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

321. Letter From Secretary of State Shultz to the Director of the Office of Management and Budget (Stockman)¹

Washington, September 19, 1984

Dear Dave,

I am pleased to submit the FY 1986 integrated foreign assistance budget for your consideration and for the consideration of the President. (See Enclosure 1 for a detailed country program breakdown of the request.)²

As in the past three years, budget requests from the various foreign assistance agencies have been integrated into a single set of recommendations designed to maximize our ability to achieve critical foreign policy, national security and international development objectives. This year’s submission has been coordinated with, and is supported by, the various foreign assistance agencies, including State, AID, Agriculture, Treasury (with regard to the MDBs), the Peace Corps and the African Development Foundation. With the exception of the levels shown herein for Turkey, the Defense Department also concurs with this submission. (For Turkey, DOD supports total levels of $1,069 million rather than the $939 million shown in our submission.) With this exception, all agencies agree that the 1986 request levels are the minimum necessary to carry out the President’s foreign policy and are consistent with recommendations of the Carlucci and Kissinger Commissions.³ At the same time all concerned recognize the need to apply scarce budget resources to the highest priority activities.

Overall, the FY 1986 request reflects an 8.5 percent increase over the President’s FY 1985 budget, net of assistance levels for Israel and Egypt. (See Enclosure 2.)⁴ Percentage increases for economic assistance (up 10.6 percent) are greater than for military assistance (up 4.2 percent) and reflect our growing concern for the economic problems that continue to face many of our friends and allies. We have been able to hold down aggregate military assistance increases by increasing grant and concessional lending, thus limiting the more burdensome Treasury rate lending. Again, we believe that this is consistent with the Administration’s concern for the difficulties facing many of our strategically important partners in the management of their debt service obligations.

There are several aspects of the FY 1986 submission that require special attention.

1. FY 1985 CR—Since we have no FY 1985 regular appropriation bill and will be operating once again under a continuing resolution, we will have to await the results of the CR process to determine whether FY 1985 supplementals will be necessary or whether changes will be required in our FY 1986 request.

2. Turkey—The results of the FY 1985 CR, along with the current discussions at the United Nations, may require another look at our FY 1986 request levels for Turkey. Our current FY 1986 request is based upon the assumption that Congress may hold 1985 Turkish aid levels close to those provided in 1984 (even though Turkey’s real needs in our view would require a larger amount), and that the continuing problems on Cyprus make it unrealistic to ask Congress for major increases in 1986. If Congress cuts 1985 levels to below those of 1984 or if significant progress is being made on the Cyprus question, we will have to reassess what would constitute an appropriate aid request for this important NATO ally that also plays a key role in our Southwest Asia strategy.

3. Israel and Egypt—The attached tables do not include proposed aid levels tor Israel and Egypt, the two largest recipients of foreign assistance. We believe it is mandatory that we have an understanding with the Israelis on our aid package and we will be working closely with them over the next several weeks in an attempt to reach such an agreement. At that time, we will need to pin down the related Egyptian aid levels. It is imperative that we not lock ourselves in too early in this process to projected assistance levels that are based upon hypotheses rather than negotiations and known facts. Therefore, at a later stage of the budget process we will be proposing specific levels for these two countries. We ask that you bear with us on this question and that you not use plug numbers as you conduct your budget analysis, since such figures tend to take on a life of their own and are difficult to modify later.

4. Philippines Base Rights—The results of the CR process and the NSSD exercise now underway may also affect the levels and mix of our Philippines proposal. The estimate herein reflects current policy to fulfill our base rights commitment.

5. Andes Initiative—The budget proposal contains a new initiative, designed to counter increasingly serious instability in the Andean region of Bolivia, Peru and Ecuador. To date, American foreign assistance resources have not been adequate for the difficulties—and the opportunities—we face in the Andes. Peru has a dangerous Soviet military presence, suffers from a virulent Marxist insurgency and is in the throes of its worst economic crisis in a century. In Bolivia, the Communist Party is part of the government and the country is in total economic disarray. Ecuador has a new government that wants to break the statist mold which has plagued economic growth in Latin America. Also important, the Andean region is the source of most of the cocaine entering the United States. Our FY 1986 proposal would show support for three embattled democracies and give us the wherewithal to begin to erode Soviet/Marxist gains in the region, help to preserve elected governments favorably disposed to the United States, and encourage more responsible economic and narcotics policies.

6. Central America—Continuation of the Central America Peace and Democracy Initiative is reflected in the request and is consistent with the recommendations of the Kissinger Commission and the Administration’s five year plan.

7. Africa—A number of small but important new programs and program enhancements are included, in particular the second year of funding for the Economic Policy Initiative and additional assistance to Mozambique, a country that has been instrumental in our efforts to bring peace and stability to Southern Africa.

8. PL–480—We have made a conscious effort to hold down increases in ESF by providing additional amounts of PL–480 where possible, PL–480 being a much easier resource to get appropriated. The PL–480 Title I reserve has been increased above normal levels in order to accommodate up to $50 million for the Philippines, funding which would be made available if an agreement on agricultural reform can be reached with the GOP. Rather than tipping our hand on possible levels, we prefer to leave the amount in the reserve and not show it as a country allocation. Similarly, we anticipate the possibility of being in need of Title I resources in order to engage in economic reform discussions with Nigeria.

9. IO & P—Our request shows a sizable increase in voluntary contributions to international organizations over the 1985 request level. This set of programs, popular on the Hill, continues to receive appropriations in excess of our request, often at the expense of other foreign assistance activities. We believe that if we continue to make unrealistically low IO & P requests, we will receive appropriations in excess of those shown in the attached table. By going forward with the more reasonable and programmatically justifiable level we are now proposing, we believe we can avoid excess appropriations and protect our other programs.

10. IFAD—If the replenishment negotiations for IFAD that are now under way prove successful, we will be requesting up to an additional $50 million as the first installment on the second IFAD replenishment. Since the outcome of these negotiations is highly uncertain, we have not requested the funding at this time.

11. Peace Corps—The Peace Corps request reflects a continuation of the base program, a small number of new country starts, continuation of Jackson Plan levels and a major new food initiative in Africa.⁵ This popular program is an important contributor to the achievement of our overall foreign objectives.

In addition to the enclosed materials, Under Secretary Schneider’s office and the various foreign assistance agencies will be providing you and your staff with additional justifications, back-up information and technical data. I look forward to working with you over the next several weeks as you develop the President’s FY 1986 Budget.

Sincerely yours,

George P. Shultz⁶

1. Source: Reagan Library, George Shultz Papers, Official Memoranda (09/19/1984); NLR–775–49–81–4–5. Confidential. Cleared in USAID, DOD, USDA, EAP, AF, EUR, NEA, ARA, IO, EB, and PM.
2. Enclosure 1, “FY 1986 Foreign Assistance Request Levels,” is attached but not printed.
3. For information on the Carlucci Commission, see Document 311. Kissinger chaired the National Bipartisan Commission on Central America, which submitted its final report to Reagan on January 10.
4. Enclosure 2, “FY 1984–FY 1986 Foreign Assistance Comparison,” is attached but not printed.
5. A reference to the recommendations of the National Bipartisan Commission on Central America, chaired by Kissinger. In a January 14 radio address on the Commission’s recommendations, Reagan called the Central American initiative the “Jackson plan” for the late Senator Henry Jackson. For the text of Reagan’s address, see Public Papers: Reagan, 1984, Book I, pp. 38–39.
6. Shultz signed “George” above his typed signature.