Foreign Relations of the United States, 1981–1988, Volume I, Foundations of Foreign Policy

73. Minutes of a National Security Council Meeting¹

Washington, December 8, 1981, 10:15–11:30 a.m. and 2:20–3:35 p.m.

SUBJECT

• Global Negotiations and FY83 Foreign Assistance Budget

PARTICIPANTS

• The President
• The Vice President

• State:

  • Secretary Alexander M. Haig, Jr.
  • Dep. Sec. William P. Clark
  • Under Sec. James L. Buckley
  • Under Sec. Richard T. Kennedy

• Treasury:

  • Secretary Donald T. Regan

• OSD:

  • Dep. Sec. Frank C. Carlucci

• Justice:

  • Attorney Gen. William French Smith

• OMB:

  • Dir. David Stockman
  • Mr. Edward Harper
  • Mr. William Schneider

• CIA:

  • Dir. William J. Casey

• USUN:

  • Amb. Jeane Kirkpatrick

• JCS:

  • Acting Chairman Thomas B. Hayward
  • Lt. Gen. Paul F. Gorman

• AID:

  • Admin. Peter McPherson

• White House:

  • Mr. Edwin Meese III
  • Mr. James A. Baker III
  • Mr. Michael K. Deaver
  • Admiral James W. Nance
  • Admiral Daniel Murphy
  • Mr. Richard Darman
  • Mr. Craig Fuller
  • Mr. Edward Hickey

• NSC:

  • R. Adm. John Poindexter
  • Major Robert Kimmitt
  • Mr. Henry R. Nau

• OPD:

  • Dir. Martin Anderson

[Omitted here is the portion of the meeting devoted to Global Negotiations.]

FY 83 Foreign Assistance Budget

Admiral Nance opened the discussion by quoting from NSDD–5, in which the President stated that conventional arms transfers are a vital component of our foreign policy and an important complement to our defense policy.² He noted that the security assistance budget, which undergirds arms transfers, has fallen from 10% to 2% the size of the defense budget in outlay terms since the late 1950s. What was needed at this time was reconfirmation of the importance of security assistance as a national security instrument. There currently exists a $1.1 billion difference between the State request and the ceiling established by OMB. If we stick to the OMB mark, we need to decide where cuts must occur; if we stick to the State mark, we must determine where the additional money above the ceiling is to be found.

The President stated that he met yesterday with Republican Congressmen who were inclined to vote against foreign aid.³ He said that he, too, had spoken out against foreign aid that is merely a “giveaway” or “rat hole.” However, he stressed to these Congressmen the fact that the security assistance component of the foreign assistance budget is vital to our national security, and he sought their support for the FY 82 request at its enhanced level. He noted that he often speaks to foreign leaders about assistance that the U.S. might provide in military terms, and he told the Congressmen that he must have adequate resources to respond appropriately during these conversations. Thus, as he looks at this budget, he will try to determine how much of it is “give-away” foreign aid and how much is in fact vital to our national interest.

Admiral Nance interjected that not all of the $1.1 billion difference between State and OMB was in security assistance, and he asked Under Secretary Buckley to describe the overall budget to the President.

Under Secretary Buckley said that about two-thirds of the FY 83 request is for security assistance, all of which had been targeted to specific programs of interest to the U.S. Twenty-two percent of the budget is in the form of bilateral aid, half of which is targeted to countries in which we have strong security interests.

Mr. McPherson stressed that we have been very careful with this year’s foreign aid request and have tried to eliminate unnecessary programs wherever possible. He noted that there is a security orientation even for development assistance.

Under Secretary Buckley then sketched the consequences of a budget at the OMB level, describing in detail the countries and programs that would be adversely affected by the lower level.

Secretary Haig remarked that the budget situation was even more skewed than it appeared, since the majority of funds are going to Israel, Egypt and the base rights countries, and while Congress makes annual cuts, it always leaves the Israeli program intact or enhanced. Thus, it is the “little guys” with whom the President has met who suffer most from an austere budget. He had been on the Hill today talking to Republican House members,⁴ and the chances for averting a disaster on the FY 82 budget are slim. He remarked that State had taken all the cuts that OMB had mandated throughout the year. He also noted that, in the FY 83 budget, a $400 million difference exists on the State authorization, and the lower level would require closing 40 installations, some of which are important to CIA and Defense requirements. On security assistance, he noted that we are talking about only a decimal point of the Defense budget and, in his view, $2 billion in security assistance buys more than does $10 billion in the Defense budget. In sum, he said that we appeared to be losing our sense of balance and that we risk gutting the President’s foreign policy by not allocating adequate resources that are carefully tailored to meeting foreign policy objectives. As an example of careful tailoring, he called attention to the fact that we are cutting IDA from 23% to 14%.

Mr. Stockman said that the central issue was the ceiling under which he was operating, a planning ceiling that the President had approved in September for all agencies. Either the ceiling is wrong or the agency request is too high, and without resolving this fundamental question, we will in effect have no budget process whatever on foreign assistance. He noted that most of these programs are slow-spending and that, while there is a major difference this year, the gap will grow even wider in future years. He stated that while he recognized the pressures on the State budget, it must be realized that we are looking at a 16% increase in FY 83, 18% in FY 84, and 12% in FY 85. Thus, we are faced with changing the ceiling or changing priorities to meet legitimate security assistance needs. He also remarked that in addition to the difference in the FY 83 budget outlay figures, there is also a considerable difference in the off-budget account, as well as a $1 billion supplemental planned for FY 82 to cover Polish and Caribbean initiatives. In sum, he stated that we face a major budgetary difference, one that cannot be resolved simply by making changes at the margin.

Secretary Haig agreed that the difference is fundamental, but he noted that excessive rigidity now will make adjustment even more difficult later in the year when unforeseen contingencies may arise. He remarked that he was not happy with what happened this year when the State Department tried to play ball and in effect got double-dipped for cuts during the budget process.

The President interjected that he had just finished a major budget overview session prior to the NSC meeting, and that the table was still warm because of the heated discussion during that session.⁵

Secretary Haig remarked that today had also been difficult for him, since he was on the Hill speaking to House members when word of the increased budget deficit leaked out.

The Vice President then asked when we needed to decide the FY 83 security assistance question.

Mr. Meese replied that we did not need to decide the question at this meeting. Rather, it had been raised as an NSC agenda item so that the question could be viewed in policy as well as budgetary terms. He also thought it important for members of the NSC to have a better idea of requirements down the road because of the budget stringencies we face. He remarked that because of major differences that exist and will exist, we might need to consider more carefully the notion of contingency funding.

Secretary Haig reminded the President that unless we secure passage of the FY 82 budget in its current form, we will face a major backlog in a number of critical accounts, including Egypt.

Mr. Stockman responded that it is difficult for him to understand how we can come in with a budget request in FY 83 40% higher than the FY 82 budget for which Congressional approval looks risky at best.

Deputy Secretary Carlucci said that he agreed with Secretary Haig about the importance of the security assistance budget and noted that this budget “carries the freight” for us during our important base negotiations.

Admiral Hayward said that the Joint Chiefs of Staff did not wish to get into specific numbers, but they would like to support the basic policy arguments made by Secretary Haig and Deputy Secretary Carlucci. He noted, in fact, that if anything the JCS believed the program, even at the State level, is underfunded.

Secretary Haig noted that we also have a problem with extremely high interest rates on FMS loans. He said that it is incongruous to go to financially strapped countries in the Caribbean with offers of military equipment at a 16% interest rate.

Deputy Secretary Carlucci noted that the rate is now down to about 13%, but that was still too high for most countries, including important Mideast countries like Tunisia.

The President remarked that King Hussein told him that one reason he intended to buy Russian air defense missiles was that they were one-third the cost of those available from the U.S.

Secretary Haig said that we must bear in mind that, in the security assistance field, we are picking up the pieces from the Carter Administration’s policy that was prejudiced against arms sales.

Secretary Regan said that he agreed with Secretary Haig, particularly insofar as excessively high interest rates are concerned.

Deputy Secretary Carlucci then noted that the security assistance budget helps to fund arms sales that themselves keep the defense production base warm.

The President replied that he understood that point.

Mr. Meese then asked whether there were any place in the budget to come up with additional funds, perhaps in the form of contingency funds.

Mr. Stockman replied that there were programs that could be cut, but not enough to make up for the major difference that now exists. He noted, for instance, that there is $200 million in aid allocated for OPEC countries, and that on the MDBs, we appear to be heading toward the Carter level in the next round of negotiations.

Mr. McPherson interjected that most of the money for OPEC countries was intended for specific programs, such as population control, in Indonesia and Ecuador.

Under Secretary Buckley noted that the budget proposes a $75 million ESF contingency fund and a $50 million contingency for the Caribbean Basin Initiative, both of which are too small.

The President then asked the amount of the IDCA check that Mr. McPherson had presented to him earlier in the year.

Mr. McPherson replied that it was for $28 million.

Mr. Meese then stated that the policy question had been well presented, and it was now time for OMB to make its decisions against the backdrop. Further issues can be raised after the initial OMB decisions have been made.

Mr. Stockman replied that he cannot go higher than the ceilings that were approved in September. Thus, it will be difficult to make adjustments on a program-by-program basis, and that, even with adjustments, the results may not be satisfactory to Secretary Haig. He thus recommended that we review the planning ceiling, then go through the pass-back exercise, or else we would arrive again at a stalemate.

Secretary Haig responded that we are already at a crisis point, that we cannot meet the President’s foreign policy commitments at the projected levels. He also noted that Congress would not let the State Department close 40 installations, and thus adjustments were also necessary in the State budget.

Mr. Stockman interjected that OMB had worked hard to help hold to State’s FY 82 level during Congressional considerations, in spite of the fact that many Congressmen wanted major cuts, including some from the State budget.

Admiral Nance summarized for the President by noting that this meeting was not intended to produce a decision, but rather to provide the President the necessary information on this major policy question. It should now be clear to the President that a major problem does exist and will have to be addressed later.

The President ended the meeting by stating that he had learned quite a bit, perhaps more than he could use at this point, and that he was prepared to revisit this issue in the future.

1. Source: Reagan Library, Executive Secretariat, NSC Meeting File, NSC 00029 12/08/1981 [Global Negotiations, Libya, Foreign Assistance, Budget, Terrorism]; NLR–750–3–1–11–2. Secret. The meeting took place in the Cabinet Room. No drafting information appears on the minutes. The minutes of the morning session on Global Negotiations is scheduled for publication in Foreign Relations, 1981–1988, vol. XXXVIII, International Economic Development; International Debt; Foreign Assistance.
2. Reference is to NSDD 5, “Conventional Arms Transfer Policy,” issued on July 8. It is scheduled for publication in Foreign Relations, 1981–1988, vol. XL, Global Issues I.
3. The President met with members of the “Core Group”—members of the House of Representatives who endorsed the President’s candidacy—in the Cabinet Room on December 7, from 4:47 until 5:40 p.m. (Reagan Library, President’s Daily Diary)
4. See footnote 8, Document 72.
5. In his personal diary entry for December 8, the President wrote: “A full day. First a meeting to hear the 1st 1983 budget review. We who were going to balance the budget face the biggest budget deficits ever. And yet percentage wise they’ll be smaller in relation to G.N.P. We have reduced Carter’s 17% spending increase to 9%. The recession has added to costs & reduced revenues however so even with that reduction in govts. size we face a large deficit.” (Brinkley, ed., The Reagan Diaries, vol. I, January 1981–October 1985, p. 90)