The President. All right.

Q. -- -- nonetheless, we're not taking it as the ultimate in quick fix. If the questions are blunt, it's because we'd like to be very serious with you, and we'd like to take back some good messages for our readers about what's going on, the problems that you're facing, and some of the anxieties that they've both got.

Mayor Edward I. Koch

But let's start with a softer question about New York City first. You said that Mayor Koch was a great mayor.

The President. Mm-hm.

Q. Do you think he'll be a great Governor, if he's elected?

The President [Laughing]. Well, if he continues the pattern that he held here with regard to balancing budgets and so forth, yes. The jobs aren't that dissimilar, although he might find a whole legislature a little bit more to handle than just a city council. But he's -- after all, he was a Member of Congress, and so he knows his way around there, too.

Q. Right.

Q. You think he's got the goods to be a good Governor?

The President. Yes, I think his record here in what was called so many times an impossible task, and he made it possible -- two straight years of a balanced budget.

New York Republican Party

Q. Are you concerned about the disarray in the Republican Party in New York? The frontrunner for Governor, Ned Regan's withdrawn, and the frontrunner for the Senate, the GOP Senate race, has been forced to withdraw.

The President. Yes, I know. That's something that you don't like to see in either party or have happen. The only advice I would give, coming in as an outsider, only linked by way of -- that we're in the same party and concern is I would highly recommend the Eleventh Commandment that we gave birth to in California: ``Thou shalt not speak ill of another Republican.'' [Laughter]

Q. Governor Koch notwithstanding.

The President. Well, I tell you, though, it's amazing what we learned there. It worked, because when it was created was at the low spot, right after 1964. And we had torn the party wide open in California. I don't think it was more divided any place in the country than it was after the bitter '64 election. And that simple thing, the Eleventh Commandment, took hold, and organizations like the Women's Federated -- the Republican clubs, they adopted statewide and just simply said they would not support any Republican winner after the primary who had not observed in the primary the Eleventh Commandment. And '66, a united party elected almost all the constitutional officers -- the Governor -- that was when I ran. And it just -- it did the job.

The Nation's Economy

Q. Yes. Thank you. If I could talk about the economy -- you know, I don't think there's any question that the budget cuts are going to have a pretty dramatic effect on the life of the average New Yorker. And what we'd like to know is how we can tell our readers how to face this. I mean, are we going to tell them that we're biting the bullet now in order to make things good, or do we have to accept the fact that the life of wine and roses is over? I mean that's the kind of question strap-hangers ask us every day.

The President. Yes. Although there's been a -- you know, there's been a great tendency to play this as -- maybe it's the term ``budget cut'' that is the thing that confuses most people. They fail to see -- now, I take it you're talking about now our national -- --

Q. Yes.

The President. -- -- our national reductions. They're reductions in the rate of increase. The '83 budget will be bigger than the '82 budget. The '82 was bigger than the '81. The difference is that before, and when we came to office, the Federal spending was increasing 17 percent a year. And we have more than cut that in half. But it still means -- we've cut that rate of increase in half -- but it still means that there is more. Now, there are certain individual programs that have been cut simply because we found that -- mismanagement or they were ineffective. I can give one example.

We have in the budget, for example, $1.8 billion for job training. Now, that's a reduction from a $3.5 billion CETA program. And everyone would say, automatically, in time of recession like this and unemployment, why would we be cutting that? Now, the funny thing is what we're cutting was fat. The program that we deserted, the $3.5 billion one -- it was, I think, maybe $3.35 or something of that kind -- it was only $592 million of that was actually spent on training. Out of the billion eight, $3\1/4\ billion -- I mean, a billion and more than a quarter of a million dollars will be spent on job training. That we've almost doubled the amount or more than doubled the amount of money spent on job training, and for only half the price of the program. Now, we do have programs that -- individual programs that are smaller, but for reasons of that kind.

Food stamps: I hear the downbeat talk about things of this kind and hunger and so forth. There'll be five [The President later corrected himself to say he meant two times as many food stamps] times as many food stamps as there were in 1978. The increase is that much.

Q. That aside, with the economy the way it's going and with job training, should we be looking forward to putting our kids through college, or one kid through college and one kid through job training? Should all kids go through college, or should some kids not go through college and go to job training, maybe a carpenter or a bricklayer or someone?

The President. Well, I see the natural selection in that is taking place. It's a voluntary thing already.

Q. Can I afford to put my kids through college, do you think? I don't know.

The President. Well, no, I'm just talking about those who choose to go to college or try to, and those who -- there are others who have no interest in going to college and who go on in a different direction. And I don't think there ought to be any compulsion about one or the other though.

But again, our grants and loans will provide for almost 7 million college grants and loans. So there again, what we did was we decided that there had to be some ceiling someplace on the loans, because, very frankly, we found that, with the high interest rates -- --

Q. Are being abused.

The President. -- -- some people were simply taking the government loan and reinvesting it in Treasury notes and making a profit on the money they'd borrowed from the government.

Q. Well, okay, now if we're to believe the New York Times and the Washington Post and most of the networks, the suggestion is that you're being deserted by your allies in the Senate, in the Congress, and even in parts of your administration in these difficult times. Now, is this selective journalism? Are you frustrated with your relationships with the GOP?

The President. No, not at all. We've been meeting -- and granted, there are different proposals and ideas, but I think all of them sincerely intended. The simple problem is we are in a kind of emergency situation. And I think we have to treat it -- and when you, a moment ago, said that, about biting the bullet and so forth, I think even though I have pointed out that as far as the really, truly needy are concerned, I think we are maintaining the safety net.

But I do believe that we've got to recognize that this recession has been the result of a number of years of practices that have led to these high interest rates. Now, today there's only one thing that causes those high interest rates, and that is that right out in the money markets themselves -- even though last month inflation was only running at a 3-percent rate, annualized rate, that we've come all the way down to that. And since October 1st, averaging it out since October 1st, it has averaged 4.1 percent. Now, that would indicate that interest rates, which are dictated by inflation -- if you're going to lend money and you know that there's an inflation rate that every year is depreciating the value of the dollar you lend, you have to get back enough in interest to offset that, plus the earnings that you want on top of that money.

If -- at a 3-percent interest rate, you could say that, or -- I mean, an inflation rate -- that interest rates should be less than 8 percent, and they're not. And one of the reasons is, having been burned over the last few decades so many times, the markets just don't believe that inflation is not going to go back up. They have seen that roller coaster effect of the money supply zooming up as it did in 1980 -- the fastest rate of increase in our history in the last 6 months of 1980. But then when they pulled the string on it, it zoomed way down below what it should be, and supply and demand -- the result was that inflation went zooming up again. And this, I think, is what the money market suspects.

They can't believe that we're going to go forward and that this is -- we're going to continue this fight against inflation.

Q. So, will you pin down the doubt about the success of your program as being the main reason why interest rates have stayed so firmly well above inflation -- --

The President. That or the very fact that they don't really believe that the Congress will continue with the program of reducing government spending and so forth. Now -- --

Q. Are they turning around? I mean, do you think there's support -- --

The President. Well, right now you see -- you know, the battle goes on as it did the last year, and so we have submitted billions of dollars, tens of billions of dollars in cuts, and so far there's no indication that the opposition is going to accept those.

I feel that we are going to get together. We have to. But I think we also have to get together something -- in the same tone of what you said -- of: ``Look, government is the cause of this; government has to restore the balance.'' Government has to reduce the amount of money that it's taking from the people. Government has to allow the private sector -- the economy to expand, provide the jobs the people need, and that means continuing on this anti-inflationary pattern.

Q. Is it a case of both of us biting the bullet? We've got to bite the bullet; so has the government.

The President. Yeah, to a certain extent, yes.

Q. Well, without setting your feet in concrete, when do you think -- when do you hope that the interest rates will start tumbling, and how much by?

The President. Well, I have to believe that we're going to see a few points' drop between now and summer -- now, not as much as I'd like to see, but I think we are going to see that. And maybe then as there are increasing signs that we are bottoming out in this recession, then I think we might see more of that.

Q. Two points is very significant, if you said by summer. Even if you are wrong, say, like even by next winter -- I mean, for this particular region, two points, maybe three points. Do you really think we could do it in 6 months? Two or three points' drop, people could get homes two or three points less?

The President. Well, I've had -- --

Q. Perhaps? Maybe?

The President. -- -- projections of this kind given to me by economists and -- [laughter] -- --

Q. He said your feet are not in concrete, but do you think, perhaps?

The President. Yes, I have to believe that. We've seen that one start down and that there was a little flurry and like a half a point up and a half a point here. But I think that was the beginning, and I think -- I know that I'm really basically speaking of short-term loans. What the situation will be with long-term, I think is going to depend on what we -- and by ``we'' I mean myself and the Congress, all of us -- come up with in this program, how closely they come to meeting what we've asked for with regard to reductions in spending, that sort of thing.

Q. Yes, we'd really like you to expand a bit more on how optimistic you are on the outcome of the budget struggle between yourself and Congress. I mean, this time, the number of rallying points that you have at your disposal are a good deal more limited to start with anyway than this time last year.

The President. Well, I'm still optimistic, because I know that there are well-intentioned people up there on both sides of the aisle that really are serious-minded about the welfare of the Nation. And I think when the chips are finally down that we will.

Q. You have said, in the best of the Post traditional headlines, ``Put up or shut up.''

The President. Yeah.

Q. And I think all New Yorkers responded to that. And you were quite unequivocal when you said, ``Put up or shut up.'' In other words, you were saying, ``If anyone's got a better idea -- -- ''

The President. Yes.

Q. `` -- -- please come to me.'' Has anyone come up with a better idea? I guess not.

The President. Well, not -- no, there've been maybe a dozen proposals, but they didn't meet what I think are the three basics. I think that the program that we have in place is the best answer, the fundamentals of that program, for getting us back on a sound economic footing. And it calls for a reduction, of course, in government spending, a real reduction. It calls also for the national security and ensuring the national security. And it calls for the incentive tax cut program that we sponsored both in the individual and the business accelerated depreciation and so forth. Those.

Now, I think that any program -- I think there's flexibility in there in a number of ways. If you'll remember, we discussed last year that I am willing to look at the tax structure for those places where, maybe, there are people getting unintended and undeserved tax breaks who should be -- in other words, I hate to use the term that was given birth last year and then everyone thought it was a euphemism for tax increases, but, no, when I said, ``revenue enhancements,'' well, we were talking about this thing. You know, to -- I just read as late as today that it is estimated that $95 billion is lost in tax revenues every year. Well, that's as much as they're talking about for the whole deficit. But that type of thing. Suggestions in that.

If they're -- someone will come in and if they want to discuss differences with regard to where government spending should be cut, but certainly coming back to the same goal of reducing government, my feet aren't in concrete on those things. But so far nothing has been forthcoming except some voices raised saying to me, ``Well, we don't like what you've submitted. Submit something else.'' Well, I negotiated too long for a union to believe that that's the way you do it. They suggest something and then you start toward each other.

Q. We understand your administration's discussing bringing forward the 10-percent tax cut and making it retroactive to Jan. 1 this year. Would you be in favor of that?

The President. If it could be done practically. But we really looked at that because, yes, we were interested in that. We were interested, because I think if we'd gotten the whole package last year, if they had given us the tax cut beginning in January of 1981, 10 percent and not the 5 percent, I think very likely we could have avoided this recession. And so, I would think about that.

But from Treasury, as we looked into it, the whole mechanical problem of it and the actual gain over and above the problems that it created just didn't make it look worthwhile.

Q. So, it's not likely to run.

The President. It's not likely to be done.

Q. No.

The Middle East

Could we turn to international -- this is an international question, also, as you recognize a New York question. How could you assure the Jews of the city, this city, who came out very strongly for you in the election, how could you assure the -- that you haven't abandoned them and Israel? You know, many of the Jews in this city feel very hurt. And now maybe the lines are crossed, but that's the way we hear it.

The President. I think they are, and we've tried to meet with leaders of various groups and organizations in the Jewish community to explain -- particularly last year over the AWACS deal -- what it was that we were trying to do. And I can assure you -- in fact, it will be in my remarks tonight -- that we remain, without qualification, pledged to the security and the support of Israel.

Q. Then you do feel the lines have been somewhere crossed?

The President. Yes. Let me take the AWACS issue to begin with.

Here is Israel, virtually one of the smallest of the nations, outnumbered a hundred to one, basically by countries that -- other than Egypt -- have still -- well, until Saudi Arabia softened its position -- declaring that Israel does not have a right to exist as a nation. So, Israel retains a military capacity that is backbreaking for them.

The answer to Israel's security is long-time peace. The United States is dedicated -- and was before I ever got here, as witness Camp David -- to helping in this process. I think that one of the only ways we can bring this about is if we can persuade, particularly the more moderate Arab nations, to see this situation as Egypt did -- and Egypt was the one that was at war -- and to bring them into where we can sit down and they can recognize that we intend to be fair as an outsider in here trying to help.

So, what we have been -- this is one of the reasons we have been trying to develop this relationship and let them know that we want peace for everybody there.

Q. Is the thought, Mr. President, that previous to that, that the American Government was so, to coin a phrase, ``pathologically tied into Israel,'' that even the moderate Arab countries felt they were so threatened, not so much by Israel but by the so-called almighty American arm and got scared into something and doing something that they would not have normally done. And then by -- what you're saying is by balancing it, we both have a right hand and a left hand.

The President. Well, no, I don't think they were. I think that you'll find among those same moderate nations that they have much more of a concern of the threat of the Soviet Union in the Middle East. And Egypt certainly did not. Sadat did not change because of any pressure from us. You know, he had inherited the alliance with the Soviet Union. And he finally had it up to here with them, and he kicked them out, and then made that great overture that led to where we are today.

But, no, I believe it is a case of -- and Prime Minister Begin, when he visited Washington, I told him this and what we were going to do, and I told him that we were allies and that in my view it was a two-way street, that we derived benefit as well as they did from the relationship, and that we were completely dedicated to the preservation of the state of Israel. And this was the only, the supposed arm-twisting and everything that took place in the AWACS thing. This was all that I said -- --

Q. Arm-twisting. [Laughter]

The President. -- -- but this was all that I said to the Senators. I told them that I believe that this was the most useful step in the pursuit of peace. And many of them -- they were -- and I must say, the Senators that I talked to were most sincere in their views, even those that -- their concern was the security of Israel. And I got their votes when I was able to persuade them that it was equally my concern.

I remember one day one of them, he stood up after we'd talked, and he said, ``Well,'' he said, ``I'm going out of here and do some praying.'' And I said, ``Well, if you get a busy signal, it's me in there ahead of you.'' [Laughter]

Q. Mr. President, you also sent those Senators, I think I recall correctly, and to the Congress, a letter in which you pledged that the planes would not be -- the deal wouldn't go through unless certain conditions were fulfilled, one of which was that the United States would share in the intelligence gathered and have a say in the supply of that to any third party.

The President. You mean of the information from the Saudis, from the AWACS. Yes.

Q. That's right.

The President. Yes.

Q. And I presume, of course, that that is still the case and that either it's been achieved or is in the process of being achieved.

The President. That had been worked out, yes.

Q. And positively. That is, you'll be able to fulfill it.

Central America

Q. Can we talk about the backyard of America?

The President. The background of -- --

Q. The backyard.

Q. Central America.

The President. Oh.

Q. Do you think, in fact, that democracy can be saved in El Salvador, and what can, should, or would we do if all hell breaks loose out there?

The President. Well, I think it can be. Did any of you see Duarte on ``Face the Nation?''

Q. Yes.

The President. I thought he was very effective. And his explanation, I have to say, I second what he was saying, because this is the concept that we have. And all the evidence that we have substantiates this, that here is the middle road.

And he does have an extreme right down there. And he also has those guerrillas to the left. And we know of the efforts that he made to persuade the left groups, the guerrillas, and amnesty promised them and all, if they'd join in this election. And they revealed, really, how true to the left they are, in that they wanted to be a part of government by negotiation without an election. And his was the group -- --

Q. Back to your old union stands, right?

Q. But it's very difficult, quite obviously -- as it was in Vietnam, Laos, Cambodia -- it's very difficult to, obviously, separate El Salvador, Nicaragua, and so on and so forth. And it comes to the obvious question: Cuba, we perceive, has fomented problems in Nicaragua. Nicaragua is feeding, we perceive, arms to El Salvadoran rebels.

The President. Yes.

Q. It's very difficult to draw a borderline on a map. How do we look at Central America front on and say, well, you're an El Salvadoran, you're a Cuban, you're a Nicaraguan? Quite obviously, they're so incredibly intermingled.

The President. Well, you have some democracies there. You have Honduras; you have Costa Rica, who, well -- Costa Rica was the showcase of democracy. But now, Nicaragua was a perfect example of where there was a coalition for the revolution, and against, in that case, you might say, the extreme right. But the coalition, the moderates and the leftists and so forth, got together. But once the victory was achieved, pretty soon the moderates were no longer part of the government. And it all was completely left.

And if you will remember, at the inauguration, Castro was there, a representative of the Soviet Union. And Castro proclaimed -- and no one put him down for it -- proclaimed that here on the mainland of America was the first Communist -- --

Q. But, Mr. President -- --

The President. -- -- state.

Q. -- -- do we sit down, do we take a back seat to Afghanistan? Do we see Afghanistan roll -- the Russians rolling over Afghanistan? Do we see the Cubans rolling through Angola, the Cubans rolling through Nicaragua, the Cubans feeding El Salvador? Now, no one wants to get in another Vietnam, of course -- --

The President. No.

Q. -- -- but, indeed, what is the end result? What do we do?

The President. Well, in all of those things, we are embarked on certain courses. For example, with regard to Angola. When we took office, the whole negotiations for Namibia were on dead center and stopped. You know, there is what's called a contact group, and there are the frontline African States and so forth concerned with this and South Africa. Now, we have gotten those negotiations back underway, and we are most hopeful that we can persuade -- --

Q. So, can we promise the Poles something? Can we promise the Nicaraguans something? Can we promise the -- can we promise them anything?

The President. We showed -- --

Q. We can't send Americans.

The President. We showed our intention to Nicaragua at the very beginning when we renewed a grant to them. And the grant was on -- this was before they were quite as openly left -- before they'd gotten rid of some of their moderates. And we withdrew the balance of the grant when we found they'd lied, because they -- at the time of the grant, they promised us that they would not in any way intervene in Salvador.

Q. Shouldn't we punish them some way? Shouldn't we punish them some way, somehow?

The President. Well, we took the money away from them. But right now, you know, there is the possibility they themselves have expressed the willingness to talk. Mexico has suggested itself to intervene.

In all these places, I know it's quite a checker game, but it doesn't mean that we're interested in one and neglecting another. Right now, I think with this election coming up, Salvador -- and we didn't start that, it was there -- has been the key. And yet our aid economically is several times greater than anything we're doing with regard to military supplies to help them.

And, no, we're not -- we don't have any plans to send any combat forces anyplace.

Q. No plans?

The President. No.

The Nation's Economy

Deputy Press Secretary Speakes. Mr. President, one thing you might want to clarify. Back on the economy, when you mentioned the inflation rate, when you said 3 percent, you said ``annualized.'' Three percent was the monthly rate.

The President. Yes -- well, no. I said -- --

Q. Four and a half.

The President. -- -- that February, if you annualized the February rate -- --

Deputy Press Secretary Speakes. I see.

The President. -- -- because it would annualize out to only 3 percent over the -- --

Q. We need this guy as a reporter on the New York Post. [Laughter]

Q. And there are some figures out today which are suggesting it's nearer 1 percent.

Q. May I ask permission to ask one small question?

Deputy Press Secretary Speakes. Sure. Let's go ahead with one more quick one and then scoot out.

U.S.-Soviet Relations

Q. But it's something which causes me a lot of anxiety. I try to write about it. We have this vast Soviet rearmament, and it's got to the point where the United States has to do its own bit of catching up to rationalize the situation and bring some balance into confronting situations. And we also have the capital of the world, the Western capital. Do you give some thought from time to time or is there any current approach to thinking in terms of the use of our main weapon in that area, of capital, of the capital which the Soviet Union, the Soviet bloc obviously wish to borrow with which (a) to buy food, and (b) of course, to buy high Western technology with which to make even a bigger quantitative leap in their rearmament program?

The President. Well, I think the economic signs are there now of what has happened to the Soviet Union from this big buildup. They are in deep trouble, and so are their satellites. And this is why we've had Jim Buckley7E7E7E\2\ (FOOTNOTE) and his group over there -- --

(FOOTNOTE) \2\7E7E7EUnder Secretary of State for Security Assistance, Science and Technology.

Q. Yes, I was wondering about the success of that mission.

The President. Now, I'll be meeting with him when I get back. He just got back this weekend, and so I haven't had a report. This is what he's talking to the allies about, is the curtailing of credit to the Soviet Union, because I think they've run out of hard cash and they economically are very vulnerable right at the moment.

They've deprived their people; they've lowered their standard of living just to continue with this massive buildup. And I must say they've been tremendously successful with it. They're -- not only quantitatively but qualitatively -- militarily they have been an industrial giant. And this is one of the reasons why we can't retreat on what we're doing, because I believe we've come to the point that we must go at the matter of realistically reducing, if not totally eliminating, the nuclear weapon, the threat to the world.

And I think to do that we have to sit across the table from them with the strength that we haven't had for the last decade in which they've got a stake in maybe doing something of this kind, and particularly now in their economic situation. But before this we were unilaterally disarming. They didn't have to give in and make any deal about disarming. And I think what we're doing in Geneva reveals something about their lack of sincerity now in this whole matter, because we don't have anything there and they have 300, and we're saying we won't put anything there if you'll take your 300 away. And they so far haven't been willing to meet.

But I think that's a pretty good indication of how important it is that you sit on the other side of the table with some chips of your own that you can throw in the pot.

Note: The interview began at 3:28 p.m. in the Empire Suite at the New York Hilton Hotel. Participating were Roger Wood, New York Post executive editor, Bruce Rothwell, editorial page editor, Steve Dunlavy, metropolitan editor, Niles Lathem, Washington bureau chief, George Arzt, city hall bureau chief, and Joey Adams, columnist.

The transcript of the interview was released by the Office of the Press Secretary on March 24.