufacturing through a series of charts and tables that depict the position of the United States relative to other countries according to various metrics. Understanding which trends in manufacturing reflect factors that may be unique to the United States and which are related to broader changes in technology or consumer preferences may be helpful in formulating policies intended to aid firms or workers engaged in manufacturing activity. This report does not describe or discuss specific policy options.

The main findings are:


  • The United States remained the largest manufacturing country in 2010, although its share of global manufacturing activity has declined in recent years. 
  • Manufacturing output has grown more rapidly in the United States over the past decade than in most European countries and Japan, although it has lagged China, Korea, and other countries in Asia. 
  • Employment in manufacturing has fallen in most major manufacturing countries over the past two decades. The United States saw a disproportionately large drop between 2000 and 2010, but its decline in manufacturing employment since 1990 is in line with the changes in several European countries and Japan. 
  • U.S. manufacturers spend far more on research and development (R&D) than those in any other country, but manufacturers’ R&D spending is rising more rapidly in China, Korea, Mexico, and Taiwan. 
  • A large share of manufacturing R&D in the United States takes place in hightechnology sectors, particularly pharmaceutical and electronic instrument manufacturing, whereas in other countries a far greater proportion of manufacturers’ R&D outlays occur in medium-technology sectors such as motor vehicle and machinery manufacturing.


Date of Report: February 11, 2013
Number of Pages: 22
Order Number: R42135
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Monday, February 25, 2013

NAFTA at 20: Overview and Trade Effects



M. Angeles Villarreal
Specialist in International Trade and Finance

Ian F. Fergusson
Specialist in International Trade and Finance


The North American Free Trade Agreement (NAFTA) entered into force on January 1, 1994. The agreement was signed by President George H.W. Bush on December 17, 1992, and approved by Congress on November 20, 1993. The NAFTA Implementation Act was signed into law by President William J. Clinton on December 8, 1993 (P.L. 103-182). The overall economic impact of NAFTA is difficult to measure since trade and investment trends are influenced by numerous other economic variables, such as economic growth, inflation, and currency fluctuations. The agreement may have accelerated the trade liberalization that was already taking place, but many of these changes may have taken place with or without an agreement. Nevertheless, NAFTA is significant because it was the most comprehensive free trade agreement (FTA) negotiated at the time and contained several groundbreaking provisions. A legacy of the agreement is that it has served as a template or model for the new generation of FTAs that the United States later negotiated and it also served as a template for certain provisions in multilateral trade negotiations as part of the Uruguay Round.

The 113
th Congress faces numerous issues related to international trade. Canada and Mexico are the first and third largest U.S. trading partners, respectively. With the two countries participating in the negotiations to conclude a Trans-Pacific Partnership (TPP) free trade agreement among the United States and 10 other countries, policy issues related to NAFTA continue to be of interest for Congress. If negotiations progress, a TPP agreement could affect the rules and market access commitments governing North American trade and investment since NAFTA entered into force. A related trade policy issue in which the effects of NAFTA may be explored is the possible renewal of Trade Promotion Authority (TPA; formerly known as “fast-track authority”) to provide expedited procedures for the consideration of bills to implement trade agreements.

NAFTA was controversial when first proposed, mostly because it was the first FTA involving two wealthy, developed countries and a developing country. The political debate surrounding the agreement was divisive with proponents arguing that the agreement would help generate thousands of jobs and reduce income disparity in the region, while opponents warned that the agreement would cause huge job losses in the United States as companies moved production to Mexico to lower costs. In reality, NAFTA did not cause the huge job losses feared by the critics or the large economic gains predicted by supporters. The net overall effect of NAFTA on the U.S. economy appears to have been relatively modest, primarily because trade with Canada and Mexico account for a small percentage of U.S. GDP. However, there were worker and firm adjustment costs as the three countries adjusted to more open trade and investment among their economies.

The rising number of bilateral and regional trade agreements throughout the world and the rising presence of China in Latin America could have implications for U.S. trade policy with its NAFTA partners. Some proponents of open and rules-based trade maintain that a further deepening of economic relations with Canada and Mexico will help promote a common trade agenda with shared values and generate economic growth. Some opponents argue that the agreement has caused worker displacement and that NAFTA needs to be reopened. One possible way of doing this is through the proposed TPP. The ongoing TPP negotiations, launched in the fall of 2008, may not result in a reopening of NAFTA, but could alter some of the rules and market access commitments governing North American trade and investment.



Date of Report: February 21, 2013
Number of Pages: 34
Order Number: R42695
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Comparing G-20 Reform of the Over-the- Counter Derivatives Markets



James K. Jackson
Specialist in International Trade and Finance

Rena S. Miller
Analyst in Financial Economics


Derivatives, or financial instruments whose value is based on an underlying asset, played a key role in the financial crisis of 2008-2009. Congress directly addressed the governance of the derivatives markets through the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank; P.L. 111-203; July 21, 2010). This act, in Title VII, sought to bring the largely unregulated over-the-counter (OTC) derivatives markets under greater regulatory control and scrutiny. Pillars of this approach included mandating that certain OTC derivatives be subject to central clearing, such as through a clearinghouse, which involves posting margin to cover potential losses; greater transparency through trading on exchanges or exchange-like facilities; and reporting trades to a repository, among other reforms.

In the debates over Dodd-Frank and in subsequent years, many in Congress have raised the following important questions: If the United States takes stronger regulatory action than other countries, will business in these OTC derivatives markets shift overseas? Since OTC derivatives markets are global in nature, could derivatives trading across borders, or business for U.S. financial firms that engage in these trades, be disrupted if other countries do not adopt similar regulatory frameworks? The first step in addressing these congressional concerns is to examine the degree to which other major countries have adopted similar legislation and regulation as the United States, particularly in light of commitments from the Group of Twenty nations (G-20) to adopt certain derivatives reforms.

Following the financial crisis, G-20 leaders (generally political heads of state) established a reform agenda and priorities within that agenda for regulating and overseeing OTC derivatives. The G-20 as an organization has no enforcement capabilities, but relies on the members themselves to implement reforms. According to recent surveys, most members are making progress in meeting the self-imposed goal of implementing major reforms in derivatives markets. Only the United States appears to have met all the reforms endorsed by the G-20 members within the desired timeframe of year-end 2012.

The European Union (EU), Japan, Hong Kong, and the United States have each taken significant steps towards implementing legislation requiring central clearing. However, in most of these jurisdictions legislation has not yet been followed up with technical implementing regulations for the requirements to become effective, according to the Financial Stability Board (FSB), which conducts the surveys. Most authorities surveyed estimated that a significant proportion of interest rate derivatives would be centrally cleared by year-end 2012, but they were less confident of progress for other asset classes. The EU appeared to be making progress in its G-20 derivatives regulatory commitments, particularly in central clearing and trade repository-reporting requirements, but at a slower pace than the United States, according to the FSB. This may be due in part to the need for legislation to be passed by individual national legislatures even when agreed broadly by the EU. As of October 2012, however, only the United States had adopted legislation requiring standardized derivatives to be traded on exchanges and electronic platforms.

This report examines the G-20 recommendations for reforming OTC derivatives markets and presents the result of self-assessment surveys measuring the performance of G-20 members and some FSB members to date in meeting their commitments. The Appendix to the report presents more detailed information on the status of individual jurisdictions in implementing the G-20- endorsed reforms. The Glossary defines key international bodies and related financial terms and concepts.



Date of Report: February 19, 2013
Number of Pages: 55
Order Number: R42961
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Thursday, February 21, 2013

Argentina’s Defaulted Sovereign Debt: Dealing with the “Holdouts”



J. F. Hornbeck
Specialist in International Trade and Finance

In December 2001, Argentina suffered a severe financial crisis, leading to the largest sovereign debt default in history. In 2005, after prolonged, contentious, and unsuccessful attempts to restructure the debt, Argentina abandoned the negotiation process and made a unilateral offer. The terms were highly unfavorable to creditors, but $62.3 billion of the $81.8 billion in principal owed was exchanged. A diverse group of “holdouts” representing $18.6 billion did not tender their bonds and some have opted to litigate instead. These actions resulted in attachments orders against Argentine assets, leaving the country unable to access the international credit markets and mired in litigation. Holdout creditors also lobbied against Argentina’s debt policy, which has triggered actions by the U.S. government and legislation in Congress (H.R. 1798 and S. 912 in the 112th Congress).

The lingering effects of the debt default became a legacy problem for Argentina. The government decided to open another bond exchange in 2010 to deal with remaining holdouts, on slightly less favorable terms than before. Argentina reduced its outstanding defaulted debt by another $12.4 billion. As of December 31, 2010, Argentina reported that it owed private investors $11.2 billion ($6.8 billion in principal and $4.4 billion in past due interest). Holdout creditors estimate that with additional interest, this number could be as high as $15 billion by 2013, with $1.3 billion under litigation in federal court. Argentina also owes the Paris Club countries $6.3 billion in principal plus past due interest and penalties. The U.S. portion is estimated at $550 million.

Argentina does not recognize the remaining private holdout debt in its official financial statements and is legislatively barred from making another offer to bondholders. Nonetheless, in the eyes of holdout creditors, the bond exchanges have set a precedent that cannot be condoned, even though 91.3% of total bondholders have accepted terms. Although Argentina continues to argue that the restructurings were negotiated solutions, they were not mutually agreed ones. Bondholders had to accept or reject the offers with the alternative being the promise of no restitution at all. Holdout bondholders remain unpaid while Argentina is current on its obligations to bondholders who participated in the two bond exchanges, an outcome that is currently being challenged in court under the equal treatment provision of the bonds. Recent court decisions have left Argentine central bank assets in the United States immune from attachment, but subject to an appellate decision expected on February 27, 2013, the Argentine government could be compelled to pay litigant holdouts their full $1.3 billion claim.

The Argentine government filed its final papers before the appellate court on February 1, 2013, arguing that it would not be able to fulfill a court order requiring full payment to litigant holdouts. It did, however, suggest that to meet the concern over equal treatment it could arrange to reopen the previous bond exchange to allow those who did not participate in it to reconsider their position. Some holdouts have suggested that this may be an acceptable option. The issue remains unresolved pending outcome from the February 27, 2013, court proceedings. This report reviews Argentina’s financial crisis, the bond exchanges of 2005 and 2010, ongoing litigation, prospects for a final solution, related U.S. legislation, and broader policy issues. These include lessons on the effectiveness and cost of Argentina’s default strategy, the ability to force sovereigns to meet debt their obligations, and options for avoiding future defaults like Argentina’s.



Date of Report: February 6, 2013
Number of Pages: 20
Order Number: R41029
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