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Outlays for the administration of foreign affairs, at home and abroad, are estimated to rise from $674 million in 1978 to $766 million in 1979 primarily because of increased operating costs abroad.
Through membership in international organizations, the United States participates in solving many multinational political, economic, social, and peacekeeping problems. In addition to the voluntary contributions to international organizations discussed above, contributions for the support of the United Nations and 46 other international organizations are assessed annually against member governments. These assessed contributions are estimated to remain constant in 1978 and 1979 at $385 million. There are included $37 million of appropriations in 1978 to pay arrearages owed to the United Nations Educational, Scientific, and Cultural Organization. In 1979 the United States proposes to support only those increases in international organizations' budgets needed to maintain the prior year's level of operations. The United States will encourage all organizations to meet new and expanded needs from reductions in low-priority or obsolete activities.
Foreign information and exchange activities.—An important means of promoting a stable international environment is to improve communication between the people and Government of the United States and the peoples and governments of other nations through educational, cultural, and informational exchanges and activities. The creation of the International Communication Agency is a major new initiative toward accomplishing this mission. The consolidation of the activities of the United States Information Agency and the State Department's Bureau of Educational and Cultural Affairs should help increase understanding by American and foreign leadership groups of each others' society and governmental policies. The new agency will also provide the President and his foreign policy advisers with assessments of foreign public opinion and the impact of proposed U.S. actions on that opinion.
Outlays for the new agency are estimated to be $365 million in 1978 and $393 million in 1979. The proposed increase will cover the increased costs of operating overseas, some increase in activities in less developed countries and Eastern Europe, and a significant increase in transmitter power for the Voice of America.
Estimated outlays for the Board for International Broadcasting of $73 million in 1978 and $79 million in 1979 will enable Radio Free Europe/Radio Liberty to continue broadcasts to Eastern Europe and the Soviet Union.
International financial programs.-The mission of the international financial programs is to advance U.S. interests by improving the functioning of the international financial system. Since World War II, the international financial system has been strengthened by closer cooperation among governments and by growth in the international scope of private financial institutions. Nonetheless, problem areas and gaps remain, requiring government action to facilitate U.S. exports and to provide additional balance of payments financing to the International Monetary Fund, and calling for government involvement in military sales abroad.
Export-Import Bank.—The Export-Import Bank provides direct loans, refinancing of export credits, and loan guarantees and insurance in order to facilitate the export of U.S. goods and services. These programs support exports by: • assuming commercial and political risks that exporters or private
financial institutions are unwilling or unable to undertake; • overcoming limitations in private sector U.S. export financing; • assisting U.S. exporters to meet foreign officially supported export
credit competition; and • providing leadership and guidance in export financing.
By concentrating its resources on overcoming limitations in the private market and meeting foreign competition, the Bank contributes to the improved functioning of the international economic system and helps promote the efficient development of resources both at home and abroad.
The Export-Import Bank's programs are generally intended to supplement private credit markets. Terms and conditions on use of its facilities are set to permit the Bank to remain self-sustaining, while lending at rates more favorable than those available in the private sector in order to counteract the special terms foreign governments provide to support their exporters. By meeting foreign competition on a selective basis, the Bank is able to minimize the preemption of private credit by Federal programs while focusing its credit on areas of greatest need. The Bank's direct loans are estimated to increase sharply by $2.2 billion between 1977 and 1978 and by another $800 million in 1979 because of:
a more active policy of meeting foreign official competition; • increased creditworthiness of important developing countries; and • some tightening of liquidity in the private sector.
The Export-Import Bank's guarantee and insurance authorizations are expected to increase by $1.8 billion in 1978 and $1.7 billion in 1979, for these same reasons.
Supplementary Financing Facility of the International Monetary Fund (IMF).—The purpose of the Supplementary Financing Facility is to augment the ability of the IMF to assist member countries with balance of payments problems. The fund provides financial resources on a conditional and temporary basis, thereby allowing countries time to make required policy changes without resorting to abrupt and harmful restrictions on trade and payments. The size of payments deficits, which has resulted from the increases in the international price of oil and the worldwide recession, has greatly increased the potential need for IMF financing relative to currently available resources.
Major industrial and oil-exporting countries have agreed to make available 8,705 million Special Drawing Rights (approximately $10.5 billion) to the Supplementary Financing Facility in order to provide a prompt and substantial temporary increase in the Fund's resources. Meanwhile customary and more time-consuming negotiations for a periodic quota increase are being undertaken. The U.S. share is 1,450 million Special Drawing Rights (approximately $1.75 billion). Any amounts transferred to the IMF correspondingly increase the U.S. reserve position in the IMF and can be drawn on in case of U.S. balance of payments need. In essence, the transaction involves a switch of U.S. Treasury assets from dollars to international monetary reserves; thus, the $1.75 billion is not a budgetary figure. However, since the transaction is denominated in Special Drawing Rights, the United States could experience a gain on these assets if the dollar were to depreciate against the Special Drawing Right, or a loss if the dollar were to appreciate. Therefore, the the administration is requesting 1978 budget authority of $200 million to cover the contingency of an exchange loss. No outlays will result from this budget authority unless the United States incurs net exchange losses.
Foreign military sales trust fund.—U.S. law requires that sales of certain types of military equipment and services may be undertaken only by the Federal Government. The trust fund is the vehicle through which such sales of U.S. military equipment and services to
foreign governments are made. Orders placed by foreign governments through the trust fund can be combined with orders by U.S. military departments, thereby lowering the costs for both the United States and foreign governments through larger volume procurement and shared research and development expenses. In 1979, the fund is expected to have a net budget authority of $3.1 billion and net outlays of $0.3 billion. The net budget impact of this fund in any year is very difficult to predict, however, because it is influenced by the timing of decisions of other governments. Therefore, actual outlays may deviate from these estimates.
Tax expenditures.—The major tax expenditure item in the foreign affairs function is the deferral of tax on the profits of domestic international sales corporations (DISCs). This provision was introduced in 1971 in an attempt to encourage exports. Changes in the international economic environment since then, primarily the introduction of flexible exchange rates, have reduced the need for the DISC provision. There is no clear evidence that any substantial portion of the expansion of exports since 1971 can be attributed to DISC. Under the President's tax reform proposals, DISCs would be phased out over 3 years beginning in calendar year 1979. Under current law the tax expenditures for DISC would be $1.3 billion in 1979.
The tax reform proposal would also phase out the provision for deferral of tax on the earnings of foreign corporations controlled by U.S. taxpayers over the same 3-year period. Under current law the income of such corporations is not subject to tax until it is repatriated to U.S. owners, thus tending to encourage investment in foreign countries with corporate tax rates below those of the United States. A tax expenditure of $665 million for 1979 is estimated on the basis of current law. Elimination of the provision would tax income from such investment, as compared with domestic investment, in a more nearly neutral fashion.
International affairs-related programs.-A number of Federal programs are related to international affairs although their primary purpose is to meet other national needs and serve other major missions. Almost every department of the U.S. Government has a bureau or office that focuses on international affairs. The most important program that is related to international affairs is the Commodity Credit Corporation (CCC), which provides credit at favorable interest rates for up to 3 years for agricultural exports. Outlays for CCC export credits are estimated to be $1.5 billion in 1979. Other major programs not classified as international, but which have international aspects, are the National Security Council, the Office of the Special Trade Representative, and the international research programs in the National Institutes of Health.