through accelerated disbursement of FY'83 ESF funds and by converting some project assistance to balance-of-payments support. In the case of Sudan, years of economic mismanagement, ambitious investments and deteriorating terms of trade have left a horrendous debt burden and an economy plagued with serious structural imbalance. Sudan is now responding to this situation with a program of austerity measures and economic reforms negotiated with the IMF. Foreign aid enables Sudan to finance imports needed to meet basic consumer demands and maintain the productive capacity of the economy. As a friend, we are working with Sudan to help it achieve economic growth and stability without the political instability which can result from imposition of needed austerity measures. Through the level of our assistance and through diplomatic support, we have taken a leading role in organizing the international aid and debt relief Sudan needs to implement its reform program. The Administration feels that our economic assistance is a very important factor in helping Egypt face its economic difficulties. The Administration has requested $750 million in Economic Support Fund assistance and $250 million in PL-480 food aid for FY'84. Specifically, as noted by President Reagan following his discussions with President Mubarak earlier this year, we wish to support the priorities of the new Egyptian Five-Year Plan with emphasis on increasing agricultural and industrial productivity and the rehabilitation and expansion of the water and related disposal systems in Egypt's major urban centers. We will work together to find ways and means for rapidly disbursing the assistance, which will help meet Egypt's foreign exchange needs for its priority infrastructure and balance of payments goals. POLITICAL STABILITY Senator Inouye: You have said, "The Soviet Union and its allies are able to feed on political instability like viruses on a host." How would you assess the political stability of Kenya, the Sudan, and Egypt? The coup There Secretary Shultz: Kenya is basically stable. attempt of August 1982 was quickly suppressed by the army. is no evidence of broad support within Kenya, including the military, for a change from the constitutionally elected government which has existed since the country's independence. Nevertheless, we believe that substantial economic and political reforms are necessary to assure Kenya's future stability. President Moi announced a number of important reforms shortly after the coup attempt and has begun to implement them. Sudan is also basically a stable country, but one in which there are many forces which could result in instability. The 17-year civil war between the Arabized north and the African south attests to the strain imposed by ethnic diversity. One of President Nimeiri's greatest achievements was the peaceful settlement of the civil war in 1972. The greatest threat to stability now is the faltering economy which threatens both the supply of goods and jobs. Austerity and other economic reform measures are essential to averting major economic problems but such measures themselves tend to be unpopular because they increase the cost of living. Foreign aid helps cushion the impact of reforms and thus makes the Sudanese Government much more willing to undertake the needed measures. The Egyptian Government under President Mubarak is stable. Except for some relatively minor disturbances following the assassination of President Sadat, there have been no internal challenges to the President Mubarak's Government, which draws support from a wide spectrum of Egyptian society. FMS/DEBT BURDEN/INCREASING DEFAULTS Senator Inouye: Mr. Secretary, If I can pursue a question I asked earlier.... OMB budget projections show that the debt burden being carried by developing countries will cause an increasing rate of defaults on FMS loans over the next several years. These defaults on loans guaranteed by the U.S. Government will exhaust the FMS guarantee reserve fund by the end of fiscal year 1987. That means this Administration knows that developing countries will be unable to repay loans proposed for fiscal year 1984 their debt burden will simply be too heavy. - Consequently, I must ask, is it not possible - - indeed, probable that U.S. FMS loans will contribute to economic instability in many Third World countries? Secretary Shultz: It is always possible. We recognize the difficulty some developing nations will have in servicing a large debt burden, but FMS loans aren't the problem. Our FMS loans constitute roughly two percent of total LDC debt worldwide, and only fifteen percent of total outstanding debt to the U.S. Government. I want to make two further points. Our security assistance helps the recipient nations defend themselves. Without security, many of these countries would be unable to maintain any economic or political stability. Second, the governments involved recognize the necessity for these funds, and if they can't get U.S. Government-guaranteed FMS loans, they'll be forced to try to get commercial credits which will be much more costly, if indeed they are available. Nevertheless, we are sensitive to the debt situation. We have requested increased grant MAP for a number of countries in FY'84 to avoid exacerbating debt service burdens while meeting defense needs. Senator Inouye: Why is the Administration continuing the pretense that these countries can repay FMS loans? Secretary Shultz: We've recognized the problem for a long time. We've asked the Congress for more grant authority. held off on giving loan guarantees to countries which can't afford them. But when the need must be met and grant funds are not We've available, we have to consider, in consultation with the recipient, the provision of high interest loans. We do not do this lightly; often, however, there are no other alternatives. Senator Inouye: Is OMB wrong? That is, does the State Department believe the FMS Guarantee Reserve Fund will not be depleted over the next 4-5 years? Secretary Shultz: If the Fund is drawn down at the present rate, it will be depleted by 1987. That's why we're considering proposals to the Congress to replenish the Fund in FY'85. SUBCOMMITTEE RECESS Senator KASTEN. Mr. Secretary, thank you for your testimony here today. It has been very helpful, and I look forward to working with you. Secretary SHULTZ. Thank you. [Whereupon, at 12:20 p.m., Monday, February 28, the subcommittee was recessed, to reconvene at the call of the Chair.] FOREIGN ASSISTANCE AND RELATED PRO GRAMS APPROPRIATIONS FOR FISCAL YEAR 1984 TUESDAY, MARCH 1, 1983 U.S. SENATE, SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS, Washington, D.C. The subcommittee met at 10 a.m., in room S-126, the Capitol, Hon. Robert W. Kasten, Jr. (chairman), presiding. Present: Senators Kasten and Leahy. DEPARTMENT OF STATE SECURITY ASSISTANCE, SCIENCE AND TECHNOLOGY STATEMENT OF WILLIAM SCHNEIDER, JR., UNDER SECRETARY FOR SECURITY ASSISTANCE, SCIENCE AND TECHNOLOGY, DEPARTMENT OF STATE ACCOMPANIED BY LT. GEN. PHILIP C. GAST, DIRECTOR, DEFENSE SECURITY ASSISTANCE AGENCY INTRODUCTION OF WITNESSES Senator KASTEN. The subcommittee will come to order. This morning our schedule includes, first, William Schneider, who will present testimony in support of the administration's international security assistance program. Then we will hear from Dominick DiCarlo, who will present testimony in support of the International Narcotics Control Budget. Then, testimony from James Purcell in support of the budget request for migration and refugee assistance. Then, last, Ambassador Robert Sayre, who will present testimony in support of the administration's antiterrorism program. Because of the busy schedule, I am going to ask that all the witnesses be as brief as possible so that we can spend as much time as possible on questions, knowing that the entire written statement will be submitted for the record. So, without further delay, I would like to call on Bill Schneider to make his presentation. Let me say that it has been a pleasure working with you, and I look forward to one more successful year. Mr. Schneider. Mr. SCHNEIDER. Thank you very much, Mr. Chairman. It is a privilege to appear before this committee today. As one who has spent some portion of his career working in the appropriations process, it is especially an honor to have such an opportunity. I have a statement of encyclopedic length which, at your suggestion, I would submit for the record. I have a condensed version which in both cases represents a coordinated view of the State and Defense Departments, and would request that the statement be put in the record. Following my remarks, which will be condensed, General Gast has a few additional remarks covering subjects not directly addressed in my condensed version. VALUE OF FOREIGN ASSISTANCE PROGRAM U.S. foreign assistance programs constitute an integral part of this Nation's response to international political and economic developments throughout the world. Resources provide us with the means to exercise leadership internationally and enable us to help developing countries address their most pressing problems. Secretary Shultz in his testimony yesterday reviewed our overall foreign assistance program in the context of our economic and security ties to the developing world. The Secretary also discussed in detail our interest in forging a bipartisan coalition to support additional resources for El Salvador. We will be consulting intensely with the Congress, and I look forward to discussing our aims and objectives with you and other members of this committee. GLOBAL U.S. SECURITY PROGRAM Today I propose to discuss in detail the global U.S. security program and the importance it plays in our foreign policy. We have developed an integrated foreign assistance program in which development and security assistance combine to meet our economic and national security objectives as well as those of other countries who share our objectives. Security assistance is but one aspect of the whole. It is important to keep in mind that assistance to promote economic growth and development and security assistance are mutually reinforcing programs that cannot function independently. The United States has multiple interests involving the developing world. On the economic level, for example, about 40 percent of the total U.S. exports are to less-developed countries. U.S. industry depends on exports of primary commodities, minerals, and petroleum. Economic progress in the developing countries and recovery in the industrialized nations cannot occur independent of regional security and stability. DEFENSE PLANNING AND SECURITY ASSISTANCE U.S. defense planning and security assistance are closely linked. The United States alone does not and cannot maintain a force structure and capabilities sufficient to defend the free world. We depend upon allies and factor their capabilities into our planning. |