Appropriations for FY1999: Foreign Operations, Export Financing, and Related Programs
Released: 1998-11-02T00:00:00

Most Recent Developments

During executive-legislative budget discussions during the final days of the105th Congress, negotiators added $880 million for Foreign Operations spending inFY1999 to amounts approved by the House and Senate ( H.R. 4569 and S. 2334 ) in September. Senior executive branch officials had advisedthe President to veto these earlier measures because of inadequate funding. Asenacted on October 21 in H.R. 4328 , the Omnibus Consolidated andEmergency Supplemental Appropriations, 1999, Foreign Operations funds total$31.63 billion, including $12.827 billion for regular programs, $539 million forMDB arrears payments, $399 million in Child Survival, former Soviet aid, Africaembassy bombing-related, and counter-narcotics "emergency" supplementalspending, and $17.9 billion for the IMF. Excluding the IMF, total ForeignOperations money approved for FY1999 is $618 million more than for FY1998, but$385 million less than the President requested. Much of the additional ForeignOperations resources added in H.R. 4328 is allocated for former Sovietaid, USAID operating expenses, disaster relief, the Peace Corps and U.S.contributions to the Global Environment Facility.

Congressional negotiators also settled several other major Foreign Operations issues in disagreement between the House and Senate. The bill caps internationalfamily planning aid at $385 million but drops House-passed abortion restrictions. H.R. 4328 includes the full $17.9 billion U.S. payment to theInternational Monetary Fund (IMF), subject to conditions concerning recipientcountry trade and financial policies, greater transparency in IMF operations, andFund lending at above-market rates. The measure drops the House-passed ban onU.S. funding for the Administration's program to curb North Korea's nuclearweapons production but subjects the $35 million to additional certificationrequirements and delays the money's availability until next year. The legislation,as approved by both houses, begins aid reductions for Israel and Egypt.

Introduction

The annual Foreign Operations appropriations bill is the primary legislativevehicle through which Congress reviews and votes on the U.S. foreign assistancebudget and influences executive branch foreign policy making generally. (1) It containsthe largest share -- about 69% -- of total international affairs spending by the UnitedStates (see Figure 1 ). The legislation funds all U.S. bilateral development assistanceprograms, managed mostly by the U.S. Agency for International Development(USAID), together with several smaller independent foreign aid agencies, such as thePeace Corps and the Inter-American and African Development Foundations. ForeignOperations includes separate accounts for aid programs in the former Soviet Union(also referred to as the New Independent States (NIS) account) and Central/EasternEurope, activities that are jointly managed by USAID and the State Department. Security assistance (economic and military aid) for Israel and Egypt is also part of theForeign Operations spending measure, as are smaller security aid programsadministered largely by the State Department, in conjunction with USAID and thePentagon. U.S. contributions to the World Bank and other regional multilateraldevelopment banks, managed by the Treasury Department, and voluntary paymentsto international organizations, handled by the State Department, are also funded inthe Foreign Operations bill. Finally, the legislation includes appropriations for threeexport promotion agencies: the Overseas Private Investment Corporation (OPIC),the Export-Import Bank, and the Trade and Development Agency.

From the perspective of congressional oversight and involvement in U.S. foreign aid policy making, the Foreign Operations bill has taken on even greatersignificance during the past decade. Congress has not enacted a foreign aidauthorization bill since 1985, leaving most foreign assistance programs withoutregular authorizations emanating from the legislative oversight committees. As aresult, Foreign Operations spending measures increasingly have expanded their scopebeyond spending issues and played a major role in shaping, authorizing, and guidingboth executive and congressional foreign aid and broader foreign policy initiatives. It has been largely through Foreign Operations appropriations that the United Stateshas modified aid policy and resource allocation priorities since the end of the ColdWar. The legislation has also been a key tool used by Congress to apply restrictionsand conditions on Administration management of foreign assistance, actions thathave frequently resulted in executive-legislative clashes over presidentialprerogatives in foreign policy making.

Status

Table 1. Status of Foreign Operations Appropriations,FY1999

President Clinton submitted his FY1999 Federal budget request to Congress on February 2, 1998, including funding proposals for Foreign Operations Appropriationsprograms. During the next several months, House and Senate Foreign OperationsSubcommittees held a series of hearings, including testimony from Secretary of StateAlbright, Treasury Secretary Rubin, and USAID Administrator Atwood. Inmid-May, House and Senate Appropriations Committees issued budget authority andoutlay allocations in May and June to each of their 13 subcommittees, paving the wayfor initial action on these spending bills. The House Foreign OperationsSubcommittee approved a draft bill on July 15, 1998, that was amended and orderedreported by the full Appropriations Committee on September 10 ( H.R. 4569 ). The House passed H.R. 4569 on September 17, 255-161. TheSenate skipped a subcommittee markup, as the full Appropriations Committeereported a bill on July 21 ( S. 2334 ). After two days of debate, the fullSenate approved S. 2334 on September 2 by a vote of 90-3.

Foreign Operations, like seven other regular spending measures, was incorporatedinto H.R. 4328 , the Omnibus Consolidated and EmergencySupplemental Appropriations, 1999, passed by the House and Senate on October20/21, and signed into law on October 21.

Foreign Operations Funding Trends

In recent years, as the United States has adjusted its foreign and defense policyto a post-Cold War environment, one of the major foreign assistance issues forCongress and executive branch policymakers has been the question of budgetresource allocation and how to reduce foreign aid spending while sustaining theprogram as an effective foreign policy tool.

Table 2. Foreign Operations Appropriations, FY1993 to FY1999 (discretionary budget authority in billionsof current dollars)

* Amounts for FY1998 and FY1999 do not include appropriations for payments of U.S. arrears to multilateral development banks (MDBs) ($360 million and $539million, respectively). FY1999 further does not include a $17.861 billion for the IMFand $399 million in "emergency" supplemental funds. Under terms of the BalancedBudget Act of 1997 and other budget laws, appropriations for MDB arrears, the IMF,and "emergency" supplementals are not scored against the Foreign Operationsspending allocation. For comparative purposes with prior years, including MDBarrears and "emergency" supplementals, FY1998 appropriations would total $13.147billion and FY1999 $13.765 billion.

After peaking in size at $20.7 billion in FY1985, Foreign Operations appropriations began a period of declining levels, falling to about $12.3 billion inFY1997. Foreign aid spending cuts were especially sharp in FY1996 when Congresscut funding by $1.15 billion, or nearly 9% from the previous year. Administrationofficials and many in the broader foreign policy community argued that such severebudget reductions in a short period of time seriously undermined many U.S. foreignpolicy interests and limited the ability of American officials to influence overseasevents. After Foreign Operations funding levels fell again in FY1997 -- althoughby much smaller amounts -- the State Department and other executive agencieslaunched an aggressive campaign in support of a foreign policy budget request forFY1998 that sought to reverse the decade-long downward trend. Congress approvedmuch of the President's $1 billion increase recommended for this year, settingForeign Operations appropriations at $13.15 billion for FY1998. Currently, ForeignOperations represents 0.78% of the entire federal budget and 2.4% of totaldiscretionary budget authority. By comparison, these same figures in FY1985 were2% and 4.6%, respectively.

Over the longer term of the past 20 years, Foreign Operations spending has experienced three distinct trends when calculated in real terms, taking into accountthe effects of inflation. The first period was marked by a steady growth in ForeignOperations appropriations levels during the early 1980s when the United Statesrapidly expanded security-related aid programs in Central America, Pakistan, and tocountries providing the U.S. with military bases. Funding peaked in FY1985 at$31.9 billion (in FY1999 dollars) followed by a sharp cut in FY1986 as the effectsof the Gramm-Rudman deficit reduction initiative took hold and limited federalspending in most areas. For the next five years, during a second phase of ForeignOperations budget trends, appropriations remained relatively stable at about $19.5billion per year (real terms).

At about the time of the end of the Cold War, foreign aid spending began to fall steadily -- from about $16.7 billion in FY1992, to $15 billion in FY1995, to $13billion in FY1997 (real terms). Appropriations for FY1997 were the smallestForeign Operations level, in real terms, since 1975 when Congress slashed foreignassistance spending during the U.S. withdrawal from Vietnam. Even with additionalfunding for this year, in real terms FY1998 Foreign Operations spending is about30% below the average appropriation level approved by Congress during the late1980s, 19% less than FY1992, a year that might be considered the first post-ColdWar foreign aid budget, and 10% less than FY1995 when the majority in Congresschanged.

Foreign Operations Appropriations Request for FY1999 and Congressional Consideration

Funding Issues for Foreign Operations Appropriations, FY1999

Total Foreign Operations Funding Levels. After convincing Congress in 1997 to raise ForeignOperations spending by about $500 million over the previous year, the Presidentsubmitted a request for FY1999 that would set foreign aid appropriations nearly $800million higher than the level enacted for FY1998. The $13.6 billion proposal was6.2% higher than FY1998 discretionary budget authority. But unlike a year ago,when the President concentrated most of the added funds requested on a few highpriority areas, most notably for payment of arrears at multilateral development banks,the FY1999 request asked for increases across a wide array of Foreign Operationsprograms. Nearly every major component of foreign aid spending was slated to risein FY1999. However, as illustrated in Figure 2 and discussed immediately below,enacted FY1999 appropriations for Foreign Operations provides only modestincreases from FY1998 for major areas of foreign aid spending, resulting in fewchanges among the proportional distribution of funds. Table 3 summarizes thePresident's request and congressional action, while an appendix at the end of thisreport provides details on individual account spending levels.

The first step influencing congressional debate on Foreign Operations occurred in mid-May when House and Senate Appropriations Committees issued allocationsto each of their 13 subcommittees. This process, known as the "section 302(b)allocations," usually comes after the House and Senate have agreed to a commonbudget resolution. Because of delays this year in taking up a budget resolution,however, House and Senate Appropriations Committee chairmen decided to issuetheir 302(b) allocations in advance of final action on a budget resolution.

Both Appropriations Committees issued very low allocations for Foreign Operations. On May 14, the Senate panel provided $12.6 billion in budget authority(BA) and $12.4 billion in outlays for Foreign Operations in FY1999 (outlays werelater revised upward to $12.6 billion). (These figures exclude MDB arrears and IMFfunding.) The Senate allocation set budget authority for Foreign Operations about$1 billion below the President's request and nearly $250 million less than enacted forFY1998. The House Committee, on May 22, set Foreign Operations BA and outlayseach at $12.5 billion, $100 million less than Senate levels.

House and Senate committees began markups on the Foreign Operations request at nearly the same time. On July 15, the House Foreign Operations Subcommittee, recommended a $12.471 billion funding measure ($12.82 billion with MDB arrears),about $315 million (-2.5%) below existing levels for FY1998 and $1.1 billion(-8.1%) less than the President's proposal for FY1999. The full HouseAppropriations adopted the subcommittee's funding proposals on September 10( H.R. 4569 ) and the House passed the measure on September 17 withoutchanges in funding levels. The Senate did not hold a subcommittee markup, but wentstraight to full committee consideration on July 21, followed by full Senate passageon September 2. As passed by the Senate, S. 2334 included a slightlyhigher amount than recommended in the House -- $12.575 billion ($12.885 billionincluding MDB arrears). Added to these amounts were funds for a U.S. contributionto the IMF which brought the House bill to a total of $16.2 billion and the Senate to$30.7 billion. The Senate designated both MDB arrears and IMF appropriations asFY1998 supplementals.

The House and Senate did not hold a formal conference on the Foreign Operations measures, but instead incorporated foreign aid funding into H.R. 4328 , the Omnibus Consolidated and Emergency SupplementalAppropriations Act, 1999. During executive-legislative budget discussions duringthe final days of the 105th Congress, negotiators added more than $880 million forForeign Operations spending in FY1999 to amounts approved by the House andSenate in September. Senior executive branch officials had advised the President toveto these earlier measures because of inadequate funding. As enacted on October21 in H.R. 4328 , Foreign Operations funds total $31.63 billion,including $12.827 billion for regular programs, $539 million for MDB arrearspayments, $399 million in Child Survival, former Soviet aid, counter-narcotics, andAfrican embassy bombing-related "emergency" supplemental spending, and $17.9billion for the IMF. Excluding the IMF, total Foreign Operations money approvedfor FY1999 is $618 million more than for FY1998, but $385 million less than thePresident requested.

Funding for Selected Foreign Operations Accounts. Whereas the President sought increased funding inFY1999 for most Foreign Operations programs, Congress was more selective inwhich areas to add resources above FY1998 levels.

Table 3. Summary of Foreign Operations Appropriations (Discretionary funds -- in millions of dollars)

Source: House and Senate Appropriations Committees. Under the terms of the Balanced Budget Act of 1997, appropriations for multilateral development bank(MDB) arrearage payments and the IMF do not score against budget allocations forForeign Operations programs in FY1999. The TOTAL lines in this table show threedifferent amounts: 1) excluding MDB arrears and IMF funds, amounts that reflectForeign Operations allocations; 2) including MDB arrears, but excluding the IMF;and 3) including all funds in the bills. In addition, H.R. 4328 as enacted,includes $399 million in "emergency" supplemental funds for Child Survival, formerSoviet aid, counter-narcotics, and Africa embassy bombing-related funds that are notincluded in this table. These "emergency" supplementals also do score againstForeign Operations budget caps.

IMF funding. Securing full funding for a U.S. transfer to the IMF's New Arrangements to Borrow (NAB) ($3.36 billion) andthe Fund's new quota increase ($14.5 billion) was arguably the Administration'shighest priority in the Foreign Operations bill. Viewed by supporters as an importanttool with which to confront the Asian financial crisis, Russia's economic problems,and other situations threatening global economic stability, the IMF also came underattack by critics who believed the Fund was not equipped to deal with currenteconomic difficulties, was not prescribing the right policy reforms, and was operatingwithout sufficient public scrutiny. The Administration countered that it agreed withmany congressional concerns regarding IMF policies, but that some of the conditionsproposed by lawmakers for U.S. payments to Fund were unworkable and wouldultimately block the transfer of American resources.

The Senate Appropriations Committee, in S. 2334 , fully funded the President's $17.9 billion request, attaching conditions that were acceptable to theAdministration. During floor debate, the Senate rejected (19-74) an amendmentproposed by Senator Kyl setting out a package of conditions regarded as muchtougher than what was already included in the bill that the IMF would have to meetbefore receiving the $14.5 billion quota funds. H.R. 4569 , as passedby the House, however, provided funding only for the NAB.

H.R. 4328 as enacted includes full $17.9 billion funding for both the NAB and the quota increase. The payment, however, is conditioned on amongother things, a notification that other major industrial nations have agreed to helpimplement changes in IMF policies that would require that 1) borrowing nationsliberalize trade restrictions and financial policies; 2) the Fund operate with greatertransparency, and 3) the Fund lend money at higher interest rates and on shorterrepayments to balance-of-payments distressed countries.

Export promotion programs. The President proposed that U.S. government-backed export assistance would grow by$146 million, or nearly 30% over FY1998. To a large extent, the additional resourceswere requested to meet increasing demands by American businesses forExport-Import Bank loans, loan guarantees, and insurance, especially foropportunities in Russia. The House, in H.R. 4569 , provided $635million for the Eximbank and other export promotion agencies, meeting about halfof the proposed increase from FY1998, while the Senate appropriated $674 millionin S. 2334 . As enacted, the Omnibus spending bill allocates $657million for the Export-Import Bank, the Overseas Private Investment Corporation,and the Trade and Development Agency, nearly 17% more than appropriated inFY1998.

Development assistance. Bilateral development aid managed by USAID would have grown under the President's budgetby $45 million in FY1999, a 3% rise, but would have reduced spending for somecongressional priorities in order to finance Administration initiatives. The Presidentproposed a $43 million cut in child survival and infectious disease programs, thesubject of previous congressional "add-ons," in order to make way for smallincreases in population assistance, environment projects, private sector/economicgrowth programs especially in Africa, and aid to countries in transition from crisisto peace.

The House reduced USAID development aid -- by $48 million -- while S. 2334 provided slightly more than the full $1.77 billionAdministration request. Of this total, the Senate earmarked $435 million forpopulation assistance, while the House limited spending for these purposes to $385million. The Senate further cut funds for the African Development Foundation to $8million, well below the existing level ($14 million), and House and requestedamounts. H.R. 4569 sharply cut to $150 million disaster reliefassistance, while the S. 2334 provided $200 million, just under thePresident's request.

As enacted, H.R. 4328 funds USAID development aid programs at $1.79 billion, $65 million more than FY1998 and $20 million above the requestedamount (including the $50 million in Child Survival "emergency" supplemental). Although USAID will have more development aid resources than it requested, themix of program funds will be different. Child and infectious disease programs willreceive over $100 million more than the FY1999 proposal, while a $385 million cappopulation aid will limit resources for that development sector. Congress made smallcuts from FY1998 to both the Inter-American Foundation ($20 million) and theAfrican Development Foundation ($11 million).

Family planning restrictions and the UN Population Fund (UNFPA). Also within development assistance activities, thePresident proposed about $400 million for population assistance and $25 million forUNFPA. Throughout the year, the President also restated his position that he wouldveto any legislation that included so-called "Mexico City" abortion restrictions toU.S. overseas family planning policy. During House Committee markup, the paneladopted an amendment by Representative Wicker inserting revised "Mexico City"abortion restrictions and adding to permanent law a ban on U.S. contributions toUNFPA unless UNFPA terminated programs in China or the President certified thatChina no longer engaged in coercive family planning practices. This came inaddition to a subcommittee-added prohibition of an FY1999 $25 million UNFPAcontribution because of the resumption by the organization of a program in China. H.R. 4569 further capped population aid at $385 million. S. 2334 took an opposing position, earmarking $435 million forpopulation assistance without Mexico City abortion restrictions or limitations oncontributions to UNFPA. The Omnibus Appropriation places a $385 million cap onpopulation assistance but deletes the House-passed abortion restrictions It furtherdenies all funding for UNFPA due to the organization's new China program (seemore discussion below).

Debt reduction. Funds for reducing debt owed to the U.S. government by developing countries would have nearly tripledin FY1999 -- from $27 million to $72 million -- under the President's budget. Thiswould support Administration initiatives to forgive portions of debt owed by Africancountries, an element in the President's African trade and investment strategy, andto implement a multilateral effort to reduce debt owed by the Heavily Indebted PoorCountries (HIPC). The House and Senate made substantial reductions to theproposed appropriation ($36 and $25 million, respectively), while the OmnibusAppropriation includes $33 million.

Peace Corps. As part of a two yeareffort to raise the number of Peace Corps volunteers from 6,500 to 10,000, theFY1999 request sought $270 million for the Peace Corps, a 22% rise. The Houseappropriated $230 million, while the Senate reduced Peace Corps funding below theFY1998 level to $210 million. As enacted, H.R. 4328 provides $240million, an amount that will allow the Peace Corps to expand somewhat in FY1999,but not on a schedule consistent with its 10,000 volunteer target by 2000.

Narcotics aid. Appropriations for international narcotics and law enforcement programs would have grown to $275million in FY1999, nearly 20% higher than FY1998. Much of the increase wasconcentrated in Latin America, especially for the Andean drug producing nations ofBolivia, Colombia, and Peru. Congress divided on the issue of substantial additionalfunding for State Department counter-narcotics efforts with the House supporting thePresident's full request but the Senate approving only $222 million. The OmnibusAppropriations measure includes $261 million, an amount conferees believe will besufficient to fully fund programs proposed in Bolivia, Colombia, and Peru. Beyondthis, the Omnibus bill includes an additional $232.6 million "emergency"supplemental appropriations for counter-narcotics activities, mostly aimed at effortsin the Andean drug producing countries. Of the total, $144 million is expected tofinance the procurement of helicopters and other items for Colombia and theprogram's airwing.

Nonproliferation, Antiterrorism and Demining programs (NADR). Funding for a range of related programs addressingthreats posed by weapons of mass destruction, international terrorism, and the spreadof anti-personnel landmines would rise in FY1999 to $216 million, two-thirds morethan FY1998, under the President's proposed budget. Demining aid would growfrom $20 million to $50 million. But much of the increase in this account resultedfrom funding activities in FY1999 that were previously appropriated in otherline-items or other spending bills. For FY1999, the Administration incorporated intothe NADR account $21 million to support science centers in Russia and Ukraineaimed at preventing the "brain drain" of scientists from these countries who havespecial skills in nuclear, chemical, and biological weapons systems. The request alsoshifted funding from the Commerce, Justice, and State Department Appropriation billfor the Comprehensive Test Ban Treaty Preparatory Convention.

As passed by the House and Senate, NADR account levels were significantly below the $216 million request -- $152 million in the House and $170 million in theSenate. Some of the House cuts were attributed to the ban on a $35 million U.S.contribution to the Korean Energy Development Organization (see below) and a $26million recommendation for demining programs. As approved in the OmnibusAppropriations, Congress allocated $198 million for NADR account programs,including targets of $35 million for demining, $35 million to KEDO (subject toconditions), and $15 million for non-proliferation activities. Separate and in additionto these amounts, Congress approved, as part of the U.S. embassy security emergencysupplemental initiative $20 million for State Department anti-terrorism programs.

Multilateral Development Bank arrearage payments. For the second portion of a 3 year plan to clearU.S. arrears at several multilateral development banks (MDBs), the FY1999 requestincluded $502 million, up from $360 million appropriated for FY1998. AlthoughMDB arrearage payments had been expected for FY1999, the Administrationrecalculated and accelerated the appropriation schedule for the 3-year plan outlineda year ago. Moreover, Congress provided special budget exemptions in the BalancedBudget Act of 1997 so that add-ons for arrearage payments would not "squeeze"funding for other foreign policy programs. Last year, the President projected $367million for FY1999 and $863 million total over 3 years, compared with the currentFY1999 request of $502 million and a total of $998 million. (2)

House and Senate-passed Foreign Operations bills made sharp cuts in the MDB arrears request, providing $352 million and $311 million, respectively. Eachmeasure provided only about one-fourth of the Administration's $192.5 millionrequest for the World Bank's Global Environment Facility (GEF), while S. 2334 further included only $5 million of the $88.3 million proposedfor the African Development Fund. Levels for MDB arrears rose substantially in theenacted Omnibus Appropriations -- to $539 million -- exceeding the President'srequest. H.R. 4328 includes full funding for both the GEF and theAfrican Development Fund.

Funding for Countries and Regions. At the country level, the FY1999 proposal recommendedboth continuity and change in the list of leading recipients of U.S. aid. In general, theroster of major recipients included in the President's request reflects U.S. policyemphasis on Middle East peace, democratic transition in the former Soviet Union,implementation of the Dayton Peace accords in Bosnia, and to a somewhat lesserextent, efforts to counter the drug trade in Latin America. Israel ($3 billion), Egypt($2.116 billion) and Jordan ($198 million) would continue at about the same levelsfor FY1998, as would assistance for Ukraine, Georgia, Armenia, and Bosnia. Assistance to Russia, which Congress has reduced the past few years due to overallcuts in the former Soviet aid account, would increase significantly -- from $134million allocated from FY1998 appropriations to $230 million for FY1999. U.S.assistance to Haiti would roughly double in FY1999 ($142 million) as theAdministration sought to shift its program there from one focused on emergency andshort-term requirements, to implementation of a six year strategy focused on reducing long-term poverty. Assistance for Peru and Bolivia, aimed at combating drugproduction and trafficking, was also scheduled to rise significantly, especially forBolivia where the Administration reduced FY1998 assistance in order to fund thecongressionally-mandated transfer of Blackhawk helicopters to Columbia.

Notably absent from the list of leading U.S. aid recipients proposed for FY1999 were several countries. Turkey and Greece, whose aid levels have been linked by acongressional formula that placed them among the five largest recipients in mostyears during the past two decades, would receive only nominal amounts of assistancein FY1999. The Administration had raised the prospect several years ago of endingmilitary aid to Turkey and Greece. The first steps came for FY1998 when the StateDepartment converted to military grant aid about $35 million in Foreign MilitaryFinancing loan subsidies appropriated by Congress that would have funded nearly$300 million in market rate loans for Turkey and Greece to procure U.S. defenseequipment. U.S. assistance to South Africa was also scheduled to decline in FY1999-- from $73 million in FY1998 to $53 million. FY1998 marked the end of theAdministration's initial five-year aid package launched in 1994 to assist thepost-apartheid government, and the beginning of a smaller program concentrated onstrengthening democratic institutions, primary health care services, and educationthat USAID plans to phase out entirely by 2005.

In most years during the Foreign Operations debate, Congress earmarks in the enacted legislation specific amounts for a only few countries or regions that reflectcongressional spending priorities. For the vast majority of recipients, Administrationofficials retain flexibility to allocate the remaining funds within the limits of overallappropriations. The State Department and USAID usually notify Congress about60-90 days after passage of the Foreign Operations measure exactly how the fundswill be distributed among countries and regions. Table 4 illustrates the countryallocations for FY1997 and FY1998, and lists estimates for FY1999 based on thePresident's request or on congressional earmarks in H.R. 4328 . Figureswill be revised when the Administration releases its initial allocation in late 1998 orearly 1999. As passed on October 21, the Omnibus Appropriations includes severalearmarks and limitations that will affect the extent to which the President will be ableto distribute foreign aid funds according to his proposed country and regional plan.

Table 4. Leading Recipients of U.S. Foreign Aid:FY1997 -- FY1999 (appropriation allocations -- $s inmillions)

* Total or partial earmarks enacted in FY1997, FY1998, and FY1999 Foreign Operations bills.

** Requested amounts for FY1999 that may change significantly when allocationsare announced.

Note: Data exclude food aid, a program not appropriated in the Foreign Operationsbill. With food aid included, the rank order above would change somewhat. Foodaid projected for FY1999 includes: Peru--$49.7 million; Haiti--$30 million;Bangladesh--$19.4 million; and Guatemala--$10.5 million. Moreover, because ofa large food aid program, Ethiopia, India and North Korea would also rank amongthe lower half of the top 15 U.S. recipients.

Israel and Egypt assistance. Both House and Senate bills proposed the initiation of a ten year process to phase outeconomic aid to Israel and to reduce Egypt's aid by half, cutting total assistance tothe two countries for FY1999 by $100 million to just over $5 billion. H.R. 4328 includes this new initiative, earmarking $2.92 billion forIsrael and $2.075 billion for Egypt (see more below).

Indonesia aid. In light of the economic collapse in Indonesia and the devastating social impact on the population, the Senateearmarked $100 million to support a new U.S. economic aid strategy for the country. The initiative, which roughly doubled planned American assistance for FY1999,would focus on programs aimed at local organizations and community leaders,instead of central government ministries, and be largely administered bynon-governmental organizations. S. 2334 further removed previousrestrictions on military training for Indonesia. The House bill contained no similarinitiative. The enacted Omnibus Appropriations earmarks $75 million in economicaid for Indonesia along the policy guidelines proposed by the Senate, and permitstraining grants for the Indonesian military, limited to Expanded-IMET programs thatfocus on civilian-military relations and human rights observance courses.

Azerbaijan aid ban. Senate and House bills each retained the six-year prohibition on U.S. aid for Azerbaijan (section 907of the Freedom Support Act), a provision the Administration had sought to repeal. The House Appropriations Committee recommended repealing section 907, but anamendment sponsored by Representative Porter reinstated section 907 during floordebate (passed 231-182). While the Senate bill did not repeal section 907, itbroadened the exemptions to the aid ban by allowing the Export-Import Bank and theOverseas Private Investment Corporation to extend loans and guarantees to Americanbusinesses investing in Azerbaijan, particularly for those involved in Caspian basinoil activities. The enacted omnibus measure retains section 907 and adopts theSenate text exempting OPIC and Eximbank from the aid prohibitions. (See belowfor more discussion.)

North Korea and the Korean Peninsula Energy Development Organization (KEDO). A series of recent actions by theNorth Korean government -- missile sales to Iran, possible new nuclear constructionactivities, and the launch of a rocket that traveled over Japanese airspace -- made theAdministration's policy towards North Korea and its request for $35 million forheavy fuel oil especially controversial during congressional debate this year. DuringHouse Committee markup, the panel adopted an amendment by Chairman Livingstonprohibiting, without Presidential waiver, the $35 million request. Although S. 2334 provided the full $35 million request for this highAdministration priority, it required a Presidential certification regarding severalcompliance issues related to the 1994 Agreed Framework and other nuclear matters,including two additional conditions added on the Senate floor.

In the Omnibus Appropriation, the President will get the requested $35 million for KEDO in FY1999, but on a delayed basis. The first $15 million will be availableafter March 1, 1999, if the President certifies that progress is occurring onimplementing several agreements with North Korea, that the DPRK is cooperatingfully in the canning and storage of all spent fuel from its graphite-moderated nuclearreactors, that North Korea has not diverted any assistance, and that the U.S. ismoving ahead with efforts to block DPRK's development and export of ballisticmissiles. The remaining $20 million is available after June 1 if the President certifiesthat progress has been made on the nuclear and ballistic missile issues, and that theU.S. and North Korea have agreed on the means to satisfy U.S. concerns about theDPRK's suspect underground construction. These restrictions, however, can bewaived for "vital national security" reasons. H.R. 4328 further limitsthe President's "special" waiver authority (section 614 of the Foreign Assistance Actof 1961), blocking its use to provide more than $35 million to KEDO in FY1999.

Russia, Ukraine, and other former Soviet states. House and Senate recommendations were far aparton aid to Russia, Ukraine, and other former Soviet states, although both were wellbelow the President's overall request. The Senate provided $740 million to the entireregion while the House limited spending to $590 million. The final OmnibusAppropriations provides $801 million, plus another $46 million in "emergency"supplemental funds, significantly higher than either House or Senate measures. There were also substantial differences between country aid targets recommended inthe two bills, with the Senate measure providing higher amounts for Ukraine ($210million vs. a maximum of $147 million), Armenia ($90 million vs. not less than $49million), and Georgia ($95 million vs. at least $49 million). H.R. 4328 sets final earmarks at levels somewhat below the Senate targets: Ukraine--$195million, Armenia--$79.9 million; and Georgia--$84.4 million. The higher overallaccount level and the reduced Senate earmarks is likely to allow the Administrationto allocate resources for Russia closer to the $225 million request than it has beenable in recent years. (Congress did not earmark assistance to these countries fromother foreign aid accounts, such as the Peace Corps; these amounts are not includedin the figures listed above.)

Africa assistance. As a subset of worldwide development aid, the President asked Congress to appropriate $730million for African development programs in FY1999, an increase from the $700million allocated in FY1998. Beyond this, the President's budget included $67million under the Economic Support Fund (ESF) to finance democracy and other newinitiatives for Africa, and $35 million for debt reduction. (3) These proposals camewithin the context of the President's 1998 visit to the region and the Administration'sAfrica trade and investment initiative launched last year. USAID planned to use the$30 million increase in African development aid for technical assistance in supportof the trade and investment plan. In addition, the Administration expected to begina Great Lakes Initiative ($25 million from the ESF account) that would helpstrengthen judicial systems in the region, and an Education for Development andDemocracy program ($36 million drawn from ESF and development aid).

Neither House or Senate foreign aid bills for FY1999 earmarked specific amounts for Africa, nor did the enacted appropriations in H.R. 4328 recommend a target or proportional allocation for the region. Nevertheless, given theadditional development aid funds appropriated by Congress, USAID will likely beable to allocate resources at or near the $730 million proposed level. With thecongressional add-ons for child survival and disease activities, however, aidmanagers may be forced to program more of these funds in Africa than had beenrecommended, with equivalent reductions in some of the trade and investmentactivities.

Policy Issues in the Foreign Operations Debate

In addition to funding decisions made by Congress in the Foreign Operations appropriation bill, the annual spending measure also includes a wide range of policyprovisions that frequently raise contentious foreign policy disagreements between thePresident and Congress. As mentioned above, because of Congress' inability toenact foreign aid authorization bills for over a decade, the Foreign Operationslegislation often becomes the vehicle for debate on the conduct of U.S. foreign policymore generally. Many of these policy provisions take the form of conditions orrestrictions on how the President can use money included in the spending bill. Manyof these provisions are opposed by the Administration as excessively limiting hisability to manage American foreign policy. The most serious of theselegislative-executive policy differences can ultimately result in delaying theenactment of the Foreign Operations bill or prompting a Presidential veto. Amongthe most significant policy issues raised during congressional debate this year on theForeign Operations appropriation measure concerned conflictingexecutive-legislative branch development assistance strategy priorities, restrictionson international family planning programs, proposals to limit Middle East assistanceand reduce economic aid to Israel, conditions on aid to Russia and Ukraine, and aidpolicy related to the dispute over Nagorno-Karabakh.

Policy priorities of U.S. development aid. Since the end of the Cold War, a common theme of manyAdministration discussions and congressional debates has been what should replacethe anti-communist foreign aid rationale of the past 50 years. A more fundamentalquestion raised by some, especially critics of development assistance, is whether theUnited States needs to maintain an active, globally focused economic aid program,or can it be transformed as a smaller, more targeted instrument, with some elementsbeing "privatized," that would support only the highest U.S. foreign policy interests.

Although there has been no definitive consensus reached on these questions between the executive and legislative branches, the Clinton Administration hasstrongly supported the retention of an activist foreign aid policy which can be usedto bolster a variety of U.S. foreign policy initiatives around the world. In early 1994,USAID released its blueprint for a post-Cold War development aid policy, basedaround the goal of "sustainable development," and its four strategies of promotingeconomic growth, stabilizing global population, protecting the environment, andadvancing democracy. More recently, USAID has added a fifth strategy aimed atdeveloping human capacity through education.

Table 5. USAID Sustainable Development Programs (in millions of dollars)

Source: USAID. Amounts in this table only apply to USAID "development aid" programs and do not include funds used for the same purposes, although to a lesserextent, in other accounts, including ESF, East Europe and former Soviet aidprograms. For example, USAID estimates that it will spend in FY1998 and FY1999$385 million and $400 million, respectively, across all accounts for family planningprograms; $300 million for agriculture in FY1999; and $135 million formicroenterprise, including local currencies.

USAID has maintained since adopting these strategies in 1994 that they must operate as inter-linked, mutually re-enforcing elements of an overall U.S. effort topromote the advancement of market economies and democratic transitions in thedeveloping world until countries reach a point of sustainability that no longerrequires external aid. Funding reductions, congressional restrictions, and fluctuatingAdministration priorities, however, have required USAID to alter the mix ofresources devoted to each of the strategies, raising questions over whether theintegrative, mutually re-enforcing principles can be maintained. Congress, forexample, limited development aid for population programs in FYs1996-98 to roughlytwo-thirds the amount provided in FY1995. (See below for more discussion onfamily planning restrictions.) Further, the State Department's Bureau of GlobalAffairs places a high priority on environment programs and presses USAID toallocate the maximum amount possible to such activities. As a result, theenvironment sector of sustainable development probably has not declined as muchas it might have otherwise.

But at the center of this issue for the past three years has been differences between Congress and the executive branch regarding funding levels for programssupporting child survival, basic education, and HIV/AIDs and other infectiousdiseases. Despite cutting overall development aid in FYs1996-97 by about 23% fromFY1995 levels, Congress earmarked children and disease programs at amounts equalto or somewhat greater than those allocated in FY1995, making the cuts on all otherelements of sustainable development closer to 30%. Although Congress boosteddevelopment aid appropriations for FY1998 by $100 million over the previous year,lawmakers earmarked half of the additional funds for the child survival and diseaseaccount. Congressional proponents of the child survival earmark argue that eventhough budget pressures require the United States to reduce or hold the line onforeign aid spending, the protection of children remains a core American valuedemanding that cuts should be implemented without putting at risk the lives andwell-being of small children in developing nations. They further point out that thespread of infectious diseases poses a direct threat to U.S. citizens, and that Americannational interests require continued support for global efforts to reduce or eliminatesuch illnesses.

While agreeing with the importance of child survival and infectious disease programs, USAID officials apply a broader definition to the terms, arguing, forexample, that efforts to protect small children go well beyond immunizations andaccess to other health services. The quality of a child's life, they assert, also isdetermined by an array of other factors, including the degree of relative stability insociety, protection of the surrounding environment, access to adequate shelter, andimplementation of sound economic policies that will ensure jobs and economicopportunities in the future. Consequently, they contend, the "squeeze" that earmarksplace on other areas of sustainable development undermines, to some extent, thesuccess of programs that also benefit children.

For FY1999, although USAID proposed to alter only slightly its resource allocation for sustainable development objectives, the few changes recommendeddrew sharp criticism in some quarters of Congress. The $42 million reduction inchild survival and infectious disease programs planned for FY1999 ran counter to theemphasis and increased funding mandated by Congress for these activities the pastthree years. The request for additional family planning funds, although at levels wellbelow the $548 million appropriated in FY1995, focused even greater attention onthe most controversial element of USAID's sustainable development agenda. Thelargest increase recommended for FY1999 ($46 million) was for environmentalprograms, a portion of which would support the Administration's stated commitmentfor USAID to provide at least $150 million annually for the next five years for globalclimate change activities. Some also challenged the absence of increased funding forcertain USAID activities, especially for agriculture programs that agency officialsacknowledge have been cut too deeply over the past decade. Although USAID saidit was increasing emphasis on agriculture by strengthening links with economicgrowth and food security strategies, the request for FY1999 was $127 million, thesame as for FY1998.

Congressional action. The House restored to FY1998 levels ($650 million) the amounts for Child Survival and diseaseprograms, including basic education for children and set a higher earmark ($105million) for UNICEF. H.R. 4569 further recommended $135 million,plus local currencies, for micro-credit. The President had set $135 million, includinglocal currencies, as an FY1999 target. For other development activities, Housespending levels were nearly identical to FY1998 appropriations, although about $100million less than the request. As in previous years, this would have most likelyresulted in reductions to economic growth and environment programs from amountsplanned by USAID. Moreover, if funds were transferred out of the developmentassistance account to shore up funding shortfalls for disaster aid or USAID operatingexpenses -- authority granted by the Committee -- larger cuts in economic growthand environment activities might be expected.

The Senate provided in S. 2334 funds for development assistance at a level slightly more than the President's requested, but did not continue a separateaccount for Child Survival and Diseases. S. 2334 , however, requiredthe Administration to continue spending for infectious diseases at FY1998 levels andset basic education aid at $100 million. The Senate measure also included $305million agriculture programs and required micro-credit to receive $145 million, halfof which must be for loans of less than $300.

The Omnibus Appropriations funds USAID development aid programs at $1.79 billion, $65 million above FY1998 levels and $20 million more than thePresident's request. The bill includes a separate Child Survival account at $650million, plus a $50 million Child Survival "emergency" supplemental, bringingresources for child and disease initiatives to $700 million. Although USAID willreceive more development aid resources than it requested, the mix of program fundswill be different. Children programs will receive over $100 million more than theFY1999 proposal, while a $385 million cap population aid will limit resources forthat development sector. Conferees did not include the Senate earmark foragriculture programs, but "recommended" USAID allocate $305 million for theseactivities in FY1999. The final bill does not earmark a specific amount formicro-credit, but requires that half of the loans be less than $300.

Population and family planning assistance. For FY1999, the President sought $400 million forUSAID family planning programs, a $15 million increase over FY1998 levels. Butthe principal executive-legislative dispute over population assistance goes wellbeyond funding issues, centering more directly on abortion-related activities offoreign recipients of USAID grants. For over a decade, Congress has engaged incontentious debates over U.S. international family planning policy, often as part ofthe Foreign Operations Appropriations. Twice, congressional positions on this issuehave been one of the major reasons prompting a presidential veto.

U.S. international family planning programs had been one of the largest growth areas of the foreign aid budget in the 1990s. From an average of about $250 millionin the late 1980s, FY1995 spending across all Foreign Operations accounts totaledapproximately $548 million. When Congress deadlocked over abortion-relatedrestrictions and U.S. population aid policy, a situation that blocked movement of theentire Foreign Operations bill each of the last 3 years, lawmakers adopted interimprovisions that, among other things, strictly limited the amount of funding forUSAID family planning programs. The FY1997 and FY1998 appropriation cap of$385 million is roughly two-thirds the amount provided in FY1995. As a result ofthe impasse over abortion restrictions, Congress established a delayed timetable formaking these funds available, a schedule that included monthly apportionments or"metering" of the appropriation.

A second issue in the population aid debate, and one directly connected to funding reductions and metering of the past three years, deals with abortionrestrictions and the eligibility requirements for foreign organizations receiving fundsto implement U.S.-sponsored family planning programs. During the mid-1980s, inwhat has become known as the "Mexico City" policy, the Reagan, and later the BushAdministrations, restricted funds for foreign non-governmental organizations thatwere involved in performing or promoting abortions in countries where they worked,even if such activities were undertaken with non-U.S. funds. Several groups,including International Planned Parenthood Federation-London (IPPF), becameineligible for U.S. financial support. In some years, Congress narrowly approvedmeasures to overturn this prohibition, but White House vetoes kept the policy inplace. President Clinton in 1993 reversed the position of his two predecessors,allowing the United States to resume funding for all family planning organizationsso long as U.S. money was not used in abortion-related work.

During the past three years, the House and Senate have taken opposing positions on the Mexico City issue that in each case held up enactment of the final ForeignOperations spending measure. The House position, sponsored by RepresentativeSmith (N.J.), supported reinstatement of the Mexico City policy restricting U.S. aidfunds to foreign organizations involved in performing abortions or in lobbying tochange abortion laws or policies in foreign countries. The Senate, on the other side,has rejected House provisions dealing with Mexico City policy, favoring a policy thatleaves these decisions in the hands of the Administration. Moreover, Administrationofficials have stated that President Clinton would veto any bills that include theHouse-passed Mexico City restrictions.

Unable to reach an agreement satisfactory to both sides, Congress adopted interim arrangements for FY1996-98 that did not resolve the broad populationprogram controversy for Congress, but did permit the stalled Foreign Operationsmeasure to move forward. It was hoped that the arrangement, which neither sideliked, would provide incentives for those involved in the debate to find a middleground. Under the terms of the FY1998 temporary arrangement, as included in P.L.105-118 , Congress deleted the House-supported Mexico City restrictions, limited population aid funding to $385 million, down from $435 million passed by theSenate, and delayed, or "metered" the availability of the funds at a rate of one-twelfthof the $385 million per month.

Although not referenced in the enacted legislation, the inability to resolve the dispute over family planning and abortion has blocked congressional approval offunding for other Administration high priority foreign policy initiatives. At the endof 1997, when conferees removed the House-passed Mexico City restrictions fromthe FY1998 Foreign Operations measure, House leaders withdrew support forpending legislation providing funds for U.S. participation in the InternationalMonetary Fund's New Arrangements to Borrow and to pay American arrears at theU.N. and other international organizations. Without White House willingness tocompromise on the family planning issue, they said, IMF and U.N. funding wouldremain linked to Mexico City restrictions. Congress recessed for 1997 withoutresolving the issue. In early 1998 Congress approved modified Mexico Cityrestrictions (4) to an omnibus foreign policyauthorization bill ( H.R. 1757 ),that among other things, authorized U.S. payment of U.N. arrears and reorganizedU.S. foreign policy agencies. The President said, however, that he would veto thebill. Congressional delayed submitting H.R. 1757 to the President untilOctober 21, at which time he vetoed the legislation. (For more information, see CRS Issue Brief IB96026, U.S. International Population Assistance, Issues for Congress, by [author name scrubbed] and [author name scrubbed].)

Congressional action. As in each of the past two years, the House bill ( H.R. 4569 ) capped family planningassistance at $385 million for FY1999 and continued most of the non-controversialrestrictions on population aid, including that no U.S. funds may pay for abortions. During Appropriations Committee markup, the House panel, further adopted anamendment by Representative Wicker that inserted the same revised Mexico Cityabortion restrictions that Congress adopted earlier this year in H.R. 1757 ; that is, a prohibition on U.S. funds to foreign non-governmental groups andmultilateral organizations which (1) perform abortions with their own money, or (2)violate abortion laws or lobby to change abortion laws in foreign countries. It wouldallow the President to waive the prohibition on performing abortions, but would notpermit a waiver for lobbying. Exercising the waiver, however, would result in areduction of family planning funds from $385 million to $356 million. The bill alsobanned the $25 million requested U.S. contribution to UNFPA because of theorganization's newly initiated program in China. The Wicker amendment furtherwould have placed into permanent law an annual prohibition on UNFPA fundingunless the President could certify that UNFPA had terminated its China program orthat China no longer engaged in coercive family planning practices. Finally, theHouse also adopted an amendment by Representative Tiahrt that precisely definedthe term, voluntary family planning programs, and established criteria for USAID toapply regarding the voluntary nature of its population projects.

The Senate , in S. 2334 , took a supportive and less restrictive position on family planning issues, earmarking $435 million for populationassistance, a level higher than the Administration's request. The legislationcontinued long-standing, non-controversial restrictions on the use of U.S.government funds for abortions, but did not include the Mexico City conditions orlimitations on contributions to UNFPA.

The Omnibus Appropriation caps population aid at $385 million and "meters" the funds on a monthly basis of about 8%, but deletes the House-passed modified"Mexico City" restrictions. It further denies the $25 million request for UNFPAbecause of the China program and adds a modified version of House-passed Tiahrtamendment regarding the voluntary nature of U.S. family planning activities.

Middle East aid and Israel's plan to phase-out economic assistance. Since the late 1970s, by far the largest portionof U.S. foreign aid has supported American friends and allies in the Middle East,especially Israel and Egypt. Combined, these two countries have received over $100billion during the past 20 years. For a decade, foreign aid bills annually haveearmarked $3 billion for Israel and $2.115 billion for Egypt in economic and militaryassistance. The FY1999 request matched these traditional levels.

Although annual aid allocations for Israel and Egypt have not grown in dollar terms, the decline in overall Foreign Operations funding the past several years hasmeant that the proportion of worldwide foreign aid going to the Middle East climbed to 44% in FY1997. Some in Congress and in the Executive branchsuggested that, at a time of overall budget cuts, all aid activities, including those forIsrael and Egypt, should be examined for possible reductions in order to fund otheremerging initiatives for which new money is not available. In a similar vein, othershave argued that if the Administration wants to launch new regional initiatives toadvance the peace process, it should finance them through the reallocation ofexisting Middle East aid resources so funds are not drawn from other foreign aidactivities. Following this suggestion, the Administration has financed about $100million in additional assistance to Jordan in each of the past two years by transferring$50 million from Israel and Egypt's economic aid packages.

Last year, Congress took steps to legislate a cap on Foreign Operations resources for the Middle East. Largely at the initiative of Representative Callahan, Chairmanof the House Foreign Operations Subcommittee, lawmakers stipulated in the FY1998funding measure (section 586 of P.L. 105-118 ) that selected Middle East nations andregional programs could not receive more than $5.4 billion of the total appropriation,a level representing 41% of all Foreign Operations funds. Israel ($3 billion), Egypt($2.115 billion), and Jordan ($225 million) accounted for all but $60 million of theregional total, although it was assumed that Israel would contribute $50 million forJordan and prior-year appropriations for Egypt would be tapped for another $50million. The Administration's FY1999 proposal exceeded the $5.4 billion cap forFY1998 by about $200 million, but State Department budget justification documentspledged to "work with Congress on an appropriate formula" in order to keepspending within the maximum permitted for FY1998

As Congress and the Administration have searched the past two years for ways to finance new Middle East peace initiatives while straight-lining or reducing aid tothe region, Israel put forth in January 1998 a plan to cut its aid over the nextten-to-twelve years. The concept behind an Israeli initiative to decrease assistancefrom the United States was first raised by Prime Minister Netanyahu during a speechbefore a joint session of Congress on July 10, 1996. As outlined to congressional andAdministration officials by Israeli Finance Minister Neeman in late January 1998, theUnited States would cut economic aid by $120 million each year for about ten years,while increasing military assistance by $60 million annually. At the end of theperiod, Israel would be receiving an annual appropriation of $2.4 billion in militaryaid but no longer receive any economic assistance. If done over a ten-year period,in net terms, U.S. aid to Israel would fall $60 million each year, with a total savingsof $600 million by 2009.

Congressional reaction to the Israeli proposal generally was positive. Some cautioned, however, that perhaps the plan could be implemented over a shorter periodof time, and that further study was needed to assess if Israel needed additionalmilitary aid. Because many in Congress have viewed Egypt's aid as linked to Israel'sthrough the Camp David peace process, a reduction in assistance to Israel has alsoaffected Egypt's aid funding level. (For more information, see CRS Report 98-104, Israel: Proposed Changes in U.S. Foreign Assistance, FY1999, by Clyde Mark.)

Congressional action. Both H.R. 4569 and S. 2334 reduced aid to Israel and Egypt ina generally proportional manner and along the lines set out by Israeli officials earlierthis year. For Israel, economic aid was cut by $120 million ($1.08 billion) andmilitary assistance increased by $60 million ($1.86 billion) for a net reduction of $60million. In addition, the House measure allowed Israel to use $490 million of its$1.86 billion military funding for procurement outside the United States, up $15million from the existing allowance. S. 2334 permitted $492.9 millionfor these purposes. Egypt would receive $40 million less in economic aid ($775million) and the same $1.3 billion military package in both measures.

The Omnibus Appropriation, H.R. 4328 , includes this Israel/Egypt aid reduction initiative basically along the lines included in both Houseand Senate bills. Israel may spend $490 million in military aid outside the UnitedStates, as the House proposed. The legislation further continues the $5.4 billion capon Middle East bilateral assistance, permitting a Presidential waiver to exceed thisamount if its important to U.S. national security.

Aid Restrictions for Russia and Ukraine. Since the collapse of the Soviet Union, theAdministration, with relatively steady support from Congress, has utilized U.S.economic assistance to facilitate the transition of Russia, Ukraine, and the othersuccessor states (referred to as the New Independent States or NIS) to democracy andfree market economies. Past Foreign Operations debates have focused on both thesize of assistance for the NIS account, as well as conditions attached to providing theaid, especially to Russia. Conditions have dealt with a wide range of policy concernsincluding the initiation of economic policy and political reforms, non-aggressionagainst neighbors, Russian troop withdrawal from the Baltics, among others. Despitecongressional aid restrictions, in the past the President has been able to make thenecessary certifications that permitted the transfer of U.S. assistance.

For FY1999, President Clinton requested $925 million for the NIS account, $155 million or 20% more than FY1998 appropriations. Nearly two-thirds ($95million) of the additional funds were slated for Russia. Congress not only scrutinizedclosely the size of the NIS request, but lawmakers also re-examined policy conditionsattached to previous appropriation measures concerning Russian support for Iran'snuclear program, implementation of a Russian law that could discriminate againstreligious minorities, and Ukrainian practices that undermine efforts by Americanbusinesses to invest in Ukraine. (5)

Under conditions enacted in the FY1998 Foreign Operations spending measure (Title II of P.L. 105-118 ), the President must withhold 50% of assistance scheduledto be allocated to the Government of Russia until he certifies to Congress that Russia"has terminated implementation of arrangements to provide Iran with technicalexpertise, training, technology, or equipment necessary to develop a nuclear reactor,related nuclear research facilities or programs, or ballistic missile capability." (Aidtransferred directly to the Russian private sector or non-governmental organizationswould not affected by these conditions.) The President could waive the provision ifinstead he determines that the assistance is "vital" to U.S. national security interests and Russia is taking "meaningful steps" to reduce nuclear support for Iran.

Also serving as a potential limitation for U.S. assistance to the Russian government in FY1998 was a provision (section 577 of P.L. 105-118 ) that becameeffective about April 26, 1998. Under section 577, the Russian government could notreceive any further U.S. aid in FY1998 unless the President certified to Congress bylate May 1998 that the government had not implemented laws, executive orders, orother regulations that would discriminate against religious groups or communities inRussia. The law provided no waiver authority. President Clinton issued thenecessary determination on May 26, stating that "Russia has applied the new Russianlaw on Religion in a manner that is not in conflict with its international obligationson religious freedom."

A further restriction attached by Congress to NIS assistance for FY1998 concerned complaints lodged by American businesses investing in Ukraine that theyhave been the subject of corruption and harassment by Ukrainian officials. Ukrainehas enjoyed strong congressional support for several years, becoming the thirdhighest ($225 million) recipient of U.S. economic aid. Nevertheless, the FY1998Foreign Operations measure required the Secretary of State to withhold one-half ofUkraine's assistance (about $100 million, excluding election support and nuclearreactor safety programs) until she certified to Congress by April 30, 1998, that theUkrainian government had made significant progress in resolving complaints madeby American investors. Secretary Albright issued such a notice on April 29, althoughshe acknowledged that she remained "extremely concerned about the overallinvestment climate in Ukraine" and investor problems that have yet to be resolved. Due to these concerns, she said, the U.S. will continue to withhold about $25 millionfrom government assistance in sectors where economic reforms have stalled. Ifprogress is not forthcoming and the funds cannot be used effectively, the aid wouldbe shifted to private sector and non-governmental programs.

Congressional action. The House bill continued restrictions related to Russian-Iranian nuclear cooperation but droppedconditions on Ukraine's assistance. The Senate incorporated existing restrictions onRussia and Ukraine for FY1999, after making some significant changes. In the caseof Russia's cooperation with Iran on nuclear and missile programs, S. 2334 made all U.S. assistance to Russia -- not just 50% of aid designated for theRussian government -- subject to a certification that Moscow had terminated sucharrangements with Iran. There was no waiver included. On the issue of minorityreligious persecution, S. 2334 required that no funds could be providedfor Russian government aid programs for six months unless the President certifiedthat no law or other government action had been implemented that woulddiscriminate against religious groups. The Senate measure added a new restrictionblocking any aid to Russia until the Secretary of State certified that the U.S. andRussian governments had reached an agreement that American aid would not betaxed. For Ukraine, the S. 2334 withheld half of the assistance(exclusive of funds for nuclear safety, law enforcement, and the Free MarketDemocracy Fund) until the Secretary of State notified Congress that Ukraine hadundertaken significant economic reforms beyond those achieved this year.

H.R. 4328 , as enacted, appropriates $801 million for the NIS, plus an additional $46 million in "emergency" supplemental funds. Combined, the$847 million provides the President with a $77 million increase over FY1998. Withearmarks for Ukraine, Armenia, and Georgia at or below requested levels, it is likelythat the Administration will be able to allocate to Russia resources closer to proposedamounts ($225 million in FY1999) than has been the case in recent years. Nevertheless, conditions on aid to both Russia and Ukraine will continue for this yearand could limit final amounts provided. For Russia, the State Department must withhold 50% of U.S. aid to the government unless Moscow ends its nuclear andballistic missile cooperation with Iran. The restriction, however, can be waived bythe President. Further, no assistance to the Russian government can be provided afterApril 21, 1999, unless the President certifies that the Russian Federation has notimplemented laws or regulations that discriminate against religious groups. Finally,the omnibus bill includes a modified condition added by the Senate blocking furtherU.S. aid to the Russian government after April 21, 1999, unless the Secretary of Statehas certified that American aid will not be taxed, or that significant progress has beenmade on reaching an agreement that exempts U.S. assistance from customs duties. For Ukraine, Congress requires that the President withhold half of the funds for sixmonths until the Secretary of State has certified that Ukraine has undertakensignificant economic reforms, including efforts to resolve complaints by Americaninvestors.

U.S. aid to the Caucasus and the Armenia-Azerbaijan conflict. In another part of the former SovietUnion, Congress has also used foreign assistance as a key tool -- both as a rewardand as a sanction -- in influencing American foreign policy in the SouthernCaucasus, often at odds with the Administration. The longest interethnic dispute inthe former Soviet Union between Armenia and Azerbaijan, and the status ofNagorno-Karabakh, especially have been a growing focus of congressional debate inForeign Operations appropriation bills during the last several years. Nagorno-Karabakh is a predominately Armenian-populated enclave in Azerbaijan. Armenia argues for the right of self-determination for the people ofNagorno-Karabakh, while Azerbaijan insists on the territorial integrity of its borders. Fighting over the territory claimed thousands of lives and created approximately350,000 Armenian and 1.1 million Azeri refugees. Since 1992, efforts to mediate theconflict, overseen largely by the Organization for Security and Cooperation inEurope's (OSCE) Minsk Group, but also with extensive Russian participation, gaineda cease-fire in 1994, but no permanent resolution. (6)

Congress has tended to favor Armenia in the dispute by earmarking high amounts of economic aid to Armenia and designating Nagorno-Karabakh as arecipient of humanitarian aid, distinct from Azerbaijan, and enacting in 1992 a banon all U.S. assistance to Azerbaijan (section 907 of the Freedom Support Act, P.L.102-511 ). Concern over the situation of Azeri refugees and the growing importanceof potential American investment in the large Azerbaijan oil sector has led Congressto soften the out-right ban on aid to Azerbaijan and to construct for FY1998 aregional assistance package aimed in part at supporting the Minsk Group peaceefforts.

Previous Foreign Operations bills have permitted humanitarian aid for Armenian and Azeri refugees in the region, as well as assistance to the governmentof Azerbaijan for disarmament programs. For FY1998, Congress also exempteddemocracy projects from the section 907 prohibition as well as export promotionaid provided by the Trade and Development Agency and activities performed by U.S.Foreign Commercial Officers in Azerbaijan. The Foreign Operations spendingmeasure for FY1998 also included $250 million for the Southern Caucasus regionwith the intent, in part, to encourage the regional parties to cooperate with MinskGroup peace efforts. Out of this total, Armenia was allocated $87.5 million, Georgia$92.5 million, and up to $70 million could assist refugees and internally displacedpersons as well as reconstruction efforts throughout the region, including those inNagorno-Karabakh. Although the section 907 aid restrictions continued to apply toAzerbaijan in FY1998 (with modifications noted above), Congress assumed that withan interim settlement brokered by the Minsk Group, the President would be able tomeet the requirements stated in section 907 for fully lifting the aid ban and permitAzerbaijan to receive portions of reconstruction assistance. If an interim agreementwas not reached by May 30, 1998, however, the President could reallocate up to$43.75 million of the $70 million total for other NIS states, including those in CentralAsia or Russia.

For FY1999, the Administration sought $80 million for Armenia and $80.7 million for Georgia, down somewhat from the FY1998 earmarks, and $31.5 millionfor Azerbaijan, up from an allocation of $21.4 million for FY1998. The program inAzerbaijan would continue humanitarian and democracy-related activities, plusinitiate new programs aimed at the private sector and demining activities, allconsistent, according to USAID, with the terms of section 907. Moreover, theAdministration asked Congress to repeal section 907, saying that it continued to actas a "handicap" for U.S. negotiators who need to be perceived as fair and honestbrokers to all sides in the dispute. In addition, Executive branch officials argued thatsection 907 restrictions block U.S. efforts to promote economic, legal, and regulatoryreforms that will be important to protecting American firms and their largeinvestments in Caspian basin oil opportunities, including pipeline projects thatwould bring the oil to market without having to pass through Iran. (7)

Congressional action. Following the general framework of the FY1998 program, the House bill ( H.R. 4569 )funded the Southern Caucasus account at not less than $197 million, of whichroughly $79 million must be reserved for post-conflict reconstruction. Armenia andGeorgia would receive at least $49 million each of the Southern Caucus account. During Committee markup, the House Appropriations Committee adopted anamendment by Chairman Livingston repealing the Sec. 907 aid ban on Azerbaijan. During floor consideration, however, the full House approved (231-182) anamendment by Representative Porter reversing the Committee action and restoringsection 907. In S. 2334 , the Senate earmarked $90 million for Armeniaand $95 million for Georgia. While the bill did not repeal Sec. 907, it expanded thelist of programs explicitly exempted from the prohibition by adding OPIC and theExport-Import Bank to current waivers for humanitarian aid, democracy programs,and TDA. The Senate Appropriations Committee further urged in its report thatthese U.S. export promotion agencies "aggressively pursue" funding for an east-westoil pipeline that would cross Turkey.

H.R. 4328 , as enacted, provides $228 million for the Southern Caucus region, of which $40 million is designated for the U.S. share of aninternational peace restoration effort. It earmarks aid to Georgia at $84.4 million and$79.9 million for Armenia. While section 907 restrictions will remain, the omnibusspending measure broadens the programs exempted, like the Senate proposed, toinclude OPIC and the Export-Import Bank.

For Additional Reading

Foreign Operations Programs:

CRS Issue Brief IB88093. Drug Control: International Policy, by Raphael Perl.

CRS Issue Brief IB96008. Multilateral Development Banks , by Jonathan Sanford.

CRS Issue Brief IB89150. Refugee Assistance in the Foreign Aid Bill , by Lois McHugh.

CRS Issue Brief IB86116. U.N. System Funding , by [author name scrubbed].

CRS Issue Brief IB96026. U.S. International Population Assistance: Issues for Congress , by [author name scrubbed] and [author name scrubbed].

Foreign Operations Country/Regional Issues:

CRS Issue Brief IB95052. Africa: U.S. Foreign Assistance Issues , by Raymond Copson.

CRS Issue Brief IB95077. The Former Soviet Union and U.S. Foreign Assistance , by [author name scrubbed].

CRS Issue Brief IB85066. Israel: U.S. Foreign Assistance , by Clyde Mark.

CRS Issue Brief IB91141. North Korea's Nuclear Weapons Program , by Larry Niksch.

Selected World Wide Web Sites

CRS Foreign Affairs and National Defense Division http://www.loc.gov/crs/foreign/fandpage.html

Export-Import Bank http://www.exim.gov/

Inter-American Development Bank http://www.iadb.org/

International Monetary Fund http://www.imf.org/

Peace Corps http://www.peacecorps.gov/

Trade and Development Agency http://www.tda.gov/

United Nations Children's Fund (UNICEF) http://www.unicef.org/

United Nations Development Program (UNDP) http://www.undp.org/

U.S. Agency for International Development http://www.info.usaid.gov/

U.S. Department of State http://www.state.gov/

World Bank http://www.worldbank.org/

Appendix -- Detailed Foreign Operations Accounts

Table 6. Foreign Operations Appropriations --Discretionary Budget Authority (millions of dollars)

a. The account structure for development aid differs among various versions of the bills. Thistable shows a consistent and comparable account structure based on enacted development aidfor FY1998 and FY1999.

b. In addition, Division B, Emergency Supplemental Appropriations, of H.R. 4328 includes $50 million for Child Survival programs, $46 million for the former Soviet aid, $20million for anti-terrorism, $233 million for counter-narcotics, and $50 million in ESF for Africaembassy bombing-related aid. Because they are designated as "emergency" requirements, thesefunds do not score against the Foreign Operations totals.

c. The Administration request and Senate bill included the Ireland Fund as part of the EconomicSupport Fund.

d. Under the terms of the Balanced Budget Act of 1997, appropriations for multilateraldevelopment bank (MDB) arrearage payments and the IMF do not score against budgetallocations for Foreign Operations programs in FY1999. The TOTAL lines in this table showthree different amounts from which common comparisons are made: 1) excluding MDB arrearsand IMF funds, amounts that reflect Foreign Operations allocations; 2) including MDB arrears,but excluding the IMF, a figure useful for comparing FY1998 and FY1999; and 3) including allfunds in the bill. None of these totals include the $399 million emergency supplementals.