FISCAL YEAR 1984 SECURITY AND ECONOMIC COOPERATION PROGRAM This is the purpose of the President's fiscal 1984 security and economic cooperation program. The program focuses on key strategic areas and economic problems which post short- and long-term threats to the United States. Our total request is for $14.5 billion. Of this, $4.4 billion is for off-budget repayment guarantees of loans at interest rates which reflect the cost of money to the U.S. Treasury. Slightly more than one-third of all proposed funds will go to the peace and security process in the Middle East, principally to support military and economic programs in Israel and Egypt. Added to this is our request for $251 million in supplemental fiscal 1983 funds for Lebanon. I do not need to dwell with this committee on how important our assistance funds are to the peace process in the Middle East. FOCUS OF BILATERAL SECURITY AND ECONOMIC PROGRAM There is a pie chart on page 17 of my longer testimony which shows where the rest of the bilateral security and economic program is focused. The bulk of the remainder goes for four key areas: Funds to strengthen military capabilities and accelerate economic activity in Greece, Portugal, Spain, and Turkey on the southern flank of NATO. Funds for overcoming economic problems in the Caribbean on our southern sea routes and for helping build democratic institutions and political stability in Central America. Funds for nations near the critical oil supplies in the Persian Gulf. We propose significant economic and security assistance programs for Pakistan, Sudan, Morocco, Tunisia, Somalia, and Kenya. In the key Pacific area, the focus is on strengthening Korea's defense and assisting the Philippines, Indonesia, and Thailand. KEY REQUISITES FOR GROWTH In all our programs in strategic regions, we aim our economic aid, both development assistance and economic support funds, at the key requisites for growth: First, rational macroeconomic policies which provide an environment for growth by creating incentives and encouraging the private sector; Second, developing capacities to use science and technology; and Third, investing in agriculture, which is the engine of economic growth in developing countries, and supporting population and allied health programs. As you know, rampant population growth underlies the Third World's poverty and poses a major long-term threat both to political security and our planet's resource base. Our fiscal 1984 program also includes funds for the multilateral development institutions, particuarly for fulfilling our pledge to the International Development Association [IDA]. Our commitment to share IDA's worldwide program has been reaffirmed by the President at recent meetings of world leaders in Cancun and Versailles. As mentioned earlier, the priority item on the world's agenda today is restarting noninflationary growth. The United States is urging private U.S. banks to continue a prudent flow of capital to less developed countries. In this circumstance, it is not consistent and not credible for our Government to continue to delay funds for IDA, which is a major source of growth capital in low-income countries. FISCAL YEAR 1983 SUPPLEMENTAL REQUEST Let me conclude by harkening back to the fiscal 1983 program just passed. The most recent fiscal 1983 continuing resolution fell 9 percent, $1,250 million below our fiscal 1983 request. Three-quarters of the security assistance funds were earmarked, meaning that the shortfall fell heavily on our strategic interests in Southwest Asia, Central America, and Africa. No matter how we slice it, the amount received is inadequate to meet our security requirements abroad. Hence, we are requesting a fiscal 1983 supplemental of $251_million in new funds for Lebanon and $981.5 million to make up shortfalls in the 1983 program. Our objective in Lebanon is straightforward. We seek to restore Lebanese sovereignty and insure Israeli security. The threat to Israel does not come from the Lebanese people, but from foreign forces that are camped on Lebanese soil. It follows that a peaceful Lebanon, sovereign over all its territory, will make a major contribution to Israeli security. For the balance of the fiscal 1983 program, the shortfalls left after deducting the earmarks are severe. Jordan, a potentially critical player in the peace process, will have its military aid reduced by some 40 percent. In Southwest Asia military loans for Pakistan would be cut below the level needed to pay for military equipment already on order. Military aid for Somalia and Kenya, strategically located countries in and around the Horn of Africa, would be cut by over 60 percent. Sudan, recently threatened by Libya and Tunisia, which was attacked by Libya in 1979, would see their military assistance severely cut. In East Asia grant military aid and military sales guarantees to Korea and Thailand, with North Korean and Vietnamese troops on their respective borders, would be cut by a third. These are just a few examples of the difficulties we face. Mr. Chairman, every U.S. President since Harry Truman has endorsed our foreign assistance program as fundamental to U.S. interests, political, economic and security. Yet the American people are skeptical, and Congress has reduced the real resources it approves for this program over the past 15 years. COMMISSION ON SECURITY AND ECONOMIC ASSISTANCE In this circumstance, we announced last week the formation of a Commission on Security and Economic Assistance. It will be headed by former Deputy Secretary of Defense Frank Carlucci, and will have three distinguished cochairmen: Lane Kirkland, director, AFL-CIO; Laurence Šilberman, vice president, Crocker National Bank; and Clifton Wharton, chancellor, State University of the New York system and chairman of the Rockefeller Foundation. The Commission will, I hope, include Members of Congress and will consult closely at all times with the Congress on ways to strengthen support for this vital program. I know the Commission will look forward to working with this committee. The fundamental fact which the Commission and I hope this committee will keep in mind is that while this program is called foreign aid, its basic purpose is to serve our national interests. The U.S. security and economic assistance program promotes conditions abroad which are deeply in the interest of each person in this room, in this city, and across our country. I hope you will give both the 1983 supplemental and the 1984 program your full support. I will be happy to answer any questions you may have. [The prepared statement of Hon. George P. Shultz follows:] PREPARED STATEMENT OF HON. GEORGE P. SHULTZ SECRETARY OF STATE THE FY 1984 SECURITY AND ECONOMIC DEVELOPMENT PROGRAM I am pleased to appear before you today to begin our dialogue on the President's FY 1984 Security and Economic Development Program. Our security and economic assistance programs are essential instruments of our foreign policy and are directly linked to the national security and economic well-being of the United States. They must be seen in the context of our priority effort to reestablish the fact and the perception among our friends and allies that we are a reliable partner that we have the capacity and will to build international peace, foster economic growth, and sustain mutual security. - In recent years, the countries of the Third World have increasingly moved to the front of the stage where these issues of peace, prosperity, and security are played out. Economically, the developing countries as a whole have been growing more rapidly than the U.S. and Europe (but not Japan) for the past 15 years. As they have grown, they have become increasingly important as customers and suppliers for ourselves and other industrial nations. Since 1975, the developing countries have accounted for more than half the growth in U.S. exports. They purchased about 40 percent of U.S. exports in 1980 than bought by Western Europe, Eastern Europe, the Soviet Union, and China combined. At this juncture, more approximately one out of every twenty workers in our manufacturing plants and one out of every five acres of our farmland produce for Third World markets. The current worldwide recession has vividly - painfully I highlighted these relationships. In the past several years growth rates in the developing countries have dropped from over 5 percent per year to around 2 percent. Partly as a result, our exports to these countries which were increasing at more than 30 percent a year in the late 1970's have tapered off. The chart below shows this rise and decline of exports. As specific examples, in the first eight months of 1982, U.S. exports to Mexico dropped 26 percent, to Chile 59 percent, and to According to one estimate, every $1.0 billion decline in real net U.S. exports (1972 dollars) erases 60,000 to 70,000 U.S. jobs once multiplier effects are realized. In your districts today, some of the workers in |