Foreign Relations of the United States, 1981–1988, Volume XXXVIII, International Economic Development; International Debt; Foreign Assistance

346. Letter From Secretary of State Shultz to the Acting Director of the Office of Management and Budget (Wright)¹

Washington, September 17, 1985

Dear Joe:

I am pleased to submit the FY 1987 integrated foreign assistance budget for your consideration and that of the President. With the exception of those programs identified in the footnote, the enclosed table contains detailed recommendations for new budget authority for all foreign assistance progress.²

As in past years, the FY 1987 foreign assistance budget has been coordinated with the Departments of Defense and Agriculture, the Agency for International Development and the Peace Corps. Except for one minor, essentially technical difference in P.L. 480 that is discussed below, all participants in the process support the recommendations contained herein.

This year’s budget submission (net of off-budget FMS) totals $16.8 billion, an increase of $786 million over the FY 1986 request and $664 million over the OMB planning guidance. Given the nature of the threats we face in our FY 1986 appropriations and our increasing national security concerns in strategic regions throughout the world, we view this budget request for economic and security assistance as the minimum required to carry out the President’s highest priority foreign policy objectives.

Detailed justifications for each part of the foreign assistance program will be submitted to OMB through the usual channels. I would like to comment briefly, however, on five specific items.

— Philippines Military Assistance—The attached request includes $50 million in grant MAP and $50 million in concessional FMS for the Philippines.³ The Departments of State and Defense would both like to make the Philippine military assistance program all MAP, given the enormous needs of the Philippine armed forces, the growing threat they face and the severely depressed state of the Philippine economy. We recognize, however, that such a proposal could not be successfully defended in the Congress without major improvements and reforms within the Philippine armed forces. Should such changes occur, we intend to propose an amendment to our FY 1987 request that would shift the $50 million in concessional FMS to MAP. Such a shift would not increase overall budget totals.

— Central America—The FY 1987 request includes minimum levels of economic assistance for Central America that are consistent with the recommendations of the National Bipartisan Commission on Central America. I feel strongly that our request to the Congress should contain such levels in order to underscore the priority we attribute to the Central America Initiative, and to give substance to our plans to reorient our policy dialogue with the Central American republics in order to accelerate the process of economic recovery in the region.

— P.L. 480—State, AID and Agriculture worked closely on the preparation of the P.L. 480 request and support the increased levels contained herein.⁴ P.L. 480 remains a valuable market development/economic development/foreign policy program that has strong popularity in the Congress. Because of the lateness in arriving at final decisions in the integrated budget process, Secretary Block’s budget request will contain program levels that are slightly different than those contained in the attached. These differences are not significant and can be addressed as the budget process moves forward.

— Guaranty Reserve Fund (GRF)—No funds for replenishing, the GRF are included in this request. P.L. 99–83⁵ requires that the President prepare and transmit to the Congress within 90 days after the date of enactment of the act (by 8 November 1985) a report of the history of FMS financing and recommendations on replenishing the GRF. The Department of Defense is now preparing this report. After we reach a better understanding of the alternatives available to us for dealing with the GRF problem, we will discuss them with OMB staff.

— International Fund for Agricultural Development (IFAD)—We have not included a request for a contribution to IFAD since agreement has not yet been reached on a second replenishment. If such an agreement is reached, we will amend our request accordingly. We believe that we are close to an agreement and that it may come as early as October.

Our current assessment of the FY 1986 appropriations process has led us to conclude that an FY 1986 supplemental is inevitable. We will, of course, continue to push for appropriations as close to the President’s request as possible. The Budget Resolution and the House Appropriations Committee’s reported bill, however, make our chances poor for achieving adequate levels. If the HAC levels, or anything close to them prevail, we will not be able to meet mandated earmarks, base rights commitments, requirements in front line and military access states and high priority Central America programs, much less be able to provide minimum funding for the numerous small but strategically important security and development programs around the world. As soon as possible after we know what our FY 1986 appropriation levels will be, therefore, we will prepare for your consideration a supplemental appropriation request.

Finally, in his August 23, 1985, memo to Secretary Weinberger and me, Bud McFarlane encouraged us to consider a more robust foreign assistance program, one that would be designed to achieve the level and mix of resources we believe are necessary to meet U.S. needs and those of our partners.⁶ I share Bud’s concern. Even at the levels contained in the attached, and which are still subject to Congressional action, we are losing opportunities to protect and solidify the major foreign policy achievements of this Administration.

Over the next several weeks, the State Department, working through the integrated foreign assistance budget mechanism with the other foreign assistance agencies, will prepare a submission reflecting this more robust approach. In this submission we will propose and justify specific country levels and a strategy for presenting the program to the Congress.

As always, the Department of State and the other foreign assistance agencies are prepared to answer any questions on this request and will provide additional detailed materials as required over the next several weeks. I look forward to working with you throughout the fall as you consider this extremely important part of the President’s overall agenda.

Sincerely yours,

George P. Shultz⁷

1. Source: Reagan Library, George Shultz Papers, Official Memoranda (09/29/1985); NLR–775–53B–33–4–6. Confidential. Drafted by Robert Bauerlein (T); cleared in AID/PPC, AF/EPS, ARA/ECP, EAP, NEA/ECON, EB/ODF, PM/SAS, S/P, DOD/DSAA, Peace Corps, USDA, and in substance in EUR/RPM. Bauerlein initialed for all clearing offices and agencies.
2. Not attached.
3. Not attached.
4. Not attached.
5. See footnote 2, Document 342.
6. See Document 342.
7. Shultz signed “George” above his typed signature.