[Budget of the United States Government, Fiscal Year 1998]
[Page 117-122]

[[Page 117]]



  The challenge before us plainly is two-fold--to seize the opportunities for more
people to enjoy peace and freedom, security and prosperity, and to move
strongly and swiftly against the dangers that change has produced.
                                      President Clinton                                                         
                                      September 24, 1996                                                        

  This budget fully supports America's global leadership and advances 
our national goals--protecting our vital strategic interests and 
expanding the reach of democratic governance, ensuring our influence in 
the international community, promoting sustainable development and the 
expansion of free markets and American exports, and responding to new 
international problems and humanitarian emergencies that can undermine 
our security.

                                Table 9-1.   INTERNATIONAL DISCRETIONARY PROGRAMS                               
                                 (Budget authority, dollar amounts in millions)                                 
                                                                                               Percent   Percent
                                                   1993        1997         1998      2002     Change:   Change:
                                                  Actual   Estimate \1\   Proposed  Proposed   1993 to   1997 to
                                                                                                1997      2002  
International development and humanitarian                                                                      
 assistance...................................     8,900        6,644       7,712      6,978      -25%       +5%
International security assistance.............     6,148        5,928       5,959      6,041       -4%       +2%
Conduct of foreign affairs....................     4,300        3,890       4,164      4,026      -10%       +3%
Foreign information and exchange activities...     1,247        1,098       1,087      1,070      -12%       -3%
International financial programs..............    12,662          549       4,052        647      -96%      +18%
  IMF programs................................   (12,063)  ............    (3,521)  ........        NA        NA
Total, International discretionary programs...    33,257       18,109      22,974     18,762      -46%       +4%
Total, excluding IMF programs.................    21,194       18,109      19,453     18,762      -15%       +4%
NA = Not applicable.                                                                                            
\1\ Consistent with changes in the 1996 Farm Bill, the P.L. 480 Title I direct credit program has been          
  reclassified from International Affairs programs to Agriculture programs starting in 1996.                    

  Protecting America's key strategic interests remains a timeless goal 
of our diplomacy. As we move toward the 21st Century, we have a great 
opportunity to expand the scope of democracy, further ensuring that our 
interests remain unthreatened. Facing the dilemmas of peacekeeping, 
regional crises, and economic change, the international community needs 
the United States as a leader and a full partner, meeting its 
international commitments. Advancing U.S. interests in a global economy 
brings expanded missions to our diplomacy and trade strategy. A less-
orderly world also creates new challenges to our security--from regional 
and ethnic conflicts, the proliferation of weapons of mass 

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destruction, international terrorism and crime, narcotics, and environmental 
  With such a broad agenda for leadership, America must not withdraw 
into isolationism and protectionism or fail to provide the resources 
required to carry out this mission. The budget proposes $19.5 billion 
for ongoing international affairs programs. While this request is seven 
percent above the 1997 level, it constitutes only slightly over one 
percent of the budget and 0.25 percent of Gross Domestic Product.

Protecting American Security and Promoting Democracy

  The first goal of America's international strategy must be to promote 
and protect our interests in regions that historically have been 
critical to our security. The Administration's record is encouraging. 
Through skilled diplomacy, the judicious use of military force, and 
carefully targeted bilateral and multilateral economic assistance, the 
United States has advanced the peace process in Europe and the Middle 
East, reducing threats to our interests in these key regions. Through 
diplomatic leadership, economic assistance, and trade negotiations, we 
have maintained our leadership in Asia. Our goals are to secure these 
achievements, advance the peace process, and deepen regional cooperation 
in the future.
  Perhaps the most serious national security threat facing the Nation 
today hinges on the course of events over the next few years in the New 
Independent States (NIS) of the former Soviet Union. We have made 
substantial progress in helping encourage the emergence of free markets 
and democracy in the NIS. In particular, our relations with Russia are 
strong. The United States has provided unwavering support for the 
emergence of democracy in Russia, leading this past year to the first 
free presidential reelection in Russian history. Some other NIS 
countries are progressing more slowly toward democracy and free markets, 
but overall regional progress has been remarkable.
  Nevertheless, the June 1996 Russian elections represent not only a 
success but a warning--the latter embodied in the large vote for 
President Yeltsin's opposition, an opposition that derived its strength 
from Russia's severe economic distress. The Administration believes it 
is absolutely critical, at this turning point, to demonstrate our 
continuing support for democratic reform and free markets in Russia and 
throughout the NIS; the ultimate success of this process is vital to our 
national security. Moreover, we must begin to shape our assistance 
program in ways that support the mature trade and investment 
relationship that is starting to emerge between the United States and 
the countries in this region. Thus, the budget proposes $900 million for 
NIS funding, a 44-percent increase over 1997. The increase includes a 
Partnership for Freedom initiative, designed to initiate a new phase of 
U.S. engagement with NIS countries focused on trade and investment, 
long-term cooperative activities, and partnerships.
  The region at the heart of the Cold War conflict--Central Europe--has 
made enormous progress toward institutionalizing free markets and 
democracy. It is no longer a threat to American and European security; 
it is starting to be a partner in the transatlantic community. The 
economies of the Northern tier countries, such as Poland, the Czech 
Republic, and Hungary, are largely free and privatized; they are moving 
from direct assistance, which soon they will no longer require, to 
significant economic integration with the United States and Western 
Europe. At the same time, countries in this region are reshaping their 
security relationships with the West as they move toward potential 
membership in NATO.
  Central European countries in the Southern tier also have made great 
progress. U.S. leadership has been critical in ending the bloody 
hostilities in Bosnia, establishing new governments through free 
elections, and beginning economic reconstruction. The pace of 
reconciliation and recovery remains gradual, and the need for continued 
American leadership is great. The other countries in the southern part 
of this region also look to the United States to remain committed to 
their struggle to create democratic governments and free, open markets.

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  The budget proposes to increase funding for economic assistance in 
Central Europe to $492 million--including the final $200 million 
installment on the U.S. commitment to Bosnian reconstruction. While 
programs for the Northern tier are phasing down, we must continue to 
support implementation of the Dayton Peace Accords and to sustain the 
emergence of free market democracies in the Southern tier. In addition, 
the budget seeks to increase support for foreign military financing for 
the countries of Central and Eastern Europe through the President's 
Partnership for Peace initiative, which will facilitate their efforts to 
meet the conditions for membership in NATO.
  Our strategic interest in peace in the Middle East is as strong as 
ever. The peace process has achieved much already. The need for 
reconciliation remains urgent, and America continues to play a 
leadership role in the effort to craft a durable, comprehensive regional 
peace. The budget proposes $5.3 billion for military financing grants 
and economic support to sustain the Middle East peace process. The 
proposed increase of nearly $100 million includes $52.5 million for an 
initial U.S. contribution for the Bank for Economic Cooperation and 
Development in the Middle East and North Africa, which will play a key 
role in promoting regional economic integration. The budget also 
provides additional security assistance to Jordan, recognizing that 
country's needs and its important contribution to the peace process.
  The rest of our economic and security assistance programs are designed 
to support peace and democracy in countries and regions where our 
leadership has helped those processes emerge: consolidating democratic 
gains in Haiti; supporting reconciliation and peace in Guatemala and 
Cambodia; and strengthening the capacity of African governments to 
provide regional peacekeeping on that troubled continent.

Ensuring America's Leadership in the International Community

  Following World War II, the United States assumed a unique leadership 
role in building international institutions to bring the world's nations 
together to meet mutual security and economic needs. It took an alliance 
to win the war, and it clearly would take an alliance to ensure the 
peace. We sponsored and provided significant funding for the United 
Nations, the International Monetary Fund, and the World Bank, along with 
specialized and regional security and financial institutions that became 
the foundation of international cooperation during the Cold War.
  To ensure financial stability for this international community, the 
members of many of these organizations entered into treaties or similar 
instruments committing them to pay shares (or ``assessments'') of the 
organizations' budgets. Congress ratified these agreements, making them 
binding on us. For international financial institutions, like the World 
Bank and its regional partners, the United States has made firm 
commitments to regular replenishments, subject to the congressional 
authorization and appropriations processes.
  Now, America's leadership in this international institutional network 
is threatened. In recent years, Congress has not fully appropriated the 
funds needed to meet the treaty-bound assessments of international 
organizations or our commitments to the multilateral banks. As a result, 
U.S. arrears now total over $1 billion to the United Nations and other 
organizations, much of it for peacekeeping operations, and over $850 
million to financial institutions. Congress has raised some legitimate 
concerns about how these organizations operate, but America's failure to 
meet its obligations has undercut our efforts to achieve reforms on 
which the Administration and Congress agree. Today, our ability to lead, 
especially in the process of institutional reform, is being seriously 
  The Administration believes that we must end the stalemate this year--
and that we can do so consistent with our goal of institutional reform. 
With new leadership in the United Nations, we have a unique opportunity. 
The budget proposes to fully fund the 1998 assessments for the United 
Nations, affiliated organizations, and peacekeeping, and to pay $100 
million of our arrears. It also seeks a one-time, $921 million advance 
appropriation for the balance of U.N. and related organiza-

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tion arrears, to become available in 1999. The release of these
appropriated arrears would depend on the adoption of a series of 
reforms in the coming year, specific to each organization, that should 
reduce the annual amount that we must pay these organizations, starting 
with their next biennial budgets. These reforms would include a reduction
in the U.S. share of organizational budgets, management reforms yielding
lower organizational budgets, and the elimination of, or U.S. withdrawal
from, low-priority programs and organizations.
  The Administration wants to work closely with Congress to shape this 
package, lowering out-year funding requirements while maintaining strong 
U.S. leadership in organizations and programs important to our national 
interests. Enacting the advance appropriation is an essential step in 
achieving these objectives. It would show that we recognize our legal 
obligations and are determined to maintain the sanctity of our treaty 
commitments as we press for changes in the organizations. It would give 
us the leverage to mobilize support from other nations for the reforms 
we seek and for the lowering of our future assessments. Failure to 
arrive at an agreed-upon solution this year will put U.S. international 
leadership at risk in the next century.
  We are equally committed to restoring our leadership in, and 
reforming, the multilateral development banks (MDBs). Our commitments to 
them represent America's full-faith pledge. Moreover, the MDBs already 
have undertaken significant reforms in response to Administration and 
congressional concerns, including cuts in administrative expenses. The 
budget would eliminate our arrears over the next three years while 
meeting ongoing commitments that were negotiated down by 40 percent from 
previous funding agreements. The budget also includes funds to eliminate 
all arrears to the World Bank's International Development Association 
affiliate that lends to the world's poorest countries, many of them in 
Africa. Future budgets would seek to eliminate all of the arrears, while 
continuing our success in lowering the level of future U.S. commitments.
  Our leadership in international institutions also has been critical in 
preventing international financial crises. As the Mexican peso crisis 
demonstrated, the increased interdependence of our trading and monetary 
systems means that a monetary crisis in any major trading nation affects 
all nations. Consequently, the G-10 nations and a number of other 
current and emerging economic powers have negotiated the New 
Arrangements to Borrow (NAB), in order to provide a credit line for the 
International Monetary Fund (IMF) in cases when a monetary crises in any 
country could threaten the stability of the international monetary 
system. The budget proposes a one-time appropriation of $3.5 billion in 
budget authority for the U.S. share, but it will not count as an outlay 
or increase the deficit; the United States will receive an increase in 
its international reserve assets that corresponds to any transfer to the 
IMF under the NAB.

Promoting an Open Trading System

  The Administration remains committed to opening global markets and 
integrating the global economic system, which has become a key element 
of continuing economic prosperity here at home. Achieving this goal is 
increasingly central to our global diplomatic activities.
  We are helping to lay the groundwork for sustained, non-inflationary 
growth into the next century by implementing the North American Free 
Trade Agreement and the multilateral trade agreements concluded during 
the Uruguay Round. We are conducting a vigorous follow-up to ensure that 
we receive the full benefit of these agreements. At the December 1996 
World Trade Organization ministerial meeting in Singapore, for example, 
negotiators reached agreement on lowering many of the remaining barriers 
to trade in information technology, which will significantly benefit 
U.S. firms and workers. We are finalizing our anti-dumping and 
countervailing duty regulations, which implement commitments made in the 
Uruguay Round.
  To promote other, mutually-beneficial trade relationships, the 
Administration will propose legislation for ``fast-track'' authority to 

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tiate greater trade liberalization.\1\ It also will propose to 
extend the authorization of the Generalized System of Preferences for 
developing countries beyond its current expiration date of May 31, 1997 
and to give the eligible countries of the Caribbean Basin Initiative 
expanded trade benefits.
  \1\ Fast track is a procedure designed to expedite congressional 
approval of trade agreements between the United States and other 
  We are more closely integrating the Government's trade promotion 
activities through the Trade Promotion Coordinating Committee (TPCC), 
creating a synergy among agency trade programs that will significantly 
improve American business' ability to win contracts overseas, and 
creating export-related jobs at home. The budget puts a high priority on 
programs that help U.S. exporters meet foreign competition, and TPCC 
agencies are developing rigorous performance measures to help ensure 
that programs in this area are effective.
  As discussed earlier in this chapter, U.S. assistance is important in 
encouraging the emergence of free market economies in Central Europe and 
the NIS, where our programs increasingly focus on facilitating a mature 
trade and investment relationship with the United States.
  Over time, our bilateral development assistance, provided through the 
U.S. Agency for International Development (USAID), likewise promotes the 
emergence of growing market economies in developing countries by 
supporting market-friendly policies and key institutions. Economic 
growth and market-oriented policy reforms in the developing world create 
growing demand for U.S. goods and services as well as investment 
opportunities for U.S. businesses. On a larger scale, the multilateral 
development banks also promote economic growth and increased demand for 
our exports. The budget proposes that our bilateral development 
assistance and contributions to the multilateral development banks grow 
by 25 percent--from $2.6 billion to $3.3 billion.
  Three smaller agencies provide U.S. Government financial support for 
American exports. The Export-Import Bank is a principal source of export 
assistance, offering loans, loan guarantees, and insurance for exports, 
primarily of capital goods. To assure that its programs operate as 
economically as possible, the Bank is considering raising some fees, 
thereby lowering net spending in 1998 while maintaining a strong overall 
level of export support. The Overseas Private Investment Corporation 
(OPIC) provides political risk insurance for, and finances, U.S. 
investment in developing countries, leading to greater U.S. exports. The 
budget proposes to maintain 1998 OPIC funding close to the 1997 level. 
The Trade and Development Agency (TDA) makes grants for feasibility 
studies of capital projects abroad; subsequent implementation of these 
projects can generate exports of U.S. goods and services. The budget 
increases funding for TDA over the 1997 level. With the new emphasis on 
trade and investment in the NIS, the Export-Import Bank, OPIC, and TDA 
may well become important channels for further funding directed at this 
  Along with the Government's financial support for U.S. exports, the 
Commerce Department's International Trade Administration (ITA) promotes 
U.S. trade through its network of Export Assistance Centers and overseas 
offices. These centers and offices provide export counseling to the 
American sector. The budget proposes a slight increase for ITA compared 
to 1997.

Leading the Response to New International Challenges

  Another fundamental goal of our international leadership, and an 
increasing focus of our diplomacy, is meeting the new transnational 
threats to U.S. and global security--the proliferation of weapons of 
mass destruction, drug trafficking and the spread of crime and terrorism 
on an international scale, unrestrained population growth, and 
environmental degradation. We also must sustain our leadership in 
meeting the continuing challenge of refugee flows and natural and human-
made disasters.
  In 1997, the Administration will seek Senate ratification of the 
Comprehensive Test Ban Treaty and the Chemical Weapons Convention, both 
critical to our long-term security and to preventing the spread of 
weapons of mass destruction. The budget supports the implementation of 
these agreements. U.S. diplomacy and law enforcement activities are 

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a key role in preventing the spread of such weapons to outlaw states such
as Libya, Iraq, Iran, Syria, and North Korea. The Defense
Department's Nunn-Lugar program and the State Department's Nonproliferation
and Disarmament Fund help support these efforts. (For more information on
the Nunn-Lugar program, see Chapter 10.) In addition, U.S. support for
such organizations as the International Atomic Energy Agency and the
Korean Peninsula Energy Development Organization is critical to meeting
our non-proliferation goals.
  U.S. bilateral assistance programs are also critical to tackling other 
important transnational problems. Our international counter-narcotics 
efforts are making real progress in drug-producing countries. After 
several years of deeply cutting the Administration's budget requests for 
counter-narcotics purposes, Congress provided the full requested amount 
for 1997, permitting the United States to intensify its efforts to curb 
cocaine production in the Andean countries by offering growers 
attractive economic alternatives. The budget proposes $230 million for 
the State Department's narcotics and anti-crime programs, eight percent 
more than in 1997, with most of the increase focussed on programs in 
  In addition, USAID development assistance and U.S. contributions to 
international efforts, such as the Global Environment Facility, support 
large and successful programs to improve the environment and reduce 
population growth. The United States is the recognized world leader in 
promoting safe and effective family planning projects.
  Disasters, humanitarian crises, and refugee flows are certain to 
remain central challenges to our leadership. The budget continues our 
historically strong commitment to refugee and disaster relief, proposing 
$1.7 billion, which sustains these programs at the 1997 level. This 
assistance, which reflects the humanitarian spirit of all Americans, has 
long enjoyed bipartisan support.

Conducting Foreign Affairs

  An effective American diplomacy is the critical foundation for meeting 
our foreign policy goals. The budget supports a strong U.S. presence at 
over 250 embassies and other posts overseas, promoting U.S. interests 
abroad and protecting and serving Americans by providing consular 
services. These activities include the basic work of diplomacy--the 
reporting, analysis, and negotiations that often go unnoticed but that 
allow us to anticipate and prevent threats to our national security as 
well as discover new opportunities to promote American interests. The 
budget proposes $2.7 billion for the State Department to maintain its 
worldwide operations, modernize its information technology and 
communications systems, and accommodate security and facility 
requirements at posts abroad.
  The budget also proposes two significant innovations in State 
Department management.
<bullet>  One would make about $600 million in immigration, passport, 
          and other fees, which now go to the Treasury Department, 
          available to finance State Department operations directly. 
          Improvements in how these State Department operations perform 
          will, thus, be directly linked to the receipts they generate.
<bullet>  The other innovation restructures the management of the 
          diplomatic platform to support the overseas activities of 
          other Federal agencies. This reform recognizes the magnitude 
          of the State Department's overseas administrative workload, 
          the need to carry it out efficiently, and the need to allocate 
          the costs of overseas support fairly among agencies. With 
          approval of the President's Management Council, the various 
          agencies represented abroad have designed a new overseas 
          administrative arrangement--the International Cooperative 
          Administrative Support Services program. The Administration 
          will propose to fund this new arrangement in a budget 
          amendment that it will send to Congress shortly after 
          transmitting the budget.