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

258. Briefing Memorandum From the Under Secretary of State for Economic Affairs (Rashish), the Under Secretary of State for Security Assistance, Science and Technology (Buckley), and the Director-Designate of the Policy Planning Staff (Wolfowitz) to Secretary of State Haig¹

Washington, January 29, 1981

SUBJECT

• Your Meeting with Stockman on Foreign Assistance Budget Cuts

Issue

You will be meeting with Stockman tomorrow² to review an OMB suggested package of severe reductions in both the FY 1981 and FY 1982 foreign assistance budgets. Also invited are Secretaries Regan, Weinberger, Block, Brock, Mr. Meese, and others in the Budget Working Group. Stockman proposes cutting almost $880 million in major foreign assistance programs from the currently planned FY 1981 level of $6 billion. For FY 1982, he recommends reducing the $8 billion Carter budget proposal for these programs by $2.6 billion. Programs across the board would be cut; those affected most would be the International Development Association, other multilateral development bank funding, development assistance, PL 480 Title I, the Economic Support Fund (ESF), and other international organizations.

Impact of the Cuts

The abrupt reductions proposed by OMB would have a severe impact on vital American interests. These proposals would:

— Break U.S. commitments, made last year, to replenish the International Development Association and the African Development Bank.

— Eliminate a $100 million ESF contingency fund—a program crucial to our ability to respond quickly to economic and political crises.

— By 1984, eliminate PL 480 Title I, a program of major importance to our relations with Jamaica, Indonesia, Pakistan, and Egypt; as well as Kenya and Somalia, countries important to our Indian Ocean access. The loss of the ESF contingency fund coupled with a severe cut in PL 480 cripples our flexibility to respond to the dynamic world situation.

— Eliminate paid-in capital to the World Bank, thus taking away U.S. veto power in, and harming the creditworthiness of, a mainstay of the Western-oriented world economic system.

— In FY 1981 reduce AID to Latin America—a priority area for the Administration. This is the case since cuts must be taken from unobligated funds. Less than 20% of the funds for Latin America have been obligated.

— In FY 82 and beyond, cut severely bilateral assistance to at least some strategic regions, such as Southeast Asia, Africa, the Near East, or Central America; we could not maintain our programs, and hence our influence, in all of them.

Recommended Strategy for Meeting

We believe it important for you to convey, early on at the meeting, four general points:

(1) The Reagan Administration has set as a major goal strengthening America’s world position and resisting the spread of Soviet influence and the creation of opportunities which the Soviets could exploit; this cannot be done without adequate—even expanded—resources.

(2) Foreign policy should determine the budget; budget cuts should not determine foreign policy. You, as Secretary of State, have responsibility for determining where adjustments can be made in the foreign assistance budget that are consistent with this Administration’s foreign policy. Giving OMB a free hand to identify cuts at this time will undercut your authority.

(3) The Administration must have the time to create its own assistance strategy.

(4) If it is necessary to accept an understanding that the foreign assistance budget is to be cut, we recommend you not agree to any specific overall figure at this meeting, but indicate a willingness to work with OMB on determining such a figure. You should reserve the right to submit no cuts and, indeed, to propose increases in categories which you believe are of strategic importance.

The meeting will be focused around the OMB proposals and is scheduled to last three hours. It will be difficult to avoid discussion of program specifics. This presents a danger since it is likely to result in a bargaining session, e.g., agreeing to a greatly reduced PL 480 Title I program in exchange for dropping its call for a complete phase-out of the program, or offering more bilateral aid to sweeten a phase-out of concessional contributions to the MDBs.

We urge that you avoid accepting any specific cuts or program recommendations. We believe harmful effects of budget cuts can be minimized by our first identifying reductions that would be least painful in foreign policy terms for us to accommodate and then negotiating these with OMB and ultimately the President. We have begun to identify such cuts.

You might want to note you are pleased that there are no cuts to the Carter Administration’s proposed FMS programs since the programs themselves are not adequate. (We plan, for example, to propose that several country programs, including Turkey, Portugal, and Egypt, be restructured so as to increase the proportion of direct, concessionary credits. The overall FMS program size would remain the same though.) This matter should be discussed in the context of our defense programs. As a result, the Carter program proposals should not be released until we have had this opportunity to review them.

1. Source: Department of State, Executive Secretariat, S/P Records, Memoranda and Correspondence from the Director of the Policy Planning Staff to the Secretary and Other Seventh Floor Principals, Lot 89D149: Jan. 21–31, 1981. Confidential. Drafted by Barney Rush (E) and Michael Feldstein (S/P); cleared in PM, EB, and IO. A stamped notation on the memorandum reads: “Expedite.”
2. January 30.