222. Memorandum From the Director of the Office of Management and Budget (McIntyre) to President Carter 1

SUBJECT

  • Costs of the Panama Canal Treaty

You asked me to look into the question of Panama Canal treaty implementation costs. As you know, the Administration has been criticized for citing two different estimates in our presentation to the Congress—one of $350 million in February of 1978 and a more recent one of $870 million in March of this year.

We have taken a hard look at the $870 million estimate. This figure was originally provided in support of testimony by Under Secretaries Duncan and Christopher. It has since been widely disseminated in media packages, informal discussions, and responses to Congressional staff inquiries. There are a number of adjustments (both plus and minus) which could be made to this estimate, but the net result is a new estimate of $850 million, which is so close to the old $870 million that we see no reason to change.

However, the $870 million estimate assumes that DOD will maintain its full presence and operation in Panama right up to the year 2000. A gradual phase down of the U.S. presence in Panama is more likely. By assuming a phased withdrawal for about the last 10 years (1990–2000) the total estimate can be reduced to approximately the $350 million figure provided to the Congress by Secretaries Brown, Vance and Alexander in February, 1978. The rate and timing of withdrawal can be adjusted to yield whatever final dollar estimate is desired. For example, a 3% annual phase down starting in 1981 would reduce the $870 million figure to $350 million. If this approach is taken, we may be accused of “creative bookkeeping”.

The question, therefore, as we see it is whether we should: (1) merely reaffirm the $870 million estimate, or (2) add the “phase down assumption” for a total estimate of $350 million.

—$870 million

—$350 million

[Page 532]

If you prefer, the two concepts can be tied together by indicating that the Administration’s outside estimate is $870 million but that the total costs can be significantly reduced (e.g., to $350 million) by a gradual phasedown in the outyears—situation permitting.2

  1. Source: Carter Library, National Security Affairs, Staff Material, North/South, Box 43, Pastor, Country, Panama: Visit by President Royo, 4-5/79. No classification marking. Carter initialed the memorandum. Hutcheson forwarded the memorandum with Carter’s notation to McIntyre under a May 8 covering memorandum. (Ibid.)
  2. Carter wrote in the right margin: “ok, but emphasize the $870m figure.”