Ask the Scholar
Document scope · 1 page
Scholar
Ask about this object, its catalog metadata, its source description, or the page inventory.
For page-specific OCR and visual context, open one of the page chats.
Scholar Source Context
Document identity
localId
6283053
label
FY 1977 - 11/22/75 - Security Assistance, Development Assistance, State Department, Ex-Im Bank (2)
core
doc
dtoType
document
citationUrl
pageCount
1
Source metadata
id
6283053
sourceUrl
contentType
document
title
FY 1977 - 11/22/75 - Security Assistance, Development Assistance, State Department, Ex-Im Bank (2)
citationUrl
collections
White House Special Files Unit Files
Budget Review Decision Papers
subjects
Department of State. 9/1789-
Export-Import Bank of the United States. 3/13/1968-
Federal budget
Foreign aid
thumbnailUrl
largeImageUrl
imageCount
1
hasImages
yes
source
import
hasTranscription
no
Source extras
naId
6283053
coverageEndDate
logicalDate
1975-11-30
month
11
year
1975
coverageStartDate
logicalDate
1975-11-01
month
11
year
1975
levelOfDescription
fileUnit
recordType
description
ocrSource
nara-archive
Single page context
seq
1
pageIndex
0
type
document
mediaId
8513c438f8656e1c
ocrText
The original documents are located in Box 9, folder "FY 1977 - 11/22/75, Security
Assistance, Development Assistance, State Department, Ex-Im Bank (2)" 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States of America his copyrights in all of his unpublished writings in National Archives collections.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.
gitized from Box 9 of the White House Special Files Unit Files at the Gerald R. Ford Presidential Library
Development
Assistance
1977 Presidential Review
International Development Assistance
Table of Contents
TAB A
Summary tables and background
narrative.
TAB B
Summary of reductions and discussion of
non-issue reductions.
TAB C
Issue Papers and Background Papers.
Issue
Effect of issue on outlays
(dollar in millions)
1977
1978
1. Reduce AID country programs
-8
-64
2. Reduce AID central programs
-13
-34
3. Terminate American Schools and Hospitals
Program
-5
-7
4.
Reduce P.L. 480 commodity levels
*
-514
-514
5. Reduce voluntary contributions to international
organizations
-23
-34
6. Terminate Housing Guaranty Program
-
-
Background Papers
1. International Financial Institutions
2. International Fund for Agricultural Development
FORD & LIBRARY GERALD
*
An issue paper on the 1976 P.L. .480 program is included in this section.
International Development Assistance
1977 Budget
Summary Data
(In Millions)
AID Employment, end-of-year
Budget
Full-time
authority
Outlays
Permanent
Total
1975 actual
2,152
2,695
6,185
6,591
1976 February budget (as amended)
3,373
3,058
8,700
9,175
supplemental recommended
(200)
-
XXX
XXX
agency request/OMB recommendation
3,126
3,092
6,155
6,630
TQ February budget (as amended)
377
702
XXX
XXX
1977 planning target
3,445
2,913
XXX
XXX
reduction target
-
2,704
XXX
XXX
agency request
3,538
3,065
6,155
6,630
OMB recommendation
2,699
2,500
6,155
6,630
1978 OMB estimate
2,535
2,318
6,155
6,630
a/ Outlay estimates in this table and all estimates in following tables do not include IFAD, for which no
request has yet been received. OMB anticipates a supplemental request for $200 million in BA in 1976,
which will result in $30 million in outlays in 1977.
GERALD
R.
FORD
LIBRARY
2
International Development Assistance
GERALD
1977 Budget
Overview
FORD
Program Level
($ millions)
1970
1973
1975
1976
1977
Actual
Actual
Budget
Actual
Budget
Request
Recommendation
AID Development Assistance
1294
1198
1401
1180
1262
1389
1126
P.L. 480 Food Aid
1178
937
878
1227
1366
1523
1022
Multilateral Assistance
798
870
1169
855
1466
1380
1346
TOTAL
3270
3005
3448
3262
4094
4292
3494
International Development Assistance has three major components which are roughly equal in size in the 1976 budget
request. In addition, AID provides economic supporting assistance (part of the International Security Assistance
Program) to countries of political/military importance, and some of the P.L. 480 and multilateral aid goes to these
countries as well.
The 1977 Budget Issue
The agencies responsible for development assistance are seeking increases in most of their programs above the 1976
budget request levels. They point out that the proposed 1977 increases are, on the whole, in line with earlier
Presidential guidance and they cite overriding foreign policy considerations in arguing against any cutback. OMB
while recognizing these arguments, believes that the broad issue is whether foreign aid should be allowed to grow
in a year when extraordinary budget stringencies require major reductions in domestic programs. OMB questions
whether, under the circumstances, such growth should be allowed.
Congressional Considerations
Both the agencies' and OMB's views on 1977 foreign aid budget levels are heavily influenced by congressional
considerations which differ with each major program component:
(1) AID development assistance. Congress regularly cuts administration requests for the main elements of
the AID program by 15-25 percent although it periodically adds back some funds for humanitarian disaster
3
relief, and other special purposes. This has led to an Administration practice of including "cut
insurance" in its budget requests, a cushion in excess of what is absolutely essential. The congressional
authorizing committees have also directed AID to focus its programs on the poorest people in the poorest
nations, an approach which conflicts somewhat with foreign policy emphasis on some of the higher income
developing countries.
(2) P.L. 480 food aid is a congressional favorite, in part because it helps maintain U.S. farm income and
in part because food aid is perceived by large numbers of Americans as being the most appropriate U.S.
response to humanitarian need abroad. As a result, Congress has given the Executive Branch broad authority
to change program levels and the Executive Branch has frequently increased the P.L. 480 program over
initially budgeted levels. Because of the humanitarian appeal of the program Congress has resisted large
scale food shipments for political/security purposes and has set tight limits on such users.
(3) Multilateral assistance. The largest part of multilateral assistance is U.S. contributions to the inter-
national development lending institutions. The contributions are determined by international agreements
that provide for installment payments over periods of several years. The agreements seldom coincide with
the budget cycle. Thus each proposed set of installments is approved separately as it arises, committing
the Executive Branch to seek funds in several succeeding years. Congress cuts annual appropriation
requests erratically, and occasionally deeply, forcing postponement of payments which the United States has
formally agreed to make.
Congress has not yet acted on 1976 budget requests for AID or multilateral assistance. While authorizing legis-
lation will soon be passed providing the full amounts requested by the Administration or more, it is likely that
appropriations will be at about the 1975 levels.
Agency Requests
In seeking 1977 program increases, the agencies have cited the need for cut insurance, the U.S. obligation to carry
out international agreements, and the popularity of the flexible P.L. 480 program. Specifically:
(1) AID is requesting a 10 percent increase in its own program over 1976 -- an 18 percent increase over the
actual 1975 appropriations. If appropriated this would be adequate funding for both foreign policy
requirements and to carry out the congressional desire for more aid to poorer developing countries.
(2) State and AID are also seeking an 18 percent increase in P.L. 480 over 1976 -- 24 percent above 1975.
This would permit shipments to an enlarged number of countries to meet a wide range of political,
developmental and humanitarian objectives.
FORD
4
(3) The State and Treasury requests for multilateral assistance are slightly below 1976 levels and are
mainly determined by formal commitments to international development banks.
In justifying these requests the agencies point to:
- the need for foreign aid, which is particularly pressing now, because of oil price increases, world-
wide inflation, and recession, especially among the poorest developing nations;
- the foreign policy importance of continuing a number of individual bilateral programs including those
in Indonesia, Korea, Chile, Panama, and P.L. 480 for the Middle East;
-
the special importance of more foreign aid to implement the new United States approach to the third
GERALD
world as set forth in Secretary Kissinger's address to the Seventh U.N. Special Session;
FORD
the fact that the proposed increases for most AID and multilateral programs are consistent with the
levels in 1977 authorizing legislation requested by the Administration; and
LIBRARY
-
the adverse impact which reductions from proposed 1977 authorizing levels could have on congressional
action on the pending 1976 foreign aid budget requests.
OMB Recommendation
In proposing significant program reductions in development assistance OMB has aimed at reducing or eliminating those
elements of the foreign assistance program which it judges to be least effective, as well as reducing 1977 outlays.
Specifically:
1. AID development assistance: OMB has cut the total request from $1389 million to $1126 million. This is
below the 1976 budget request and is $54 million below the 1975 actual program. When special disaster
relief activities in 1975 and 1976 are excluded from the totals, however, the OMB figure is about halfway
between last year's actual and this year's budget request level.
The OMB recommendation would essentially eliminate the cut insurance cushion although it is not clear
whether this would actually result in substantially lower appropriations than would otherwise occur.
OMB would reduce overseas development loans to the 1975 actual levels since increased multilateral
lending, which the United States is encouraging, will more than compensate for the cuts. Also OMB
questions whether the United States loan program at even the request levels can contribute significantly
to most countries' economic growth. At the same time, OMB would permit overseas grants, primarily
technical assistance, to rise by 15 percent above the 1976 budget and would permit continuation of AID's
Washington based grant activities at 1976 budget levels. Finally, the OMB recommendation would eliminate
two AID programs which subsidize American schools and hospitals overseas and provide guarantees of
housing loans to developing countries.
2. P.L. 480 food aid: OMB would reduce the AID request from $ 1523 million to $1022 million. In quanti-
tative terms, the OMB recommendation would provide 5 million tons of food in 1977, 17 percent below the
currently budgeted 6 million tons for 1976 and well below the AID request of 7 million tons. Because of
its broad support and the absence of funding constraints, the P.L. 480 program has already grown substan-
tially from the 3.3 million tons shipped in the food-shortage year of 1974. OMB questions whether the
benefits of the program warrant the high outlays requested. The OMB recommendation would permit the
United States to provide one half of the 10 million ton food aid target set by last year's World Food
Conference.
Because a Presidential decision is also required on the 1976 P.L. 480 program, a separate 1976 issue
paper is included in this book reflecting the congressional directives contained in the conference report
on the development assistance bill.
3. Multilateral assistance. The OMB recommendation would provide for a program of $ 1346 million. Recognizing
the need to honor specific agreements and to carry out Presidentially approved multilateral initiatives,
OMB has not cut back the Treasury Department's 1977 requests for the international development lending
banks. The $34 million reduction proposed for multilateral assistance for 1977 would be taken from U.S.
voluntary contributions to UN and OAS technical assistance programs. The U.S. commitment to these latter
activities is not clear cut and they appear to be of generally lower quality than the programs of the
development banks.
OMB believes that its recommendations are consistent with the tight 1977 budget policy and will not seriously
affect the realization of any major high priority assistance objectives abroad. With regard to the broad justi-
fications raised by the agencies:
-
The emphasis on the new multilateral aid programs proposed in Secretary Kissinger's UN speech should
provide as much as $3-4 billion over the next several years if other countries participate, helping to
GERMEET the pressing needs of the poorer countries.
R.
FORD
LIBERTY
-
The major U.S. bilateral foreign policy requirements can be met at the OMB recommendation level, and
deep congressional reductions in AID programs might be avoided by a concerted effort to make Congress
aware that the Administration has cut its request to the bone.
-
The proposed multilateral programs are the most important initiatives for improving relationships with
the Third World. Secretary Kissinger pointed out in his speech that bilateral aid cannot be expected
to rise significantly.
-
With a $395 billion budget ceiling, it will be necessary to disregard previously proposed authorizing
levels proposed by the Administration for many programs. Increasing foreign aid while domestic program
benefits are being cut back would be difficult to justify.
-
While 1977 budget levels may affect 1976 congressional action on foreign aid, some reductions this year
are inevitable. An alternative approach would be to reduce the 1976 request somewhat to obtain outlay
savings next year. The agencies have strongly opposed this approach.
GERALD
A.
FORD
LIBRARY
TAR D
1977 Budd
International Development Assistance
GERALD
?
Summary of Recommended Program Reductions
($ in millions)
FORD
1976
TQ
1977
1978
LIBRANY
FTP
FTP
FTP
0
Employ.
0
BA
0
Employ.
0
Employ.
Current base
3,092
6,155
702
3,538
3,065
6,155
2,976
6,155
Recommended level
3,092
6,155
702
2,699
2,500
6,155
2,318
6,155
Reduction
0
0
0
839
565
0
658
0
Program reductions:
Country programs, reduce loans
and grants
0
--
0
186
8
--
64
--
Centrally administered pro-
grams, reduce
0
--
0
54
13
--
34
--
Operating expenses, use 2%
employment lapse rate
0
0
3
2
0
3
0
American Schools and Hospitals,
eliminate
0
--
0
10
5
--
7
--
International Organizations and Programs,
hold UNDP and OAS contributions to
1975 levels
0
--
0
34
23
--
34
--
International Narcotics Control, reduce to
allow for project fall-outs
0
--
0
4
0
--
2
:
P.L. 480 Title I, reduce programs
0
--
0
488
454
--
454
:
P.L. 480 Title II, reduce programs.
0
:
0
60
60
:
60
:
Total Reductions
0
0
n
839
565
0
658
0
1977 Outlay Reductions
International Development Assistance
AID operating expenses
(dollars in millions)
1976
TO
1977
1978
FTP
FTP
FTP
0
employ
0
BA
0
employ
0
employ
Amount:
Current base
165
6,155
46
171
173
6,155
171
6,155
Recommended level
165
6,155
46
168
171
6,155
168
6,155
Reduction
0
0
0
3
2
0
3
0
Actions required:
Submission of an appropriation request below the authorization request already submitted.
Program impact:
Over the past seven years, AID's total employment has declined dramatically from a peak of 17,500 in 1968
to 6,600 last June. During 1975 AID reduced FTP American employment by 753 (16%), of which about 300
represented employees in Indochina programs. This was accomplished by two successive reduction-in-force
actions undertaken in 1975 which are still in process. These have had an adverse impact on employee morale
and efficiency.
AID is attempting to restructure its work force to carry out its role more effectively. Specifically, the
Agency is recruiting personnel who can manage development programs aimed directly at the rural poor in
developing countries. OMB agrees with the need for restructuring, and believes that additional personnel
reductions at this time would thwart that effort and also further damage the morale and efficiency of
personnel already employed by the Agency. However, AID has historically been somewhat below the personnel
ceilings assigned, so a dollar saving can be achieved by realistically calculating operating expenses based
on a lapse rate of 2% between ceiling and on-board strength. OMB recommends that this be done, with no
program impact but with the effect of reducing outlays by $2 million.
GERALD
F.
FORD
LISBARY
1977 Outlay Reductions
Department of State
International Narcotics Control
(dollars in millions)
1976
TQ
1977
1978
FTP
FTP
FTP
0
employ
0
BA
0
employ
0
employ
Amount:
Current base
48
12
10
34
42
12
37
12
Recommended level
48
12
10
30
36
12
34
12
Reduction
0
--
0
4
6
--
3
--
Actions required: A reduced 1977 allowance consistent with current budget policy.
Program impact: The State Department requests $34M for International Narcotics Control Assistance in 1977.
This request is $8.5M below the planned 1976 program level and reflects an intention that host governments
increasingly conduct and finance their narcotics control programs from their own resources and with the
equipment and supplies heretofore provided under this program. Proposed reduction anticipates some fall-
out in project negotiations and some program reductions.
Other considerations: Congressional criticism has focused on the size of the U.S. contribution to the
UN Fund for Drug Abuse Control and on the large volume of equipment and supplies provided foreign
governments under this program. Both of these areas could absorb a portion of the cut. This recom-
mendation is consistent with the recommendations of the White Paper on Drug Abuse.
The State Department claims a $4 million reduction would defer or curtail some important activities and
make difficult any response to unforeseen events or potential new initiatives.
0 TAB
Issue Paper
International Development Assistance
1977 Budget
Issue #1: AID Country Programs
Statement of Issue
Should AID development assistance to individual countries be cut back significantly?
Background
AID country programs provide concessional development loans and technical assistance grants to more than 50
developing countries. In recent years, congressional appropriations reductions have cut country programs back
considerably from budget request levels--for example, 23 percent in 1975. This has led to the inclusion of a
"cut insurance" margin in executive branch budget requests.
In contrast to the hostile appropriations committee action, the congressional authorizing committees have
generally supported Administration requests for country program funding. These committees, however, have set in
law a "mandate" on the direction which the program should take. This calls upon AID to provide assistance to the
poorest countries and the poorest people within those countries, particularly small farmers. In addition to
agriculture, emphasis is to be given to population, health and education, and large-scale capital transfers are
to be de-emphasized.
This mandate tends to conflict with U.S. foreign policy requirements which greatly influence the allocation
of funds among countries and call for programs in some of the wealthier developing countries. Where foreign
policy considerations are the primary factor in providing aid, the developmental impact of the program is often
eroded. Foreign policy considerations have also dictated that the now rather limited country program funds be
spread among a relatively large number of countries.
Alternatives
#1. Increase country programs by 15 percent in program terms (see attached table) over the 1976 request and
41 percent over the 1975 actual, in line with proposed authorizing legislation--a total of $886 million
(Agency req.).
GERALD
.i)
FORD
LIBRARY
#2. Hold country programs to the 1976 budget request level, $767 million.
#3. Reduce country programs, holding loans at the 1975 actual level and allowing grants to increase moderately
above 1976--a total program of $700 million (OMB rec.).
Analysis
1975
1976
TQ
1977
1978
1979
1980
1981
Budget Authority/Outlays
BA
0
BA
0
BA
0
BA
0
BA
0
BA
0
BA
0
BA
0
($ Millions)
Country Programs:
Alt. #1 (Agency req.)
319
685
672
711
176
161
832
653
832
680
832
733
832
767
832
755
Alt. #2
319
685
672
711
176
161
713
648
713
640
713
671
713
687
713
680
Alt. #3 (OMB rec.)
319
685
672
711
176
161
646
645
646
616
646
631
646
638
646
610
(A country breakdown is provided in a table attached.)
AID has justified its 1977 request on the basis of country and project requirements, and the higher level of
funding could be applied against demonstrable project and country needs. Nevertheless, in defending its request
against possible reductions in lower-priority and more tentative activities, AID again emphasizes the need for
cut insurance.
Without a major change in appropriations committee leadership, it is likely that Congress will continue to
reduce AID appropriations. It is not clear, however, how deep the cuts would be if the Administration were to
eliminate the cut insurance and seek appropriations near the 1975 actual levels as proposed by OMB. Clearly,
major efforts would be required, emphasizing the bare-bones nature of the request, in order to hold actual appro-
priations at or near the 1975 level. Nevertheless, OMB believes this approach is worth the risks, because in a
tight budget year such as 1977, AID cut insurance will displace funding for other programs.
Because the congressional reaction is difficult to predict, it is also difficult to be precise about the
program impact of the OMB proposal. OMB would reduce loans to 1975 actual levels and allow technical assistance
grants to increase somewhat above the 1976 budget request based on a judgment that technical assistance is
generally more effective developmentally. Loans, however, are generally regarded as more useful for foreign
policy purposes.
GERALD
P.
FORD
In country terms (see attached table), AID has concentrated its proposed 1977 program increases on the poorer
countries of South Asia and Africa in line with the congressional mandate. However, when faced with appropriations
cuts, the poorest countries are reduced and the underlying foreign policy priorities emerge as in 1975 when Latin
America and East Asia received over half of the total funds.
OMB has not set any specific country allocation for its proposed program level. It has allocated funds illus-
tratively in a way that it believes would permit the major foreign policy and developmental objectives to be met,
including funding for Indonesia, the Philippines, Chile, and Panama. The lower level would, however, force some
choices as follows:
- in Africa, the choice would be between large-scale loans and grants to the six very poor Sahelian
countries (which may be beyond their absorptive capacity) and increases for other countries in
which the State Department believes it is important to demonstrate increased U.S. interest;
- in the Near East and South Asia (excluding the Middle Eastern countries), the main choice would
be between continuing programs in Pakistan, Bangladesh, and smaller countries at traditional
levels and resuming large-scale aid to India in an effort to improve U.S. relations there; and,
- in Latin America, some program reductions would be necessary in several countries whose need for
U.S. assistance is not great but whose political importance is high.
Given the fact that most major foreign policy needs were met at the 1975 level, OMB believes that a program
of the 1975 magnitude (even allowing for some congressional reductions in the proposed OMB request) should be
sufficient to meet all the high-priority foreign policy requirements. If reductions were made in some of the
programs which are primarily motivated by foreign policy concerns (e.g., $52 million for Indonesia), the funds
could be used to further meet more urgent development needs in the poorer countries, especially in South Asia.
The proposed middle option has not been broken down geographically but would ease the choices outlined above
and would send a less negative signal about Administration intent to meet its foreign aid obligations to developing
countries.
Agency Request: Alternative #1. A program of $886 million, incorporating cut insurance and meeting a range of
developmental and foreign policy needs.
OMB Recommendation: Alternative #3. A $700-million program, reducing cut insurance and probably meeting the
highest-priority requirements.
AID Country Programs
Attachment
($ Millions)
1975
1976
1977
Budget
Actual
Budget
Request
Recommendation
Africa
132
105
162
226
175
Sahelian countries
26
24d/
54
81
Other
106
81
108
145
East Asia
123
127
111
116
110
Philippines
42
55
36
44
44
Indonesia
46
43
51
52
52
Other
35
29
24
20
Near East/South Asia
289
182
253
316
215
Pakistan
77
69
61
88
Bangladesh
62
62
67
81
India
76
--
77
77
Other
74
51
48
70
Latin America
281
212
241
228
200
Chile
26
21
23
21
21
Panama
22
8
22
17
17
Bolivia
23
20
23
35
Haiti
9
4
9
23
Other
201
159
165
132
TOTAL
825
626
767
790
886
700
Loans
640
453
551
610
450
Grants
185
173
216
276
250
In addition, $38 million in disaster relief was provided to the Sahelian countries for a total of $62 million.
14
Issue Paper
International Development Assistance
1977 Budget
Issue #2: AID Centrally Administered Programs
Statement of Issue
Should the centrally-administered programs increase rapidly?
Background
Centrally-administered grant programs provide: 1) technical backstopping and research, including
contributions to international agricultural research centers and U.S. land-grant colleges; 2) support for
U.S. private and voluntary organizations (PVOs) operating overseas including direct program financing, freight
cost financing, and assistance in developing operational capability; and 3) funds for population control
activities, including contributions to the U.N. Fund for Population Activities (UNFPA) and to several PVOs
conducting family planning programs abroad. In 1975 central programs amounted to $141 million, or 16 percent
of total regular AID funding, up from 8 percent in 1970.
Alternatives
#1. Increase centrally-administered programs 73% over the 1975 level to $244 million (Agency req.).
#2. Hold these programs to $190 million, about the 1976 level and 35% over the 1975 level by making cuts
in poorly planned or less developmentally-oriented activities (OMB rec.).
Analysis
1975
1976
TQ
1977
1978
1979
1980
1981
Budget Authority/Outlays
BA
0
BA
0
BA 0
BA
0
BA
0
BA
0
BA
0
BA
0
($ Millions)
Central Programs:
Alt. #1 (Agency req.)
141
143
193
140
42
34
244
176
244
204
244
222
244
232
244
237
Alt. #2 (OMB rec.)
141
143
193
140
42
34
190
163
190
170
190
179
190
184
190
187
Agency Request
GERALD PEOJ
(Difference from Alt. #1 (Agency request)
1977 Outlays
1978 Outlays)
(
Alt. #2 (OMB recommendation)
-13
-34
)
(A table detailing the centrally-administered programs is attached.)
The Agency seeks across the board increases in these programs. Although many of the activities are sound, OMB
believes important weaknesses remain in each of the three main areas.
-In backstopping and research, the international centers and some U.S. activities are well conceived.
Nevertheless, there are no clear cut criteria for allocating funds among activities or for eliminating
outmoded projects. Funding for the U.S. land-grant colleges is more likely to strengthen their domestic
institutional capabilities than to lead to overseas developmental benefits.
-The PVOs make a useful contribution to the AID program as contractors managing country program activities.
Central funds for the PVOs, however, mainly finance activities with little or no relationship to AID's
development objectives. These funds have been increased by Congress without regard for specific require-
ments, and AID has exercised little substantive supervision over their use.
-Population control activities should receive high priority. However, neither UNFPA nor some of the
generally efficient PVO contractors can effectively absorb the requested increases. Contraceptive commo-
dity support for country program-funded activities is also in excess of probable needs.
Each of the program components which OMB criticizes, and proposes to reduce, enjoys significant congressional
support. Congressional initiatives in AID's 1976/1977 authorizing legislation include: 1) a new Title XII
mandating increased support for land-grant institutions; 2) a suggested target figure of $25 million in 1977
for certain country and central funds for PVOs (OMB recommends $17 million); and 3) an increase in population
and health program funding above the 1976 and 1977 Administration requests. The Agency will thus argue that
reductions in centrally-administered programs will both limit programs they regard as important and unnecessarily
anger the Congress, which may restore the funds and earmark their expenditure.
Agency Request: Alternative #1. In proposing a $244 million program, AID seeks increases in virtually all
centrally-administered programs.
OMB Recommendation: Alternative #2: OMB would reduce the request by $54 million by: 1) holding research
activities to the 1975 level; 2) reducing PVO funding by $8.1 million; 3) cutting back the proposed UNFPA
contribution by $9 million to the planned 1976 level and reducing grants to other population intermediaries by
$4.5 million; and 4) taking several smaller cuts totalling $7.8 million.
CERALD
Attachment
Centrally Administered Programs
($ Millions)
1975
1976
1977
Actual
Budget
Agency Req.
OMB Rec.
Technical Assistance Bureau
46.4
65.6
89.6
65.6
Of which: International Agriculture Research Centers
10.7
15.7
20.6
20.6
Other Title XII
12.5
14.1
23.2
14.1
Inter-regional Population Programs
64.0
87.7
109.1
90.6
Of which: UN Fund for Population Activities
20.0
21.0
30.0
21.0
Intermediaries (including commodities)
22.4
32.2
36.7
32.2
Private and Voluntary Organizations
24.2
33.0
35.7
27.2
Of which:
Ocean Freight
7.5
15.0
14.0
8.0
General Program Support Grants
10.2
11.5
11.2
11.2
Development Program Grants
5.0
5.6
8.6
6.5
200
Other Programs
6.6
6.4
9.2
6.8
TOTAL
141.2
192.7
243.6
190.2
GERALD
R.
FORD
LISHARY
Issue Paper
International Development Assistance
1977 Budget
Issue #3: American Schools and Hospitals Abroad
Statement of Issue
Should grants to American schools and hospitals abroad (ASHA) be terminated in 1977?
Background
The ASHA program was established to provide assistance to schools, libraries and hospitals overseas which
are sponsored by U.S. citizens and can serve as demonstration centers for American ideas and practices. In
fact, the program subsidizes institutions whose programs have little or no relation to development objectives
and often serve only Americans and wealthy foreigners. Many recipients are located in countries where there
are no bilateral development programs; e.g., Italy, Greece, and Poland. A significant portion of the funds
have been provided to institutions in Israel, diminishing fund raising pressures on American Jewish donors.
In recent years, Administration budget requests of $10 million have been regularly raised to $15-25 million
by the Congress, as various Congressmen add their constituents' favorite institutions to the list of recipients.
Alternatives
#1. Stay with the traditional Administration request level of $10 million (Agency req.).
#2. Eliminate the program (OMB rec.).
Analysis
4.5
1975
1976
TQ
1977
1978
1979
1980
1981
Budget Authority/Outlays
BA 0
BA
0
BA
0
BA
0
BA
0
BA
0
BA 0
BA
0
($ Millions)
ASHA:
Alt. #1 (Agency req.)
18
21
10
15
6
6
10
13
10
11
10
11
10
10
10
10
Alt. #2 (OMB rec.)
18
21
10
15
6
6
0
8
0
4
0
4
0
0
0
0
18
Agency Request
(Difference from Alt. #1 (Agency request)
1977 Outlays
1978 Outlays)
(
Alt. #2 (OMB recommendation)
5
7
)
AID does not favor the program, but prefers to seek the traditional level in order to avoid antagonizing
key Congressmen and help protect its other programs. OMB sees the program as serving no useful public
objective. If a few of the institutions do, in fact, promote development, they will be eligible for grants
from the regular AID program.
Agency Request: Alternative #1. A $10 million request.
OMB Recommendation: Alternative #2. ASHA was nominated for the list of worst Federal programs. Despite the
likelihood that Congress will restore funds, the Administration should not seek continuation in a very tight
budget year.
GERALD P. FORD
American Schools and Hospitals Program
Distribution of 1975 Program
Institution
Amount
American Children's Hospital in Poland
$ 750,000 1/
Admiral Bristol Hospital, Istanbul
200,000
American Farm School, Greece
600,000
American Hospital in Paris
1,525,000
American Hospital in Rome
250,000
American Library in Paris
275,000
American University of Beirut
6,000,000
American University in Cairo
350,000 2/
Athens College, Greece
150,000
Bologna Center, Italy
550,000
Cheng Hsin Rehabilitation Center, Taiwan
160,000
Chemke Hospital, Nigeria
150,000
Ch'san Sofer Chasan Yecheskel Institute, Israel
75,000
Damavand College, Iran
200,000
Educational Center of Galilee, Israel
550,000
Escuela Agricola Panamericana, Honduras
125,000
Feinberg Graduate School of Weizmann Institute, Israel
1,500,000
Hadera Institute, Israel
350,000
Induk Vocational School, Korea
250,000
Presbyterian Medical Center, Korea
100,000
Project HOPE
1,700,000
Robert College, Istanbul
150,000
Sogang University, Korea
425,000
University of the Americas, Mexico
650,000
Working Boys' Center, Ecuador
250,000
Program Support
215,000
$ 17,500,000
1/ Plus $4,462,811 equivalent in zlotys (FYs 74 and 75 funds).
2/ Plus $5,000,000 equivalent in Egyptian pounds.
1988817 GERALD FORD
Total P.L. 480
1976*
1977
1975
State/AID Req.
Mid-Level
OMB Rec.
State/AID Req.
Mid-Level
OMB Rec.
Actual
Alt. #1
Alt. #2
Alt. #3
Alt. #1
Alt. #2
Alt. #3
Title I
763
1,121
983
876
1,043
765
616
Title II
331
337
337
337
310
274
274
Subtotal
1,094
1,458
1,320
1,213
1,353
1,039
890
Freight
149
184
176
171
209
169
158
- Receipts
-294
-261
-261
-261
290
290
290
TOTAL Outlays
949
1,381
1,235
1,123
1,272
918
758
* From 1976 outlays, deduct initial payment by recipients:
Alternative #1 - $27 million
Alternative #2 - $24 million
Alternative #3 - $21 million
GERALD
P.
FORD
LIGHARY
Title 1 Country Programs
(Commodity costs in $ millions)
1975
1976
1977
Country
State/AID
Mid-option
OMB Rec.
Alt. #1
Alt. #2
Alt. #3
Req.
(AID)
(OMB)
Major Political Importance
261
312
306
304
267
182
182
Middle East
98
213
213
213
170
150
150
Chile
48
54
48
46
32
32
32
Indonesia
4
30
30
30
35
-
-
Portugal
-
15
15
15
30
I
-
Indochina
111
-
-
-
-
-
-
Korea
74
150
114
102
174
84
84
South Asia
405
456
382
291
454
247
247
Bangladesh
204
184
159
156
239
-
India
103
155
123
59
96
-
Pakistan
79
105
88
64
100
-
Sri Lanka
19
12
12
12
19
-
Small Country Programs
23
67
43
43
82
-
-
Guinea
10
5
5
5
6
-
Haiti
2
5
4
4
7
-
Honduras
5
13
6
6
12
-
-
Tanzania
6
5
5
5
8
-
-
Malagasy
-
-
-
-
-
-
-
Morocco
-
15
7
7
6
-
-
Mozambique
-
4
1
1
4
-
-
Afghanistan
-
2
2
2
3
I
-
Ethiopia
-
4
3
3
6
-
-
Liberia
-
-
-
-
1
-
-
Mali
-
-
-
-
6
-
-
Philippines
-
-
-
-
2
-
-
Senegal
-
-
-
1
8
-
-
Tunisia
-
6
2
2
4
-
-
Zaire
-
8
8
8
9
-
-
Carry-in
-
138
138
138
Reserve
-
100
252
123
Total Title I
763
1121
983
876
1077
765
636
117
Total Title I Tonnages
(000 metric tons)
1975
1976
1977
Actual
Alt. #1
Alt. #2
Alt. #3
Alt. #1
Alt. #2
Alt. #3
Total Tonnage
3607
5893
5197
4810
5717
4822
3775
Wheat
2779
4482
4157
3967
4400
4116
3139
Rice
769
839
814
589
700
700
630
Feed
14
399
174
174
350
-
-
Other
45
173
52
80
267
6
6
FORD is LIBRARY GERALD
P.L. 480 Title I
Alternative Program Levels
1976
Country
Alternative 1
Alternative 2
Alternative 3
(State/AID Req.)
(Mid-level)
(OMB Rec.)
$300 per capita or less
Afghanistan
2
2
2
Bangladesh
184
159
156
Egypt
170
170
170
Ethiopia
4
3
3
Guinea
5
5
5
Haiti
5
4
4
India
155
123
59
Indonesia
30
30
FORD
30
Jordan
9
9
9
Morocco
15
7
Pakistan
105
LIBRARY
7
88
64
Sri Lanka
12
12
12
Tanzania
5
5
5
Zaire
8
8
8
Sub total
708
625
533
$300 per capita
Chile
54
48
46
Honduras
13
6
6
Israel
15
15
15
Korea
150
114
102
Mozambique
4
1
1
Portugal
15
15
15
Syria
19
19
19
Tunisia
6
2
2
Sub total
275
220
205
Carry-in
138
138
138
Total
1121
983
876
Tonnage levels
(000 metric tons)
Wheat
4482
4157
3967
Rice
839
814
589
Feed
399
174
174
Other
173
52
80
Total Title I
5893
5197
4810
% food volume to
countries under $300
75%
75%
75%
Issue Paper
P.L. 480 Food Aid
1976 Budget
Statement of Issue
Should P.L. 480 be increased above the current 1976 budget ceiling?
Background
The initial budget ceilings for P.L. 480 have always been subject to later adjustment because of the sub-
stantial uncertainties about U.S. commodity availabilities, prices and recipient country needs. For 1976 most
of the major factors bearing on the program are now sufficiently certain to permit a final decision on the
budget level.
State and AID have requested an increase of $258 million, 23 percent, in the Title I portion of the P.L. 480
program which provides food on very soft credit terms. USDA has affirmed that the requested commodity levels are
available. The agencies responsible for P.L. 480 and food aid policy, which also include the Department of Agri-
culture, Treasury, Commerce, OMB, NSC, CIEP and CEA, have agreed on three 1976 P.L. 480 budget alternatives for
your consideration.
Alternatives
#1. Increase the program to take full account of domestic farm price maintenance objectives for rice and to
meet all of the foreign policy needs identified by State/AID, at $1381 million total outlays.
#2. Increase the program by a smaller amount to respond to domestic agriculture objectives and to provide a
portion of the higher foreign policy requirements which State and AID believe are necessary at a $1235
million total outlay level.
#3. Hold to the original 1976 budget level of $1123 million in total P.L. 480 outlays.
Analysis
9401
P.L. 480
Alternative Outlay Levels
1976
Alternative 1
Alternative 2
Alternative 3
(State/AID Req.)
(Mid-level)
(OMB (Rec.)
Title I
1121
983
876
Title II
337
337
337
Subtotal
1458
1320
1213
Freight
184
176
171
-Receipts
-261
-261
-261
Total Outlays
1381
1235
1123
Volume (million metric tons)
7.3
6.6
6.1
(Attached is a table of illustrative country program levels.)
Factors affecting a decision
Four major factors bear on the 1976 P.L. 480 decision.
(1) Legislative requirements. A congressional conference committee has just completed action on amendments
to P.L. 480. In line with similar action last year, Congress will require that 75 percent of the total
tonnage of food commodities allocated under Title I be provided to the poorest developing countries--
those with annual per capita incomes of $300 or less. The intent is to restrict Executive Branch flexi-
bility in meeting foreign policy requirements for food aid. Because foreign policy requirements generally
require substantial programs for high income recipients within the total, meeting those requirements
fully under the congressional stricture would tend to push up the level of aid to lower income countries
and thereby increase the total. The alternatives have been constructed to conform to the conference
action.
(2) Rice. This year the United States has a record rice harvest and total world rice production is also at a
GERALD LIBNARY FORD
record high. Domestic rice consumption will only use up one third of our total crop. Rice growers
are counting on P.L. 480 to dispose of a substantial portion of their crop to help maintain prices.
USDA believes that about 850,000 tons of P.L. 480 rice must be shipped this year as in alternatives 1
and 2 in order to maintain rice prices at the price support loan level (equivalent to about $315 per
metric ton export price). At the alternative 3 level the 589,000 tons of rice proposed by State
could lead to a drop in rice prices of $15-25 per ton according to CEA and USDA. Under the lower
P.L. 480 rice level, current commodity program legislation could also force the government to take
ownership of some quantities of rice.
Because of their good rice crops, many potential large P.L. 480 rice recipients (India, Bangladesh
and Korea) have no particularly pressing need for rice this year. AID and USDA believe that those
countries are more likely to take larger amounts of rice if also provided with wheat, for which they
have a more urgent need and which they would have to buy on world markets in the absence of P.L. 480.
(3) Country Requirements. The major differences between the alternatives are in program levels for Korea,
a high income country, and India and Pakistan, lower income countries.
-- Korea. State/AID believe it is essential to maintain the Korea program at $150 million, particularly
with the phasing out of other forms of economic assistance. This is possible at the high level but not
at the low or mid level. The Korea program is part of a long term commitment in return for restraints
on textile exports to the United States, and is a symbol of U.S. support in the aftermath of Vietnam
withdrawal. Primarily because of high petroleum prices Korea will also have a large balance of payments
deficit. Nevertheless, because of its otherwise strong economy (which led to phase out of regular AID
programs) Korea has been able to tap many public and private sources of foreign exchange to meets its
payments deficit. Finally the increase proposed from the budget level will not ease rice pressures;
all of the increase will be feedgrains and cotton. However, it may make Korean acceptance of planned
rice amounts more likely.
-- India. The India program would rise from $59 million under the low alternative to $155 million
at the proposed high level. State/AID believe that the increase would contribute to an improvement of
U.S. Indian relations and would offer a possible outlet for 200,000 tons of rice. Although India will
probably need to import as much as 6 million tons of foodgrains this year, its crops are much improved
over last year. Thus its needs for food aid are less pressing than last year.
GERALD
R.
FORD
LIBRARY
--Pakistan. The Pakistan program would rise from $64 million to $105 million. The increase would
ease Pakistan's balance of payments problem and help demonstrate U.S. support for the Bhutto government.
Pakistan will receive large scale dollar aid from the United States this year ($60 million).
Although its crops have been good this year, it still will need to import about 2 million tons of grain.
None of the proposed increase is in rice because Pakistan is a rice exporter.
-- Other countries. The differences between the options in other countries are considerably smaller
than for the three countries above. The proposed increases are requested to meet balance of payments
requirements and for foreign policy purposes.
-- Bangladesh. This country remains very needy and its economy has been further disoriented by politi-
cal turmoil. The proposed high level would provide 50,000 additional tons of rice, plus some wheat.
The Bengali rice crop has been relatively good this year. The $156 million in food aid provided by the
low alternative, plus $67 million in dollar aid represents generous support.
-- Morocco and Tunisia. Food aid to these countries is to demonstrate political support for moderate
Arab countries. Neither has any serious foreign exchange requirements this year.
-- Chile. The Chile program both demonstrates support for the pro-U.S. government and helps ease
Chile's pressing short term balance of payments requirements. The $5 million increase at the high level
would be helpful but probably not have a significant economic impact.
(4) Transition Quarter Financing. The budget currently provides for $118 million during the transition
quarter for P.L. 480 Title I. This amount is substantially less than one-fourth of the 1976 Title I.
program because it reflects the recent seasonal pattern of P.L. 480 shipment. State/AID have not yet
prepared a country plan for use of these funds.
State/AID believe it important to increase transitional quarter funding at least to the normal prorata
level of most other federal programs during the period (one-fourth of the current 1976 budget level),
but this will probably not be essential if you approve the high option. If you approve either the high
or middle option, Treasury and OMB would prefer to fund all or part of the increase in the transition
quarter. At the middle option, this approach would permit you to avoid an increase in the 1976 P.L. 480
budget level at a time you are having to seek rescissions and deferrals on domestic programs, while merely
bringing the transition quarter level up to a more normal level. At the high option an increase in
transition quarter funding would reduce the necessary increase in the 1976 program level.
GERALD
?
FORD
LIBRARY
SUMMARY
Alternatives
#1. This alternative would fully meet the country and rice shipment requirements. However, given State/AID/
USDA doubts that food aid recipients would accept large rice programs even when combined with other
commodities, this alternative may result in an increase in outlays without achieving the desired volume
of rice shipments. Moreover, if this quantity of rice were shipped under P.L. 480, it would lead to
larger acreage allotments next year, larger production and possibly result in a buildup in CCC rice
stocks. State/AID and NSC support this alternative. USDA also supports it, provided the increase is
not offset by reductions within the USDA budget.
#2. This middle option, would meet domestic rice requirements and would come close to meeting the needs
identified by State/AID in India, Pakistan and Bangladesh. It would leave Korea $36 million below the
requested level. CIEP supports this alternative.
#3. This alternative at the original budget level would be consistent with the tight 1976 budget policy
but would not meet the country requirements or ship rice at levels State/AID and USDA believe to be
essential. With regard to rice, OMB and Treasury believe that reducing wheat and other commodity ship-
ments to the smaller, less important countries in this alternative and by eliminating the program to
Indonesia, which does not need food aid, rice shipments might be raised to nearly 750,000 tons at the
budget level. This would improve price prospects and reduce the quantity of rice the government might
take over. State/AID and USDA believe that it would not be possible to move this quantity of rice
unless combined with substantially larger. quantities of other commodities. OMB, Treasury and Commerce
support this alternative.
FORD is LIBRARY
P.L. 480 Title I
Alternative Program Levels
1976
Country
Alternative 1
Alternative 2
Alternative 3
(State/AID Req.)
(Mid-level)
(OMB Rec.)
$300 per capita or less
Afghanistan
2
2
2
Bangladesh
184
159
156
Egypt
170
170
170
Ethiopia
4
3
3
Guinea
5
5
5
Haiti
5
4
4
India
155
123
59
Indonesia
30
30
30
Jordan
9
9
9
Morocco
15
7
7
Pakistan
105
88
64
Sri Lanka
12
12
12
Tanzania
5
5
5
Zaire
8
8
8
Sub total
708
625
533
$300 per capita
Chile
54
48
46
Honduras
13
6
6
Israel
15
15
15
Korea
150
114
102
Mozambique
4
1
1
Portugal
15
15
15
Syria
19
19
19
Tunisia
6
2
2
Sub total
275
220
205
Carry-in
138
138
138
Total
1121
983
876
Tonnage levels
(000 metric tons)
Wheat
3967
4157
4482
Rice
589
814
839
Feed
174
174
399
Other
80
52
173
Total Title I
4810
5197
5893
food volume to
countries under $300
.75%
75%
75%
20
Issue Paper
GEBALD
International Development Assistance
1977 Budget
FORD
Issue #4: P.L. 480
Statement of Issue
What should the level of P.L. 480 be for 1977?
Background
The P.L. 480 program of food aid was established in 1954 to dispose of surplus farm products while serving
development and foreign policy goals. The Title I program, about two-thirds of the total, provides food on a
loan basis for development and foreign policy purposes; the Title II program provides food on a grant basis for
humanitarian purposes.
During the period 1954-72, the P.L. 480 program averaged 10-million tons of food aid commodities per year.
With world grain shortages, rising prices, and the disappearance of U.S. surplus food stocks, the food aid
program was reduced to 3.3-million tons in 1974. This sharp reduction restricted food aid to the highest-priority
political and humanitarian programs, with more than half the entire program in 1974 going to Indochina.
In 1975, when some easing of food availabilities and prices permitted a program of 4.9-million tons, sub-
stantial humanitarian-oriented food aid was provided. In great part, this emphasis was dictated by a congressional
legislative initiative requiring that 70 percent of Title I shipments be provided to countries most seriously ;
affected by food shortages. For 1976, the budget provides for 6-million tons and State and AID are requesting
that this level be increased to over 7-million tons.
Congress has recently raised to 75 percent the portion of Title I food aid that must go to the poorer coun-
tries. Thus, the flexibility of the Title I program as a foreign policy instrument will continue to be constrained.
Alternatives
#1. Expand the 1977 program to 7.3-million tons of commodities, including 5.8-million tons for Title I and
1.5-million tons for Title II, to provide increased shipments to major traditional recipients and add
a number of new country recipients at a cost of $1,272 million in outlays (AID req.).
#2. Undertake a P.L. 480 program at 6-million tons of commodities, the level planned for 1976, including
4.7-million tons for Title I and 1.3-million tons for Title II, providing for large political programs,
large humanitarian programs, and a substantial reserve for contingencies or some small country programs
21
at a cost of $918 million.
#3. Hold the 1977 program to 5.0-million tons, including 3.7-million tons for Title I and 1.3-million tons
for Title II, limiting shipments to countries of high political priority and major humanitarian need,
at a cost of $740 million (OMB rec.).
Analysis
1975
1976
TQ
1977
1978
1979
1980
1981
Budget Authority/Outlays
BA
0
BA
0
BA
0
BA
0
BA
0
BA
0
BA
0
BA
0
($ Millions)
Titles I and II:
Alt. #1 (Agency req.)
778
934
1,089
1,104
146
206
1,413
1,272
1,254
1,254
1,217 1,217
1,217
1,217
1,217
1,217
Alt. #2
778
934
1,089
1,104
146
206
1,025
918
900
900
863
863
863
863
863
863
Alt. #3 (OMB rec.)
778
934
1,089
1,104
146
206
865
758
740
740
703
703
703
703
703
703
(Illustrative country distribution shown on table on last page.)
Agency Request
(Difference from Alt. #1 (Agency request)
1977 Outlays
1978 Outlays)
Alt. #3 (OMB recommendation)
-514
-514
(
Alt. #2
-354
-354
While definitive P.L. 480 decisions may not be made until 1977 begins, judgments must be made on the broad
outlines of the program now.
The 1977 AID request for Title I breaks down into four major categories.
- Countries of Political Priority. This group includes the Middle Eastern nations, Chile, Indonesia,
and Portugal. Despite the high priority of many of these countries, a case can be made for elim-
inating shipments to them. Indonesia has no pressing need for concessionary commodity import
financing and food aid to Chile could be phased down as that country begins to return to economic
normalcy. OMB's analysis of needs in the Middle East and Portugal (see international security
assistance materials) indicates that P.L. 480 is probably only necessary in Egypt.
GERALD
?
FORD
LIBRA
22
- Korea. State proposes large programs to show support for the government and to pay for voluntary
textile export restraints. There are strong U.S. domestic pressures to dispose of excess U.S.
rice in Korea. Nevertheless, Korea is an economically advanced developing country with access
to substantial amounts of private foreign capital.
- South Asia. These countries have received large-scale shipments on humanitarian grounds, partic-
ularly because of crop shortfalls in recent years. With more normal weather, continuation of
large shipments could constitute a disincentive to necessary agricultural reforms.
- Small Country Programs. Programs in these countries are not undertaken when the Title I program
is relatively constrained--an indication of their low priority. Food aid shipments primarily
serve as a signal of U.S. interest in these countries.
Agency Request: Alternative #1. AID seeks to enlarge Title I to 5.8-million tons, well above 1975 and the 1976
budget levels. Title II would be increased to 1.5-million tons. This program will meet a variety of political
and humanitarian objectives. AID argues that these programs will be more developmentally oriented than in recent
years, particularly in the smaller countries.
Mid-Level Program: Alternative #2. The 6-million-ton program in 1977 indicates, for the moment, that domestic
commodity pressures do not appear to require heavy use of P.L. 480 as a farm-income maintenance instrument. This
level will provide for major political and humanitarian programs with a generous reserve for contingencies or for
some small countries.
OMB Recommendation: Alternative #3. OMB sees no convincing argument for raising Title I shipments back toward the
high levels of the 1960s. Despite AID's claim of making Title I more development-oriented, there is no evidence
that this is taking place. OMB proposes a 3.7-million-ton Title I program, balancing the need for outlay savings
against the highest political and humanitarian priorities. This level could be achieved by:
- eliminating the Indonesia, Israel, Syria, Jordan, and Portugal programs;
- restricting the Korea program to rice shipments only;
- cutting back on shipments to South Asia by eliminating non-grain commodities (vegetable oil and
cotton); and,
denying requests for small-country programs.
AMAZON
23
A large Title I commodity reserve would be available to meet unforeseen political and humanitarian requirements.
The Title II program would be held to 1.3-million tons, the minimum set by Congress in this year's foreign aid
bill. The OMB reduction in Title II should not seriously disrupt the program.
LISSANY GERAID FORD
Title 1 Country Programs
(
(Commodity costs in
llions)
1975
1976
1977
Country
State/AID
Mid-option
OMB Rec.
Alt. #1
Alt. #2
Alt. #3
Req.
(AID)
(OMB)
Major Political Importance
261
312
306
304
267
182
182
Middle East
98
213
213
213
170
150
150
Chile
48
54
48
46
32
32
32
Indonesia
4
30
30
30
: 35
-
-
Portugal
-
15
15
15
30
-
-
Indochina
111
-
-
-
-
-
-
Korea
74
150
103
103
174
84
84
South Asia
405
456
408
291
454
247
247
Bangladesh
204
184
169
156
239
-
India
103
155
139
59
96
-
Pakistan
79
105
88
64
100
-
Sri Lanka
19
12
12
12
19
-
Small Country Programs
23
67
28
43
82
-
-
Guinea
10
5
5
5
6
-
Haiti
2
5
4
4
7
-
Honduras
5
13
6
6
12
-
-
Tanzania
6
5
5
5
8
-
!
Malagasy
-
-
-
-
-
-
-
Morocco
-
15
-
7
6
-
-
Mozambique
-
4
-
1
4
-
-
Afghanistan
-
2
-
2
3
-
-
Ethiopia
-
4
-
3
6
-
-
Liberia
-
-
-
-
1
-
-
Mali
-
-
-
-
6
-
-
Philippines
-
-
-
-
2
-
-
Senegal
-
I
-
-
8
-
-
Tunisia
-
6
-
2
4
-
-
Zaire
-
8
8
8
9
-
-
Carry-in
-
138
138
138
Reserve
-
100
252
123
Total Title I
763
1123
983
879
1077
765
636
25
Issue Paper
International Development Assistance
1977 Budget
Issue #5: Multilateral Assistance--International Organizations and Programs
Statement of Issue
Should budget requests for 1977 voluntary U.S. contributions to three international organizations be
cut back sharply?
Background
The United States provides voluntary contributions to 10 international programs, primarily oriented
toward economic development, including (a) the UN Development Program (UNDP), the largest multilateral
entity financing pre-investment studies and technical assistance; (b) the UN Environment Program (UNEP), a
fund proposed by President Nixon in 1972; and (c) Organization of American States (OAS) development
assistance activities.
Alternatives
#1. Seek an appropriation of $193 million in 1977, including $105 million for UNDP, $21 million for
GERALD
OAS, and $10 million for UN Environment Fund (Agency req.).
4.
FORD
#2. Seek an appropriation of $179 million in 1977, including $100 million for UNDP, $15 million
for OAS, and $7.5 million for UN Environment Fund, which adequately provides for "cut insurance."
LIBRARY
#3. Seek $159 million in 1977, reducing the three contributions to 1975 actual levels (OMB rec.).
Analysis
1976
TQ
1977
1978
1979
1980
1981
Budget Authority/Outlays
BA
0
BA
0
BA
0
BA
0
BA
0
BA
0
BA
0
($ Millions)
International Organizations
and Programs:
Alt. #1 (Agency req.)
230a/
217
24
30
193
187
193
193
193
193
193
193
193
193
Alt. #2
230a/
217
24
30
179
176
179
179
179
179
179
179
179
179
Alt. #3 (OMB rec.)
230a/
217
24
30
159
164
159
159
159
159
159
159
159
159
Includes $32 million final payment for Indus River Basin project.
26
Agency Request
(Difference from Alt. #1 (Agency request)
1977 Outlays
1978 Outlays)
Alt. #3 (OMB recommendation)
-23
-34
)
(
Alt. #2
-11
-14
)
International Organizations and Programs
(Program in $ Millions)
1977
Request
Recom.
1975
1976
TQ
Alternative #1
Alternative #2
Alternative #3
UN Development Program
78
120
--
105
100
78
Organization of American
States
(15)
21
6
21
15
15
UN Environment Fund
5
7
--
10
7
5
Other IOP
56
82
18
57
57
61
Total
139
230
24
193
179
159
b/ Financed in 1975 from regular AID funds.
Agency request: Alternative #1. The State Department has revised its 1977 request downward from $221
million to $193 million. The revised request is lower than the 1976 budget request which will undoubtedly
be reduced by the Congress to about the 1975 level. While there is no evidence that Congress will be
more generous in 1977, State believes:
-- A $105 million contribution to UNDP is the minimum required to maintain U.S. influence in the
program and to illustrate the U.S. commitment to aiding developing countries as expressed at the recent
Seventh Special Session of the United Nations;
-- A $21 million contribution to the OAS program is consistent with the Secretary's commitment to
the maintenance of U.S. aid levels in Latin America. Any sizable unilateral U.S. reduction risks political
repercussions.
-- A $10 million contribution to the UN Environment Program Fund is needed because the Fund has
surmounted its early organization and management problems and is ready to undertake several projects.
A lower contribution would be interpreted as a failure of the U.S. to live up to its pledge to contribute
a fair share to this program which the U.S. originally sponsored.
i,
OMB recommendation: Alternative #3. Budget austerity in 1977, together with realistic expectations of
significant congressional reductions in these programs in 1976 and 1977, make a reduction to 1975
request levels appropriate. Furthermore, these programs do not appear particularly effective:
-- The UNDP is not sufficiently concentrated on the most underdeveloped countries. Despite UNDP
efforts to channel more funds to the poorer LDC's, current plans call for too many projects in countries
such as Iran, Korea, Venezuela, Argentina, Mexico, Greece and the United Arab Emirates, which can afford
and do have access to alternative sources of technical assistance.
-- Contributions to OAS programs are justified almost entirely on political grounds. Neither
State, AID, nor the OAS appear to have evaluated the substantive value of the programs. Additionally,
much of the increase is for a new activity which is progressing more slowly than planned.
-- Contributions to the UNEP Fund should not increase until its EARTHWATCH program is better
defined and U.S. agencies determine their appropriate participation.
CERALD
guos
Issue Paper
International Development Assistance
1977 Budget
Issue #6: Housing Guaranty Program
Statement of Issue
Should the Housing Guaranty (HG) program be terminated?
Background
The HG program guaranties loans of private U.S. investors--principally the Federal Home Loan Bank and savings
and loan associations-- in housing projects in developing countries. The projects are intended to further the
development of financial institutions and the construction of housing projects and related community facilities
for the benefit of low-income families. The guaranties are a contingent liability of the U.S. government and
would require appropriations and outlays only if defaults exceeded the program's $50-million reserve.
In the 1976 foreign assistance authorizing bill, the Administration sought an increase of $250 million in the
program's guaranty authority to enable the program to maintain previous levels of activity in 1976 and 1977. (The
program has been guarantying about $100 million per year.) The Senate version of the bill increases the authority
$250 million while the House does not provide for any increase. In addition, the House bill includes a number of
restrictive provisions designed to force the program to more directly benefit low-income families and develop new
solutions to housing problems.
Alternatives
#1. Permit the program to continue at current levels with the expectation that increased authority will be
requested for 1978 (Agency req.).
#2. Continue the program until increased authority from the 1976 authorizing bill is utilized, then terminate
the program.
#3. Eliminate the program by terminating new loan authorizations after September 1976, and by allowing use
of only current unused authorizing authority, $186 million (OMB rec.).
Analysis
1975
1976+TQ
1977
1978
New Loan Authorizations/Increased Authority
NLA
IA
NLA
IA
NLA
IA
NLA
IA
($ Millions)
Housing Guaranty Program:
Alt. #1 (Agency req.)
95
50
147
50
160
200
160
150
Alt. #2
95
50
80
50
/
100
100
/
150
--
Alt. #3 (OMB rec.)
95
50
186
--
95
50
--
--
1/ Assumes that increased authority of $150 million of the $250 million requested will be obtained.
AID and its Office of Housing have been sharply criticized in the past few years by the GAO, Treasury, OMB,
and AID's own Auditor General for failing to meet the program's objectives. In particular, the loans guarantied
by the HG program have generally financed subsidized housing for the middle- and high-income families in the
developing countries. AID management has recently adopted new guidelines to reorient the program. However, the
program continues to be characterized by poorly developed projects or projects that do no more than finance
portions of national housing programs that were previously approved. The poor performance results from attempts
to maintain high annual program levels and an inability by AID's management to enforce normal loan standards on
HG projects. Although the program does not result in budget outlays, it does divert credit from the U.S. housing
market by making foreign loans more attractive.
Agency Request: Alternative #1. The Agency considers the HG program to be a significant, discretionary resource
in its development program and would argue that the recent reorientation of the program justifies its continuation
at current levels. AID emphasizes that the program does not result in budget outlays and program termination
would not generate any budget savings.
OMB Recommendation: Alternative #3. The program has been badly administered and ineffective in promoting new
housing policies and solutions in the developing countries. AID's attempt to reorient the program in 1973 and
1974 has changed program rhetoric and emphasis but has not yet produced significantly better projects. The main
argument against the OMB recommendation is that it will terminate the program prior to giving AID the opportunity
to complete the reorientation of this program.
Background Paper
International Development Assistance
1977 Budget
Multilateral Assistance: International Financial Institutions
1975
1976
TQ
1977
1978
Budget Authority/Outlays
BA
0
BA
0
BA
0
BA
0
BA
0
($ Millions)
International Financial
Institutions:
Agency req. /OMB rec.
619
569
1,076
966
--
277
1,027
902
1,027
830
The International Financial Institutions (IFIs) comprising the World Bank Group of institutions and the
Inter-American, Asian, and African Development Banks make loans to developing-member countries from funds paid
by developed-country members and from commercial borrowings backed by members' guarantees. Ordinary capital
loans are made at near-market terms and special fund loans are highly concessional.
For 1977, OMB recommends the amounts proposed by the Treasury Department, which manages this program. The
proposed amounts represent payments to carry out firm international commitments and new initiatives which you
have approved previously or in connection with Secretary Kissinger's speech at the Seventh UN Special Session
last September.
Funds would be provided to the following institutions:
- International Development Association - The $375 million proposed for this special fund of the
World Bank represents the second installment of a $1.5-billion U.S. contribution to a multinational
replenishment of IDA funds.
- Inter-American Development Bank - Paid-in funds and loan guarantees of $440 million will provide
replenishment installments for the Bank's ordinary and special funds. The current replenishment
was included in the 1976 budget and authorizing legislation is before the Congress.
- Asian Development Bank - The proposed $171 million in payments and guarantees will replenish
ARALD
ordinary and special funds for loans to countries in East and South Asia.
is
2803
31
1
- International Finance Corporation - Treasury proposes up to $42 million to be paid-in in 1977 as
the first installment of a three-year, $100-125 million U.S. contribution to the multiyear
replenishment proposed by the United States.
OMB is not recommending reductions in the Agency request for 1977 because of the international commitments
already made and the fact that the funds will spend very slowly and have a negligible impact on 1977 budget
outlays.
Potential 1978 Budget Issues
The budget control act requires that authorizing legislation for the 1978 budget be sent to Congress by
May 15, 1976. Two major foreign aid decisions that will have to be made at that time concern the World Bank
Group: (1) the fifth replenishment of IDA; and, (2) an increase in the ordinary capital of the Bank. OMB will
prepare a decision memorandum on authorizing legislation and the 1978 budget-planning targets for you in February
or March 1976, which will lay out the options available to you.
International Development Association - International negotiations on the fifth replenishment of IDA will
begin in Paris this month, with a target agreement date of September 1976. The new replenishment is intended
to finance IDA for the period 1978-1980. The current replenishment, IDA IV, calls for contributions over the
period 1975-1977. However, because of congressional delays and opposition to previously proposed higher
levels, the United States' contributions to IDA IV have been delayed until the period 1976-1979. This
schedule, if adhered to, means that the U.S. will be two years behind other donors and would not make its
first payment to IDA V until 1980. This Congress might not be willing to commit the U.S. to payments which
would not begin until the 95th Congress and other countries might not be willing to sign-up if the U.S. was
not in a position to seek appropriations until 1980. Because IDA is the most important multilateral agency
providing concessionary assistance to developing countries, State is considering the feasibility of requesting
additional funding for IDA in 1978 and 1979 to enable the United States to catch-up and participate in IDA V
on schedule-- in effect, doubling-up contributions for both IDA IV and V in the same year. Additional funding
for IDA in 1978 under these circumstances would be in the range of $375-500 million, with outlays of $50-100
million.
OMB and Treasury believe that it is premature to judge the feasibility of seeking additional IDA funding in
1978 because the first installment on IDA IV, sought in the 1976 budget, has not yet been acted on.
BERRED
?
FORD
LIBRARY
32
World Bank: Selective Capital Increase - The World Bank is proposing a capital increase to parallel an
upcoming increase in member-country quotas in the International Monetary Fund. The United States share in
this capital increase could call for an estimated $150-200 million in paid-in funds. The State Department
originally sought inclusion of these funds in the 1977 budget. Treasury did not request funds for this
contribution, however, because the proposal is still tentative and the United States is not committed to it.
In addition, the Bank's schedule calls for authorizing legislation to be completed in 1977, but payments
will not be required until 1978 at the earliest. Therefore, this is not a 1977 budget issue, but may be a
budget issue in 1978, when it could raise outlays $50-100 million.
33
Background Paper
International Development Assistance
1977 Budget
Multilateral Assistance: International Fund for Agricultural Development
1975
1976
TQ
1977
Budget Authority/Outlays
BA
0
BA
0
BA
0
BA
0
($ Millions)
IFAD
--
--
200
0
0
0
0
30
With your approval, Secretary Kissinger committed the United States to support the establishment of an
International Fund for Agricultural Development (IFAD) and to contribute $200 million (20 percent) to a
$1-billion fund, provided that international negotiations are satisfactorily completed. IFAD was an OPEC
initiative at the November 1974 World Food Conference, and OPEC countries have been expected to contribute
half the total fund. Other developed countries would provide the remaining $300 million.
International negotiations to obtain final agreement on a charter are currently underway. Several issues
concerning IFAD operations are still unresolved. Moreover, the OPEC countries may be unable to provide $500
million leading to pressures to reduce all other donors' contributions.
Given the prominence of the U.S. commitment to IFAD, State and AID will probably seek to include funds in
the budget--as a contingent item for 1976 indicating that a budget request will be transmitted later, upon
completion of negotiations. OMB supports this approach.
State
1977 Presidential Review
Department of State
Table of Contents
TAB A
Summary tabulation of the 1977 Budget amounts requested and
recommended
TAB B
Issue papers
Effect of issue on outlays
Issue
(dollars in millions
1977
1978
1. International organization
assessments
-21
-34
2.
UNESCO arrearages and
assessments
-66
-8
3. Salaries and expenses
-7
-16
4. Exchange of persons
-8
-23
5. Foreign buildings deferral
-6
-3
6. Construction of Moscow
embassy complex
-4
-11
GERALD FORD
TAB A
1
Department of State
(excludes Int'l Boundary and Water Commission)
1977 Budget
Summary Data
(In millions)
Employment, end-of-year
Budget
Full-time
Authority
Outlays
Permanent
Total
1975 actual
1,175
812
22,011
23,305
1976 February budget
911
881
enacted
897
1,190a/
XXX
XXX
supplementals recommended
37
37
XXX
XXX
agency request
939
1,232
22,578
24,182
OMB recommendation
934
1,227
22,578
24,182
OMB employment ceiling
XXX
XXX
22,578
24,182
TQ February budget
400
355
XXX
XXX
enacted
363
372
XXX
XXX
supplementals recommended
35
34
XXX
XXX
OMB recommendation
398
406
XXX
XXX
1977 planning target
1,112
1,079
XXX
XXX
reduction target
XXX
1,015
XXX
XXX
agency recommendation
1,210
1,110
22,584
24,188
OMB recommendation
1,068
996
22,584
24,188
1978 OMB estimate
1,300
1,200
22,584
24,188
Includes $271 outlays for Indochina refugees not in February budget.
2
1977 Budget
Department of State
Summary of Recommended Program Reductions
($ in millions)
1976
TQ
1977
1978
FTP
FTP
FTP
0
Employ.
0
BA
0
Employ.
0
Employ.
Current base
1,231
22,578
409
1,100
1,031
22,584
1,234
22,584
Recommended level
1,227
22,578
406
1,068
996
22,584
1,200
22,584
Reduction
-4
--
-3
-32
-35
:
-34
--
Program reductions:
Salaries and expenses
(Issue Paper #3)
-8
-7
-8
Exchange of persons
(Issue Paper #4)
-2
-2
-10
-8
-9
Foreign buildings:
1976 deferral (Issue Paper #5)
-2
-1
-6
-3
1977 program
-14
-14
-14
Total reductions
-4
-3
-32
-35
-34
TAB B
3
Issue Paper
Department of State
1977 Budget
Issue #1: International Organization Assessments
Statement of Issue
Should the President's budget reflect the Department's best estimate of the amounts expected to be
assessed against the U.S. in 1977 for international organizations or should the budget reflect assessments
based on a U.S. evaluation of what appropriate program levels should be?
Background
The U.S. is legally bound to pay assessments to 41 international organizations. Although the U.S.
is usually out-voted, the Department generally tries to hold organization budgets down. The introduction
of the new fiscal year requires that the President's 1977 budget include estimates of U.S. assessments
against several international organization budgets not yet firmly determined. The President's budget
can be based on the Department's best estimate of what final organization budgets will be, as the Depart-
ment proposes, or it can be based on a more conservative U.S. negotiating position reflecting Department
analysis of program requirements from the U.S. point of view.
Alternatives
#1. Request estimated assessments that reflect the Department's best estimate of finally approved
international organization budgets. (Agency req.)
#2. Request estimated assessments best reflecting a U.S. position on each organization's budget.
(OMB rec.)
Analysis
FORD
July 1 - Sept.
1976
30, 1976
1977
1978
Budget Authority/Outlays
BA
OL
BA
OL
BA
OL
BA
OL
($ Millions)
Alt. #1 (Agency req.)
218
218
228
209
288
280
367
364
Alt. #2 (OMB rec.)
218
218
228
209
269
259
341
330
Difference
:
:
:
--
-19
-21
-26
-34
4
Agency Request: Alternative 1. The Department prefers 1977 appropriations large enough to cover its
best estimate of U.S. contributions that will eventually be assessed so that shortfalls are less likely
to have to be made up in supplementals or following year budget requests. The Department points out
that U.S. positions on organization budgets are seldom adopted and that a 1977 budget request based on
a conservative U.S. position will inevitably have to be augmented later.
OMB recommendation: Alternative 2. OMB believes that the U.S. negotiating posture will be unduly
weakened if the President's budget assumes finally approved organization budgets which will be generally
higher than the U.S. believes is necessary. Furthermore, the OMB approach should force the Department
to analyze each organization's programs, budgets, and processes at an earlier date to determine the
U.S. position. The Department has generally done a poor job of this. OMB recognizes that its approach
will lead to shortfalls which will have to be made up in 1978. No hardship will result for any
organization since 1978 appropriations will be available well before the end of the calendar year budget
(1977) for which the U.S. will have been assessed.
If the OMB recommendation is approved, the Budget Director will advise the Secretary and request follow-up
action by the Department to assure that future budgets of international organizations are analyzed at an
early enough time to ascertain low-priority activities which the U.S. should seek be reduced and high
priority activities the U.S. should support.
FORD
:
LIBRARY
5
Issue Paper
Department of State
1977 Budget
Issue #2: UNESCO Arrearages and Assessments
Statement of Issue
Should appropriations be sought in 1977 to pay overdue and 1977 assessments of UNESCO or not?
Background
The Department's 1977 request includes $43M for 1974, 1975, and 1976 arrearages legally owed to
UNESCO and $31M for estimated 1977 assessments. Congress has prohibited payments to UNESCO until the
President certifies that the organization has taken "concrete steps" (1) to allow Israel to join the
European Regional Group of UNESCO and (2) to restore $26K of technical assistance revoked because of
Israeli archeological diggings in Jerusalem.
Alternatives
#1. Request $74M of UNESCO arrearages and estimated 1977 assessments in 1977. (Agency req.)
#2. Request no appropriations for UNESCO in the 1977 Budget. (OMB rec.)
Analysis
July 1 - Sept.
1976
30, 1976
1977
1978
Budget Authority/Outlays
BA
OL
BA
OL
BA
OL
BA
OL
($ Millions)
Alt. #1 (Agency req.)
:
--
--
--
74
66
--
8
Alt. #2 (OMB rec.)
--
--
--
--
0
0
--
0
Difference
--
--
--
--
-74
-66
--
-8
6
Agency request: Alternative #1. The Department believes that the President's budget should include
UNESCO arrearages and 1977 assessments because they are legal obligations, because the U.S. has always
opposed other nations' non-payment of assessments, and because of the serious financial situation of
UNESCO. If the UNESCO General Conference in October 1976 takes sufficient action for the President to
certify that "concrete steps" have been taken, the Department believes appropriations should be in
hand for early payment of U.S. assessments.
OMB recommendation: Alternative #2. OMB believes no funds for UNESCO should be sought until the 1976
General Conference takes sufficient action for the President to certify to the Congress the "concreteness"
of those actions. Until the President certifies, the Congress will likely delete all 1977 appropriations
for UNESCO as it has deleted appropriations for CY 1975 and 1976 assessments. By not requesting a 1977
appropriation, pressures will increase on UNESCO to take corrective actions. If so taken, the President
can seek a 1977 supplemental next October.
7
Issue Paper
Department of State
1977 Budget
Issue #3: Salaries and Expenses
Statement of Issue
Should the Department's operating level be reduced in 1977?
Background
This appropriation finances almost all of State's personnel and supporting expenses such as travel,
equipment, and rentals. The Department has reduced its employment by 15% since 1967 and has requested
no additional personnel for 1977, planning to reprogram several hundred positions to meet increasing
visa workloads and important new requirements throughout the world. Although the Department originally
requested a $16M increase for improved communications and other non-personnel logistical support, it
has withdrawn the request in response to the President's desire to reduce programs to minimum levels.
It proposes that its 1977 activities be carried on at the 1976 level. The question is whether non-
personnel operations should be reduced in 1977.
Alternatives
#1. Continue operations in 1977 at the 1976 level, absorbing necessary increases by offsetting
curtailments in low-priority activities (Agency req.).
#2.
Analysis
Reduce travel, supplies, and equipment purchases by 15% in 1977 5% (OMB
rec.).
July 1 - Sept.
1976
30, 1976
1977
1978
Budget Authority/Outlays
BA
0
BA
0
BA
0
BA
0
($ Millions)
Alt. #1 (Agency req.
425
419
119
118
531
497
598
579
Alt. #2 (OMB rec.)
425
419
119
118
523
490
575
563
Difference
-
-
-
-
-8
-7
-23
-16
8
Agency Request: Alternative #1: To continue the 1976 program in 1977 requires an increase of $40M
because of higher foreign national salaries and inflationary price increases overseas. In addition,
the transfer to State of administrative support operations previously financed by other agencies adds
$66M to the Department's budget (with corresponding reductions in budgets of other agencies and no
increase in overall budget totals). In terms of level of activity, therefore, the $531M requested
for 1977 will provide the same total program as the 1976 appropriation of $425M. The Department
argues strongly that this level of resources must be maintained so that urgent foreseen and unforeseen
requirements can be met and absorbed by reprogramming.
OMB Recommendation: Alternative #2: The Division believes that a 15% reduction in travel, supplies
and equipment ($8M) is not excessive in view of the austerity required of all agencies by the
President's budget policy. The 1976 program is a comfortable one and can accommodate a 15% cutback if
management sets about the task now.
GERALD
P.
FORD
9
Issue Paper
Department of State
1977 Budget
Issue #4: Exchange of Persons
Statement of Issue
Should 1977 outlays be significantly reduced by proposing 1976 and TQ rescissions and a 1977 al-
lowance below the current appropriation level?
Background
The main objective of the program is to increase international communication and cooperation between
key elements of American and foreign societies to improve the environment, both here and abroad, for
American and foreign political, economic, scientific and cultural interrelationships. Since 1969, the
Department has directed the program more toward long-range foreign policy objectives. The Department is
increasingly trying to utilize the program to emphasize interdependence of nations and societies and to
build relationships with countries that do not receive much attention from private commercial, academic,
scientific, cultural, and media interchange.
Alternatives
#1. Maintain the 1976 program level appropriated by the Congress to provide sufficient reprogramming
flexibility for diplomatic initiatives in key areas. (Agency req.)
#2. Reduce 1977 outlays by proposing rescissions in 1976 and the TQ and continue program at a
reduced level in 1977. (OMB rec.)
Analysis
1976
TQ
1977
1978
Budget Authority/Outlays
BA
OL
BA
OL
BA
OL
BA
OL
($ Millions)
Alt. #1 (Agency req.)
60
56
13
19
64
56
85
79
Alt. #2 (OMB rec.)
55
54
10
17
54
48
59
56
Difference
GERALD
-5
-2
-3
-2
-10
-8
-26
-23
55/54
10
Agency Request: Alternative #1: In response to the President's budget policy, the Department reduced
its initial request of $79M to $64M allowing only cost increases associated with higher travel, tuition
and living costs of grantees. The Department is convinced that over time the program improves foreign
understanding of American society, government, and institutions which in turn facilitates the achieve-
ment of our foreign policy objectives. Department leadership believes that this program becomes
increasingly important as the U.S. reduces its presence in many countries in other ways. It has been
the goal of the Department to build the program to a $100M level over a period of a few years and
increasingly to utilize private, non-profit contractors and grantees to carry out the program.
OMB Recommendation: Alternative #2: Budget policy requires substantially reduced Department outlays.
This is one of the few Department grant programs where reductions can be made reasonably quickly. OMB
believes a 1976 rescission of $5M, a TQ rescission of $3M, and a 1977 allowance of $54M is necessary
to obtain significant 1977 outlay reductions. Although these reductions would result in a program 15%
lower than the 1975 level it would still provide a viable exchange program sufficient to support our
foreign policies.
GERALD
?
FORD
LIBRARY
11
Issue Paper
Department of State
1977 Budget
Issue #5: Foreign Buildings Deferral
Statement of Issue
Should two large embassy construction projects be deferred in 1976-7?
Background
Each year the Department normally constructs or purchases two or three major embassy office buildings,
as well as smaller buildings and staff housing. Although the Department originally requested continuation
of the program in 1977, it agreed to a moratorium in 1977 to accomplish outlay and program reductions.
This means a one-year deferral to 1978 of new embassy office buildings at Helsinki, Lisbon and Dacca, and
of 40 smaller office and housing projects, saving $14M in 1977 outlays. The issue is whether, in addition,
office buildings at Geneva and Nairobi, estimated to cost $8M and $5M respectively, scheduled for contract in
the last half of 1976 should be deferred to 1978 in order to produce further savings of $6M in 1977 outlays.
Alternatives
#1. Allow the Geneva and Nairobi projects to proceed as planned (Agency req.).
#2. Defer the two projects until FY 1978 (OMB rec.).
Analysis
July 1 - Sept.
1976
30, 1976
1977
1978
Budget authority/outlays
Oblig.
0
Oblig.
0
Oblig.
0
Oblig.
0
($ Millions)
Alt. #1 (Agency req.)
39
27
-
6
-
21
37
24
Alt. #2 (OMB rec.)
26
25
-
5
-
15
33
21
Difference
-13
-2
-
-1
-
-6
-4
-3
GERRED FORD
12
Agency Request: Alternative #1: The Department argues that specific circumstances make the proposed
deferrals highly undesirable: At Geneva, delay in the availability of a new U.S. -owned building will
require our mission to international organizations to undertake an expensive and disruptive move to a
temporary location when the lease on present rented space expires. At Nairobi, failure to construct
promptly on a site made available by the Kenyan government will result in loss of the site, waste of the
architectural and engineering work already accomplished on the project for that site, and large construc-
tion cost increases by the time a new site is found and a new building designed.
OMB Recommendation: Alternative #2: Under normal circumstances, OMB would not recommend these two
deferrals, which will cause substantial disruption and eventual higher costs to the Government. OMB
believes, however, that the other alternatives for achieving equivalent outlay reductions -- i.e.,
personnel reductions in addition to the 15% State has accomplished in recent years, or further cutbacks
in exchange of persons beyond the 15% reduction recommended by OMB -- would be even more disruptive.
GERALD
9893
LIBRARY
13
Issue Paper
Department of State
1977 Budget
Issue #6: Construction of Moscow Embassy Complex
Statement of Issue
Should funds be sought in the 1977 budget for the construction of new office and housing facili-
ties in Moscow?
Background
The United States has agreed with the USSR on the construction of new embassy facilities in
Moscow and Washington. The office buildings, when completed, are to be occupied simultaneously. It
has been U.S. policy not to allow the USSR to begin construction in Washington until we are ready to
begin in Moscow in order to constrain the USSR from applying undue conditions on our project in Moscow.
The Soviet design has proceeded more rapidly than ours. The State Department is under Soviet pressure
to move faster or to let the Russian building proceed now. State feels it is necessary to budget in
FY 1977 in order to show the USSR that we are proceeding as fast as possible. However, final design,
already funded, will not be completed until mid-1977 and price negotiations with the Soviets would then
follow. Signing of the major construction contract is estimated in September 1977, the last month of
the fiscal year.
OMB staff have reviewed the project and find it within normal design criteria, except for special
security features and recreational facilities required by the isolation of the diplomatic community in
Moscow. OMB staff understand that the key congressional figures who would deal with the authorization
and the appropriation request support the project. The only issues are the amount and the timing of
the request to the Congress. About three-fourths of the construction will be done by the Soviets, who
expect to base their charges on American wage rates. U.S. negotiators will argue that Soviet rates
should be used. Unable to ascertain what Russian rates actually are, State estimates an overall $100M
cost based on U.S. rates and recent other U.S. embassy construction abroad. This compromises the U.S.
negotiating position.
Alternatives
CERALD
#1. Seek a $30M initial appropriation to assure the USSR we intend to proceed as fast as possible
on the mutually agreed project. (Agency req.)
YORD
AMERGIT
+
#2. Seek no 1977 appropriation on the assumption that construction funds will not be needed
in 1977 and should not be sought until negotiations with the Soviets are completed. (OMB rec.)
Analysis
1977
1978
Budget Authority/Outlays
BA
0
BA
0
($ Millions)
Alt. #1 (Agency req.)
30
4
70
26
Alt. #2 (OMB rec.)
--
--
75
15
Difference
-30
-4
+5
-11
Agency Request: Alternative #1. Deputy Secretary Ingersoll argues "the deletion of this project would
do serious damage to our political relations with the Soviet Union and undermine the spirit of detente
existing between the two nations". He believes a 1977 request is required to show U.S. commitment to
the project and to forestall Soviet efforts to begin their construction in Washington, as Ambassador
Dobrynin has been proposing to Secretary Kissinger. State estimates first-year costs at $30M. The
Department would try to protect the U.S. negotiating position by avoiding a definitive overall cost
estimate and presenting a range of $75-100M to the Congress.
OMB Recommendation: Alternative #2. OMB recommends against seeking construction funds in the 1977 budget
because --
the project is almost certain not to be ready for contract in 1977;
GERALD
including construction funds would not accelerate the project; there is still much design
?
and negotiating to be done;
FORD
an overall estimate could not be avoided if the Congress is to appropriate any funds;
LIBRARY
making public a cost estimate before negotiations are completed would compromise the U.S.
negotiating position which might result in charges of "soft bargaining";
a 1977 request for such a costly project abroad would undermine the "no-new-starts" policy.
This recommendation assumes that price negotiations with the Soviets would take place during the final
design stage, rather than afterwards as planned by the Department, so that a firm estimate could be
included in the 1978 budget a year from now.
Ex-Im
Bank
1977 Presidential Review
Export-Import Bank of the United States
Table of Contents
TAB A
Summary Table and Background Narrative
TAB B
Summary of Recommended Program Reductions
TAB C
Issue Papers
TAB D
Eximbank comments on budget recommendations
Effect of issue on outlays
Issue
(dollars in millions)
1977
1978
1. Lower direct loan
authorizations
-139
-924
2. Terminate discount
loan program
-43
-44
3. Lower guarantees and
insurance levels
0
0
4. No manpower increase
-1
-1
GERALD R. FORD
TAB A
Export-Import Bank of the United States
1977 Budget
Summary Data
(in millions)
Employment, end-of-year
Total
Full-time
Authorizations
Outlays
Permanent
Total
1975 Actual
8,315
1,504
420
425
1976 February Budget
14,225
1,757
440
445
Initial Agency Request
14,189
1,718
440
445
Revised Agency Request
13,000
1,460
440
445
OMB Recommendation
9,752
1,418
440
445
OMB Employment Ceiling
XXX
XXX
440
445
TQ February Budget
3,556
535
440
445
Agency Request
3,275
350
OMB Recommendation
2,438
363
440
445
1977 Planning Target
XXX
1,700
XXX
XXX
Reduction Target
XXX
1,300
XXX
XXX
Initial Agency Request
18,056
2,036
475
480
Revised Agency Request
16,015
1,500
475
480
OMB Recommendation
8,434
1,263
440
445
1978 OMB Estimate
8,500
1,109
440
445
2
Export-Import Bank of the United States
Background
There are major differences of view within the U.S. Government on the need for official stimulus to
exports through low-cost credits.
The Need for Export Stimulus. The draft report of the OMB-led interagency review of export promotion
programs identified the various national objectives served by these programs. Although several
agencies dissented strongly, the majority agreed that export promotion programs are potentially
important for:
-- Overcoming imperfections in credit markets (such as the unwillingness of private banks to
extend long-term loans), thereby increasing national income.
-- Meeting foreign official credit competition, in order to let U.S. exporters compete on an equal
footing.
These programs are not effective for:
-- Maintaining full employment. Increasing employment and output is a question of overall monetary
and fiscal policies, not the level of any particular program.
FORD
Facilitating balance-of-payments objectives. Export promotion has no necessary net impact on
the trade position because higher exports generally result in higher imports. In addition,
LIBRARY
higher exports financed on credit do not strengthen the dollar until the credits are repaid,
which can be up to 10-12 years on Eximbank direct loans.
Thus, the interagency study concluded that Eximbank financing should be limited 1) to instances of
credit market gaps (i.e., where the private market fails to provide credit on reasonable terms), or
2) to instances of demonstrable foreign government competition.
Gaps in the Private Market. Eximbank emphasizes gaps in the private export credit market, pointing to
the reluctance of commercial banks to make long-term loans and to provide higher risk foreign financing.
OMB recognizes the benefits from overcoming these credit market gaps, but believes that Eximbank
underestimates the willingness of private lenders to provide financing. OMB is concerned that the
3
provision of below-market Eximbank financing has discouraged private lenders and has actually had the
effect of displacing private sector activities.
Foreign Government Competition. Most governments provide export credits, largely on the grounds that
they have to meet the foreign government's competition. The French, Japanese and British provide
substantially more aid to their exporters than the United States and the Germans. The primary
argument for meeting foreign subsidized credit terms is on equity grounds since economically the U.S.
would be better off not subsidizing export credits. The U.S. and other governments have been seeking
a Gentlemen's Agreement to limit export credits. OMB believes that such an agreement is of high
priority.
Eximbank Program Levels
($ billions)
1976
1977
1978
Revised
Current
Orig.
Revised
OMB
Revised
OMB
1971
1973
1975
Budget
Req.
Est.
Req.
Reg.
Rec.
Req.
Rec.
Direct Loans
1.8
2.3
2.7
4.0
2.7
3.0
6.3
4.9
2.4
Discount Loans
0.5
1.6
1.1
1.4
1.4
1.0
2.2
1.5
0
Guarantees &
Insurance
3.0
4.5
4.5
8.8
8.8
5.2
9.6
9.6
6.1
Total Program
5.3
8.4
8.3
14.2
12.9
9.2
18.1
15.9
8.5
Outlays*
-0.2
0.5
1.5
1.7
1.5
1.3
2.0
1.5
1.3
2.1
1.1
*
Beginning in 1977 Eximbank outlays will again be included in the budget totals; they were excluded by
statute in August 1971.
Revised Agency Request
In view of the tight budget situation, Eximbank has substantially revised its 1976 and 1977 request levels.
The revised request sharply reduces the 1976 program levels to permit maintenance of higher 1977 levels.
The revised request is still $237 million over the OMB mark in outlays in 1977.
8 TAB
1977 Budget
Export-Import Bank of the United States
Summary of Recommended Program Reductions
($ in millions)
1976
TQ
1977
1978
FTP
FTP
FTP
0
Employ.
0
BA
0
Employ.
0
Employ.
Current base
1,499
440
425
3,099
1,722
475
2,090
475
Recommended level
1,418
440
364
2,273
1,263
440
1,109
440
Reduction
81
0
61
826
459
35
981
35
Program Reductions:
Direct Loan Authoriza-
tions, reduced ceiling
81
---
61
781
434
29
950
29
Discount Loan Authoriza-
tions, terminate
0
---
0
45
25
6
31
6
Total Reductions
81
---
61
826
459
35
981
35
SEPRED
0 TAB
5
Issue Paper
Export-Import Bank of the United States
1977 Budget
Issue #1: Direct Loans
Statement of Issue
Should the requested direct loan level be reduced in order to encourage the development of private
sector alternatives and to encourage an international agreement limiting official export credits?
Background
In recent years, Eximbank has been attempting to cope with the dilemma of providing interest rates
sufficiently low to remain competitive with foreign official export credit while sufficiently high to
avoid unnecessary preemption of private credit. The balance has most often been struck in favor of
concessional inţerest rates, however, especially during periods of tight money. Eximbank has believed
it more important to meet the part of its mandate requiring it to increase exports than the part which
requires it not to undercut private lenders.
Low lending rates and rising borrowing costs have caused Exim's net income to fall sharply. As a
result the Bank has recently raised its interest rates to a scale from 8 1/4 to 9 1/2 percent, depending
on the maturity of the loan. Lower rates will be permitted on a case-by-case basis as necessary to meet
foreign official credit competition.
Despite the reduction in the implicit subsidy, Exim is projecting a large increase in program
demand. Such an increase might jeopardize ongoing efforts to negotiate the Gentlemen's Agreement to
limit credit competition among the major suppliers. Progress in these negotiations has been limited to
date, primarily because of reluctance on the part of the French government, although Eximbank has also
resisted Treasury proposals for a tighter credit agreement.
Alternatives
#1. Provide for an expanded Exim role in export financing sufficient to meet all possible demands
GENARD
(Agency revised req.).
?
CHOS
6
#2. Reduce Exim funding levels over a two year period (1977-1978) in order to encourage an
international credit agreement and limit the Bank to a lender-of-last-resort role.
#3. Reduce Exim funding more rapidly to achieve the results in option #2 by 1977 (OMB rec.).
Direct Loan Authorizations (A) and Outlays (0)
($ in millions)
1975
1976
TQ
1977
1978
A
0
A
0
A
0
A
0
A
0
Alt. #1 (Agency req.)
2,701
1,369
2,700
1,336
700
339
4,925
1,434
4,925
2,127
Alt. #2
2,701
1,369
3,445
1,405
865
391
3,132
1,461
2,419
1,489
Alt. #3 (OMB rec.)
2,701
1,369
3,132
1,374
783
368
2,419
1,295
2,419
1,203
Agency Request
(Difference from Alt. #1 (Agency request)
1977 Outlays
1978 Outlays
Alt. #2
+27
-638
Alt. #3
-139
-924
The Agency request is based on a review of potential demand for Eximbank financing. The Bank has
assumed that the pickup in foreign economic activity and growing commercial bank reluctance to provide
export credits will more than offset the impact of its new higher interest rate structure. The Bank
is also prepared to relax its interest rate policy if the U.S. appears to be losing business to foreign
competition.
Alternative #2 is designed to force Eximbank toward a lender-of-last-resort policy over a two-year
period. Funds would be limited to the amount likely to be needed under a strict international export
credit agreement (e.g., no credits to countries with per capita incomes over $3,000 and perhaps pro-
hibitions on lending for certain sectors such as jet aircraft). This restrictive level would put pressure
GERALD
on Eximbank to seek a limitation of credit subsidies. However, such a limitation would be resisted
by some (e.g., the French) and would risk losing some exports due to reduced subsidies.
The OMB recommendation would accelerate the transition of Eximbank to a more limited role as a
lender of last resort and in meeting demonstrable foreign competition. OMB believes that it is not
in the U.S. interest to subsidize exports and therefore would not be unduly concerned if some potential
exports were lost because of the withdrawal of credit subsidies. Yet, since it is also in the U.S.
interest to get other countries to stop their subsidies, you might want to hold open the threat of a
budget supplemental to increase Eximbank lending if other countries appear unwilling to follow the U.S.
lead in cutting back on export credit subsidies.
GERALD
CUDA
8
Issue Paper
Export-Import Bank of the United States
1977 Budget
Issue #2: Discount Loans
Statement of Issue
Should the discount loan program be terminated in 1977?
Background
The discount loan program creates a secondary market for short and medium term export paper on
preferential terms. Under this program, the Eximbank will make an advance commitment to lend up to
100% of the value of eligible paper. The cost to the commercial bank borrower is generally one
percentage point less than the interest yield on the underlying obligation.
Eximbank recently instituted several major program changes: 1) It now charges a commitment fee
of 1/4% of the value of the underlying obligation, 2) Floating-rate paper can no longer be discounted,
and 3) A given loan can now be discounted only once.
Alternatives
#1. Allow a moderate increase in discount loan authorizations (Agency req.).
#2. Terminate the discount loan program in 1977 (OMB rec.).
Analysis
Three purposes have most often been cited for the discount loan program: 1) To offset alleged
discrimination against export credits during periods of tight money; 2) To allow export credits to be
offered at fixed rather than floating rates; and 3) To simply make export financing more attractive.
There is no evidence that exports are discriminated against during periods of tight money, and even
if they were, the program merely provides banks with liquidity and does not require that the discount
proceeds be plowed back into additional export financing. Thus the first objective does not appear important
vusit
9
nor would the program be effective in meeting it. Moreover, OMB questions the need for a Government
program to assure fixed rates for export credits. Borrowers in any sector prefer fixed to floating
interest rates during periods of money market uncertainty. Export credits should be subject to the
same rules as credit for other sectors. Finally, OMB does not believe that a case has been made for
simply making export credits more attractive to U.S. banks than alternative loans for other purposes.
As a practical matter, Exim's discount program also introduces a large uncontrollable element into
Federal outlay estimates. Disbursements are relatively unpredictable (generally in the $50-300M range).
Outstanding authorizations of nearly $2B could be disbursed in a real credit crunch, although the
recently instituted commitment fee may mitigate this problem somewhat.
Discount Loan Authorizations (A) and Outlays (0)
(in millions of dollars)
1975
1976
TQ
1977
1978
A
0
A
0
A
0
A
0
A
0
Alt. #1 (Agency req.)
1,112
134
1,400
123
350
15
1,500
90
1,500
59
Alt. #2 (OMB rec.)
1,112
134
1,400
123
350
15
0
47
0
15
750
Agency Request
(Differences from Alt. #1 (Agency request)
1977 Outlays
1978 Outlays
(
Alt. #2 (OMB rec.)
-43
-44
The Eximbank recommendation would permit a high level of program usage by private banks, on the
assumption that the assurance of liquidity and the ability to provide fixed-rate loans provide an
incentive for exports.
The OMB recommendation of program termination is based on the questionable program objectives, the
lack of effectiveness in achieving them, and the uncontrollable outlay pattern of the program.
10
Issue Paper
Export-Import Bank of the United States
1977 Budget
Issue #3: Guarantees and Insurance
Statement of Issue
Should ceilings for guarantees and insurance be increased even though Exim has regularly fallen
far below budgeted levels in the past?
Background
The purpose of Exim guarantees and insurance is to encourage greater financing by U.S. producers and
commercial banks by reducing the risk and uncertainty inherent in export credits. Exim makes a
distinction between "guarantees," which usually cover risk taken by commercial banks, and "insurance,"
which usually covers the risk of exporting firms. Guarantees are extended by Eximbank itself and
insurance is provided by the Foreign Credit Insurance Association (FCIA), a group of 50 private insurance
companies which share the risk of default and have the ultimate backing of Eximbank for large losses.
Alternatives
#1. Allow an expanded ceiling for guarantees and insurance coverage (Agency req.).
#2. Retain the 1976 ceiling.
ARRUBIT
#3. Allow the program to grow from the 1975 actual level to keep pace with export growth (OMB rec.).
Analysis
OMB has encouraged Exim to shift from reliance on direct credits toward guarantees and insurance.
Exim claims to be making this shift, but performance to date has not been impressive. Treasury has
questioned the desirability of such a shift since it would generally result in a higher cost to the
borrower than an equivalent U.S. Government obligation financing a direct loan. OMB continues to prefer
guarantees to direct credits since guarantees involve a smaller subsidy element under usual conditions.
In addition, guarantees and insurance have a negligible outlay impact.
11
Eximbank Guarantees and Insurance Authorizations
($ in millions)
1975
1976
TQ
Budget
Actual
Budget
Est.
Budget
1977
Alt. #1 (Agency req.)
8,000
4,502
8,850
2,212
9,590
Alt. #2
8,000
4,502
5,220
2,212
8,850
Alt. #3 (OMB rec.)
8,000
4,502
5,220
1,305
6,015
Agency Request
(Differences from Alt. #1 (Agency request)
1977 Outlays
1978 Outlays
Alt. #2
0
0
(
Alt. #3 (OMB rec.)
0
0
Eximbank believes that a high level of guarantees and insurance should be provided in order to avoid
any risk of having to curtail the program should a sudden demand emerge. Eximbank emphasizes that there
are no outlays associated with the increase. The OMB recommendation is set at the most likely level of
program usage based on past activity rates.
FORD
LIBRAST
12
Issue Paper
Export-Import Bank of the United States
1977 Budget
Issue #4: Personnel Levels
Statement of Issue
Should the Exim personnel level be increased from 440 to 475?
Background
The Exim employment level has risen from 400 in 1974 to 440 in 1976. The Bank justifies the
requested increase of 35 employees on the basis of its increased number of loans outstanding and the
added demands for analysis of loan applications.
Alternatives
#1. Provide an additional 35 persons to administer higher program levels under current operating
procedures (Agency req.).
#2. Provide no manpower increase in order to maintain incentives to allocate personnel to the
highest priority programs (OMB rec.).
Analysis
Eximbank has recently commissioned a private study which recommends an increase in personnel to 480
people. However, the approach of the study was simply to extrapolate existing workload factors rather
than to examine ways to increase productivity. While the Eximbank's loan processing workload has
unquestionably increased due to the spurt in activity in the early 1970s, a significant portion of this
increase can probably be handled by more sophisticated accounting techniques and other productivity
increases. For the first time, however, the Bank (under initial OMB prodding and under Bill Casey) has
begun to develop an analytical staff capability and this effort may suffer somewhat under a tight
personnel ceiling.
IMPORT
BANK
EXPORT-IMPORT BANK OF THE UNITED STATES
THE
WASHINGTON, D.C. 20571
UNITED
PRESIDENT
AND
CABLE ADDRESS "EXIMBANK"
CHAIRMAN
UDGET
TELEX 89-461
Dear Jim:
I strongly support the President in his drive to hold down the
cost and size of government but I believe the OMB budget proposals cut
Eximbank in a disproportionate and counterproductive manner. Reducing
Exim's basic lending authority by 40% and its discount program by 100%
at a time when authorizations are increased by 100% in France and Japan
and by 60% in Britain would thoroughly frustrate the Bank's ability to
provide financing competitive with that provided by other countries as
directed by the Congress. France, Britain and Japan whose aggregate
GNP is only 70% that of the U. S. are making available about $15 billion
of official export credits, six times what OMB is proposing for the U. S.
In discussing on the telephone the impact of the proposed cuts,
you asked if export financing created as many jobs as housing. I'm
attaching a table showing that it beats housing by 50% in jobs per
billion dollars of authorization and almost 100% in jobs in relation
to imputed cost. In addition, a fall off in housing will not cost
consumers billions of dollars in higher prices as a fall off in exports
will as the latter cuts the value of the dollar.
In considering how to achieve the President's objectives of
reducing the cost and size of government, we can be led astray if we
deal in budget figures only without going to the underlying realities.
That is more true with respect to Eximbank than for any other agency of
government because of its tiny size, its ability to operate without any
appropriation, and the high probability that a diminished export effort
will increase not only unemployment benefits but all other costs of the
Federal government as higher prices inevitably flow from a weaker dollar.
Let me explain by first turning to the only budget item that has
any impact on net outlays--our direct lending program. The $2.4 billion
loan ceiling you would set for FY 1977 against the request we now make for
$4.8 billion (reduced from our original request of $6.1 billion) would
result in a difference in Exim's total net budget outlays for FY 1977 of
only $240 million. For this cosmetic reduction--because even the $240
million is not really an expenditure as it would be with almost all other
Federal agencies, since we are repaid everything we lend--the U. S. pays
a prohibitively high price.
FORD
- 2 -
For one thing, American companies will not spend the money to even
bid on the billions of dollars of contracts that are up for grabs in the
world if there is no reasonable assurance of the necessary financing to
fulfill the contracts once they're won. And without Exim to share the
burden with the commercial banks, that funding just will not be there.
The inability to lend $2.4 billion we now ask over and above the OMB
proposal can mean the loss of $5 to $6 billion in exports costing $500
million in lost taxes and 250,000 or more jobs while chipping a big enough
slice off the value of the dollar to cost both the public and the govern-
ment additional billions.
We need an alternative that will (1) contribute to the President's
budget objective, (2) recognize the facts that the Bank's loans are not
expenditures and that the cuts first recommended by OMB emasculate U. S.
official export credit financing with no lasting budget savings and
(3) which will not boomerang by ultimately subverting the President's
objective of reducing the cost of government.
I believe that the activity levels in the following table represent
a balance that reflects all these considerations and still reduces Exim's
budget impact $100 million below what it would have been if we had been
in the budget at the $3.8 billion direct loan figure for the current
fiscal year.
($ millions)
FY
Transition
FY
1976
Quarter
1977
Net Loan Authorizations
Equipment and Services
$2,700
$ 700
$4,800
Commodity
-0-
-0-
75
Discount
1,400
350
1,500
Special Foreign Trade Loans
50
12
50
Total Net Loans
4,150
1,062
6,425
Guarantee and Insurance Authorizations
8,850
2,213
9,590
Net Budget Outlay
1,460
350
1,500
FORD
- 3 -
1. Eximbank is in a special situation with respect to this budget
in these three ways:
(a) Exim's budget impact figure will represent a full addition
to the budget as compared to last year when Eximbank was not in the
budget;
(b) Eximbank's ability to carry out its mandate will be
reduced 1000% of any cut you make to avoid this new impact (to
gain a $1 reduction in outlays requires a $10 cut in auth-
orizations); and
(c) your cut will be largely cosmetic because it does not save
the taxpayers any money (no appropriations are needed), some of
the authorization may not be used at all (we need commitment
authority to enable U. S. companies to bid even though they won't
win every time--in which case we won't have to actually lend) and,
if it is, the money will come back with a profit.
To take this "iffy" budget impact figure and add all of it to the
budget distorts what the President has accomplished in holding the cost of
government to last year's level. To get proper comparability, as we used
to say at the SEC, the $1.6 billion which Eximbank's activity would have
impacted FY 1976's budget should be added to that year's budget, or FY
1977's impact should be set in some separate category so that the over-all
reduction you have accomplished is fully appreciated. Is there any way
to do this?
Failing that, in light of the way a reduction in budget impact
generates a 10-fold reduction in the Bank's lending program and ability
to discharge its responsibilities, it's far too severe to impose a 20%
reduction in budget impact terms and a 40% reduction in loan authorization
as you propose for Eximbank while imposing only a 6.6% reduction on a
government-wide basis. Indeed, your proposal would cut our budget impact
$400 million or almost 25% below the original $1.7 billion budget target
we received from OMB. What we now propose would cut Eximbank's FY 1977
budget impact by almost the same 6+ percent average as you're doing for
all other agencies.
2. Some of the proposed amputation can be readily avoided without
any budgetary impact. The least understandable cut of all is in the Bank's
guarantee and insurance programs from $8.9 billion in FY 1976 to $6.0 billion
in FY 1977--Eximbank had requested $9.6 billion. These programs involve
essentially no Federal outlays--net claims paid in FY 1975 totaled only
$1.8 million; in fact, they have generally made money and provided a positive
contribution to the budget.
- 4 -
The Bank's guarantee and insurance programs are a vital part of
the U. S. export support effort. Their function is to reduce the political
and commercial uncertainties inherent in exports; to spread the risk among
exporters, the private financing institutions, and Exim in accordance with
classic insurance principles; and to let the marketplace operate to the
maximum possible extent. The recent OMB direct export promotion study
points out:
"Without Eximbank
...
it is very difficult
to insure foreign loans. Whenever possible, it is
preferable to have private banks or exporters extend
credits with Eximbank guarantees and insurance
=
Every study on Eximbank's policies has similarly endorsed the guarantee
and insurance programs.
Eximbank's guarantee and insurance activity is already running close
to $6 billion annually, reflecting our continuing efforts to increase the
role of guarantees and insurance in our total programs so as to maximize
private sector financing. The expected growth in U. S. exports, coupled
with this major effort by Exim to have the commercial sector shoulder a
greater portion of export financing and the decrease in our loan authority,
will require a substantial increase, not a decrease, in guarantee and
insurance authority.
If our loan authority is to be reduced in FY 1977, it is imperative
that the Bank secure the full $9.6 billion in authority that has been
requested. This is not a frivolous point. The Bank has a statutory
mandate to facilitate U. S. exports. We cannot continue to cut our
facilities without flouting that statutory obligation. If we cannot
lend, we must find some way to expand our guarantee activity if export
financing is to continue to be available so that American exporters can
remain competitive in the world marketplace.
3. I question the propriety of OMB's directive to drop Exim's dis-
count loan program as well as OMB's competence to make that judgment.
Eximbank is directed to use its resources to facilitate exports and has the
experience as well as the responsibility to determine how best to do that.
The Discount Loan Program is one of our major programs designed to encourage
small and medium-size export transactions and to encourage small and medium-
size commercial banks to finance American exports at fixed interest rates.
Cutting off the Discount Loan Program would seriously impede the thousands
of U. S. exporters, many of them small businesses, who get their export
financing from the 209 participating commercial banks, most of them
smaller regional institutions. These smaller banks state categorically
that they will have to withdraw from export financing if they do not
have the liquidity assurance this program provides.
GERALE FORD CIGNARY
- 5 -
Eximbank's Discount Loan Program has been finely tuned through
several changes since OMB's last study of the program to provide maximum
export support with minimum actual drawdown of funds. Thus, in the last
fiscal year we assisted over $1 billion in private export financing with
only $134 million in disbursements.
As of November 1 of this year, the Bank's Board of Directors modi-
fied the Discount Loan Program even further. While it is too early to
determine the precise impact these most recent changes will have on dis-
count loan authorizations, we believe that they will reduce authorization
levels substantially. Therefore, we now believe that an authorization
level of $1.5 billion will be sufficient for this program in FY 1977,
as compared with $2.2 billion requested in our September 1975 budget sub-
mission. These steps will reduce outlays in FY 1977 by at least $100
million and by even greater amounts in future years. Further cuts will,
however, not yield additional benefits. Even if discount loan authoriza-
tions were to be cut to zero in FY 1977, it will only yield a minimal
further reduction on 1977 outlays because disbursements, if any, which
take place only if money market conditions tighten and banks find it
necessary to borrow for liquidity purposes, generally lag after auth-
orizations by several years. This fact vividly makes the point that this
is a standby program which serves as the lever that brings banks into
export financing with minimal Exim disbursements. Our commitment turns
into an actual disbursement in only about 20% of the cases. Yet it may
multiply private financing by a factor of five.
4. Now let me turn to the most difficult and critical area, our
direct loans. During the first four months of FY 1976 we have approved
about $1 billion in direct loans. Approvals are running lower than
anticipated because recession and financial stringency in many countries
have caused the postponement of many large projects and because we have
increased our interest rates and generally tightened our terms to the
point where we are in grave danger of becoming uncompetitive. We can see
the rest of this year clearly enough to agree to hold to a $2.7 billion
limit which would be about what we did in FY 1975 and is $1 billion less
than our approved FY 1976 authorization level. We cannot take this step,
however, if we were held to $2.4 billion in FY 1977. If we were to be
bumped down to $2.4 billion for FY 1977, there would be no way to back
American bidding for the billion dollars in bid opportunities which we
have been told are coming in from Mexico, Venezuela, Brazil and other
strong countries after the turn of the year. The downward spiral in
our export effort would commence.
In reviewing our $4.8 billion requirement you must also keep in
mind the way we fit into international bidding practice.
- 6 -
To provide our companies with the backing to justify their
effort to land contracts abroad, we must be prepared to make commit-
ments not only on the contracts they get, but also on contracts that
will wind up in other countries. We won't win them all, but, since
we can't tell in advance which ones we'll win, we need enough margin
in our authorizations to issue commitments on contracts we will wind
up losing but must compete for in order to get our proper share of
the business.
Since 1969, the Bank has actually loaned about 70% of the
authorizations it's been allowed. This kind of flexibility and
breathing space is essential if the Bank is not to be so cramped in
making commitments that U. S. exporters will ease off or be hurt in
trying to market without the kind of backing their competitors get.
As for the justification for the total direct loan request of
$4.8 billion, we again reviewed the potential export sales which will
require the Bank's direct loan participation, together with commercial
banks, and find about 300 export situations and projects totaling $11.8
billion which we believe represent transactions which will definitely
go forward. On top of that there will be a lot of business we have
not yet heard about. Failure to support these transactions will mean
lost sales because numerous inter-agency studies, as well as recent
experience, clearly show that the private market is unable to provide
the hundreds of millions of dollars required for the nuclear and thermal
power plants, steel mills, and large resource development projects
without Eximbank support. It would be devastating to American exporters
to attempt to handle all this with a $2.4 billion authorization, about
50% less in real terms than the loans made in FY 1974, the last pre-
recession year.
5. Finally, on staffing, Cresap, McCormick and Paget recently
finished an extensive study of the Bank's personnel requirements which
was undertaken because the Directors, from personal experience, felt
that the number of yearly transactions and the resulting accumulation
of assets and commitments to be managed have increased to a degree
exceeding the level which the staff can safely handle. This third
party survey concludes that the Bank still needs 40 additional people
to properly handle the Bank's business--five more than we are requesting.
We were denied any additional people last year until I got through
to Roy Ash by asking him what he'd do if he had increased revenues per
transaction by 25% and lifted gross revenues by $75 million, while in-
creasing productivity and diversifying risks, and his budget committee
refused to allow him to increase overhead by 2-1/2% to maintain and
- 7 -
extend that progress. We got 20 additional people. I know that you,
Jim, would walk all over a budget committee which told you you couldn't
spend half a million dollars, amounting to one-half of one percent of
your profits, out of a $95 million revenue increase, to protect $100
million in profits, $10 billion in assets and $16 billion in commit-
ments.
Remember that this Bank with 440 people handles far more trans-
actions and is responsible for more commitments than the World Bank
with over 3,000 people. Remember, also, that it will pay for the addi-
tional people without burdening the taxpayer as almost all other Federal
agencies do.
In conclusion, I believe you should view our revised budget
proposal in the broader context of what we are trying to achieve--which
reflects the Administration's philosophy of minimizing government involve-
ment in the economy. We have reached the amazing point where over 50%
in value of our activity is in guaranteeing and insuring transactions
wholly financed by private capital. The authorization levels suggested
by OMB would require the bank to now turn its back on our private sector
partners whom we have just succeeded in inducing to work with us, but who
would be unable to proceed without us. Such stop-and-go policies are
detrimental to any program, and more so in the case of export financing
where the bringing together of a transaction usually takes so much longer
than an equivalent domestic project and where assurance of financing
availability over time is even more critical to a successful sale than
in the domestic arena.
We have raised our interest rates substantially over the past two
years from a straight 6% to a range of 8-1/4 to 9-1/2%, which is very
close to the market rate and considerably above the prevailing prime.
The increases in our rates and fees, coupled with the recent fall-off
in commercial rates, have left us in a position where the availability
of capital is our only remaining tool to help U. S. exporters maintain
their overseas sales.
The present favorable U. S. trade balance reflects, in part, the
growth in Eximbank support for U. S. exports four and five years ago.
The drastic authorization cuts now suggested by OMB would seriously
depress our exports, the consequences of which will be felt throughout
the economy in the late 1970's.
I believe that our proposal, while it would impact the budget
by about $200 million more than the OMB proposal, will achieve the
FORD
LISTARY
- 8 -
President's objective by coming in at $100 million less than the
budgetary impact of the FY 1976 program approved for Eximbank last
year. It will also permit the Bank to carry out its mandate to
provide financing competitive with that provided by other countries,
thereby continuing to provide the President with a valuable instru-
ment for achieving both his economic and foreign policy goals.
Yours,
William William J J. Casey lary
The Honorable
James T. Lynn
Director
Office of Management and Budget
Washington, D. C. 20503
LIBRARY
-
EXPORT-IMPORT BANK OF THE UNITED STATES
POLICY ANALYSIS STAFF
NOTE
November 14, 1975
GOVERNMENT SUPPORT AND RESULTING BENEFITS
HOUSING AND EXIMBANK EXPORTS
FY 1975
Housing
Eximbank
Government Support for Credit (billion U.S. $)
1/
2/
Preferential Credit Authorizations
24.0
2.7
OMB Estimate of Inputed Cost of
Preference
3.3
.3
Resulting Benefits
Output (billion U.S. $)
29.2
5.9
Direct and Indirect Employment
(thousands)
1,472
260
Output Per Dollar of Authorization
$1.22
$2.19
Output Per Dollar of Inputed Cost
8.85
19.67
Employment Per Billion Dollar of
Authorization
61,300
96,300
Employment Per Billion Dollar of
Inputed Cost
446,100
867,000
1/ Budgeted
2/ Authorized
GERALD FORD
THE PRESIDENT RAS SERV
Q. Why do we still have an exchange of persons program?
A. - It enables ambassador to provide foreign leaders and potential
leaders an understanding of American policies and insitutions
through VIP tours to the U.S.
- In countries where a low U.S. profile must be maintained, it
provides contacts between key elements of U.S. and foreign
societies.
- It institutionalizes the study of American policies and people
in foreign academic centers.
1920
Exchange of Persons Program *
1976 Request to Congress
Academic
Non-Academic
Lecturers, Profs,
Educational
Graduate Students
Teachers
Researchers
Foreign
Travel
Area
Foreign
U.S.
Foreign
U.S.
Foreign
U.S.
Visitors
Foreign
U.S.
Foreign
U.S.
Africa
8
3
1
--
7
9
19
49
17
14
7
Latin
America
18
9
15
--
9
15
25
40
7
21
12
West
Europe
39
63
46
54
44
33
21
--
--
30
42
East
Europe
9
19
19
32
17
19
10
--
--
11
20
East Asia
& Pacific
16
3
11
14
13
13
15
--
--
14
10
Near East/
South Asia
9
3
7
--
8
10
8
10
75
9
8
*NOTE: Excludes other important program elements such as cultural presentations. The level of activity in
a given area should not be equated with a proportional concentration of resources since unit
grant costs vary considerably by activity and geographic area.
High European exchange activity is attributable in part, to the sizable contributions of European
governments. Thus cost to the U.S. of conducting exchanges in this area is lower than in other
areas and the primacy of West Europe disappears for several types of exchanges.
GERALD LIBRARY a. FORD