The sharp drop in the value of the dollar last year has forced a number of federal agencies, including the Defense and State departments, to make an unusual request to Congress for more than half a billion dollars in extra funds, officials say.
The Pentagon alone is asking for $490 million to pay servicemen stationed overseas because their salaries' buying power has been eroded by the dollar's decline against the German mark and the Japanese yen, these officials say.
Will Add to Deficit
The House Appropriations Committee will begin considering the requests today as part of a larger package of supplemental funds for fiscal 1987. The requests, which demonstrate the complex problems presented by swings in the value of the dollar, are likely to be approved, even though they will add to this year's budget deficit.
A spokeswoman for the Office of Management and Budget said that the total cost of requests for money needed because of foreign currency exchange losses has not been tabulated, but the figure is expected to be more than $500 million.
The State Department is asking for $30.7 million, and Radio Free Europe and Radio Liberty are requesting $33 million, sources said. Other requests include $7.5 million for the U.S. Information Agency and $3 million for the American Battle Monuments Commission, which maintains overseas cemeteries for Americans who were killed during World War II.
Pay Hike for Soldiers
By far the largest request is that made by the Pentagon, which must pay an estimated 450,000 soldiers--most of them in Japan and Germany--more money when the value of the dollar drops below an established threshold in relation to the mark or yen. The dollar has dropped about 30% against the mark and 40% against the yen since the Defense Department submitted its budget projections for fiscal 1987 almost 18 months ago.
Last year, the Pentagon made up for currency fluctuations by taking money out of other programs. However, that was not possible this year because of the dollar's substantial drop.
"It's been volatile. We've made payments before, but not anything close to this," said one congressional aide, who asked not to be identified. "We really don't have much choice but to make the payments. What we were doing before was robbing Peter to pay Paul. The only other option is to take it out of another program, and that's almost impossible now. This has been a big problem. The Administration decision to allow the dollar to drop has cost dearly for some people stationed overseas."
The Pentagon originally requested $342 million for foreign currency exchange losses, but it increased the amount after just three months because of the dollar's continued drop.
Fear of Inflation
The Administration has hailed the decline in the value of the dollar as an aid to decreasing the trade deficit. A cheaper dollar makes U.S. goods more attractive to foreign buyers while foreign goods become more expensive in the United States. Although that can help reduce the trade imbalance, some economists worry that, if the dollar continues to drop, inflation may be rekindled in the United States.
A declining dollar will force the budget deficit up, although OMB spokesman Edwin L. Dale Jr. said it is impossible to predict how much. The latest OMB estimates say that the 1987 budget deficit will be $173.2 billion.
"Obviously, the declining value of the dollar has its pluses and minuses," said Joe Cobb, a senior economist with Congress' Joint Economic Committee. "But the budget effect is tiny compared to the benefit it's having on the trade deficit. The underlying message is (that) currency fluctuations are undesirable. Fluctuations tend to hurt everybody. For every uptick of the yen, one person is helped, one person is hurt."
For Radio Free Europe and Radio Liberty, which broadcast news and commentary to five East European countries and the Soviet Union, the $33-million request is a substantial amount compared to its $140-million budget.
May Curtail Broadcasts
Malcolm S. Forbes Jr., chairman of the Board for International Broadcasting, the radio system's parent agency, told a House appropriations subcommittee last week that, without the extra money, the agency would have to begin curtailment or suspension of its broadcasts in July.
"Fully 81% of (the radio system's) budget is in foreign currencies, a larger portion than any international agency," Forbes said at that time. "I do not want to be an alarmist, but I am alarmed at what the decline of the dollar has done to our budget this year."
Britain and the U.S. respond to Japanese calls for currency intervention. Details in Business.