Terms of endowment : a new A.I.D. approach to institutional development

Missions and host governments in Latin America and the Caribbean have worked together to establish endowments for existing and new institutions. While many of these endowments are being used to strengthen the institution"s financial base, others serve as innovative mechanisms for transferring key development functions from the inefficient public sector to the more entrepreneurial and non-bureaucratic private sector, typically to a non-profit private foundation or other non-governmental organization. Currently, nine A.I.D.-endowed institutions in Costa Rica, Ecuador, Honduras, Dominican Republic, and Portgual are performing development roles in such areas as agricultural research, natural resource management, and trade and investment promotion. (A review of these endowments is included in the present report.) Funding for endowments has come primarily from Economic Support Fund and P.L. 480 food program local currency generations, though the new Debt-for-Development Initiative now allows the use of dollar currency for this purpose. Interest earned on these funds may be reinvested in the endowment or used for stipulated development activities. Endowment agreements also generally stipulate that A.I.D. funds be invested, either in country or overseas; some agreements contain matching formulas as an incentive for the organization to diversify its resource base. In granting endowments, Missions are careful to avoid duplicating and displacing government institutions. They are also aware of the need to keep organizations with guaranteed endowment income from yielding to organizational inertia, and to protect the endowment from political interference, the devaluation consequent upon economic instability, and financial mismanagement.