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

370. Memorandum From Stephen Farrar of the National Security Council Staff to the President’s Deputy Assistant for National Security Affairs (Keel)¹

Washington, November 20, 1986

SUBJECT

• Foreign Affairs Budget—Meeting with John Whitehead—Friday, November 21, 1986, 5:15 PM

The main purpose of the meeting is to reach agreement on 1987 country allocations of foreign aid so that State can send its required report to the Congress (was due last Monday, November 17). Since country allocations have direct implications for the 1987 supplemental request, however, the supplemental strategy should be discussed. Finally, you should use the occasion to discuss the outlines of the 1988 request. A summary list of the points you may wish to raise is at Tab I.²

I. 1987 COUNTRY ALLOCATIONS

We have consulted all affected NSC staffers on allocations and have received many excellent suggestions. The highest priority changes to State’s proposals are identified below. A table detailing State’s proposals and NSC’s changes to them is at Tab II.³

Central America:

○ The biggest issue that needs to be resolved at your meeting is the initial ESF allocation for the four Central American democracies—Costa Rica, El Salvador, Guatemala, and Honduras. As the table below shows, State proposes a total of $388M, below the 1986 level of $407M.

ESF to Central America Democracies
($ in Millions)
		1987
	1986	State	NSC
Costa Rica	121	85	85
El Salvador	177	180	176
Guatemala	48	56	58
Honduras	61	67	88
	407	388	407

○ The bipartisan coalition in the House secured contra funding only because it was coupled with the assumption that the four countries would get a significant increase in ESF funding over 1986 levels. The coalition assumed approximately $700M—the 1986 level, plus the new $300M in the contra package.

○ Key members of the coalition—Skelton, Chandler, Edwards, Snowe, Cheney—may withdraw their support if they perceive that the Administration is not attempting in good faith to maximize funding for the four countries in 1987.

○ We must fund the core four at $407. We can obtain most of the offset by reducing the Central American regional account (ROCAP) from $25M to $13M, with smaller cuts elsewhere in the Latin American region (see Tab II for details on changes).

Africa

○ We should provide additional ESF funding of $2M each for two countries that are strategically important and very helpful to U.S. national security objectives—Chad and Zaire. A cut in the Senegal level would provide an offset.

○ We should also substantially increase the high priority African Economic Policy Reform Program (AEPRP) by making $20M in development assistance funds available to add to the $27.5M in ESF funds. AID central programs can be cut as an offset.

— AID will oppose using DA funds for the AEPRP because the functional accounts are not flexible enough to link to macro-economic reform. We think AID can overcome the obstacles if pressed.

— AID will oppose cutting central programs because these are used to pacify domestic constituencies, such as universities and private voluntary organizations. The 1987 budget cuts call for a tougher approach to these constituencies.⁴

— Using DA to fund AEPRP would also eliminate a 1987 supplemental requirement.

Aid for Selected African Activities
($ in Millions)
		1987
	1986	State	NSC
Chad (ESF)	10	5	7
Zaire (ESF)	10	10	12
Senegal (ESF)	12	12	8
AEPRP
ESF	48	28	28
DA	—	—	20

Indonesia

○ Indonesia development assistance is being cut by 38%—from 64.4M in 1986 to $40M. With very tough time now economically, this is not a good response to President Reagan’s visit of last April.⁵

○ We should restore $10M in DA for Indonesia by cutting programs (Thailand, Bangladesh, India) an equal amount.

II. 1987 SUPPLEMENTAL

○ State has submitted a supplemental request of $1.7 billion. To its credit, State has attempted to prioritize its request and has grouped the request into packages addressing major themes. Attached at Tab III is a table summarizing State’s request and indicating preliminary NSC and OMB marks.⁶

○ One obvious problem with the State request is its size. Mostly by cutting out requests that were specifically rejected by Congress in its initial appropriation, NSC staff have been able to pare the request to $1.2B, but additional cuts will require hard decisions on Central America and the multilateral development banks.

○ While the size of the supplemental cannot be resolved at your meeting, you should indicate your concerns and urge Whitehead’s support in cutting back the State request.

III. STRATEGY FOR THE SUPPLEMENTAL

○ We should carefully consider the option of including enough politically attractive elements to make Congress want to support a supplemental. While the Secretary decided early in the 1987 allocation process that he did not want to break earmarks, that decision should be reviewed in the context of the supplemental.

○ It is possible, for example, that we could persuade the Israelis to accept temporarily diverting some of their FMS credits to other countries if restoration were sought in the supplemental. Israeli support might be obtained because:

— Its military procurement cash flow position would not be affected, since funds would be replaced and $300M in undrawn FMS credits is available in a pinch.

— The U.S. is close to agreement on FMS debt restructuring that could reduce Israel’s debt servicing burden by at least $100M.

— Israel’s reputation among other aid recipient countries would be enhanced if it were perceived as cooperating during a difficult funding squeeze.

○ We also have informal indications that Hill staff would not react strongly to some limited use of Sec. 614 authority to break earmarks (perhaps in the $100–125M range).

○ By breaking earmarks, many of the most urgent—but less popular—base rights problems could be taken care of in the initial allocation while increasing the prospects for enactment of a supplemental request.

○ Whitehead should reopen the issue with the Secretary.⁷

IV. 1988 REQUEST

○ Attached at Tab IV is a table showing State’s (and other agencies’) 1988 requests for Function 150 in relation to 1986 and 1987 levels.⁸

○ The total request ($23.1B) is slightly above the President’s 1987 request ($22.6B), but 32% above the 1987 enacted level ($17.4B).

○ Foreign Aid (151 + 152) shows a similar pattern—a 1988 request 20% above the 1987 enacted level.

○ Based on our consultations with Congressional staff, the numbers are substantially higher than anything likely to be seriously considered on the Hill, and risk making the Administration a bystander in the process.

○ While the request should not be discussed in detail at your meeting, it would be useful to begin sensitizing Whitehead to the probable need to scale the request back.

○ One way to scale back may be to couple our budget request with proposed legislative reforms aimed at gaining additional flexibility within the Foreign Assistance Act.⁹

Lynn Sachs and Rick Saunders concur.

1. Source: Reagan Library, Stephen Farrar Files, 1985–1986 File, Subject File, Foreign Aid—Function 150 11/09/1986–11/30/1986; NLR–177–1A–4–5–4. Confidential. Sent for action. Sent through Danzansky, who did not initial the memorandum. A stamped notation on the memorandum reads: “Deputy Natl Sec Advisor has seen.”
2. Attached but not printed is Tab I, an undated summary list entitled “Key Points to Raise with John Whitehead.”
3. Attached but not printed.
4. At the end of the sentence Keel wrote: “—in fact, will mobilize them to support larger appropriation in Congress (maybe).”
5. Reagan traveled to Indonesia from April 29 to May 2.
6. Attached but not printed.
7. Keel wrote in the right-hand margin: “NSC meeting.”
8. Attached but not printed.
9. A December 18 information memorandum from Farrar to Keel communicated that the foreign affairs budget issues and requests for both the 1987 supplemental and the 1988 request were resolved. The memorandum provided an attached table summarizing the outcome of the resolution and stated that next steps would require the administration building support for the budget request in the Congress and private sector. (Reagan Library, Stephen Farrar Files, 1985–1986 File, Subject File, Foreign Aid—Function 150 11/09/1986–11/30/1986; NLR–177–1A–6–4–3)