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FY 1976 - 12/10/74 - International Programs, Selective Service (1)
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White House Special Files Unit Files
Budget Review Decision Papers
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Department of State. 9/1789-
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Selective Service System. 6/22/1948-
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The original documents are located in Box 8, folder "FY 1976 - 12/10/74, International
Programs, Selective Service (1)" of the White House Special Files Unit Files at the Gerald
R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
Digitized from Box 8 of the White House Special Files Unit Files at the Gerald R. Ford Presidential Library
Foreign Asst.
12/10/74
President
Session With The
1976 Budget
12/10/74
President
Session With The
1976 Budget
GERALE + TORD CENTER
MEETING WITH
ROY L. ASH
Tuesday, December 10, 1974
2
THE WHITE HOUSE
WASHINGTON
December 9, 1974
MEETING WITH ROY L. ASH
Tuesday, December 10, 1974
1:00 p.m. (60 minutes)
From: ROA L. Ash
Oval Office A
LIBRARY 078335
I. PURPOSE
To review the issues raised by the FY 76 budget for
International Programs and Selective Service.
II. BACKGROUND, PARTICIPANTS AND PRESS PLAN
A. Background: FY 76 budget submissions for International
Programs and the Selective Service have been considered
by OMB and members of the White House staff and the
results of these reviews have been communicated to the
affected agencies (with the single exception of the
Export-Import Bank). This meeting will focus on the
issues raised during the review process that require
Presidential consideration and determinations.
B. Participants: Roy L. Ash, Paul O'Neill, Don Ogilvie,
and Dale McOmber
C. Press Plan: David Kennerly photo.
III. TALKING POINTS
Don Ogilvie, would you describe the first issue we should
consider in the international programs area?
3
THE WHITE HOUSE
WASHINGTON
FORD
CONFIDENTIAL
GENALD
LIGHARY
MEMORANDUM FOR:
THE PRESIDENT
FROM:
ROAL. ASH
SUBJECT:
1976 Budget decisions: Foreign Assistance
The agency requests and my recommendations with respect to 1976
budget amounts for Foreign Assistance are presented in the tabulations
attached (Tab A).
Several key issues have been identified for your consideration (detail
at Tab B).
1. AID development assistance.
State and AID recommend a total program of $1, 194 million for
development loans and grants, effectively about the same level as in
the 1975 Budget, but an increase over 1974 and the likely appropriations
for 1975. Our recommendation of $1,101 million reflects largely
(a) deletion of loans to Indonesia ($20 million) because of that
country's rapidly growing earnings from oil and to Morocco ($5 million)
because of that country's earnings from phosphate exports; and (b) a
decrease of $42 million in the $279 million requested for Latin
America; our recommendation for Latin America is about the same as the
1974 level and probably higher than the amount Congress is likely to
provide for 1975. The agency request for Indonesia, Morocco, and
Latin America is based primarily on considerations of relationships
with those countries.
The NSC agrees with our recommendation to delete loans to Indonesia
and Morocco, but supports the State/AID recommendation on Latin
America.
In addition, our recommendation provides a smaller increase in
population programs, $23 million (compared to the requested increase
of $37 million), for a total program of $161 million, or an increase
of 43% over 1974 and 21% over the 1975 Budget. Also, our recommendation
of $10 million for grants to American schools and hospitals abroad, AID's
lowest priority program, is the level in the Budget in the last few
years; AID wishes to anticipate the usual congressional add-on and
proposes $22 million.
DECLASSIFIED
E.O. 12356, Sec. 3.4 (b)
White House Guide Lines, Feb. 24, 1983
CONF IDENTIAL
By DAD NARS, Date 6/27/85
4
CONF IDENT IAL
URÒ
GERALD
LIBRARY
2
Decision:
Approve agency recommendation
Approve OMB recommendation
Other:
Agency rec.
OMB rec.
Indonesia and Morocco
Latin America
Population program
American schools and hospitals
2. Inter-American Development Bank.
The next replenishment of the Bank's capital, now being negotiated,
involves a $1,200 million U.S. share in three $400 million annual
installments beginning in 1976. At issue is whether $240 million
($80 million annually) of the U.S. contribution should be paid-in
capital, requiring budget outlays, or the entire U.S. contribution
should be callable capital used as a guarantee for borrowing by
the Bank, which does not result in outlays.
Treasury proposes paid-in capital to stimulate Latin American
contributions, which do not, however, increase total resources flowing
to the region, and to permit U.S. participation in a new non-regional
fund with Japanese and European contributions. The NSC supports the
Treasury proposal. Neither of these benefits justify, in our view,
paid-in capital and resulting outlays.
Decision:
Approve agency recommendation
Approve OMB recommendation
3. Vietnam economic aid.
State and AID recommend $725 million, slightly lower than the 1975
Budget request of $750. The request is much higher than Congress will
provide this year and represents substantial "cut insurance. The NSC
supports the request. The OMB recommendation of $550 million is close
to the minimum import financing need of Vietnam estimated at about $500
million, below which the economy would suffer a severe setback. A
middle option is $650 million, which would provide some cut insurance
and would probably be more defensible before Congress than the State/AID
request. All options provide the necessary amounts to maintain current
consumption levels in Vietnam.
Decision:
Approve agency recommendation
Approve OMB recommendation
Approve middle option
ONE IDENT TAL
5
CONFIDENTIAL
3
4. Cambodia economic aid.
State and AID recommend $156 million, which, in addition to
maintaining the level of imports into Cambodia, adds amounts for
petroleum and fertilizer. The NSC supports the State/AID request.
The OMB recommendation of $132 million deletes the additional amounts
on the grounds that demand for petroleum has declined and food
production depends on the military situation more than on more
fertilizer.
Decision:
Approve agency recommendation
Approve OMB recommendation
5. Cambodia military aid.
State recommends $450 million, compared to about $400 million in
1974 and 1975. The NSC supports the State request. Defense recommends
$400 million. OMB believes Defense's judgment is superior on Cambodia's
requirements for ammunition and other military consumables.
Decision:
Approve State and NSC recommendation
Approve DOD and OMB recommendation
6. Middle East economic and military aid.
GERATO FORD LIBRARY
The total 1975 Budget request for the special Middle East package
was $908 million for Israel, Egypt, Jordan, and Syria. State's
recommendation of $1,023 million for 1976 includes economic aid
increases of $50 million for Egypt, $50 million for Israel, and $15
million for Syria. This recommendation is designed to signal continued
confidence in the negotiating process and offer a bigger incentive for
cooperation in a peaceful settlement. The NSC supports the State request.
The OMB recommendation of $775 million repeats the 1975 request, and
thereby is neutral in its signals, with the exception of a reduction
in economic and military aid to Jordan from $208 million to $75 million,
reflecting the diminished role of Jordan as a result of the Rabat
conference.
In economic terms, U.S. aid to Egypt, Jordan, and Syria is now
relatively marginal, given the huge amounts of aid pledged by the
Arab oil countries -- $7.6 billion in the year ending September 30.
Decision:
Approve agency recommendation
Approve OMB recommendation
CONFIDENTIAL
6
CONF IDENTIAL
4
7. Phaseout of military aid grants.
Military grant aid (MAP), except for its training component, is
under increasing criticism from Congress accompanied by attempts to
terminate it or cut it severely with restrictions on its use. A new
approach may be needed to preserve the grant program for situations
where it is clearly necessary (e.g., active hostilities or other
special circumstances) and to obtain an adequate military credit
sales program to offset reductions in MAP.
State's recommendations for MAP, supported by NSC, phase out only one
of 20 country programs in the period 1976-80 -- Korea by the end of
1977. The OMB recommendation is an explicit policy of phasing MAP
programs by the end of 1977 (except for countries facing active
hostilities or other special circumstances) and of increasing credit
sales as an offset. Training programs would be retained in any
phaseout. A third alternative, recommended by Defense, is initiate a
shift to credit sales and to adopt an explicit phaseout of MAP over
the period 1976-80, but not to single out, at this time, specific
countries for phaseout after 1977.
In the context of this general policy question (Issue 7a at Tab B),
five countries -- Turkey, Korea, Indonesia, Philippines, and Thailand --
and the small Latin American program ($11 million for 9 countries) are
particular issues for 1976 and 1977 (Issues 7b-g at Tab B).
If you do not wish to make an explicit general policy decision now on
phasing out MAP, OMB recommends that you direct that a study be
conducted to develop alternative strategies for the military assistance
and sales program through 1980, including, in particular, consideration
of phaseout alternatives. The study should concentrate on developing
recommendations that Congress could support and be completed in time
for presentation to Congress in connection with its consideration of
next year's Foreign Assistance Act.
FORD
Decision:
No phaseout policy (State and NSC)
Phaseout by end 1977 (OMB)
GERALD
LIBRARY
Phaseout policy but no specific
country decisions after 1977 (DOD)
A study of the issue
Apart from a decision on the general issue, your decision is needed
on the particular programs for 1976 and 1977.
CONF IDENTIAL
CONF IDENT TAL
5
Turkey (Issue 7b)
State/NSC recommendation
($64 million in 1976; $46 million
in 1977)
OMB recommendation
($50 million in 1976; $25 million
and phaseout in 1977)
DOD recommendation
(Same amounts as OMB; no
phaseout decision now)
Korea (Issue 7c)
State/NSC recommendation
($75 million in 1976; $50 million
and phaseout in 1977)
OMB and DOD recommendation
($50 million in 1976; $25 million
and phaseout in 1977)
Indonesia (Issue 7d)
State/NSC recommendation
($21 million in 1976; $19 million
in 1977)
OMB recommendation
($5 million and phaseout in 1976)
DOD recommendation
(Same amounts as State; no phaseout
decision now)
Philippines (Issue 7e)
State/NSC recommendation
($20 million in 1976 and 1977)
OMB recommendation
($10 million in 1976; $5 million
and phaseout in 1977)
DOD recommendation
(Same amounts as State; no.
phaseout decision now)
Thailand (Issue 7f)
State/NSC recommendation
($30 million in 1976; $25 million
in 1977)
CONFIDENTIAL
CONF IDENTIAL
6
OMB recommendation
($20 million in 1976; $10 million
and phaseout in 1977)
DOD recommendation
($35 million in 1976 and 1977;
no phaseout decision now)
Latin America (Issue 7g)
FORD
State/NSC recommendation
($10 million in 1976; $8 million
in 1977)
OMB and DOD recommendation
($4 million and phaseout in 1976)
8. Latin America military credit sales.
State recommends $202 million for 1976 and $246 million for 1977.
The NSC supports the State request. The OMB recommends (Defense
concurs) $200 million in each year, the same as that budgeted for 1975.
State wishes to continue credit sales to Venezuela and to increase
them to Argentina and Brazil. The OMB recommendation deletes the
program for Venezuela, which as an oil rich country is easily able
to finance its own purchases. Brazil and Argentina are able
increasingly to pay cash or find commercial credit for their U.S.
arms purchase. All priority needs can be met within the overall $200
million level.
Decision:
Approve State and NSC recommendation
Approve OMB and DOD recommendation
9. Morocco military credit sales.
State recommends $30 million for 1976, compared to $14 million in
1975, which was itself an increase over previous levels as a result of
the good reception Secretary Kissinger was given there last year. The
proposed increase for 1976 results from a subsequent visit and would
help finance a force modernization program. The NSC supports the State
request.
OMB recommends (Defense concurs) continuation of the $14 million level.
Morocco, because of its windfall earnings from phosphate exports and its
access to Arab oil money, can finance needed U.S. arms purchases.
Decision:
Approve State and NSC recommendation
Approve OMB and DOD recommendation
CONF IDENT JAL
CONF IDENTIAL
7
10. Greece military credit sales.
State recommends $105 million for 1976 and $110 million for 1977,
compared to $71 million in each of the prior two years. The NSC
supports the State request. These increases are designed to help
restore U.S. influence and indicate approval of the restoration of
democracy. They would finance payment on Greece's large purchases
last summer and a substantial amount of new purchases.
OMB recommends (Defense concurs) $90 million annually in 1976 and 1977.
This level would also signal favorable U.S. attitudes, finance payments
on recent purchases, and provide a modest amount for additional
purchases. Although a significant increase over prior years, the
OMB recommendation would be less likely to be perceived as contributing
to a Greece-Turkey arms race.
Decision:
Approve State and NSC recommendation
Approve OMB and DOD recommendation
In addition, your decision will be needed on P.L. 480 food aid for 1975
and 1976. Alternatives are now being prepared and will be available
for our discussion of the foreign aid budget. It appears now that
the alternatives for 1975 will exceed the original 1975 Budget outlays
of $742 million by $200-600 million. The alternatives for 1976 will
range from $861 million to $1,181 million.
Attachments
CC:
DO Records - Official file
Director
Director's chron
Deputy Director
Mr. Ogilvie
BRD
FORD LIBRARY
Mr. Frey
IAD: JMFrey:neh: 12/6/74
CONFIDENTIAL
10
Tab A ⑉ Summary Data
FOREIGN ASSISTANCE 1974-76
Program, Budget
brity, Outlays
($
is)
PROGRAM (Obligations)
1975
1976
1974
Budget amended
Estimate
Agency Request
OMB Recommend.
SECURITY ASSISTANCE
A. Supporting Assistance
132
498
698
620
453
B. Indochina Postwar Reconstruction
502
943
574
965
764
C. Military Assistance
4,724
3,497
2,202
2,916
2,697
Grant MAP
793
1,024
629
878
671
Foreign Military Credit Sales
713
873
873
1,038
1,026
Military Assistance, Vietnam
1,018
1,600
700
1,000
1,000
Emergency Assistance, Israel
2,200
--
--
--
---
D. Total Security Assistance
5,358
4,938
3,474
4,501
3,914
DEVELOPMENT ASSISTANCE
A. Multilateral
2,383
1,185
1,165
1,136
1,136
Intl. Financial Institutions
2,237
1,006
1,006
946
946
Intl. Organizations and Programs
146
179
159
190
190
B. Bilateral
1,057
1,405
1,197
1,246
1,153
Development Loans and Grants
877
1,139
931
1,172
1,091
Other AID Programs
145
231
231
64
52
Other Bilateral
35
35
35
10
10
C. Total Development Assistance
3,440
2,590
2,362
2,381
2,289
MIGRATION AND REFUGEE ASSISTANCE
50
9
61
11
23
PRESIDENT'S CONTINGENCY FUND
12
30
20
30
30
19
P.L. 480
850
872
1,093
1,247
945
TOTAL FOREIGN ASSISTANCE PROGRAM
DRO
9,710
8,439
7,010
8,170
7,201
LIBRARY
TOTAL BUDGET AUTHORITY
8,594
7,143
5,547
7,098
6,115
TOTAL OUTLAYS
4,081
4,904
5,474
6,466
5,855
1
INTERNATIONAL DEVELOPMENT ASSISTANCE
1976 Budget
Summary Data
(In millions)
Employment, end-of-period
Budget
Full-time
authority
Outlays
Permanent
Total
1974 actual
3171
1459
9131
9467
1975 January budget
2095
1640
9704
10175
as amended
2100
1641
XXXX
XXXX
current estimate
1852
1685
8904
9394
1976 planning ceiling
1469
1623
XXXX
XXXX
agency recommendation
1957
1730
8727
9208
OMB recommendation
1864
1618
8704
9186
Transition period
agency recommendation
302
430
8727
9208
OMB recommendation
198
368
8704
9186
1977 OMB estimate
1958
1529
8704
9186
ORD
LIBRARY
CONFIDENTIAL
2
INTERNATIONAL SECURITY ASSISTANCE
1976 Budget
Summary Data
LIBRARY
FORD
(In millions)
GERALD
Budget
Authority
Outlays
1974 actual
4813
1940
1975 January budget
3382
2116
as amended
4255
2491
current estimate
2863
2775
1976 planning ceiling
3019
2669
agency recommendation
4028
3520
OMB recommendation
3445
3330
Transition period
agency recommendation
715
698
OMB recommendation
623
676
1977 OMB estimate
3021
3233
DECLASSIFIED
E.O. 12356, Sec. 3.4 (b)
White House Guide Lines, Feb. 24, 1983
By DOW NARS, Date 6/27/85
PANCINENTINI
Tab B - Issues
1. AID Development
Assistance
3
Foreign Assistance
1976 Budget
GERALD FORD LIBRARY
Issue #1: AID Development Assistance
Statement of Issue
What should be the level of AID development assistance requested in the
1976 Budget?
1974
1975
1976
Budget
Alt. #1
Alt. #2
Agency Req.
OMB Rec.
($ millions)
Country Loans and Grants
Asia
248
387
335
315
Latin America
232
281
279
237
Africa
108
152
184
179
Special disaster relief
48
126
--
Other
345
358
396
370
Total
981
1,304
1,194
1,101
of which
Population programs
112
138
175
161
American Schools and Hospitals
19
10
22
10
Background
Over half of AID funds are targeted on Indochina and the Middle East (see
separate issues). The remainder of the program, although called "develop-
mental,' is for a variety of foreign policy and humanitarian as well as
economic development purposes.
The AID request, setting aside special disaster relief in 1975, is gen-
erally proposed for the same countries and at about the same levels as in
the 1975 Budget.
Alternatives
#1. A $1,194 million AID development program, about the same total
level as in the 1975 Budget (Agency req.).
#2. A $1,101 million program, which would (a) eliminate the part of
the Latin America request which was based solely on the desire
to maintain the 1975 Budget level; (b) eliminate loans to
Indonesia and Morocco because of their large and growing export
earnings; (c) eliminate the part of the population program
4
GERALD FORD LIBRARY
increase related to expanded administrative support of U.S. non-
profit institutions and other lower-priority activities; and,
(d) hold the low-priority program of grants to American schools
and hospitals abroad at the 1975 Budget level (OMB rec.).
Analysis
Country programs. The bulk of the AID request for loans and grants to Asia
is for India, Pakistan, and Bangladesh. There is some doubt as to the
extent to which these countries will use the aid effectively, but the need
is so great that the proposed assistance appears warranted. The AID request,
however, also includes $20 million in loans to Indonesia which is acquiring
huge and growing foreign exchange reserves from oil revenues. State and AID
believe continuation of concessionary loans is necessary to avoid upsetting
the Indonesians in view of the sharp drop in assistance from $74 million in
1974. Because, however, there is no economic justification for the loans,
and the Indonesians have accepted without difficulty a large reduction in
aid already, OMB proposes that U.S. aid be limited to the $4 million tech-
nical assistance program proposed by AID.
The AID request for Africa reflects continued support for the Sahelian
drought region as well as the numerous poorer countries of sub-Saharan
Africa. AID, however, proposes a $5 million loan to Morocco, which has a
huge foreign exchange windfall (over $1 billion) from phosphate fertilizer
exports and is receiving substantial aid from Arab oil producers. OMB rec-
ommends that aid to Morocco be limited to the $2 million technical assistance
program proposed by AID.
NSC shares the OMB view that development loans to Indonesia ($20 million) and
Morocco ($5 million) would be difficult to justify based on their increased
foreign exchange earnings arising from oil and phosphates, respectively.
Moreover, inclusion of these requests could risk congressional reaction
damaging prospects for the foreign aid bill.
The AID program for Latin America is widely scattered among some twenty
countries, most of which are comparatively well-off and able to find alter-
native sources of financing. AID originally requested $237 million for the
region, which was based on a review of project proposals. This amount was
subsequently raised by $42 million primarily in order to keep aid at about
the same level as in the 1975 Budget. The NSC strongly supports the $42
million add-on to support Inter-American initiatives. Secretary Kissinger,
with the President's approval, assured the Latin Americans that our aid
levels would be maintained. The Latins always look to the Administration's
request as the evidence of U.S. intentions. OMB recommends that this add-on
not be approved principally because it is not needed. The OMB proposed
level of $237 million is larger than the actual program for Latin America
in 1974 and probably will be higher than Congress will provide this year.
5
AID is also proposing an increase in population control programs from $138
million in the 1975 Budget to $175 million. Although this is a high-
priority program, AID has been providing support to U.S. non-profit
institutions and to paramedical training programs abroad for an extended
period. In many of these cases, OMB believes that the LDC governments and
institutions should begin to assume more direct responsibility for selecting
the most effective programs to meet their needs. This would permit U.S. aid
to be concentrated on more innovative or catalytic activities. Accordingly,
OMB recommends that the program be increased by $23 million, to $161 million
in 1976 (still over half of the total worldwide effort to support family
planning in the LDC's).
Finally, AID is proposing that the Administration increase the budget request
from $10 million to $22 million for American schools and hospitals abroad
(ASHA), among the lowest priority programs of AID. The request is not based
on program needs, but is designed primarily to anticipate the usual congres-
sional add-on. OMB believes that this is inadvisable in a period of fiscal
stringency.
Agency Request. A $1,194 million AID development program.
OMB Recommendation. A $1,101 million program.
GERALD.R. P. LIBRARY FORD
L. Inter-
Development Bank
6
Foreign Assistance
GERALD FORD LIBRARY
1976 Budget
Issue #2: Inter-American Development Bank
Statement of Issue
Should the U.S. pledge to the fourth replenishment of the Inter-American
Development Bank's (IDB's) ordinary capital resources include $240 million
in paid-in capital ($80 million in 1976)?
1974
1975
1976
Budget Est.
Alt.#1
Alt.#2
Agency Req.
OMB Rec.
($ millions)
Inter-American Development
Bank:
Ordinary Capital:
193
400
400
Paid-in
( 25)
--
--
( 80)
( - )
Callable
(168)
--
--
(320)
(400)
Background
The United States provides development assistance through the multilateral
International Financial Institutions (IFI's)--the World Bank Group, and the
Inter-American, Asian and African Development Banks. IFI members formally
commit themselves to provide funds to the institutions by making multi-year
pledges and then provide actual contributions in annual installments. Most
1976 IFI contributions are installments on past commitments.
The only new IFI pledge calling for an installment to be appropriated in
1976 is the proposed replenishment of IDB ordinary capital funds from which
loans are made to wealthier Latin American countries at near market terms.
The Treasury, which manages U.S. participation in the IFI's, proposes that
the United States continue to provide "paid-in" capital, which results in
budget outlays, as well as "callable" capital, which is merely a guarantee
for IDB borrowing in world capital markets and does not result in budget
outlays.
Alternatives
#1. A $1,200 million U.S. contribution to be provided in three $400
million annual installments, to the replenishment of the IDB's
ordinary capital ($80 million paid-in, $320 million callable)
(Treasury req.).
7
#2. A $1,200 million U.S. contribution, entirely in callable capital
(OMB rec.).
Analysis
GERALD FORD
Paid-in capital is required when a bank is first set up to provide
working capital and reserves until the bank's own loans and investments
can generate the necessary earnings. The IDB's earnings are now
sufficient for these purposes and additional paid-in capital would
merely enable it to lower its interest rate slightly. Because there is
no need to subsidize interest for the relatively wealthy ordinary capital
borrowers, the United States is generally attempting to raise ordinary
capital rates to more nearly reflect true borrowing costs.
The case for continuing the paid-in contribution to the IDB rests on
several special considerations.
(1) The United States has expressed a desire to maintain a special
relationship with Latin America.
(2) Treasury would like to use at least part of the U.S. contribution
to join a new "non-regional" fund being created for Japanese and
European contributions, which would require paid-in capital but offers
no clear benefit to the United States.
(3) A U.S. paid-in contribution is necessary to encourage a paid-in
contribution by the Latins. (However, since they would be borrowing the
same funds back again, there is little benefit from paid-in contributions
by the recipients.)
The NSC believes that the inclusion of a paid-in capital contribution
as part of the fourth replenishment for the Inter-American Development
Bank will best serve to encourage contributions from other participants.
Accordingly the NSC supports Treasury's recommendation for a paid-in
capital contribution of $240 million ($80 million in 1976) within the
agreed total levels of the replenishment. OMB does not believe that the
$240 million cost is worth the benefits of showing special treatment for
Latin America, of participating in the new fund, or securing paid-in
contributions from the recipients.
Agency Request: Alternative #1 - Treasury believes that the advantages
of contributing to the new ordinary capital fund are worth the budgetary
cost.
OMB Recommendation: Alternative #2 - The potential advantages of a paid-in
contribution are primarily tactical--since it will have a negligible effect
on the level of external resources made available to the Bank by other
donors. Elimination of the paid-in contribution would, however, effect a
significant outlay saving for the United States, reducing the paid-in
portion by $80 million for each of the next three years.
3. Vietnam-
Economic Aid
8
Foreign Assistance
1976 Budget
FORD LIBRARY
Issue #4: Indochina Postwar Reconstruction (IPR): South Vietnam
Statement of Issue
What level of economic assistance should be requested for South Vietnam
for 1976?
1974
1975
1976
Budget
Est.
Alt.#1
Alt.#2
Alt.#3
Agency Req.
OMB Rec.
($ millions)
Import financing
333
550
360
525
525
500
Investment projects
50
200
50
200
125
50
Total, IPR
383
750
410
725
650
550
Background
U.S. assistance has enabled South Vietnam to survive the economic impact
of the war, by providing imports to offset production losses and meet
the inflationary demand resulting from spending to support the war effort.
In addition, spending by the United States in support of its operations
provided a major source of foreign exchange earnings. The sharp curtail-
ment of this spending, continued security problems, and declining
assistance levels have combined with global inflation to put the economy
into recession.
U.S. assistance must continue to provide minimum consumption and invest-
ment requirements. The issue turns mainly on the amount of investment
funds the economy can productively use, but also partly on the question
of including insurance against congressional cuts.
Alternatives
#1. $725 million (State req.).
#2. $650 million.
#3. $550 million (OMB rec.).
9
Analysis
The economy of South Vietnam continues to be dependent on U.S.
financed imports for survival as well as growth. The economy requires
about $500 million in externally financed raw materials and essential
consumption goods. A reduction in imports below this level would
further reduce domestic production, necessitate continued devaluations,
intensify inflation, and could force politically disruptive policy
changes.
On the other hand, increasing imports significantly above the $500
million level would yield less clear benefits. Some portion of any
increase would undoubtedly go for less essential consumption goods,
although the Vietnamese government would try to channel most additional
funds into investment. Such an effort is not likely to be effective
in moving toward self-sustaining growth, however, until the security
situation and economic policies improve. Without these improvements,
little additional private sector investment is likely to occur, and the
productivity of any public sector investment will be limited. Once
the preconditions for investment are established, however, domestic
capital, foreign investors, and aid from international financial
institutions and other countries is likely to become available to meet
investment needs.
For these reasons, OMB doubts the effectiveness of a large U.S.
investment increment in boosting Vietnam toward economic self-sufficiency.
A RAND cooperation study recently carried out for AID similarly questions
the advisability of large capital investment projects given their in-
herent vulnerability and the current economic uncertainties.
The NSC strongly believes that the U.S. objective should be to develop
economic self-sufficiency in Vietnam in the shortest possible time. It
argues not only that this is a realistic objective, capitalizing on
progress to date and favorable trends, but also that it will serve U.S.
interests best both by strengthening the peace in Southeast Asia and
by allowing an earlier phase-out of major U.S. economic aid. Accordingly,
the NSC supports the State/AID recommended level ($725 million) as that
most likely to achieve that objective.
The other argument which is made for a high request is that it is
necessary to request more than the requirement to assure that Congress
will actually appropriate sufficient funds. The record of recent
congressional action on Executive Branch requests for Indochina
economic assistance, however, calls this argument somewhat into
question:
FORDO LIBRARY UERALD
10
($ million)
1,000
State/AID (#1)
Request
Middle option (#2)
750
OMB (#3)
500
Appropriation
250
0
1972
1973
1974
1975
1976
Secretary Kissinger responded to congressional pressures this July by
providing a five-year phase-out plan for IPR assistance. This plan had
the objective of achieving self-sustaining growth, and virtually ending
assistance, by 1980. Congress is not responding favorably to this
initiative, however, and it appears that there will continue 'to be little
relation between the budget requests and actual appropriations.
Alternative #1, $725 million, would allow for perhaps $200 million in
investment. This is too high to be justified persuasively, and would
invite deep congressional cuts. Alternative #2, $650 million, is a
middle course. It would allow $100-150 million for investment and/or
insurance against possible cuts. Alternative #3, $550 million, is
much closer to actual requirements, and could be strongly defended as
a minimum program, but would rely primarily or changed conditions to
call forth investment. This alternative would not provide much cut
insurance.
Agency Request: Alternative #1 - $725 million.
OMB Recommendation: Alternative #3 - $550 million.
GERALD FORD LIBRARY
4. Cambodia-Economic
Aid
CONFIDENTIAL
13
FOREIGN ASSISTANCE
1976 Budget
Issue# 5: Military Assistance to Cambodia
Statement of Issue
How much grant military assistance is required in 1976-1977 to sustain
the friendly Cambodian forces?
1974
1975
1976
1977
LIBRARY
Alt. #1
Alt. #2
FORD
State
DOD/OMB
State/DOD/OMB
Actual
Budget
Est.
Req.
Rec.
Rec.
GERALD
($ millions)
Grant MAP
412
390
400
450
400
350
425
Background
With minor exceptions in the Navy and Air Force, the GKR's forces were
developed to the fullest extent with 1970-1974 funds and the 1975 effort
has been limited almost exclusively to operations and maintenance costs
with ammunition and POL as the major components, as will be the case in
1976. Efforts to expand and further modernize the GKR ground forces
were terminated because of a combination of factors including skyrocketing
prices and the realization that the Army at its current size and effec-
tiveness is all that the Cambodian government can produce.
Alternatives
#1. Request $450 million for 1976 and project $350 million for 1977
(State req.).
#2. Request $400 million for 1976 and project $350 million for 1977
(DOD/OMB rec.).
Analysis
As Alternatives #1 and #2 for 1976 are designed to accomplish essentially
the same ends and the lower level is supported by DOD, whose judgment
should be superior on this question, no case can be offered for the
higher amount other than that it allows for possible additional ammunition
cost inflation or attrition of major items.
DECLASSIFIED
E.O. 12356, Sec. 3.4 (b)
White House Guide Lines, Feb. 24, 1983
By AND NARS, Date 6/27/85
CONFIDENTIAL
14
The NSC supports the State recommendation of $450 million for 1976 and
$350 million for 1977. It considers this to be the absolute minimum
needed to provide the required ammunition and maintenance support for
Cambodian forces, while providing a small increment to permit some
modest replacement of major equipment losses (e.g., tanks, personnel
carriers). The continued viability of the Cambodian forces which this
level will provide is a major incentive for the other side to move toward
a political settlement.
The lower $400 million option in 1975 has the advantage of being close
to the 1974 actual level ($412 million) and the 1975 Budget ($390 million)
and estimated ($400 million) amounts, thus avoiding the need to justify
an increase to the Congress.
Agency Request: Alternative #1 -- $450 million in 1976 and $350 million
in 1977. NSC concurs.
OMB Recommendation: Alternative #2 -- $400 million in 1976 and $350
million in 1977. Defense concurs.
LIBRARY
FORD
:-
CONFIDENTIAL
6. Middle-East Military
& Economic Aid
11
CONSIDENTIAL
Foreign Assistance
1976 Budget
Issue #4: Indochina Postwar Reconstruction (IPR) Cambodia
Statement of Issue
What level of commodity imports is required to meet Cambodia's minimum
economic requirements?
LIBRARY
1974
1975
1976
FORD
Budget
Est.
Alt.#1
Alt.#2
Agency Req.
OMB Rec.
($ millions)
GENALD
Commodity Import
Program (CIP)
33.1
60.1
48.2
71.5
45.7
Exchange Support
Fund (ESF)
18.3
17.5
9.5
17.5
17.5
P.L. 480 Freight
38.5
20.0
30.0
49.0
51.0
Refugee/Misc.
5.5
12.4
12.3
18.0
17.8
Total
95.4
110.0
100.0
156.0
132.0
The fighting in Cambodia has produced a garrison economy heavily reliant
on U.S. assistance for its survival. Local industrial and agricultural
production is at a standstill, requiring imports of over $200 million as
compared to $97 million in 1972. P.L. 480 food aid provides the bulk of
the Cambodian food imports and will be provided in whatever amounts
necessary to supplement local production. The remainder of the import
bill is financed by the Commodity Import Program (CIP) and by multilateral
contributions to the Exchange Support Fund (ESF).
Alternatives
#1. Provide $71.5 million CIP funding, in addition to increased
refugee assistance and ESF contributions (State/AID req.).
#2. Provide $45.7 million, filling the minimum requirement for CIP
support, plus increases in refugee assistance and contributions
to ESF (OMB rec.).
Analysis
The analysis of aid requirements assumes that the real value of non-
food imports must be maintained. The average 1974-75 commodity import
level for Cambodia is $80 million. After adjustment for inflation, a
level of $88 million is required to maintain that 1976.
E.O. 12356, Sec. 3.4 (b)
White House Guide Lines, Feb. 24, 1983
CONFIDENTIAL
By DAD NARS, Date 6/27/85
CONFIDENTIAL
12
Sources of Import Financing
1974
1975
1976
Est.
Alt.#1
Alt.#2
Agency Req.
OMB Rec.
CIP
NOA
33.1
48.2
71.5
45.7
Pipeline drawdown
20.4
3.1
2.0
2.0
ESF
U.S.
18.3
9.5
17.5
17.5
Cambodia/Other
18.3
9.5
17.5
17.5
Total
90.1
70.3
108.5
82.7
LIBRARY
- Alternative #1 would exceed the $88 million import level by
FORD
$20.5 million or 23%.
is
- Alternative #2 would fall short of that level by $5.3 million or 6%.
GERALD
The $5.3 million increase in refugee assistance, contained in both
alternatives, is earmarked for purchase of equipment to cultivate
resettlement areas. As such, it represents commodity imports and brings
the import level of Alternative #2 to $88 million, the amount required
to maintain real import levels based on the 1974-75 average.
The NSC supports the $156 million level as the minimal amount which will
insure Cambodian economic survival. Most of the additional aid represented
by this alternative would be spent on POL and fertilizer. The NSC
believes that the increased fertilizer should be retained as a part of
the program; it will assist in achieving substantially increased food
production which, if achieved, would reduce the requirements for P.L. 480
rice imports. OMB believes the additional amount is not needed. The
demand for POL in Cambodia has declined; and food production is less a
function of fertilizer than the military situation.
Agency Request: Alternative #1 - $156 million.
OMB Recommendation: Alternative #2 - $132 million.
CONFIDENTIAL
5. Cambodia-Military
Aid
I
15
CONFIDENTIAL
Foreign Assistance
1976 Budget
Issue #6: Middle East Economic and Military Assistance
Statement of Issue
What amounts of military and economic assistance should be included in
the Budget for Israel, Jordan, Egypt, and Syria?
LIBRARY
1974
1975
1976
Budget
Est.
Alt.#1
Alt.#2
Alt.#3
Agency Req.
OMB Rec.
($ millions)
Egypt
Supporting assistance
--
250
250
300
250
50
Syria
Supporting assistance
--
( 75)
( 75)
90
75
25
Jordan
Grant MAP
40
100
30
100
30
30
FMS credit
--
30
30
30
10
10
Supporting assistance
46
78
78
78
35
15
a
a
/
Special Requirements Fund
--
100
100
25
25
25
Subtotal
86
558
488
623
425
155
Israel
FMS credit
300
300
300
300
300
300
Supporting assistance
50
50
250
100
50
50
Emergency Sec. Ass't.
2200
--
--
--
--
--
Grand Total
2636
908
1038
1023
775
505
a
/
$75 million of Special Requirements Fund is planned for Syria.
Background
Significant changes in the diplomatic situation in the Middle East have
resulted in basic uncertainties regarding the immediate objectives of our
assistance in the area.
- Negotiations have been stalled for several months.
DECLASSIFIED
E.O. 12356, Sec. 3.4 (b)
White House Guide Lines, Feb. 24, 1983
CONFIDENTIAL
By
DAW NARS, Date 6/27/85
CONFIDENTIAL
16
- The Arab summit conference in Rabat designated the Palestine
Liberation Organization, rather than Jordan, to negotiate with
Israel for return of the West Bank.
- The Arab oil producers at the Rabat conference pledged $2.3 billion
annually in aid to Egypt, Jordan, and Syria in addition to the
$5.3 billion pledged in the past year.
LIBRARY
FORD
Other
Rabat
Cash
Grants
Loans
*
Pledge
Total
076835
($ millions)
Egypt
1,320
1,650
868
1,000
4,838
Syria
640
340
224
1,000
2,204
Jordan
181
4
45
300
530
Total
2,141
1,994
1,137
2,300
7,572
These events affect the role and impact of U.S. assistance. Because the
United States does not wish to signal any change from the current
negotiating strategy at this time, however, the proposed assistance
programs are designed to be neutral as regards signals of change.
Israel. The major unknown affecting future military assistance require-
ments is the U.S. response to Israel's request for $1.5 billion annually
in grant aid for a ten year military enhancement program. Since the
October 1973 war the U.S. has agreed to provide about $2.5 billion in
arms and $2.5 billion in financing, $1.5 billion on a grant basis. An
additional $300 million in military sales credits will be provided in
1975. Although there has been no economic requirement for the general
balance of payments support provided to date, a continued high level of
mobilization or withdrawal from the Sinai oil fields could change this.
Jordan. The United States has provided aid to Jordan to keep Israel's
longest border secure and to assure cooperation in negotiations. Military
assistance helps to maintain army loyalty as the backbone of a moderate
regime. Economic assistance has been justified as budget support despite
the country's large foreign exchange holdings. Jordan's diminished role
in the negotiations and the sharply increased Arab aid have diminished the
need for high aid levels.
Egypt and Syria. Economic aid to both countries is designed to indicate
U.S. interest in broadening and balancing its relationships in the area,
and to provide incentives to enter into those relationships. The massive
assistance flows from the Arab oil producers have diminished the incentive
effect, however, and reduced the diplomatic leverage of U.S. aid. Disbursed
or committed assistance will meet both projected foreign exchange deficits
and likely development and reconstruction activities for several years,
CONFIDENTIAL
CONFIDENTIAL
17
given the sluggish administrative pace of those governments. U.S.
assistance requested for 1975 will not begin to flow until 1976,
due to delayed enactment of foreign assistance appropriations.
Alternatives
LIBRARY
#1. Increase economic aid over 1975 proposed levels and maintain
military aid at those levels, with a total of $1,023 million
FORD
R.FORD
(State req.).
GERALD
#2. Maintain 1975 proposed levels, with the exception of reduced
aid to Jordan, with a total of $775 million (OMB rec.).
#3. Reduce aid to levels more justifiable in programmatic terms,
with a total of $505 million.
Analysis
Alternative #1:
- is designed to provide greater incentives for cooperation on
a Middle East settlement.
- includes higher levels of economic aid to Egypt, Syria and
Jordan, which were proposed before the extent of aid from
Arab oil countries was appreciated.
- proposes levels of aid to Jordan difficult to justify in
terms of that country's needs and its decreased role in
negotiations.
- minimizes flexibility by raising assistance levels before
we receive anything in return.
Alternative #2:
- is neutral as regards signals but communicates confidence
in the established negotiating strategy.
- takes account of the diminished importance of Jordan in the
negotiations and of the increased economic aid from Arab oil
producers.
- does not take into account increased levels of oil producer
assistance to Egypt and Syria.
Alternative #3:
- reflects changed diplomatic and economic conditions.
CONFIDENTIAL>
CONFIDENTIAL
18
- takes into account the massive assistance flows from
oil producer countries to Egypt, Syria, and Jordan.
LIBRARY
- shifts our assistance strategy away from resource transfers
toward a broader technical assistance orientation in which
FORD
the United States has an advantage over Arab oil producers.
- shifts balance of payments support requirements onto the
CERALO
Arab oil countries.
Agency Request: Alternative #1 - increase assistance over 1975 Budget
level. The NSC strongly supports the State request. The levels
recommended reflect the judgment of Secretary Kissinger as to the mix
of U.S. participation in security and development efforts in the area
most likely to encourage the parties to continue their efforts to
attain a lasting peace.
OMB Recommendation: Alternative #2 - maintain assistance at 1975 Budget
level, with the exception of Jordan. State's decisions on economic
assistance were made before the impact of the Rabat conference,
discussed above, was appreciated. (DOD concurs in the lower military
assistance level for Jordan.)
CONFIDENTIAL
7a. Phase-Out of
Military Aid Grants
CONFIDENTIAL
19
FOREIGN ASSISTANCE
1976 Budget
Issue #7a: Phaseout of Military
Aid Grants
Statement of Issue
What should be the Administration's policy toward phasing out the
grant military assistance program?
Background
The grant military assistance program (MAP) is in jeopardy. Among
the reasons are that:
LIBRARY
FORD
Many country programs, begun years ago, are regarded by
Congress as anachronisms.
078330
Major recipients are ruled by military regimes perceived by
critics as oppressive.
J.S.-furnished arms too often are used in disputes between
neighbors or against a country's own people.
Recipients are increasingly capable of supporting their forces
out of their own resources.
The program, except for its training component, is no longer widely
perceived as having much to do with our security in a military sense
but rather as an instrument of short term diplomacy, intended to
persuade recipients to do things they otherwise would not do out of
self-interest, or as one element of U.S. relationships with a country.
This approach militates against a coherent Executive Branch program
strategy and persuasive presentation to the Congress of a clear
picture of where the program is going in the future. In these
circumstances, Congress has increasingly taken the initiative by cutting
budget requests deeply and imposing limitations and restrictions on
the program. Without an Executive Branch response to criticisms of
the program that in fact sets forth a new approach to military aid,
Congress will continue its recent course.
The Foreign Assistance Act has since 1963 contained a provision
(Section 505(c)) requiring the termination of grant military aid to
DECLASSIFIED
E.O. 12356, Sec. 3.4 (b)
White House Guide Lines, Feb. 24, 1983
By DAD NARS, Date 6/27/85
CONFIDENTIA
20
countries able to maintain their forces without undue burden to their
economies. In 1970 the Nixon Administration endorsed the general
principle that MAP, except for training, be gradually phased out
and replaced by foreign military sales on a credit or cash basis. In
keeping with this policy, the Nixon Administration terminated grant
MAP for Taiwan, Greece, and Liberia in 1973-74, but proposed to
eliminate only Tunisia in 1975. This would leave a total of 21
grant materiel programs worldwide, including South Vietnam which is
currently funded in the Defense budget.
In the Senate Foreign Relations Committee version of this year's
foreign assistance bill, grant military aid other than training would
be required to be phased out by the end of 1977, except under
clearly special circumstances. The House Foreign Affairs Committee's
report on the bill states that:
LIBRAR
FORD
The President should take steps to implement the provisions
of Section 505(c) and reduce the grant military assistance
programs not only with respect to money amounts but also
with respect to the number of countries receiving such
assistance.
Alternatives
#1. Gradually reduce grant MAP levels and shift to FMS credit but
terminate programs only for Tunisia (end of 1975) and Korea
(end of 1977) (State req.).
#2. Initiate a phased shift to FMS credit beginning in 1976 and
terminate all regular grant MAP programs at the end of 1977
except for countries facing active hostilities or other
special circumstances (OMB rec.).
#3.
Initiate a phased shift to FMS credit beginning in 1976 with the
goal of ending all grant materiel programs over the 1976-1980
period except for countries facing active hostilities or other
special circumstances (Defense rec.).
Analysis
Under Alternative #1, grant MAP for Tunisia would end in 1975 and
for Korea in 1977. The remaining 19 country programs (nine in Latin
America) would continue, though in some cases at gradually declining
CONFIDENTIAL
GONFIDENTIAL
21
levels, through 1980. State and NSC believe that small amounts of grant
MAP are an indispensable component of our relationships with these
countries, even though they no longer make more than marginal contribu-
tions to the recipient countries' military capabilities in most cases.
Several programs (Philippines, Thailand, Turkey) would be continued on
grounds that MAP is essential to retain military base rights.
Under Alternative #2, Tunisia would drop out in 1975, Indonesia and
nine small Latin America programs at the end of 1976, and all remaining
grant programs except South Vietnam, Cambodia, and Laos at the of
1977. Other programs could be continued or added if special circumstances
required, but there would be no general continuing commitment to
provide grant military aid on an annual basis. In most cases, reductions
in grants would be offset by increases in FMS credits.
Alternative #2 would enable recipient countries and their U.S. advisors
to plan for the end of grant MAP several years in advance. Some long-
term MAP recipients like Korea recognize that grant military aid will
be phased out eventually, but have not been able to plan for or to
prepare public opinion for its end. A planned phaseout should
eliminate some of the recriminations that result from annual congressional
cuts of the MAP budget request. Adoption of a planned phaseout might
also improve the chances for a more favorable congressional response to
Administration requests in the interim for MAP and over the longer
run for military credit sales. This approach would also focus needed
attention on the economic capabilities of MAP recipients and reduce
the tendency to base budget requests on past program levels without
regard to changing circumstances.
Base rights programs are a special category of traditional MAP programs
that would be phased out under Alternative #2. A decision to terminate
MAP at the end of 1977 could result in requests for an explicit rental
arrangement. However, other countries where we have bases and facilities
have graduated from MAP to a credit sales relationship without insisting
on base rental (Iran, Greece, Taiwan), and the fact that MAP is being
phased out generally should make the change more acceptable. In most
cases, the United States should be able to argue that the installations
serve common defense purposes and provide substantial economic benefits,
or that the real quid pro quo is the U.S. nuclear umbrella or defense
commitment. Some key facilities, however, serve unilateral U.S.
interests and a decision will have to be made whether and how to pay
for these facilities if the host countries insist on an assistance
quid.
If a rental arrangement becomes necessary, there are two alternative
means of financing: (1) a specific grant request, justified to
the Congress in those terms, or (a) Defense funding. In either case,
CONFIDENTIAL
CONFIDENTIAL
22
each program would be justified in terms of its actual purpose rather
than outdated justifications associated with the traditional MAP
program.
Alternative #3 represents a middle ground. It would imply an explicit
Executive Branch policy of phasing out MAP over the 1976-80 period but
would avoid singling out, at this time, specific countries for
termination after 1977. Under this alternative (a) Tunisia would
drop out in 1975, (b) programs for the Philippines, Thailand, and
Indonesia would continue as. proposed by State, (c) Latin American programs
would be ended at the end of 1976 as recommended by OMB, and (d) MAP
for Turkey and Korea would be reduced in 1976 and 1977 as recommended
LIBRAFT
by OMB but without an explicit termination decision at this time. This
FORD
approach would permit the use of MAP somewhat longer as an instrument
of diplomacy in selected countries. However, it would be harder to
implement a phaseout in these circumstances as all MAP recipients
would press to be included among the exceptions.
Agency Requests. State recommends Alternative #1 - phased shift to
FMS credit but continue most grant programs (19 out of 20) through
1980.
Defense recommends Alternative #3 - phased shift to FMS credit and
termination of most grant programs over 1976-80 period.
OMB recommendation. Alternative #2 - explicit policy to terminate
all regular grant programs after 1977 and shift to FMS credit
except where active hostilities or special circumstances warrant
continued grant aid.
CONFIDENTIAL
7b. Turkey-Military
Aid
CONFIDENTIAL
23
FOREIGN ASSISTANCE
1976 Budget
Issue# 7b: Military Assistance
To Turkey
Statement of Issue
Should grant MAP to Turkey be terminated after 1977?
1974
1975
1976
LIBRARY
1977
Alt. #1
Alt. #2
Alt. #1 Alt. #2
FORD
Budget Est.
Req.
DOD/OMB Rec.
Reg.
DOD/OMB Rec.
078835
($ millions)
Grant MAP
76
90
40
64
50
46
25
FMS Credit
75
90
90
115
115
135
140
Total
151
180
130
179
165
181
165
FMS Cash Sales
17
58
115
100
100
?
?
Background
Turkey, a grant MAP recipient since 1947, is economically able to
purchase its military requirements on a cash and credit sales basis.
The issue is the rate of the MAP phasedown and its implications for
U.S. relationships with Turkey, Cyprus negotiations, and retention of
U.S. installations and facilities.
The Turks on a number of occasions have attempted to make explicit the
implicit linkage between MAP and U.S. facilities. The United States has
regarded this as inappropriate within the NATO context. In a recent
address the Turkish Prime Minister noted that a cut off of aid to
Turkey over the Cyprus issue would (a) not change Turkey's policy toward
Cyprus and (b) may cause Turkey to reexamine its position on U.S. facilities.
Alternatives
#1. Continue grant MAP at least through 1980. Provide $64 million in
grant MAP in 1976 and $46 million in 1977, phasing down to $25 million
in 1980. Provide $115 million in FMS credit in 1976, increasing
gradually to $160 million in 1980 (State req.).
#2. Rapidly phase out grant MAP, terminating after 1977. Provide $50
million in grant MAP in 1976 and $25 million in 1977. Provide $115
million in credit in 1976, $140 million in 1977, and $160 million in
subsequent years (OMB rec.).
E.O. 12356, Sec. 3.4 (b)
White House Guide Lines, Feb. 24, 1983
By WAW NARS, Date 6/27/85
UNFIDE
HAL
24
1976
1977
1978
1979
1980
($ millions)
Alternative #1
MAP
64
46
35
24
15
FMS
115
135
145
155
160
Total
179
181
180
179
175
Alternative #2
MAP
50
25
0
0
0
FMS
115
140
160
160
160
LIBRARY
Total
FORD
165
165
160
160
160
Analysis
076835
Alternative #1 would phase MAP down slowly through 1980, hoping to avoid
the issue of rent for U.S. facilities. This would require that the
program be defended in traditional terms; i.e., defense requirements the
recipient is unable to finance out of its own resources. This would
appear to be perpetuating an outdated program that Congress may not
support.
Alternative #2 would more sharply reduce MAP in 1976 and 1977, termin-
ating the materiel program at the end of 1977, while providing substan-
tially increased levels of FMS credit. The FMS credit would enable
Turkey to procure its requirements without overburdening its economy
and could serve as the quid for U.S. facilities following the termination
of MAP, though the Turks might press for continued grant aid or some
form of base "rent." The U.S. should be able to argue that the defense
commitment, the nuclear umbrella, and large amounts of FMS credit are
evidence of our continuing interest in Turkey. Nevertheless, should
"rent" be required following the termination of MAP, the funds could be
requested explicitly for that purpose.
The NSC strongly supports State's recommended levels for 1976 and 1977.
NSC believes our bases and intelligence facilities in Turkey are critical
to U.S. and NATO defenses in the Eastern Mediterranean, and there is
strong evidence the Turks link our use of them with our grant and sales
program. Our ability to influence Turkey in the Cyprus negotiations
will be affected by Turk perceptions of U.S. intentions which in part
will be reflected by the levels of grant aid in the near future. NSC
believes a dip below the State proposed levels would risk a reaction by
Turkey at the very time when its cooperation will be crucial both to
the Cyprus negotiations and to our position in the Eastern Mediterranean
and the Mideast.
INFIRENTIAL
25
Both alternatives involve significant reductions in MAP from levels in
prior years. The amounts included in the budget for Turkey for 1976
and 1977 will be known to the Turks early next spring, but it would not
be necessary to inform them of any plan to terminate grants if that
were not advisable in view of negotiations over the Cyprus situation.
DOD concurs in the Alternative #2 levels but would not announce a firm
termination date at this time.
Agency Request: Alternative #1 -- NSC concurs.
OMB Recommendation: Alternative #2 -- Defense concurs in 1976-77 levels.
On
7c. Korea-Military
Aid
CONFIDENTIAL
26
FOREIGN ASSISTANCE
1976 Budget
Issue# 7c: Military Assistance to
Korea
Statement of Issue
What level of military assistance should be proposed for Korea in 1976-
1977?
LIBRARY
1974
1975
1976
1977
FORD
Alt. #1
Alt. #2
Alt. #1
Alt. #2
Budget
Est.
Req.
DOD/OMB Rec.
Req.
DOD/OMB Rec.
is
UERALD
($ millions)
Grant MAP
100.0
180.0
40.0
75
50
50
25
FMS Credit
56.7
52.0
52.0
100
125
150
175
Excess Defense
Articles
21.8
20.8
20.8
-
-
-
-
Total
178.5
252.8
112.8
175
175
200
200
Background
Military assistance to Korea since 1971 has been governed by a five-year
force modernization (MOD) plan. Under the plan, the United States agreed,
subject to available appropriations, to provide up to $1.25 billion in
grant MAP, FMS credit, and cash sales through 1975. An additional $0.25
billion in excess defense articles would be provided if available.
Congress has not been willing to adequately fund the MOD plan. Through 1974,
overall MAP cuts have required a shortfall in the Korea program of $306
million. In 1975, only $40 million in MAP grants is likely to be available
out of the $180 million request. Consequently, the MOD plan has been
extended, and approximately $400 million will need to be provided in 1976
and 1977 to complete it.
In both the House and Senate reports on the Foreign Assistance Act of 1974,
violations of human rights and high economic growth rates in Korea are
cited as reasons for cuts in military assistance.
DECLASSIFIED
E.O. 12356, Sec. 3.4 (b)
White House Guide Lines, Feb. 24, 1983
By ACHD Date 6/27/85
CONFIDENTIAL
CONFIDENTIAL
27
Alternatives
#1. Modest shift to credit (State req.).
1975
1976
1977
Total
Est.
LIBRARY
($ millions)
FORD
Grant MAP
100
75
50
225
&
FMS Credit
52
100
150
302
074238
Total
152
175
200
527
#2. Accelerated shift to credit (DOD/OMB rec.).
1974
1976
1977
Total
Est.
($ millions)
Grant MAP
40
50
25
115
FMS Credit
52
125
175
352
Total
92
175
200
467
Analysis
State supports alternative #1 on the grounds that higher requests are
(a) of value in our relations with Korea, even if Congress is unlikely
to provide funds at the requested levels and (b) are useful as cut
insurance
The NSC supports State's requests. It believes that, while we are
moving to eliminate the United Nations Command and to develop new security
arrangements on the peninsula, we need to reassure Korea of our continued
commitment to security and to stability in Northeast Asia. The requested
levels would provide that reassurance and help to complete discharge of
our commitment to the Korean Armed Forces Modernization Plan.
Alternative #2 includes a mix of grant and credit Congress is more
likely to approve; the grant portion is more realistic and FMS credit
is higher to take up the slack. It takes into account Korean under-
standing that high U.S. MAP budget requests will not be realized.
The Korean Prime Minister has stated before the Korean National Assembly
PANFINENTIAL
28
that grant MAP will probably be terminated by 1977 or 1978. The Koreans
have expressed a desire for high FMS credit levels and a willingness to
make substantial cash purchases to meet their military procurement needs.
Alternative #1 gives less weight than does Alternative #2 to the strength
of the Korean economy. Real growth in GNP is expected to be 8-9% in
1974. Less than 4% of the GNP is spent for defense purposes. Korea is
capable of handling higher FMS credit levels.
Agency Request: Alternative #1 -- modest shift to credit; provide
$75 million MAP and $100 million FMS credit in 1976 and $50 million
MAP and $150 million FMS credit in 1977. NSC concurs.
OMB Recommendation: Alternative #2 -- accelerated shift to credit;
provide $50 million MAP and $125 million FMS credit in 1976 and $25
million MAP and $175 million FMS credit in 1977. Defense concurs.
7d. Indonesia-Military
Aid
CONFIDENTIAL
29
FOREIGN ASSISTANCE
1976 Budget
Issue#7d: Military Assistance to
GERALO FORD LIBRARY
Indonesia
Statement of Issue
How should Indonesia's improving economic outlook, chiefly due to oil
revenues, affect levels of military assistance?
1974
1975
1976
1977
Alt. #1
Alt. #2
Alt. #1 Alt. #2
Budget Est.
Req.
OMB Rec.
Req.
OMB Rec.
($ millions)
Grant MAP
14.4
25.0 7.0
21.4
5.0
19.4
0.8ᵃ
FMS Credit
3.5
0 0
12.5
20.0
12.8
25.0
Total
17.9
25.0 7.0
33.9
25.0
32.2
25.8
Training only
Background
Indonesia is potentially a rich country, although densely populated and
in need of development. Oil, arable volcanic soil, other natural
resources, and geographic location represent future promise. Indonesia's
foreign exchange reserves are building rapidly to a level of $2.5
billion by the end of calendar 1974, and its oil exports will rise to
$5.9 billion during this year from $1.7 billion in 1973.
Alternatives
#1. Increase total levels of military assistance in spite of growing
oil revenues (State/DOD req.).
#2. Take into account Indonesia's rapidly growing oil revenues by
phasing out grant MAP promptly while offering higher levels of
FMS credit assistance as a gesture of continued U.S. political
interest (OMB rec.).
DECLASSIFIED
E.O. 12356, Sec. 3.4 (b)
White House Guide Lines, Feb. 24, 1983
By DAD NARS, Date 6/27/85
CONFIDENTIAL
CONFIDENTIAL
30
Analysis
Despite recent rapid growth, oil revenues and sizable foreign exchange
reserves are a relatively new experience for Indonesia. In choosing
Alternative #1, State and Defense prefer a wait-and-see attitude
towards long term availability of petro-dollars and recommend continu-
ing grant materiel aid indefinitely with only minimal reductions while
increasing military credits.
The NSC supports the State recommended grant MAP level of about $20
million for Indonesia in 1976-77 with a gradual phaseout thereafter.
The NSC believes military assistance provides a major element of political
leverage because of the effective relationship that exists with the
Indonesian military regime. It will be important to retain this
modest program for that political purpose during the next year or two
as our defense relationships are realized in the area following our
withdrawal from Southeast Asia. The military aid program will be doubly
important as reassurance in the wake of our termination of economic aid.
Alternative #2 recognizes Indonesia's growing oil revenues. With the
limited appropriation likely to be available for grant military assistance,
Indonesia is one of the countries least in need of grants. After a
transitional year of $5 million in grants in 1976, Indonesia would
receive grants only for training.
1976
1977
1978
1979
1980
LIBRARY
($ millions)
Alternative #1
FORD
MAP
i
21.4
19.4
19.2
16.6
14.2
FMS
12.5
12.8
11.0
12.0
13.0
Total
33.9
32.2
30.2
28.6
27.2
Alternative #2
MAP
5.0
0.8ª/
0.8a/
0.8ª/
0.8ᵃ
FMS
20.0
25.0
20.0
15.0
10.0
Total
25.0
25.8
20.8
15.8
10.8
Training only
Agency Request: Alternative #1 -- $21.4 million in MAP in 1976, with
no phaseout envisioned; military credit sales at $12.5 million in 1976,
increasing slowly thereafter. Defense and NSC concur.
OMB Recommendation: Alternative #2 -- Phaseout of MAP, excluding
training, after a transitional year of $5 million in 1976, with higher
levels of FMS credit as an offset.
7e. Philippines-
Military Aid
CONFIDENTIAL
31
FOREIGN ASSISTANCE
1976 Budget
Issue#7e : Military Assistance to
the Philippines
Statement of Issue
Should the presence of American military bases determine the amount and
form of military assistance to the Philippines?
LIBRARK
1974
1975
1976
1977
Alt. #1
Alt. #2
Alt. #1
Alt. #2
FORD
Budget
Est.
Req.
OMB Rec.
Req.
OMB Rec.
($ millions)
07W830
Grant MAP
15.9
20.0
10.0
20.0
10.0
20.3
5.0
FMS Credit
8.6
5.0
5.0
7.0
17.0
9.3
20.0
Excess Defense
Articles
7.0
2.5
2.5
0
0
0
0
Total
31.5
27.5
17.5
27.0
27.0
29.6
25.0
Background
The Philippine government has considered grant military assistance to be
a tacit quid pro quo for the strategically important U.S. military install-
ations at Clark Field and Subic Bay. Despite the fact that the current
agreement does not expire until 1991, the Philippine government has asked
to renegotiate the military relationship between the two countries at the
same time economic negotiations take place. The primary motivation for
negotiating both at once is that the Philippines are weak in bargaining
power on economic issues and would like to use the base rent - eviction
threat to bolster their position. The 1976 recommendation for military
assistance will be known before these negotiations are completed and
could affect the Philippine position on base rights.
Alternatives
#1. On the rationale that grant MAP is necessary to retain U.S. bases
in the Philippines, request $20 million for 1976 and annually
thereafter for an indefinite period (State/Defense Req.).
#2. Phase out the grant program, except for training, by the end of
1977, with a request of $10 million in 1976 and $5 million in 1977
(OMB Rec.).
DECLA SCIRED
E.O. 12356, Sec. 3.4 (b)
White House Guide Lines, Feb. 24, 1983
By Date NARS, Date 6/27/85
CANCINENTINI
CONFIDENTIAL
32
Analysis
In recommending Alternative #1, State and Defense believe it is necessary
to continue to provide grant MAP for the indefinite future to ensure
retention of our bases. This view holds that these bases are of high
strategic value and are irreplaceable, and that the Philippine govern-
ment could decide to evict the United States from Clark and Subic in
the absence of a grant quid pro quo.
The NSC supports the State recommendation of a straightline projection of
MAP at the $20 million level for 1976 and 1977 to preclude any inadvertent
diplomatic signals during the period when negotiations are being conducted
involving U.S. bases in the Philippines. These bases are necessary for
U.S. security, and the Philippines consider military assistance as
quid pro quo for their use.
Alternative #2 assumes a phaseout of grant materiel by the end of 1977,
offset by increased FMS credit levels. This alternative suggests that
common U.S./Philippine interests, high base-connected spending (about
$160 million annually), and military credit sales would provide strong
reasons for the Philippines to continue U.S. access to Clark and Subic.
The contrasting estimates for 1976-80 are:
LIBRARY
1976
1977
1978
1979
1980
FORD
($ millions)
Alternative #1
MAP
20.0
20.3
20.5
20.5
20.6
FMS
7.0
9.3
9.8
10.6
10.6
Total
27.0
29.6
30.3
31.1
31.2
Alternative #2
MAP
10.0
5.0
0.4a/
0.4
0.4
FMS
17.0
20.0
25.0
25.0
25.0
Total
27.0
25.0
25.4
25.4
25.4
Training only
Agency Request: Alternative #1 -- $20 million in grant MAP and FMS credit
of $7-10 million in 1976 and annually thereafter.
OMB Recommendation: Alternative #2 -- $10 million in grant MAP, phasing
out grants for materiel by end of 1977, and increasing military credit
sales to compensate for the phase out of grants.