The portion of America's foreign assistance that is designated as security assistance is already supporting the nation's war on terrorism by strengthening U.S. allies. This is particularly true for security assistance to friendly governments in regions like Central Asia, the Middle East, and North Africa that have been hotbeds for terrorist activity.

By law, America may not provide development assistance to the seven states identified by the U.S. Department of State as sponsors of terrorism: Cuba, Iran, Iraq, Libya, North Korea, Sudan, and Syria. This is not the case for America's allies, international financial institutions, or international organizations, all of which regularly disburse development assistance to state sponsors of terrorism.

Development assistance should also be enlisted in America's strategy to combat terrorists. To accomplish this, America must:

• Deny governments of states that sponsor terrorism any U.S. security, development, and humanitarian assistance;

• Condition disbursement of development assistance to countries with foreign terrorist organizations within their borders on their cooperation with America's war on terrorism;

• Encourage America's allies to prohibit development assistance to any country sponsoring or harboring terrorists;

• Block funding from international financial institutions, particularly the International Monetary Fund and the World Bank, to states that sponsor or harbor terrorists; and

• Require U.S. executive directors of international financial institutions, particularly the International Monetary Fund and the World Bank, to demand official votes when financial institutions consider development assistance to terrorist sponsoring states.

STATE SPONSORSHIP OF TERRORISM

A key element in America's war against terrorism will be to cut off foreign terrorist organizations from their financial resources. Most attention thus far has focused on policing private markets as foreign terrorist organizations increasingly are funded independently from states. It would be a mistake, however, to overlook the importance of assistance from the United States, other nations, and multilateral organizations or international financial institutions in the war on terrorism.

America's security assistance to states that oppose terrorist activities, particularly to Israel and moderate Muslim governments, is critical to winning this war. Recipients of U.S. security assistance often are natural allies in combating foreign terrorist organizations because they, as much as the United States, are targets of terrorists. As noted by President George W. Bush in his September 20 speech before a joint session of Congress, "[Terrorists] want to overthrow existing governments in many Muslim countries, such as Egypt, Saudi Arabia, and Jordan. They want to drive Israel out of the Middle East. They want to drive Christians and Jews out of vast regions of Asia and Africa." America therefore should continue to support its allies with security assistance.

Of equal importance, however, is the need to block development assistance to states that sponsor terrorism. Before the advent of private financing of terrorist activities, foreign terrorist organizations were funded predominantly by governments, and these groups remain dependent on sympathetic governments for protection and bases from which to operate.² If America and her allies successfully curtail private financing of terrorism, these groups may again turn to states for financial support. Therefore, cutting off governments that support terrorism from development assistance is a logical complement to policing and curtailing private financing of terrorist activities.

Because of the fungibility of money, development assistance can support terrorism. Even if development assistance is not provided specifically to support terrorist activities, it increases the overall amount of resources available to recipients. If those recipients support foreign terrorist organizations, increasing available funding enables them to increase their support of terrorism. Moreover, providing development assistance to states that support or tolerate foreign terrorist organizations within their borders rewards them for their criminally negligent attitude toward combating terrorism.

There are two sources of development assistance: individual countries that provide "bilateral" development assistance and international organizations that provide "multilateral" development assistance.

• Bilateral development assistance . The largest source of development assistance for many countries is given bilaterally from individual donor nations. Individual nations of the Development Assistance Committee (DAC) disbursed $56.4 billion in development assistance in 1999.³ Japan disbursed the most development assistance at $15.3 billion, and France and Germany were third and fourth at $5.6 billion and $5.5 billion, respectively.⁴ The United States was second in the total amount of development assistance disbursed at $9.2 billion in 1999.⁵

  The Secretary of State officially recognizes seven "state sponsors of terrorism"--Cuba, Iran, Iraq, Libya, North Korea, Sudan, and Syria⁶ --that may not receive development assistance from the U.S. The U.S. appropriated $57 million for foreign assistance to those countries in 2001, but that aid was directed toward undermining the governments in those countries or directly aiding the people suffering under them .⁷ (See Table 2.)

  Other donor governments are not subject to these restrictions. For instance, Germany, Japan, the United Nations High Commissioner for Refugees, Austria, and France are the top five donors of net official development assistance (ODA), averaged from 1998 and 1999, to Iran; and Germany, Norway, the European Commission, the United Kingdom, and the Netherlands are the top five donors to Iraq. All told, the seven state sponsors of terrorism received $974 million in net ODA (average of 1998 and 1999). (See Table 1.)

  The restriction on U.S. aid does not extend to countries that, while not designated as terrorist sponsoring states, have terrorist activities within their borders.⁸ Leaving aside Greece, Japan, and the Basque Region of northern Spain and southwestern France, which do not receive development assistance, the United States was among the top five donors of net ODA, averaged from 1998 and 1999, to nine of the 15 states having active foreign terrorist organizations.⁹ (See Table 1.) The United States provided assistance of some sort (development, humanitarian, or security) to each of the 15 countries with active foreign terrorist organizations within their borders in 2001.¹⁰ (See Table 2.)

• Multilateral development assistance . Of the seven "state sponsors of terrorism" officially recognized by the United States, all but Cuba and North Korea are members of the International Monetary Fund and the World Bank.¹¹ Iraq, Sudan, and Syria were ineligible for either IMF (Sudan) or World Bank (Iraq, Sudan, and Syria) assistance according to the institutions' respective 2000 annual reports--not for sponsoring terrorism but for their failure to meet their financial obligations to the institutions.¹² Upon meeting their obligations or coming to an agreement with the institutions for repayment, these countries would again be eligible for IMF and World Bank assistance.

  Four of the five terrorist sponsoring states that are members of the IMF and the World Bank (with Libya the sole exception) have received funding from those institutions. (See Table 3.) Within the past 20 years, Iran and Syria received $625 million and $265.3 million, respectively, from the World Bank and Sudan received $1.8 billion from the IMF and the World Bank.¹³ Iran currently has six ongoing World Bank projects.¹⁴ Moreover, the IMF and the World Bank provide huge amounts of assistance to the 15 countries with active foreign terrorist organizations within their borders. Afghanistan, which has been harboring Osama bin Laden, is a member of the IMF and the World Bank and has received 20 World Bank loans totaling over $230 million.¹⁵ All told, 11 of the 15 countries have received over $1 billion from the IMF and the World Bank.¹⁶ (See Table 3.)

CUTTING OFF THE MONEY

The first priority in fighting the financial front of the war on terrorism should be policing and curbing private financial transactions, as they are currently the primary source of funding for terrorist activities.¹⁷ As noted by the U.S. Department of State,

State sponsorship has decreased over the past several decades. As it decreases, it becomes increasingly important for all countries to adopt a "zero tolerance" for terrorist activity within their borders. Terrorists will seek safe haven in those areas where they are able to avoid the rule of law and to travel, prepare, raise funds, and operate.¹⁸

While state sponsorship of terrorism has decreased in recent years, it is reasonable to assume that such financing could rebound if private financing becomes more difficult. Moreover, terrorists need nations to harbor them, and such states should not be supported through development assistance. Therefore, America should enlist development assistance in its war on terrorism if President Bush is to fulfill his promise to "starve terrorists of funding."¹⁹

A comprehensive campaign to discourage countries from harboring terrorists and encourage them to provide information to aid America's search for terrorists should include the following steps:

• Expand prohibitions on U.S. assistance to governments supporting international terrorism . Any state sponsoring terrorism is an adversary of the U.S. in its current conflict and should not receive any succor. Current U.S. law prohibits economic development assistance, the Peace Corps, the Export-Import Bank, and assistance provided for under the Agricultural Trade Development and Assistance Act of 1954 "to governments that have `repeatedly provided support for acts of international terrorism'."²⁰ Despite this prohibition, the U.S. provided $57 million to support programs in the seven state sponsors of terrorism identified by the U.S. Secretary of State.

  Although this assistance was not given to the governments of those seven sponsors, the United States should make the current prohibition under law more explicit to prohibit all assistance--development, humanitarian, and security--to governments sponsoring terrorist activities. If the U.S. decides to provide assistance to those countries, it should be provided through non-governmental organizations or other groups, provided they have verifiable evidence that they are not working with or through the government of the state sponsor of terrorism, or to groups working to overthrow the terrorist sponsoring regime.

• Demand that recipients of U.S. development assistance that have active foreign terrorist organizations within their borders cooperate in America's war on terrorism . Countries such as Egypt, Israel, and Saudi Arabia have individuals or groups within their territory that support or finance terrorism even though the governments do not themselves support terrorism and are valuable allies of the United States. For instance, prior to September 11, Osama bin Laden was receiving between $1 million and $2 million from Saudi Arabia per month from individual donations through mosques and other means.²¹

  Cutting these countries off from U.S. assistance, particularly security assistance, would be counterproductive. These governments--particularly moderate governments in Central Asia, the Middle East, and North Africa--are as much targets of radical terrorist attacks as the United States. Overt support for the U.S. in its war on terrorism, such as allowing U.S. military bases in their territory or supplying troops to fight alongside of America's, might make these governments greater targets for terrorist activities.

  These nations can, however, provide valuable support for the war on terrorism by other means. Therefore, the Administration should demand that aid recipients support U.S. efforts to combat terrorism in other ways, such as supporting the U.S. in international bodies like the United Nations; sharing intelligence on terrorist activities; approving the use of airspace for strikes against foreign terrorist organizations; and providing the right for temporary use of ground, port, or air facilities for use in the fight against terrorism. Obviously, the conditions must be tailored to the country involved, but the overall quid pro quo of cooperation in return for development assistance should be comprehensive. The Administration should reevaluate aid policy toward unhelpful nations.

• Encourage other nations to prohibit development assistance to any country sponsoring or harboring terrorists . Although America is a major source of development assistance, following only Japan in the dollar amount of such aid disbursed annually, restrictions on American development assistance alone will not significantly curtail the amount of development assistance given to terrorist sponsoring states or the amount given to states with active foreign terrorist organizations within their borders. As illustrated in Table 1, the European Commission and individual donor nations provided billions in development assistance to terrorist sponsoring states and states that have active foreign terrorist organizations in 1999.²²

  Therefore, the Administration must work with U.S. allies to ensure that they adopt restrictions on bilateral development assistance to terrorist sponsoring states that complement U.S. restrictions or, at the very least, do not undermine U.S. objectives by supporting states that sponsor terrorism.

• Build a coalition of allies to block funding from international financial institutions to states that sponsor or harbor terrorists . International financial institutions, like the International Monetary Fund and the World Bank, lend to states that support terrorism. Their Articles of Agreement do not allow those institutions to prohibit lending to countries that undermine international peace and stability by supporting foreign terrorist organizations.

  This loophole must be closed to prevent multilateral funding for terrorist sponsoring states. There are two options: block approval of loans and grants to terrorist sponsoring states or amend the respective articles or charters governing individual institutions. Both strategies require the U.S. to assemble a coalition of member states with sufficient numbers and voting power to block loans to terrorist sponsoring states.

  Blocking a loan requires a majority of the voting stock, which can be accomplished with the support of France, Germany, Japan, the United Kingdom, and two to three voting blocs²³ in the World Bank and with the support of only nine other nations (Australia, Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, and the United Kingdom) in the IMF.²⁴ Creating a coalition to block loans to terrorist sponsoring states is easier to accomplish than amending the articles or charters of multilateral organizations, because it requires fewer countries and less voting stock and can likely be assembled with America's European allies and Japan. For instance, amending the articles of the IMF and the World Bank requires the support of three-fifths of the membership and 85 percent of the voting stock.²⁵ However, blocking loans lacks the permanency of amending articles or charters.

  If the members of these institutions refuse to prohibit lending to terrorist sponsoring states, the U.S. should refuse to approve future quota increases for the IMF, replenishments for the International Development Association of the World Bank, or increased capital subscriptions for the International Bank for Reconstruction and Development.

• Require U.S. executive directors to demand official votes when international financial institutions consider development assistance to terrorist sponsoring states as determined by the Secretary of State . The U.S. can take unilateral action to increase the likelihood of blocking loans to terrorist states by amending the "voice and vote" laws of the United States. Currently, the law requires the Secretary of the Treasury to

  instruct the United States executive director of each international financial institution to use the voice and vote of the United States to oppose any loan or other use of funds of the respective institutions to or for a country for which the Secretary of State has made a determination under section 2405(j) of title 50, Appendix, or section 2371 of this title [which prohibits assistance to governments that have "repeatedly provided support for acts of international terrorism"].²⁶

  As former U.S. Executive Director to the IMF Karin Lissakers has testified, the IMF voted on only about a dozen of over 2,000 financial and procedural decisions during her four-year tenure--in other words, U.S. intentions were circumvented 99.4 percent of the time because the IMF almost never votes.²⁷ The Administration should demand that all votes involving loans or credits to countries sponsoring or harboring terrorists be official and released to the public. A recorded vote would put U.S. allies on record--a situation that should discourage votes in favor of loans for terrorist sponsoring states.

CONCLUSION

Terrorists require governments to provide protection from international justice and military retribution. President Bush demonstrated his awareness of this fact in his September 20 speech before a joint session of Congress by declaring that "[W]e will pursue nations that provide aid or safe haven to terrorism.... From this day forward, any nation that continues to harbor or support terrorism will be regarded by the United States as a hostile regime."

It makes little sense for America to provide millions in development assistance to its adversaries. To fulfill the President's promise to combat terrorism, America and its allies in the war on terrorism must cut off foreign terrorist organizations and the countries that harbor them from international financial flows through greater oversight of and restrictions on official development assistance, both bilateral and multilateral, to terrorist sponsoring states.

Brett D. Schaefer is Jay Kingham Fellow in International Regulatory Affairs in the Center for International Trade and Economics (CITE) at The Heritage Foundation.

Endnotes