Inter Press Service - September 16, 2003
Emad Mekay

Last week the administration said it would request 87 billion dollars more to fund military operations and the 'reconstruction' of Iraq and Afghanistan for 2004.

This request comes on top of some 79 billion dollars approved by Congress earlier this year and would bring spending for the two years to 166 billion dollars out of U.S. taxpayers' pockets, further compounding the current U.S. budget deficit.

That deficit has been fed mostly by the administration's tax cuts and the large increase in defence spending associated with the self-styled "war on terror" since Sep. 11, 2001.

Economists here are even further alarmed by looming demands on the U.S. budget. They say that the aging of the baby-boom generation is going to put still greater pressure on the social security system and government-financed health care expenditures.

All that would inflate the deficit, estimated at 540 billon dollars for 2004, the largest budget deficit this rich country has ever known.

Under the best-case scenario predicted by the Congressional Budget Office (CBO) two weeks ago, the cumulative deficit would reach 2.3 trillion dollars over the 10 years ending in 2011.

The office said earlier this month that this year's deficit would be 401 billion dollars, an increase of 155 billion dollars over what was predicted in March 2003.

Next year's deficit was projected to be 480 billion dollars, but with the Iraq request announced by President George W. Bush last week, the deficit will climb to 540 billion dollars or higher, moving it close to a value equivalent to five percent of gross domestic product, a benchmark that many economists consider a danger zone for the economy.

This is not only bad news for the U.S. economy, but for nations expecting assistance from Washington.

"There will be a real squeeze on other expenditure areas," said Lael Brainard, of the Brookings Institute, commenting on whether the United States will be able to fulfil its promises on funding for HIV/AIDS, foreign aid and its new Millennium Challenge Account (MCA) for overseas development.

The administration, and some development groups, consider the MCA as a new approach that would grant money to nations that demonstrate a commitment to remaking their justice systems, spending more on health and education, and adopting market-opening measures.

"Certainly on the Millennium Challenge Account -- that looks very unlikely," Brainard said at a recent Brookings seminar. "And so what looked like a very strong hand a year ago is now, I think, increasingly going to be coming into question on the part of other countries who are looking to those resources to help them underwrite their development plans."

The cash crunch looks likely to whittle away at other aid promises. In May, Bush signed a bill to give 15 billion dollars -- including 10 billion dollars in newly pledged money -- over five years to fight HIV/AIDS in Africa and the Caribbean.

He called the plan "the largest, single up-front commitment in history for an international public health initiative involving a specific disease".

The AIDS money comes on top of the president's announcement in March 2002 of the largest increase in development aid since the Kennedy administration (1961-63), through a proposed hike of 10 billion dollars for the MCA.

But now with the 87-billion-dollar request for Iraq, economists say that Congress faces limited options, which include plans to cut back requests for the MCA and other foreign aid projects substantially.

"At the present time, the administration and the Congress have essentially no forward-looking plans or policies to deal with this set of looming problems," said Ralph C. Bryant of the Brookings Institution at the same seminar.

The president has requested 18.8 billion dollars for foreign aid in the midst of reports that Congress could drastically cut that to trim the deficit.

Development groups have responded with alarm. On Tuesday, Catholic Relief Services (CRS) issued a statement calling on Bush to ensure full funding for the fights against global poverty, MCA and HIV/AIDS, tuberculosis and malaria.

"People's lives depend on presidential action now," said Bill O'Keefe, senior director of policy and advocacy for CRS.

"The 18.8 billion dollars that President Bush requested for foreign assistance in fiscal year 2004 is the minimum if we are to meet our nation's commitment to assist the poor and vulnerable in the developing world," he added.

"We urge the president to work with Congress to honour this commitment."

Other groups, such as Bread for the World and InterAction, the largest coalition of development and humanitarian groups in the United States, have issued similar calls.

"Funding for new initiatives and crisis countries cannot come at the expense of existing child survival and development assistance programs," InterAction President Mary E. McClymont told IPS.

The Iraq request is the latest reason for economists to point an accusing finger at the administration's budgetary policy.

"Fiscal policies in the United States are irresponsible. They are termites in the basement. And they are serious, longer-run threats to our economy and to the rest of the global economy," said Bryant.

But the situation could get worse. The Washington-based Centre on Budget and Policy Priorities has warned that the administration seems unable to stem the widening deficit.

"If the nation suffers major contingencies -- another recession, a major natural disaster, another terrorist attack, or another round of military engagements -- the deficits likely will be even higher than projected here," it said in a report released last week.

*****

+Brookings Institution

(http://www.brook.edu/views/articles/gale/20030922.htm)

+Centre on Budget and Policy Priorities

(http://www.cbpp.org/9-11-03bud.htm)

+Catholic Relief Services

(http://www.catholicrelief.org/newsroom/news_releases/release.cfm?ID=175)

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