URGENT -- FINAL CLEARANCE -- Draft Senate Floor SAP -- S 1234 Foreign Ops

      Attached for your sign-off is the final draft Senate floor SAP for S. 1234
-- Foreign Ops, Export Financing, and Related Programs Appropriations
Bill, FYOO. This bill has just been scheduled for Senate floor
consideration on Wed., June 30 at 9:30AM.   Our aim is to transmit this SAP
tonight.   Due to the tight time constraints, we are seeking concurrent
clearance.    Appreciate your sign-off no later than 7:40PM today.   Thank
you!

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                                                                                      June , 1999
                                                                                      (Senate Floor)




      S.1234 -- FOREIGN OPERATIONS, EXPORT FINANCING, AND RELATED
                              PROGRAMS APPROPRIATION BILL, FY 2000

                   Sponsors: (Stevens (S), Alaska; McConnell (S), Kentucky)


       This Statement of Administration Policy provides the Administration's views on the
Foreign Operations, Export Financing, and Related Programs Appropriations Bill, FY 2000, as
reported by the Senate Appropriations Committee. As the Senate considers the
Committee-reported bill, your consideration of the Administration's views would be appreciated.


        The Administration appreciates the Committee's efforts to accommodate some of the
Administration's priorities within its 302(b) allocation. However, the inadequacy of the 302(b)
allocation has forced the Committee to make choices that are simply unacceptable.

       The allocation of discretionary resources available to the Senate under the Congressional
Budget Resolution is simply inadequate to make the necessary investments that our citizens need
and expect. The President's FY 2000 Budget proposes levels of discretionary spending that
meet such needs while conforming to the Bipartisan Budget Agreement by making savings
proposals in mandatory and other programs available to help finance this spending. Congress
has approved, and the President has signed into law, nearly $29 billion of such offsets in
appropriations legislation since 1995. The Administration urges the Congress to consider such
proposals.

         This legislation is a critical element of America's national security budget. As a result of
the inadequate 302(b) allocation for Foreign Operations, the Committee bill is more than $1.9
billion, or 13 percent, below the program level requested by the President, which would result in
the severe under-funding of a number of crucial programs. A bill funded at this level would be
grossly inadequate to maintain America's leadership around the world. It inevitably would
require severe reductions from previously enacted levels for programs managed by the
Departments of State and Treasury, the Agency for International Development, and other
agencies.

       The bill provides neither the $500 million requested by the President to support the Wye
River Agreement, nor any ofthe $800 million requested as an FY 1999 supplemental
appropriation. It also would significantly increase our arrears to various multilateral

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undermining our leadership in these institutions. The Committee's decision not to fund the
Expanded Threat Reduction Initiative undermines our ability to reduce the proliferation threat
and continue the elimination of weapons of mass destruction (WMD). The cut in funding for
debt reduction programs would preclude our leadership in reducing debt of the poorest countries.
 Given current tensions on the Korean peninsula and the 37,000 U.S. troops stationed there, the
reduction for the Korean Peninsula Energy Development Organization (KEDO) is ill-advised.

         Moreover, the bill contains substantial earmarks and objectionable restrictions on
language which, when combined with the reduced funding level, would seriously limit the
President's flexibility to conduct an effective foreign policy. Various provisions concerning
Kosovo, in the context of difficult and fluid circumstances on the ground, are particularly
ill-advised. For example, the earmark to train and equip a security force in Kosovo would
reduce the Administration's flexibility and, given current intra-Kosovar rivalries, could threaten
the lives of American military and civilian peacekeepers. The designation of Serbia as a
terrorist state would have the unintended consequence of cutting off aid to Front Line and other
states, even ifthey provide only humanitarian assistance to the Former Republic of Yugoslavia.
The total prohibition on assistance to Russia pending certification that Russia is not assisting
Iran's development of nuclear and ballistic missile technologies would complicate our efforts to
achieve those very goals and would undermine other vital American interests in ensuring
constructive relations with a more stable Russia.

        If the Congress were to enact a bill that does not resolve the significant funding and
language problems in the current Committee bill, as discussed in this Statement of Administration
Position and its attachment, the President's senior advisers would have no choice but to
recommend that he veto the bill.

       Detailed comments on the Senate Committee-reported bill are provided in the attachment.


Attachment




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                             ADDITIONAL CONCERNS
          S. 1234 FOREIGN OPERATIONS, EXPORT FINANCING, AND RELATED
                                 PROGRAMS APPROPRIATIONS BILL. FY 2000

            (AS REPORTED BY THE SENATE APPROPRIATIONS COMMmEE)


         For the following accounts, the Administration urges the Senate to restore funding to the
levels in the President's FY 2000 request.

       Multilateral Development Banks. The reduction of $444 million, or 32 percent, by the
       Committee to the President's request for the Multilateral Development Banks would
       unravel the progress made in the FY 1998 and 1999 appropriations towards meeting the
       past-due obligations of the United States to these institutions and in meeting our
       continued obligations to them at the much-reduced level that has been negotiated over
       recent years. In particular, the lack of any funding whatsoever for the African
       Development Fund and the drastic cuts in the requests for the Global Environment
       Facility and the Asian Development Fund would call into question the willingness of
       other donors to continue their support for these critical institutions at the very point when
       their support for environmental and economic development is most needed.

       Southeast Europe and Kosovo. The Administration appreciates the increase in Support
       for Eastern Europe Democracy (SEED) funding in recognition of U.S. security interests
       in restoring and sustaining stability in Southeast Europe. However, we strongly oppose
       the earmarks of the SEED account, earmarks that, if enacted, would eviscerate the
       President's flexibility in meeting any unanticipated economic stabilization needs in this
       war-ravaged region. In addition, the funding limitations on Bosnia would only increase
       the risk that the peace we have worked to establish in that country could begin to unravel
       just as the Kosovo conflict shows signs of abatement.

       With regard to Kosovo, the Administration is strongly opposed to language which,
       coupled with the language contained in the Committee report, could be interpreted as
       aimed at training and equipping the Kosovo Liberation Army (KLA), a policy
       prescription diametrically at odds with the recent agreement by the KLA to disarm under
       NATO supervision. If adopted, we believe this provision could threaten the lives of
       American military and civilian peacekeepers and humanitarian care providers, particularly
       in view of current intra-Kosovar rivalries.

       The Administration also strongly opposes the designation of the Government of Serbia as


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egregious, the actions taken by officials of that Government against the Kosovar people .
do not constitute "international terrorism" as that term is used in U.S. terrorism
legislation. The provision contains neither a waiver, nor an authority to "de-designate"
and would impinge on the authority of the Secretary of State. Moreover, the bill's
designation of Serbia as a state sponsor of international terrorism could have the
unintended consequence of imposing sanctions on Front Line States and other countries
that, whether because humanitarian or other concerns, provide assistance of any kind to
the Government of the Federal Republic of Yugoslavia. This could further destabilize an
already war-torn region and make more difficult the task of assuring stability in the
broader region.

Sec. 567 -- Restrictions on Assistance to Countries Providing Sanctuary to Indicted War
Criminals. While the Administration appreciates the Committee's desire to speed the
apprehension and trial of war criminals, the Administration opposes any provision that
would increase restrictions in current law on former Yugoslav entities harboring war
criminals as too restrictive, unnecessary, too burdensome in implementation, and
jeopardizing successful Dayton implementation.

Assistance to the Newly Independent States (NIS). The Committee bill would reduce the
President's request for assistance to the NIS by 24 percent, and over half of the $780
million that is provided would be earmarked for three countries in the region. This
would leave little in funding for reforming countries such as Moldova, or to fund the
vitally important Expanded Threat Reduction Initiative. The reduction in the Committee
bill would also reduce funding for programs that the Senate has supported aimed at
fostering grass root support for reform in the region, including micro-lending and
exchange programs. Such cuts would undermine our efforts to help the countries of the
region to become integrated into the global economy and play constructive roles in global
affairs. They equally would make it more difficult to press for further market reforms
and to support democratic forces across the region.

The Administration strongly opposes conditioning all assistance to Russia on a
certification that Russia is not assisting the Government of Iran's development of nuclear
and ballistic missile technologies. This would complicate our efforts to achieve those
very goals and would undermine other vital American interests in ensuring constructive
relations with a more stable Russia.

Expanded Threat Reduction Initiative (ETRI). The Committee provides no support for
proposed increases for this critical national security initiative. We have made dramatic
strides in securing nuclear materials and important progress in strengthening export
controls in these countries. The primary objective of the Expanded Threat Reduction
Initiative is to further reduce international security threats by expanding and accelerating
U.S. and international assistance activities in Russia and the other NIS to address high

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Western Europe and Japan. The costs of having to defend against weapons of mass
destruction (WMD) proliferation are enormous. At a fraction of such costs, the
international community can join together to reduce the proliferation threat through ETRI.

Korean Peninsula Energy Development Organization (KEDO). The Administration
strongly objects to the bill's provisions concerning KEDO. The cut of $15 million, or 20
percent, in funding for KEDO could prevent the United States from fulfilling its
commitments under the Agreed Framework to provide heavy fuel oil to North Korea and
could damage our nonproliferation policy on the Korean Peninsula. Restrictions on
funding relating to North Korean missile exports and "nuclear capability" would also
jeopardize our ability to meet our commitments on the peninsula. Stopping North
Korea's ballistic missile and nuclear programs, including its exports, are a priority goal of
the Administration and a key focus of Secretary Perry's review of U.S. policy, but any
failure by the United States to uphold the Agreed Framework risks giving North Korea an
excuse to develop both ballistic missiles and nuclear weapons. In addition, the
requirement for a 45-day delay in Presidential certification would seriously undermine
our ability to maintain the funding schedule for KEDO. Finally, we strongly oppose the
prohibition on use of Economic Support Fund (ESF) funds for KEDO, which would
unduly restrict the President's flexibility to deal with unexpected foreign policy
developments.

Wye River and Middle Eastern Assistance. The Committee bill fails to provide any of
the $500 million requested by the President for FY 2000 to support the Wye River
Agreement, nor does it provide any of the $800 million requested as an FY 1999
supplemental appropriation, with budget authority offsets, for this purpose. Given the
renewed dedication of all sides to the peace process, this complete lack of funding would
undercut the U.S. Government's efforts to support this historic opportunity to strengthen
the peace process and move toward a permanent agreement.

The Administration continues to welcome the efforts of the Committee to ramp down
traditional levels of assistance to countries in the Middle East. However, the
Administration is disappointed both at the Committee's failure to accept our specific
proposal for a gradual reduction in aid to Israel and Egypt and with the Committee's
decision not to incorporate the provision of an Interest Bearing Account for a portion of
Egypt's Foreign Military Financing (FMF). The Administration will work with the
Congress on the scoring implication of this proposal.

Economic Support Fund (ESF). The reduction of almost $200 million to the President's
request for non-Wye River ESF would effectively remove any discretion that the
President has to respond to a host of threats around the world. These cuts would force
the reduction or elimination of programs intended to increase political stability and
democratization in Africa; support democracy efforts in Guatemala, Peru, and Ecuador;
sustain implementation of the Belfast Good Friday Accord; bolster democratic reform and

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East.

Debt Reduction. The cut of almost two-thirds to the President's request for debt
reduction programs, from $120 million to $43 million, would cripple our ability to fund
the bipartisan debt for environment program that was enacted by the Congress last year
and would damage our ability to contribute to the Trust Fund for the Highly Indebted
Poor Countries, which is an essential component of current debt reduction programs as
well as of the historic debt initiative agreed to in Cologne. This initiative has received
broad support from governments, multilateral institutions, religious groups, and
individuals worldwide.

Peacekeeoing Ooerations. The Committee's $50 million, or 38 percent, cut to the
President's request for voluntary peacekeeping operations would decrease funds available
for Organization for Security and Cooperation in Europe (OSCE) missions in Bosnia and
Croatia, significantly reduce assistance for the African Crisis Response Initiative, and
eliminate funding for Haiti. In doing so, such a substantial reduction would also raise
international concern that the United States may not support its fair share of the
international police force that will help to implement the Kosovo peace settlement, for
which new resources will be needed.

International Narcotics and Crime. The cut of$80 million, or 27 percent, to the
President's request for International Narcotics and Crime programs would significantly
impact programs designed to implement the National Drug Control Strategy, including
alternative development efforts in Columbia, Peru, and Bolivia, and would reduce our
support for the U.N. Drug Control Program and other important multilateral
anti-narcotics efforts. A cut of this magnitude would also significantly undercut the
Administration's programs in support of the President's new International Crime Control
Strategy, which was released in May 1998.

Nonproliferation, Anti-terrorism, Demining, and Related Programs. The Committee has
cut these programs by $56 million, or 24 percent, from the President's request. In
addition to the reduction for KEDO discussed separately, the request for export control
assistance would be cut by two-thirds (from $15 million to $5 million). This would
greatly slow our efforts to assist the NIS and other regions to develop tighter controls to
prevent nuclear smuggling.

Peace Corps. The Administration is very concerned by the Committee's $50 million, or
19 percent, reduction to the President's request for the Peace Corps. This reduction,
which would cut funding by over $20 million from the FY 1999 enacted level, would
require the Peace Corps to reduce the current level of volunteers by over 1,000. It would
also prevent implementation of the bipartisan initiative to field 10,000 volunteers in the
new century. This Administration goal was enacted into law in 1985 as "the policy of
the United States and the purpose of the Peace Corps," and was confirmed in this year's
Peace Corps reauthorization (which was approved by the Senate by unanimous consent).


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the Committee's support for a number of the Administration's development initiatives.
In particular, the Committee's support for the "School Works" program will provide
important resources for the fight against child labor.

However, the Committee bill and accompanying Senate Committee Report contain an
unprecedented number of earmarks, directives and recommendations for funding, with
over 30 earmarks in bi11language and over 60 directives or recommendations in report
language. When combined with the degree of specificity for funding -- in some cases
down to the project type and appointed grant recipient -- these produce an unmatched and
unwarranted level of micro-management.

The Administration appreciates the increase over FY 1999 in funding for USAID' s
operating expenses. However, the reduction of almost $13 million from the request,
coupled with the higher-than-anticipated costs of improving security at overseas posts,
would force USAID to reduce its permanent staff by even more positions than already
planned. P.L. 105-277, the FY 1999 Omnibus Consolidated and Emergency
Supplemental Appropriations Act mandated the transfer of the security function to
USAID from its Inspector General.

Although sufficient disaster assistance resources have been provided for Kosovo through
supplemental appropriations, the 20-percent reduction to the Administration's FY 2000
disaster assistance request would limit USAID's ability to meet humanitarian needs in
other parts of the world, particularly in Africa. It would also threaten USAID's ability to
provide assistance to the victims of nuclear, chemical, or biological disasters abroad, and
would limit the ability of Office of Transition Initiatives to provide needed assistance to
countries that are making the transition from conflict situations.

The Administration is disappointed that the Committee has not approved transfer
authority for the Development Credit Authority. USAID's recent implementation of a
credit management out-sourcing contract and other credit management improvements
justifies continued funding of this innovative new credit mechanism.

The Administration is concerned that its request for reinstatement of the Development
Fund for Africa (DF A) is not included in the bill. Funding provided under the DF A
affords needed stability to respond to development opportunities in Africa, as well as to
complex crises on a fragile continent, and maintains our strong commitment to an Africa
in transition.

Finally, we are concerned that the Committee has not approved the requested authority
for USAID to create a Working Capital Fund similar to those already available to the
Department of State and other agencies. We hope to work with the Senate to give
USAID the means to capture the costs of becoming a service provider to other agencies
under the ICASS system and, therefore, encourage competition among agencies to

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     provide the lowest-cost and most efficient services.

     Migration and Refugee Assistance (MRA). The Committee's $50 million reduction to
     the President's request for MRA would require a reduction in annual refugee admissions
     to the United States of up to 10,000. A reduction ofthis magnitude also would eliminate
     resources for an initiative to address programming shortfalls in Africa and South Asia
     necessary to provide life-saving, minimum international standards of assistance in key
     sectors (including nutrition, shelter, medicine, sanitation, and protection). Such
     reductions in assistance to refugees in Africa and elsewhere at the very time huge
     resources are going into Kosovo would create serious political and equity issues.

     Export and Investment Financing. The Administration appreciates the Committee's
     effort to support the President's export initiative by increasing funding for the
     Export-Import Bank, especially the administrative budget, which is essential to the
     Bank's efforts to increase small business exports. We urge the Senate, as this bill
     progresses, to increase the Bank's credit subsidy budget to the President's requested level
     to enable U.S. exporters to continue to export to the developing world during the ongoing
     economic downturn.

     The Administration is very concerned about the reduction in funding for the Trade and
     Development Agency (TDA) below both the President's request and the FY 1999 enacted
     level. The request for TDA is an integral part of the President's export initiative, and the
     Committee bill would significantly reduce TDA's ability to fund feasibility studies that
     help U.S. exporters take advantage of potential market opportunities.

     Likewise, the Administration is very concerned about the reduction in administrative
     expenses for the Overseas Private Investment Corporation. This $3.5 million reduction
     below the request, or $1 million below the FY 1999 enacted level, could threaten the
     agency's capability to operate in a financially responsible and prudent manner, and runs
     counter to efforts to mobilize U.S. private sector support for key foreign policy priorities.

     The Administration believes the Senate provision mandating OPIC to establish an
     investment fund is inappropriate because it would eliminate OPIC's discretion to
     determine whether such a fund is financially viable.

     African Development and Inter-American Foundations. The Administration strongly
     objects to the suspension of funding for the Inter-America Foundation. It is
     inappropriate to suspend funding for an entire agency as the result of the alleged
     improprieties of individual staff members.

     The Administration appreciates the Committee's efforts to support the African
     Development Foundation (ADF). However, the Committee's funding level of$12.5
     million still falls short of the amount necessary for the ADF to continue its important


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     work of supporting Africans at the grassroots level, including micro-credit and trade and
     investment programs. The Committee has previously acknowledged the ADF's
     improvements in private sector outreach, as well as the Foundation's streamlining of
     operations.
     International Organizations & Programs. The Administration opposes the $22 million
     cut in the request for lO&P's. Further, while we strongly support the programs
     earmarked by the Committee, the Administration must retain its flexibility in funding
     these programs, consistent with an overall assessment of the national interest.

     Treasury International Affairs Technical Assistance. The Administration is concerned
     that the Committee provided only $l.5 million ofthe $8.5 million request for the
     Department of the Treasury's International Affairs Technical Assistance program. lfthe
     International Financial Institution and International Monetary Fund Advisory Committees
     requested in this account are fully funded at $1.5 million, no funding will be available for
     the technical assistance that the Department plans to provide to Ministries of Finance and
     Central Banks that are attempting to implement fiscal and financial reforms in Africa,
     Asia and Latin America. Similarly, if technical assistance is funded at last year's level of
     $1.5 miJIion, no funding would be available to implement the mandated Advisory
     Committees.

     Silk Road Strategy Act. The Administration strongly supports passage of the Silk Road
     Strategy Act, which may be added to the bill as an amendment. We appreciate the
     Committee's continued efforts to reduce restrictions in section 907 of the FREEDOM
     Support Act. This Administration, like its predecessors, has opposed section 907 and
     called for its repeal. Section 907 damages U.S. national interests by undermining the
     United States' neutrality in seeking to promote a settlement in the Nagorno-Karabakh
     dispute; by restricting our ability to provide assistance that would encourage economic
     and broad legal reforms in Azerbaijan; and, by limiting our efforts to advance an
     east-west energy transport corridor. While the Silk Road Strategy Act does not provide
     for the full repeal of Section 907 that the Administration has sought, it would allow the
     President to waive these restrictions ifhe determined that they were not in the national
     interest of the United States.




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