H.R. 2159 -- FOREIGN OPERATIONS, EXPORT FINANCING,
AND RELATED OPERATIONS APPROPRIATIONS BILL, FY 1998
(Sponsors: Livingston (R), Louisiana; Callahan (R), Alabama)

While the Administration is deeply concerned about funding reductions made by the Committee, we do not oppose House passage of the Committee bill. The Administration would strongly oppose any amendments that would further reduce the funding provided or that would restrict the President in carrying out U.S. foreign policy.

Funding Reductions

The Administration is deeply concerned about the insufficient overall funding level provided by the Committee bill. Assuming funding at requested levels for International Affairs (function 150) programs outside the jurisdiction of the Foreign Operations Subcommittee, the bill is more than $700 million below the amount that is consistent with the total for function 150 programs provided by the Bipartisan Budget Agreement (excluding arrears payments). This reduction would seriously undercut U.S. leadership abroad in achieving foreign policy objectives that will significantly benefit the American people.

The Bipartisan Budget Agreement specifically details agreed-upon levels of spending for function 150, and this legislation clearly fails to comply with the agreement. The overall Committee level is unacceptable to the Administration and cannot be made acceptable within the current House 602(b) allocation. While the Administration is not actively opposing passage of this bill by the House, we will strongly urge that funding be restored to the budget request level in conference. Should the conference version of this bill contain the reduction proposed by the Committee, the Secretary of State, the Secretary of the Treasury, and the National Security Advisor would recommend that the President veto the bill.

Multilateral Programs

The Committee's $598 million reduction to the Administration's $1.5 billion request for multilateral development banks (MDBs) would cause a severe disruption in U.S. participation in several institutions. These institutions are playing a vital role in assisting the growth of the world's poorest countries, particularly in Africa, and addressing serious international environmental problems. In cutting $284 million from contributions scheduled to be made to three institutions in FY 1998, the Committee bill would add to the $862 million in arrears the United States now owes to the MDBs. Also, the bill fails to provide the requested $315 million to pay a portion of the arrears even though the Bipartisan Budget Agreement would permit the Committee's 602(b) level for the Foreign Operations Subcommittee to be increased by that amount. By deepening the arrears crisis, these actions would undermine U.S. credibility, policy influence, and international economic leadership.

Multilateral Bank Funding for the Poorest Countries. More than two-thirds of the total MDB reduction is accounted for by cuts in the scheduled FY 1998 payment to the International Development Association (IDA) and the failure to provide the proposed arrears payment to IDA. IDA's lending will support the adoption of market-oriented economic reforms to revitalize the economies of many countries in Africa and elsewhere. The reductions could cause a collapse in funding arrangements agreed upon with other donor countries covering the next two years, and they would completely undercut progress made in allowing U.S. firms to participate in projects financed by a special IDA fund, an action urged by the Congress. The poorest countries of Africa and Asia would also be adversely affected by the 50 percent cut in funding for the African Development Fund and the denial of arrears payments to the Asian Development Fund. Major reforms in the management of the African fund, including new senior managers and a 20 percent staff reduction, call for a clear show of U.S. support.

Global Environment Facility (GEF). The Administration's $100 million request for the Global Environment Facility has been cut by two-thirds. The GEF supports efforts of developing countries in areas such as biodiversity, rainforest preservation, and the reduction of ocean pollution and greenhouse gas emissions. At the upcoming Kyoto conference, U.S. efforts to encourage an assumption of greater responsibility to reduce emissions by these developing countries would be threatened by this action.

New Arrangements to Borrow (NAB). The bill contains no authorization for the New Arrangements to Borrow, a set of emergency credit lines for use by the IMF in the event of serious threats to global financial stability. The NAB was conceived in response to calls from many quarters, including key voices in Congress, for greater multilateral resources to combat systematic shocks after the 1995 Mexico peso crisis. The NAB is a vital tool for the safeguarding of international financial stability, and it will not be established without U.S. participation. Willingness to support the NAB represents a clear test of U.S. financial and political leadership in the post-Cold War world. The requested U.S. participation of $3.5 billion has no outlay impact, and, therefore, no impact on the deficit. Moreover, the Bipartisan Budget Agreement provides for the necessary adjustments to budget authority caps for the NAB to accomplish this important action.

Bilateral Economic Assistance

Assistance for the New Independent States of the Former Soviet Union. The Committee's mark of $625 million for the New Independent States (NIS), nearly one-third below the request, would cripple the President's Partnership for Freedom initiative. The initiative is intended to promote democratic and market reform at the regional and grassroots level, where it has the greatest impact. Cutting aid in this fashion would, in particular, damage our national interest in supporting economic reform in Russia at a time when reform is moving ahead. The initiative would also make available increased resources for two key areas, Central Asia and the Caucasus, that are of great geopolitical and commercial importance to the United States. For all NIS countries, the initiative supports economic growth and private enterprise, building on the macroeconomic progress these countries have achieved.

Economic Support Fund (ESF). The Administration is concerned that the Committee mark reduces ESF by $78 million below the President's request. The Committee has recommended that Egypt and Israel receive full funding and has established a separate ESF account for Ireland. Thus, $385 million would remain available to meet requests totaling $463 million. Important country and regional programs such as the Middle East Development Bank, Cyprus, Haiti, Jordan, Lebanon, and the Human Rights and Democracy Fund would have to be reduced, thereby undermining U.S. economic and political foreign policy interests. In addition, the Committee bill would limit ESF to Turkey to a level below the President's request.

Export and Investment Assistance

Overseas Private Investment Corporation (OPIC). The Administration strongly supports the reauthorization of the Overseas Private Investment Corporation and the full appropriations request. We recognize that authorization action is pending, which led the Committee not to provide the requested $60 million for OPIC's credit programs. We look forward to working with the Appropriations and Authorization Committees to address each Committee's concerns.

Other Reductions

In addition, the bill cuts requested amounts for other important programs: the Trade and Development Agency, debt restructuring, AID operating expenses, foreign military financing loans, peacekeeping operations, and voluntary contributions to international organizations and programs. The bill also does not include the President's request to allow up to $10 million in available development assistance funds for a new development credit authority, nor the requested $7 million for a contribution to the Enhanced Structural Adjustment Facility of the International Monetary Fund.

Policy Issues

Support for Needed Flexibility. While deeply concerned with the funding reduction, the Administration strongly commends the Committee for continuing its policy of great restraint in imposing funding earmarks. The Committee's recognition that flexibility is needed for the conduct of effective diplomacy in situations of rapid political and economic change is most welcome. Beyond limiting earmarks, the Committee has also generally avoided imposing foreign policy strictures that would micro-manage diplomatic activity. This is another commendable aspect of the bill. Three exceptions to this trend must be noted, however.

Restrictions on Aid to Russia. The Administration strongly opposes restrictions on assistance to Russia. The vast majority of our aid to that country does not go to its government, but instead supports reformers at the grassroots level and is critical to Russia's democratic transformation. It would be a mistake to suspend this aid, which is so clearly in the U.S. national interest. Meanwhile, the limited technical assistance we provide to the Russian Government is targeted to key areas, such as tax reform, that are of great concern to U.S. investors in Russia. Suspension of these programs would undercut our efforts to support the American business community there.

Restrictions on Aid to Ukraine. The Administration recognizes and shares the serious concerns Congress has about Ukraine's lack of progress in developing the necessary economic and legal institutions required to enable U.S. investors to overcome the serious problems they confront and the pervasive corruption that exists there. We have repeatedly raised these issues with senior Ukrainian government officials and have suspended some aid to the Ukraine due to lack of progress in implementing reforms. However, the Administration also opposes the restrictions on assistance to Ukraine contained in the bill. Ukraine is a country of great geopolitical importance whose continued independence the U.S. strongly supports. New restrictions on aid to Ukraine would remove the flexibility the Administration needs to respond quickly when conditions improve.

Restrictions on Aid to Haiti. The Administration has strongly encouraged economic and public sector reform in Haiti. However, the Administration opposes new restrictions on assistance, which condition its provision on privatization of three public enterprises. Such an approach puts at risk American interests in Haiti by conditioning assistance on a process that neither the Haitian Government nor the U.S. entirely control.

The Administration will work to eliminate these three restrictive provisions in subsequent stages of the appropriations process.

Infringement on Executive Authority. Several sections of the bill would require the United States to use its "voice and vote" to take particular positions in international organizations. The Constitution, however, commits to the President the responsibility for formulating the position of the United States in international fora. Therefore, these sections would, if enacted, be construed as advisory.