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

364. Memorandum From the Executive Secretary of the Department of State (Platt) to the President’s Assistant for National Security Affairs (Poindexter)¹

Washington, June 6, 1986

SUBJECT

• Senior Interdepartmental Group on International Affairs Funding for FY 1987

As directed in your memorandum of May 29,² Deputy Secretary Whitehead convened a SIG on May 30 and June 3. These meetings focused on a strategy for reversing the cuts made in the Budget Resolutions, and for dealing with the upcoming budget conference and 302(b) allocation. Subsequent sessions will address our strategy in the appropriations process.

The Budget—A Damage Assessment

The agencies represented at the SIG agreed that we have a major crisis in funding for our international affairs activities in FY 1987. Both the Senate and House versions of the budget resolution sharply reduce the President’s $22.6 billion request for Function 150. Both Senate and House rejected the President’s request for a 10 percent increase over the enacted, post-sequester FY 1986 baseline and began instead with a straightlined “freeze base.” The Senate then made further reductions in development assistance, Foreign Military Sales credits, foreign information activities, and the Inman Diplomatic Security Program. The House made even larger cuts from the “freeze base,” reducing most programs by 4.2 percent, cutting foreign aid a further 14.4 percent, and then adding a final 2.5 percent reduction across the board. Within this smaller aggregate total for the function, however, the House allowed virtually the entire request for the Inman program and allowed substantially more for USIA and the Board for International Broadcasting (BIB) than did the Senate. Both versions included over a billion dollars for Export-Import Bank direct loans, which were not part of the Administration’s request. The Senate aggregate for Function 150 is $17.9 billion and the House total is $17.0 billion.

Even at the higher Senate level, we would have to make significant policy choices. After funding our highest priority commitments to Israel and Egypt, the base rights countries, Pakistan, and Central America, and after allowing for the Export-Import Bank add-on, the shortfall in the rest of our foreign affairs programs is on the order of fifty percent. In economic assistance, for example, the Senate level would effectively eliminate ESF programs in Africa, South America and the Caribbean. The outlook for military assistance is equally bleak.

The Administration’s Response: A Two-Track Approach

To date, the Administration has not been engaged in the Congressional budget actions. We have supported the President’s request and declined to compromise with the budget committees. Underlying this approach was an expectation that the budget resolution process would never reach consensus. This may still be the case, since the House and Senate are far apart, particularly on defense spending. Now that each body has passed its own resolution, however, the numbers have assumed a certain status. Even if the budget conference fails to reach a consensus, each Appropriations Committee is likely to begin mark-ups based on its own set of 302(b) allocations derived from that body’s version of the budget resolution.

The agencies represented at the SIG recommend that the Administration now become actively engaged in the budget and appropriations process. They recommend a two-track approach.

The first track would build upon the momentum which Secretary Shultz has generated to date with his press briefings and public statements criticizing the Congress for underfunding international affairs programs. We have garnered significant media attention and numerous favorable editorials and op-ed pieces by detailing the policy costs associated with recent congressional budget actions. This campaign should be pressed at the highest levels, taking as its theme the fact that we have produced a strong and vibrant foreign policy over the past five years, and now risk jeopardizing and reversing these gains through unwise budgetary action. Our strongest point will be to explain the consequences of cuts of the magnitude proposed, and to shift attention from aggregate numbers and percentages to real programs that would need to be eliminated. Each agency is providing specific examples of programs that would likely be cut, which could be used to illustrate graphically to the public and to the Congress what is at stake.

In addition, we should mobilize those constituencies and interest groups which support foreign assistance to help us make the case that funding reductions of these magnitudes are irresponsible and will make it impossible to pursue the President’s basic foreign policy objectives.

The second track would seek to engage the Congressional process at each crucial decision point in order to prevent further damage to our interests.

The Budget Conference

The first decision point in the process is likely to be the budget conference, scheduled to begin this week. We have differences among the agencies represented in the SIG over what we should support in the budget conference—the Senate version is larger in the aggregate and generally superior in every account with three exceptions:

(1) the Inman Diplomatic Security Initiative—the Senate does not allow enough outlays even to accommodate the modified Inman package recommended by the Senate Appropriations Committee in the FY 1986 Urgent Supplemental.

(2) USIA—the Senate version falls $80 million short of the 1986 freeze level—the minimum judged necessary by USIA to conduct its operations. The House version is more favorable, but still many millions below the freeze.

(3) Board for International Broadcasting (BIB)—again the House version is more favorable, although it is well below the level BIB requires to keep Radio Free Europe/Radio Liberty, Inc. from declaring bankruptcy at current exchange rates.

Our obvious approach should be to support the Senate version and seek additional outlays from outside Function 150 to cover Inman, USIA, and BIB. This would entail a functional total higher than either of the two versions, which will be difficult to achieve.

If in the end we must live within the Senate aggregate, State, AID, USIA and BIB believe that our first priority should be to maintain the integrity of our institutions. By protecting foreign affairs agency operating bases, and by continuing our security enhancement program, we preserve the underpinning of policy without which our other 150 programs could not survive under the best of funding scenarios.

DOD believes that the Inman program is of significant importance but that further cuts in budget authority for military assistance would require reductions or eliminations in funding for countries which desperately need to improve their external and internal security—to include counterterrorist forces. Such a situation could also increase the threat to Americans abroad by reducing countries’ incentives and capabilities to provide adequate protection. Further, such reductions would unacceptably weaken US regional defense strategies.

The Treasury Department believes that, until the Administration prioritizes all of its foreign assistance requirements, the FY 1987 budget request of $1.4 billion for the multilateral development banks, which translates into total MDB lending of $23.8 billion, should be protected. Treasury and Eximbank also believe the $300 million Fair Export Financing Program (the “war chest”) is a critical element of the President’s trade action program and is vital to our efforts to negotiate an end to the predatory use of tied aid credits.

With these concerns in mind, the SIG recommends a legislative strategy for the budget conference which would involve:

(1) The immediate release of the Presidential letter to Chairmen Domenici and Gray,³ which should attract considerable press and public attention to the foreign policy implications of reductions in the 150 function.

(2) A Secretary Shultz phone call to Chairman Domenici which would underscore the importance of not reducing the Senate aggregate in conference.

(3) A Secretary Baker phone call to Chairman Gray to encourage the House to accede to Senate level for Function 150.

The 302(b) Allocation Process

If there is an overall settlement on the budget, we will have to move quickly to ascertain what the exact 302(b) divisions of the budget resolution should be for our three subcommittees (Foreign Operations; Commerce, State and Justice; and Agriculture). At that point, our immediate task will be to ensure a fair allocation of those amounts, given the traditional propensity to poach from Function 150 accounts to benefit other programs. The key action will be to encourage House Appropriations Committee Chairman Jamie Whitten to allocate the full amount to each subcommittee.

The SIG recommends that Secretary Shultz call Senate Appropriations Committee Chairman Mark Hatfield with the same message. We do not anticipate as much difficulty in the 302(b) process on the Senate side, but feel it is important to touch base with the Chairman.

Finally, appropriate senior Administration officials should call Appropriations subcommittee Chairmen Obey, Smith, Kasten and Rudman to encourage them to seek a fair 302(b) process in full committee.

If There Is No Budget Resolution

The differences between the House and Senate on defense, taxes and other issues may make a settlement of the budget resolution impossible. If the conference bogs down, the Appropriations subcommittees will begin marking up based on their separate budget resolutions’ notional 302(b) allocations. In the 150 area, the first likely subcommittee to do so will be the Obey subcommittee (House Foreign Operations), perhaps as early as next week. In that event, the SIG will reconvene to recommend an Administration posture for that mark-up and beyond.

Nicholas Platt
Executive Secretary

1. Source: Reagan Library, Stephen Farrar Files, 1985–1986 File, Subject File, Foreign Aid—Budget II 05/30/1986–06/26/1986; NLR–177–1–31–9–1. Confidential.
2. Not found.
3. See Document 363.