When President Jimmy Carter entered office in 1977, he made human rights an important priority in U.S. foreign policy, and this focus led him to cut back on aid to such brutal regimes as that of Ethiopia's Mengistu Haile-Mariam. Military aid, however, continued to the Somalian enemies of the now Soviet-backed Mengistu; by 1980, 75 percent of total African aid was going to the Horn of Africa, reflecting Cold War priorities. Carter's human rights campaign helped reform oppressive governments in Brazil and Argentina, but elsewhere, such as in El Salvador, South Korea, and China, Carter's message was more inconsistently applied, with security interests outweighing human rights concerns. Most egregious, perhaps, was his approach to Iran, where Carter, despite strong congressional criticism, sold the shah of Iran sophisticated AWACS radar systems. American support for the shah helped lead to the revolution of Ayatollah Khomeini. At the same time, Carter administration officials sought to deflect criticisms that USAID was a U.S. foreign policy "tool," and they removed it from the State Department, placing it under the new International Development Cooperation Agency (IDCA). USAID remained closely connected with the State Department, however, and foreign aid continued to serve America's state interests. (The IDCA was closed down in 1998.) Carter also continued a practice begun in the wake of the 1973 Yom Kippur War of extending heavy aid to the Middle East, especially Israel and Egypt, following the 1978 Camp David peace accords between those two nations. In 2001 Egypt and Israel remained the largest recipients of U.S. foreign aid.
When Ronald Reagan entered office, his rhetoric harked back to the Eisenhower administration in its emphasis on traditional liberal capitalist models of development that would stimulate private investment, an outlook that over the following decade slowly took hold in the foreign policy establishment, replacing the 1970s New Directions ethos. By the 1990s, this model was manifest in the foreign aid establishment's support for globalization, essentially a process that promotes the opening of national borders and the internationalization of economic and social ties through capitalist models of free trade and investment. However, in the 1980s, USAID administrator M. Peter McPherson could still insist that overpopulation, not underinvestment, corruption, and mismanagement, was the "primary obstacle" to Third World development. Indeed, the United States continued to fund hopelessly crooked regimes in order to keep them from linking up with the Soviet Union, like that of Mobuto Sese Seko in Zaire (now the Democratic Republic of the Congo). As an exasperated USAID official noted later, Washington's $2 billion investment in Zaire "served no purpose."
During the Reagan administration military aid once again became a high priority, with more than 40 percent of U.S. bilateral aid being distributed in the form of loans for military training and equipment between 1981 and 1986. Outside of Israel and Egypt, a good deal of this aid went to Central America's anti-leftist regimes, including the government of El Salvador. Another key shift in foreign aid in the Reagan era was the new importance placed on Africa. Owing in part to the efforts of a growing number of African-American members of Congress, as well as the increasingly influential nongovernmental organizations, Congress created the Development Fund for Africa, which, as Carol Lancaster notes could not be "raided" by other programs. By the early 1990s, the U.S. African effort had more than recovered from the cutbacks of the early 1970s. USAID had programs in forty-three African countries, with thirty field missions.
While the United States certainly changed priorities in its economic aid programs in the wake of Vietnam, Congress was ready to gut military programs in this era. In 1976, President Gerald Ford tried to stem congressional zeal for cutting military assistance, as exemplified in the Foreign Assistance Act of 1974, which called for such aid to be "reduced and terminated as rapidly as feasibly consistent with the security of the United States." Ford compromised by cutting such assistance in the 1977 budget. However, Congress then passed the International Security Assistant and Arms Export Control Act of 1976, which made legislators the final arbiter of arms transfers and deployment of military advisers abroad.
The 1980s, however, also saw a growing debt crisis in the Third World, as many countries defaulted on their foreign obligations. In Africa, debt grew from $55 billion to $160 billion between 1980 and 1990, and servicing the debt proved a crippling task for many governments. The International Monetary Fund and other multilateral agencies, reflecting the growing ethos of "neo-liberalism" in this era, emphasized the importance of markets and market-based reforms to get nations out of debt. Continued aid was made contingent upon policy reforms designed to bring stabilization, such as cutbacks on borrowing and currency devaluation. Gambia, for instance, devalued by 90 percent. In Nigeria, the World Bank made loans conditional on the ending of subsidies and large-scale irrigation schemes and the furthering of market reforms. In many countries, however, these changes often proved as difficult and culturally dissonant as cattle raising had in the 1970s. As Nguyuru Lipumba noted in a 1988 article, in countries like Tanzania, "streamlining public enterprises and letting them operate as commercial enterprises … without central government interference is considered a secondbest policy."