Foreign Relations of the United States, 1969–1976, Volume IV, Foreign Assistance, International Development, Trade Policies, 1969–1972

53. Memorandum From the Director of the Office of Management and Budget (Shultz) to President Nixon¹

Washington, March 9, 1971.

SUBJECT

• Presidential authorities under the proposed “International Development Assistance Act”

In the preparation of the new foreign assistance legislation, a policy issue has arisen which needs decision before further drafting can proceed. That issue is the extent of statutory Presidential authorities over foreign aid.

In the case of security assistance (military aid and supporting assistance) and the President’s foreign assistance contingency fund, there is no issue—the basic authorities will be in the President as they are now.

The issue does relate to the proposed International Development Corporation and International Development Institute.

There are two choices:

• —Option A. The Corporation and the Institute would be created by the new International Development Assistance Act, which would include appropriate details on their structure and management. The basic authorities would be vested by the Act in the boards of the two organizations. The principal Presidential authority specified in the Act would be for the appointment of the boards and other key officers.
• —Option B. The Act would vest all basic powers and functions in the President, and would include whatever authority is needed to permit the President to create the Corporation and Institute by Executive action as well as to make appointments. The intention to create those organizations would be restated in your message to the Congress, and testimony of Administration officials would include detailed explanation of the new organization.

Arguments for Option A:

1. Both the Peterson report and your foreign aid message of September 15, 1970,² emphasized new directions for the decade of the 1970’s and these new directions will be symbolized by the new organizations. Creation by statute of the Corporation and Institute would reinforce the concept of their “independence,” business-like management, and fresh approach to foreign aid. If they are not created by statute, the argument might be made that the new legislation is a “warmed-over” Foreign Assistance Act of 1961. In this connection, the Overseas Private Investment Corporation, which assumed some of AID’s functions, was created by statute, as proposed by this Administration.

2. The success of new organizations will depend to some extent on obtaining flexibility for their management in carrying out the new programs in a business-like way. This will require persuading the Congress to refrain from applying to the Corporation and the Institute various limitations and restrictions that have burdened AID. Creation of the Corporation and Institute by statute might give greater assurance to the Congress that their management will be sounder than if they were created by executive action. Creation by statute also would give a greater impression of permanence and continuity. (Some would view this as a disadvantage.)

3. The President’s appointment power and the fact that government officials, including the Secretary of State, will serve on both boards—and will constitute a majority of the Corporation’s board—represent sufficient Presidential influence over the policies and operations of the Corporation and the Institute.

4. Option A might reinforce the intent that the two organizations will be free of short-term foreign policy considerations. (This implies, however, a narrow interpretation of Presidential interest, and the presence of the Secretary of State on the boards weakens this point.)

Arguments for Option B:

1. Currently, and generally throughout the history of our foreign aid programs, the basic authorities have been placed in the President by statute and delegated by him, through Executive order, to appropriate agencies. The logic underlying this practice is that foreign aid, as a major element in our relations with other countries, is preeminently a Presidential function and that, therefore, the President’s direct control over the administering agencies should not be diluted by authorities vested by statute in those agencies.

Option B would provide a more certain basis for Presidential control over foreign aid. Experience has shown that multi-headed agencies, as a practical matter, are more independent of Presidential influence than are single-headed agencies. Creation of the two organizations by statute might further attenuate that influence.

2. It would permit a shorter and simpler bill with a minimum of organizational specifics and, therefore, would present less of an opportunity for the Congress to legislate management and organizational detail which could hamstring the new agencies and lessen Presidential influence; e.g., by specifying staggered terms for members of the boards. (There could be, however, some adverse congressional reaction to the absence of organizational provisions in the legislation.)

3. Option B would preserve greater executive branch flexibility in two respects: (a) in the timing of an orderly transition from AID to the new institutions and the way it is carried out, and (b) in possible subsequent reassignments of functions that actual operating experience might suggest desirable.

4. The new directions for foreign aid are principally those of policy and program. To put the new organizations in statute might focus congressional attention unduly on organizational details at the expense of those new direction.

Secretary Rogers favors Option A,³ and John Hannah would probably favor it. In addition, Rudy Peterson in his consultations with members of the Congress has indicated that the Corporation and Institute will be established by statue.⁴

There is some legal dispute as to whether or not the Congress may constitutionally delegate the legislative power to create a Government corporation, although there is a precedent for this in the Rubber Act of 1948. The bill drafters are preparing both Option A and Option B, and then we will ask for the views of the Justice Department on this question. If the conclusion should be negative, Option B may require a type of agency other than a “corporation” for the development lending program.

While I believe that Option A has merit, my chief concern is Presidential influence over development assistance programs. Therefore, subject to satisfactory resolution of the legal issue, I prefer Option B.

George P. Shultz

Approve:⁵

• Option A
• Option B

See me:

1. Source: National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 195, AID 1/1/71-12/31/71. No classification marking.
2. For the Peterson Report, see Document 128. For text of the September 15, 1970, message, see Public Papers of the Presidents of the United States: Richard Nixon, 1970, pp. 745-758.
3. Document 51 and footnote 8 thereto.
4. See Document 50.
5. None of the options is checked.