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

79. Action Memorandum From the President’s Assistant for National Security Affairs (Kissinger) to President Nixon¹

Washington, undated.

SUBJECT

• Foreign Aid Budget for 1973

The memorandum from George Shultz at Tab 1 summarizes OMB’s FY 73 budget recommendations for foreign aid, both security and development.

In brief, the recommended FY 73 program is tight but adequate to support our foreign policy objectives. The following table highlights the new obligational authority changes from the 1972 budget and current estimate (based on the conference and Senate-passed authorization bill).

($ millions)	72 Budget	72 Estimate	73 Recommendation
Security Assistance	1,978	1,518	2,048
Development and Humanitarian Assistance	2,808	2,516	2,657
Contingency Fund	100	30	50
Total, Foreign Assistance	4,886	4,064	4,755

(A more detailed table is at Tab 2)²

Your security assistance request will be slightly above that requested and 25 percent above what we anticipate the Congress will give us for FY 72. Your economic assistance request will be about $150M less than you sought, and about an equal amount more than we expect Congress to provide, for FY 72.

Significant items include the following: The $60M Thai program has been transferred from the Defense budget to MAP in conformity with the pending aid authorization bill. The increase in supporting assistance from $763 to $811M results from the withdrawal of U.S. forces from Vietnam and the consequent need to supplement GVN foreign exchange earnings. The Indonesian program includes $25M in MAP and $115M in development loans, reflecting your recent decision on the U.S. pledge to Indonesia. South Asian relief needs are highly uncertain; therefore, we recommend $100M be included in the budget with an indication that a supplemental appropriation may be needed later.

George Shultz’ recommendation is that we only go for $50M for the Contingency Fund. His rationale is that the Congress has in the past been reluctant to approve our requests. Indeed, there is only $30M in the current authorization bill, and the appropriation is likely to be reduced even further. Congress looks with suspicion on what it sees as an uncontrolled amount. The uncertainties which we can expect, in particular those associated with relief for South Asia and possible additional security needs in Southeast Asia, warrant our asking for a larger amount. I recommend you request $100M for the 1973 Contingency Fund rather than the $50M George has proposed.

Recommendation:³

That you approve the proposals as submitted by George Shultz with an addition of $50M to the Contingency Fund, making a total of $100M.

Tab 1

Washington, December 23, 1971.

Memorandum From the Director of the Office of Management and Budget (Shultz) to President Nixon

SUBJECT

• Foreign Aid Budget for 1973

This memorandum summarizes our 1973 Budget recommendations for foreign aid, both security and development.⁴

In brief, our recommendations for foreign assistance in 1973 total $4,755 million in budget authority and $3,177 million in outlays. The 1972 Budget request was $4,886 million in budget authority and $3,482 million in outlays. The 1972 current estimate figures contained in the following tables are based, where applicable, on the amounts that would be authorized by the foreign assistance authorization bill which has been agreed to by the conferees and passed by the Senate. Those figures, which we propose be carried in the Budget rather than the original request, total $4,064 million in budget authority and $3,101 in outlays. (See attached table for a detailed summary, Tab A.)⁵

Security Assistance

	1972		1973
	Budget	Current Est.	Agency Reg.	OMB Recom.
		($ millions)
Military Assistance— grants and credit sales:
Program level	1,314	1,095	1,458	1,429
Budget authority	1,215	900	1,343	1,237
Outlays	1,090	941	895	877

Our recommendation would be adequate to support our foreign policy objectives, but would require some restraint in using resources to meet those objectives or new requirements. The grant program is higher than the level requested for 1972, reflecting principally the funding of the Thailand program in the regular military assistance grant program rather than in the Defense budget; this change would be required under the pending foreign assistance authorization bill. The chances of obtaining a repeal of that requirement would be very small. The appropriation which would be requested for grants would be about the same as for 1972 in order to reflect the availability of excess defense materiel and encourage its use to reduce the need for appropriated funds. The recommended total budget authority for grants and credits is close to the level requested for 1972 but considerably more than the Congress is likely to provide this year.

The bulk of the grant funds would be for Cambodia ($225 million), Korea ($220 million), Turkey ($100 million), Thailand ($60 million), Jordan ($45 million), and Indonesia ($25 million). The amount for credit sales would include $300 million for Israel, $75 million for Latin America, $60 million for Greece, and $55 million for Taiwan. (See attached tables for country detail, Tabs B and C.)

Economic Supporting Assistance:
Program level	806	733	915	890
Budget authority	763	618	880	811
Outlays	648	584	811	796

The increase in economic supporting assistance is largely due to the need to replace declining South Vietnamese foreign exchange earnings resulting from the withdrawal of American forces. The increase would permit continued financing of imports into Vietnam at about $750 million annually. Of the total supporting assistance program of $890 million, $633 million would be for South Vietnam, $90 million for Cambodia, $50 million for Laos, $40 million for Jordan, and $26 million for Thailand. (See attached table for country detail, Tab D.)

Development Assistance

	1972		1973
	Budget	Current Est.	Agency Reg.	OMB Recom.
		($ millions)
Bilateral Assistance:
Program level	1,389	1,151	1,526	1,365
Budget authority	1,012	737	1,154	1,002
Outlays	1,011	883	884	697

The recommendation includes development loans, technical assistance and related activities, AID administrative expenses, and the Inter-American Social Development Institute. The amount for development loans would be adequate for a program for South Asia of at least $300 million without specifically identifying the division between India and Pakistan. In addition, the recommended amount includes $115 million for Indonesia, reflecting your recent decision on the U.S. pledge. (See attached table for illustrative country and regional detail, Tab E.)

Voluntary Contributions to International Organizations:
Budget authority	168	166	203	173
Outlays	143	172	178	178

This category includes contributions to such organizations as the U.N. Drug Abuse Control Fund, the U.N. Children’s Fund, and the U.N. Fund for Population. The principal contribution is to the U.N. Development Program (UNDP). In each of the last three years the Budget included $100 million for the UNDP. The agency 1973 request for the UNDP is $105 million; our recommendation of $86 million is the same level as that which the Congress provided in 1970 and 1971.

South Asia Relief:
Budget authority	250	250	200	100
Outlays	175	175	200	138

Costs in 1973 for relief of refugees in India and East Pakistan are highly uncertain. For this reason we recommend that $100 million be included in the Budget as a tangible recognition of a certain humanitarian need and that we indicate that a supplemental appropriation may be needed later. Provision for such a supplemental would be made in the Budget’s allowance for contingencies; we would handle food aid under P.L. 480 in the same manner.

Overseas Private Investment Corporation:
Budget authority	25	25	290	85
Outlays	-8	-12	-1	-1

The agency requests an increase in its reserves sufficient to cover total potential claims against insurance on U.S. investments in Chile. Our recommendation, together with existing reserves and anticipated income, would be sufficient to pay highly probable claims during calendar year 1972 without the need to seek an appropriation clearly labeled “Chile.” However, we would indicate in the Budget the possibility of a later supplemental appropriation if the expropriation situation in Chile should require.

International Financial Institutions:
Budget authority	1,353	1,338	1,297	1,297
Outlays	377	335	460	460

The agency request and our recommendation are principally for contributions to international financial institutions to which the United States is fully committed—the second and third installments for the International Development Association, the Inter-American Development Bank, and the Asian Development Bank Special Fund. In addition, the recommendation includes $100 million in budget authority representing the first of three installments of a contribution to the Asian Development Bank’s ordinary capital, to which the U.S. Director of the Bank has agreed.

President’s Foreign Assistance Contingency Fund

	1972		1973
	Budget	Current Est.	Agency Reg.	OMB Recom.
		($ millions)
Contingency Fund:
Budget authority	100	30	130	50
Outlays	46	23	56	32

The agency request is for two contingency funds: $100 million for security assistance and $30 million for other foreign aid contingencies, principally disaster relief needs. We recommend continuation of one fund to preserve maximum Presidential flexibility. Our recommendation of $50 million reflects a judgment that the Congress is unlikely to appropriate even that much, as recent experience indicates.

George P. Shultz

1. Source: National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 323, Foreign Aid, Volume I 7/70-1971. Secret. Attached is a December 27 memorandum from Kennedy and Hormats to Kissinger recommending that he forward this memorandum and the attached December 23 memorandum from Shultz to the President. Kennedy and Hormats expressed a concern that Shultz was recommending only $50 million for the Contingency Fund instead of agency requests for $130 million. They agreed that “prospective uncertainties” warranted $100 million. On the December 27 Kennedy-Hormats memorandum, Haig wrote: “Dick, I’ll OK for HAK for Pres.”
2. Not printed.
3. Haig checked the Approve option and wrote: “Haig for HAK for Pres.” An attached December 30 memorandum for the record by Kennedy indicates that he notified Kenneth Dam of the approval and the preference for an additional $50 million for the Contingency Fund. Dam reportedly indicated that the additional $50 million would be put in the Contingency Fund.
4. Following further refinement of the numbers, the Foreign Assistance legislation for FY 1973 was sent to Congress on March 14, 1972. In his transmittal message the President recalled the delay and low level of funding of his FY 1972 request (see footnote 2, Document 78) and urged prompt action to authorize and appropriate the full amount of the FY 1973 request. See Public Papers of the Presidents of the United States: Richard Nixon, 1972, pp. 412-413. He also urged action on his foreign assistance reform proposals of April 21, 1971, legislation that was never enacted. Nevertheless, in his September 19, 1972, message to Congress transmitting the “Report on the Foreign Assistance Program for FY 71,” the President continued to hope the April 21, 1971, proposals would “provide the basis for a discussion with the Congress on ways in which we can structure our programs to increase their effectiveness.” See ibid., p. 877.
5. None of the attached tables is printed.