Foreign Policy Budget for FY2002

CRS Report for Congress
Received through the CRS Web
Foreign Policy Budget for FY2002
Susan Epstein and Larry Nowels
Foreign Affairs, Defense, and Trade Division
The Bush Administration seeks a $23.85 billion foreign policy budget for FY2002,
representing a nominal increase of 5.3% over FY2001 (2.3% in real terms when the
effects of inflation are taken into account). Most of the additional resources are
concentrated in a few areas, especially for State Department operations and a new
regional Andean counternarcotics initiative. The budget further proposes to cut funding
for the Export-Import Bank by 25%. This report analyzes the FY2002 international
affairs funding submission, compares it with recently enacted foreign policy budgets,
identifies major priorities and recommended reductions, and discusses potential
congressional issues. It will be revised as the Administration provides further details in
April and May about the FY2002 budget.
In late February 2001 the Bush Administration issued the broad outlines of its
FY2002 budget request, including limited information about resources for foreign policy.
(Foreign policy resources are also referred to as the International Affairs budget, or
Budget Function 150 within the broader U.S. federal budget.) Subsequently, additional
details have been released, including statements made by Secretary of State Colin Powell
before congressional committees. More complete information was submitted to Congress
on April 9 when the Office of Management and Budget (OMB) formally released the entire
FY2002 federal budget. Further details will emerge when the State Department and
USAID send Congress their respective budget justifications.
Budget Overview
President Bush seeks $23.85 billion in discretionary budget authority for U.S. foreign
policy activities in FY2002, representing a nominal increase of 5.3% over levels enacted
for FY2001. Administration officials, including Secretary Powell, have characterized the
proposal as a “responsible increase” for international affairs programs within the context
of overall budget constraints in which discretionary budget authority for all federal
programs will rise by just 4% under the President’s plan. They further emphasize that their
highest priorities – State Department personnel, security, and technology needs – would
grow by 18.6% above current spending.

Congressional Research Service The Library of Congress

The proposal has met with a largely favorable reception in Congress. In the FY2002
budget resolution (H.Con.Res. 83), the House approved the full $23.9 billion for
international affairs. The Senate added $200 million for HIV/AIDS and $50 million for
global climate change programs beyond what President Bush requested. Calls for higher
international affairs spending have been fueled in recent years not only by appeals from the
Administration, but also by the recommendations of numerous “expert” commissions that
have cited inadequate resources and dysfunctional organizational structures as major1
impediments to the conduct of U.S. foreign policy.
Figure 1
In real terms, taking into account the effects of inflation, international affairs
resources proposed for next year are 2.6% more than for FY2001 (Figure 1). While
higher than any year between FY1995 and FY1998, the FY2002 proposal would fall 4.8%
and 2.8% short of FYs1999 and 2000, respectively.2
Although the overall size of foreign policy resources would grow in FY2002, most
of the increase is concentrated in the area of State Department operations, with much
smaller growth projected for foreign assistance programs and reductions sought for export
promotion activities. Congress approves the bulk of international affairs resources in two

1 Two of the most recent reports include, State Department Reform, a report sponsored by the
Council on Foreign Relations and the Center for Strategic and International Studies, chaired by
Frank Carlucci, February 2001; and Road Map for National Security: Imperative for Change,
U.S. Commission on National Security/21st Century, chaired by Gary Hart and Warren Rudman,
Feb. 15, 2001.
2 Total international affairs spending for FY1999 and FY2000, however, increased significantly
due to emergency needs and one-time initiatives – including those for embassy security, Hurricane
Mitch relief, Plan Colombia, Wye River/Middle East Peace aid package, and Kosovo emergencies
– that were approved largely through supplemental funding bills.

appropriation bills: Foreign Operations, which includes foreign aid and export programs,
and Commerce, Justice, State Departments, which finances diplomatic, international
organization payments, and educational exchange activities.3 As seen in Table 1, Foreign
Operations would receive an increase of 1.9%, in nominal terms, while State Department
programs, funded in the Departments of Commerce, Justice, and State appropriations,
would grow by about 14%.
Table 1. Foreign Policy Budget by Major Appropriation Components
(discretionary budget authority in millions of dollars)
FY2000FY2001FY2002FY2002 +/-
enactedenactedrequestFY2001 (%)
Foreign Operations$16,543$14,884$15,1681.9%
Export promotion$790$760$486-36.1%
Development aid$1,934$2,263$2,3363.2%
Counternarcotics a $1,323 $324 $948 192.6%
E Europe/former Soviet$1,419$1,482$1,418-4.3%
Military aid$4,988$3,753$3,8893.6%
Other $6,089 $6,302 $6,091 -3.3%
State Dept & Related
Agencies (CJS)$6,160$6,914$7,83013.2%
Diplomatic & Consular$2,824$3,167$3,70517.0%
Technology $80 $97 $210 116.5%
Embassy security$739$1,078$1,29119.8%
Intl Orgs contributions$1,730$1,713$1,7230.6%
Broadcasting Board$420$450$4704.4%
Ed & Cultural exchange$204$232$2424.3%
Other $163 $177 $189 6.8%
Agriculture - Food Aid$800$835$8350.0%
Labor/H-US Peace Inst.$13$15$150.0%
TOTAL $23,516 $22,648 $23,848 5.3%
a FY2000 includes $1 billion for Plan Colombia counternarcotics initiative.
Source: Department of State.

3 Smaller amounts of foreign policy resources are included in the Agriculture spending bill for food
assistance and in the Labor/HHS appropriation for the U.S. Institute for Peace.

Export Promotion Funding Issues
Two trade promotion programs – the Export-Import Bank and the Overseas Private
Investment Corporation (OPIC) – are scheduled for reductions in FY2002, representing
the only policy-based budget cut within the International Affairs account. The 25%
reduced appropriation for the Export-Import Bank is the result of lower lending risks
assumed for FY2002 plus an effort to concentrate Bank support on American exporters
who cannot access private financing. OPIC, according to Administration estimates, will
have sufficient unspent resources from prior years to continue operations at current levels
without the need for new appropriations in FY2002. Both Eximbank and OPIC have been
the target in recent years of some congressional critics who believe that these export
promotion activities generally benefit only a few, wealthy businesses and represent the
equivalent of “corporate welfare.” Pro-business activists, however, are likely to challenge
the budget recommendation, arguing that export subsidies are necessary for American4
firms to compete with foreign-backed trade subsidies.
Foreign Aid Funding Issues
Funding for nearly all foreign aid programs are included in annual Foreign Operations
spending bills for which the Bush Administration seeks a 4% nominal increase (after
adjusting for export promotion programs). Major programs and potential issues for
Congress contained in this sector of the foreign policy budget include:
!Multilateral Development Bank (MDB) contributions. The FY2002
budget proposes $1.21 billion for U.S. payments to the World Bank and
other regional MDBs, a 5.8% increase over current levels. This amount
will fully fund all U.S. scheduled contributions for next year, but it will
not include resources to clear any of the approximate $450 million
American arrears owed to the Global Environment Fund, the Inter-
American Development Bank’s Multilateral Investment Fund, the Asian
Development Fund, and other institutions.
!Bilateral development assistance. Congress funds development aid
activities, aimed at reducing poverty, improving health care and
education, protecting the environment, and promoting good governance
in developing nations, through two primary Foreign Operations accounts:
Child Survival and Diseases and Development Assistance. Combined,
these accounts would grow by $73 million, or 3.2% in nominal terms.
But over two-thirds of the increase will fund two priorities: HIV/AIDS
(+$30 million) and basic education (+$20 million) The request for
HIV/AIDS, an area where resources doubled in FY2001, increases
resources by 10% to $330 million in FY2002. Most other development
aid program sectors will remain at approximate current levels. Population
aid will receive the same $425 million allocation as in FY2001, but
remains a highly controversial issue due to President Bush’s decision to

4 For more information about the Export-Import Bank, see CRS Report 98-568, Export-Import
Bank: Background and Legislative Issues.

re-impose restrictions on international family planning.5 The Bush
Administration is also proposing to reorient U.S. development aid
strategies around three “spheres of emphasis” – Global Health, Economic
Growth and Agriculture, and Conflict Prevention and Development
Relief. USAID will also introduce a Global Development Alliance, an
initiative designed to forge a public/private partnership, with about $160
million in USAID resources, to promote a leverage sound development
!Debt reduction and the Heavily Indebted Poor Country (HIPC)
initiative. Although the FY2002 request cuts by nearly half – to $224
million – FY2001 spending on HIPC debt reduction, the proposal will
fulfill all current U.S. commitments to the multi-year HIPC initiative.
Nevertheless, some debt relief proponents continue to press the United
States and other major creditors to enhance and accelerate HIPC terms,
actions which would require additional resources.
!Counternarcotics activities. The largest foreign aid increase sought by
the Bush Administration would supplement and broaden the $1 billion
Colombia counternarcotics program funded in FY2000 with a new $731
million Andean regional initiative. The objective is to address drug
production and trafficking problems that may have migrated from
Colombia to surrounding states. It further differs from the FY2000
initiative by providing more funding for alternative development
!Security assistance. Strategic-oriented economic assistance, provided
through the Economic Support Fund (ESF), non-proliferation, and
military assistance accounts are heavily concentrated in the Middle East,
a situation that will continue in FY2002. Military aid for Israel will grow
by $60 million, but overall security assistance to Egypt and Israel will
decline by $100 million as part of a ten-year plan to reduce aid to these
two countries. Nevertheless, Israel and Egypt will remain the largest
recipients of American aid, with amounts totaling about $2.76 billion and
$1.96 billion, respectively. Due to the net aid cuts for Israel and Egypt,
plus a small increase overall for security assistance, ESF and military aid
would gain about $230 million in FY2002 that could be allocated for new
members of NATO and selected recipients in Latin America and Asia.
State Department Funding Issues
Secretary of State Colin Powell told the House International Relations Committee
on March 15, “If we think it’s important for our fighting men in the Pentagon to go into
battle with the best weapons and equipment and tools we can give them, then we owe the
same thing to the wonderful men and women of the Foreign Service, the Civil Service, and
the Foreign Service Nationals, who are in the front line of combat in this new world.” The

5 For more on this issue, see CRS Report RL30830, International Family Planning: The “Mexico
City” Policy.

FY2002 budget places special emphasis on four aspects of State Department operations.
!Personnel. The FY2002 budget request would provide a 17% increase
in State’s Diplomatic and Consular Affairs account which provides for
salaries and expenses of the Department’s personnel. This increase is
intended to”reinvigorate” a Foreign and Civil Service that has failed to
attract or retain the “best and the brightest” in recent years. State
Department officials assert that the agency currently has a shortfall of
about 1,100 people. The Administration is proposing a multi-year
program (for which the FY2002 budget request would provide an initial
tranche) to fill the current gap in personnel, enhance retention and
training, and provide for a float allowing personnel to take leaves of
absence for training, without leaving a position empty. Initially, the State
Department seeks to hire 360 personnel (both in Foreign and Civil
Service), 186 security professionals, and some FSN replacements. This
hiring, according to State Department budget officials, would be separate
from filling positions due to attrition.
!Information technology. In recent years, State Department technology
acquisition has not kept pace with its needs and with technology
advancements. This condition was exacerbated by the October 1999
merger of the U.S. Information Agency (USIA)–an agency whose mission
includes providing information and outreach to foreign publics–into the
Department of State where classified communication and information is
required. The Capital Investment Fund (CIF), established by the Foreign
Relations Authorization Act of FY1994/95 (P.L. 103-236), provides
funding for the Department’s information technology and capital
equipment. As recently as FY1997 the CIF appropriation was $24.6
million but grew by FY2000 to $96 million. The Bush Administration is
requesting $250 million to connect State Department offices worldwide
with classified local area network (LAN) capabilities as well as providing
every desktop with unclassified internet capabilities.
!Security. Since the August 1998 bombing of two U.S. embassies in
Africa, State has made personnel and information security a top priority.
The Administration is requesting $1.3 billion, an increase of 22% over the
FY2001 enacted $1.07 billion. Of the total security request, $665 million
would be for construction of secure embassies, $211 million for the
continuation of perimeter security program, and $424 million for an
ongoing security readiness program. State is requesting security funding
within the Diplomatic and Consular Programs account, as well as the
Embassy Security Construction and Maintenance account.
!Embassy Infrastructure. The Bush Administration’s FY2002 budget
includes $60 million for overseas infrastructure needs, such as replacing
obsolete equipment, aging motor vehicles, and improving maintenance
around the embassies. State Department officials say these needs have
been underfunded and have accumulated over the years.