1. Editorial Note

On January 21, 1969, the President's Assistant for National Security Affairs, Henry Kissinger, sent National Security Study Memorandum (NSSM) 4 to the Secretaries of State and Defense, the Director of the Bureau of the Budget, the AID Administrator, and the President of the Export-Import Bank informing them the President had mandated preparation of a paper on U.S. foreign aid policy for NSC consideration. The paper was to be prepared by an Ad Hoc Working Group chaired by Deputy Under Secretary of State for Economic Affairs Nathaniel Samuels and was to include senior officials from the aforementioned agencies and institutions, as well as Treasury, Agriculture, and NSC Staff. The Chairman could include representatives from other agencies as appropriate. He was to forward his report to the NSC Review Group by March 15, 1969. (National Archives, RG 59, S/S Files: Lot 80 D 212, NSSM 4)

At the Council of Economic Advisers, Courtenay Slater on January 22 sent to Council members Paul McCracken, Henrik Houthakker, and Herbert Stein a memorandum alerting them to foreign aid and LDC trade issues facing the new administration. Slater apprised them of the Javits Amendment to the Foreign Assistance Act, which required the President to make a comprehensive reappraisal of U.S. foreign assistance programs, with an interim report to Congress by July 1, 1969, and a final report by March 1970. She noted the recently completed Perkins Commission Report, which she thought would be valuable background for the Javits Amendment reappraisal, and asserted the need to establish an appropriate interagency process for the reappraisal. She cited a January 2 New York Times report that the President was expected to establish a special committee on foreign aid shortly after his inauguration and noted the trend that would lead to the enactment of legislation to establish the Overseas Private Investment Corporation, the need for International Development Association and Asian Development Bank authorizing legislation for FY 1969 and FY 1970, the initiative of the Organization for Economic Cooperation and Development and the UN Conference on Trade and Development on tariff preferences for developing countries, and commodity initiatives for developing countries. (Ibid., Nixon Presidential Materials, White House Central Files, Box 30, Houthakker-Foreign Aid Policy) For documentation on the Perkins Commission Report, see Foreign Relations, 1964-1968, volume IX, Documents 69, 79-81, and 84.

The NSC Review Group was scheduled to meet on March 21 to consider a draft response to NSSM 4 prepared by the Ad Hoc Working Group. See footnote 3, Document 4. In preparation for the March 21 meeting, Assistant Secretary of State for Economic Affairs Greenwald sent Counselor Richard Pedersen a March 20 memorandum indicating that the Department of Defense and the Joint Chiefs of Staff had a major problem with the paper, although the NSC Staff and Treasury would probably have only drafting changes. He attached an undated memorandum from Philip J. Farley that described the Defense Department view that the paper was not responsive to the NSSM 4 directive, did not adequately address alternative strategies, and did not analyze the political aspects of aid. More fundamentally, Farley objected that the paper was seriously deficient in defining the first objective of "foreign assistance" as the assurance of the military security of "exposed allies" rather than U.S. national security. He noted that "Americans are basically agreed on the need to spend for our allies' security," but asserted: "The Foreign Assistance Act is introduced by a statement of policy which explicitly relates our assistance programs--both economic and military--to the national security of the United States." He pointed out that that week the Chairman of the House Foreign Affairs Committee had written Secretary of State Rogers and Secretary of Defense Laird to remind them that his "support for the foreign assistance program has been based on the belief that the programs authorized by the FAA were essential to the security of the United States." (National Archives, RG 59, S/S Files: Lot 73 D 288, 21 March Review Group Meeting)

On March 25 Richard Pedersen sent a memorandum to Secretary of State Rogers reporting on the Review Group meeting. Pedersen wrote that as a result of the Defense objections the paper would focus only on economic assistance, and military assistance would be the subject of a later study. Pedersen reported that the agreed main issues for NSC consideration would be 1) the objectives of economic assistance; 2) alternative future aid levels; 3) the degree by which multilateral assistance should be increased; 4) the current AID budget, in particular whether or not to trim the $2.3 billion Johnson administration request or support the full amount with a request for a separate technical assistance bureau and the creation of a private investment corporation; and 5) the possibility of supporting tariff preferences for developing countries, which it was agreed were of little economic importance but might be politically valuable in light of the importance attached to preferences by developing countries. (Ibid., NSSM 4)

Washington, February 20, 1969.

The House Banking and Currency and the Senate Foreign Relations Committees are asking my view on last year's unfinished business of authorizing U.S. participation in an internationally negotiated package for the second replenishment of the International Development Association. IDA was established as a World Bank affiliate for lending on concessionary repayment terms following the initiative of then Secretary of the Treasury Robert Anderson under President Eisenhower's leadership. The pending legislation author-izes our participation with a 40 percent share of the total. We would provide $160 million in each of three years, starting in FY 1969. I believe it should have this Administration's strong and early support. The Secretary of State concurs in this view.

It would be helpful if I could know of your support for this legislation before your European trip/2/ so that I might be in a position to testify positively should the House Banking and Currency Committee call a hearing next week as they now seem to contemplate./3/ I do not recommend any other specific action on this by you at this time, but will inform you of any further actions that might be necessary as legislative consideration progresses. I should add that all the European countries you will be visiting approved the IDA replenishment agreement last year, and a number of them have made advance contributions to this replenishment pending our action.

In addition to responding to a request for hearings, there are a number of advantages to my taking early action to urge Congressional approval of the IDA replenishment. First, it will demonstrate this Administration's support for the multilateral approach. It will concentrate this support on legislation that has a reasonable chance of passage, where the previous Administration did not succeed in securing approval. Second, it would help return bargaining power to the U.S. vis-a-vis Europe for such multilateral endeavors, a position which was eroded by last year's failure to obtain U.S. ratification. Finally, while it will not be easy, there is at least a fair chance to obtain legislative action before foreign aid and other major issues divert Congressional attention.

A sufficient number of other contributors to IDA have completed their actions to make the international agreement on the IDA second replenishment effective as of the date the United States acts. Unless we do act the agreement cannot become effective. While the amount of each country's contribution is increased over the last replenishment, our share of IDA has been reduced from 43 percent when it was established to 40 percent in the current proposal. This compares with about a 60 percent share of world-wide bilateral assistance. The agreement provides for specific protection of the U.S. balance of payments by providing for others to accelerate their actual payments through FY 1971 should the U.S. balance of payments require it. While President Johnson's budget makes provisions for this contribution, the actual additional budgetary costs will be substantially below the three annual contributions of $160 million each we would make in FY 1969, 1970 and 1971. We can be reasonably assured that IDA funds will be used effectively because IDA is administered by the World Bank, and we know that the funds are needed urgently because IDA's existing resources are almost fully committed.

I would also hope to be in a position to indicate our support for a U.S. contribution to the Asian Bank Special Funds. A U.S. contribution of $200 million over a four-year period was recommended by the last Administration, particularly on the advice of Eugene Black. While there is not an internationally negotiated package, the legislative proposal would limit our contribution to a minority share and to pay for U.S. goods and services only. President Johnson's budget provided for $25 million in each of the first two years. Authorizing legislation did not get as far in the Senate legislative process as the IDA proposal, but it is a worthwhile multilateral endeavor. Among other donors, the Japanese and Canadians have shown a tangible interest by unilaterally pledging contributions, but the major Europeans have been slow in coming forward. I would prefer to deal only with IDA legislatively at the outset, and then deal with the Asian Bank specifically, as soon as IDA is adequately on the legislative track.

If you agree with the above, I will proceed accordingly./4/

David M. Kennedy

Washington, March 13, 1969.

SUBJECT
NSSM 4: AID Policy

I have reviewed the draft response to NSSM 4 which you will consider at your meeting Friday afternoon at 2:30./2/ The chapter on Technical Assistance seems to me to be seriously deficient.

This is a matter on which the World Food Panel of the President's Science Advisory Committee placed particular emphasis./3/ Another panel of the President's Science Advisory Committee devoted eighteen months to a review of technical assistance. Recently other reports from committees such as that chaired by Dr. Hannah have been issued on this subject. All of these reports agree that

1. Technical assistance is crucially important for dealing effectively with the pressing problems of population, food production, education and industrial development, and indeed sustained progress cannot be made in these areas without technical assistance.

2. The most effective and enduring contribution to human resource development is through the building of indigenous institutional capacity in research and higher education which will enable a nation to help itself by educating its own people to enter and sustain themselves in the modern world.

3. The United States has a great resource in this field due to the experience we have gained and the institutions we have built at great cost within this country, particularly in the past decade. However, it is an error to assume that these talents are available on the shelf to be requisitioned on the basis of widely scattered and ill-formulated requests from all parts of the globe. Up to the present, AID has failed to find a way effectively to draw on this resource.

4. Technical assistance under present arrangements in AID is inadequate and leaves a gap. This gap must be filled if capital assistance is not to be proved largely ineffectual.

The new Administration has the freedom and the opportunity at this time to advocate a new and reinvigorated technical assistance program, with a new institutional approach and with new funds which will find the means effectively to draw upon the resources of our scientific, technical and professional people and institutions. The reorganization of AID under the Kennedy Administration broke up the technical assist-ance central staffs that existed at that time, and distributed the fragments among the regional bureaus. The consequence as stated in the PSAC World Food report (p. 5) was:

"The original emphasis upon technical assistance has been so diluted that it is almost correct to say that this form of aid, indispensable to the accomplishment of increases in food production, now receives little more than lip service".

The weakness of the draft response to NSSM 4 is that while it gives a tepid endorsement of technical assistance, it states that there is no justification available which would warrant an expansion of this form of aid. Conceding that there may be grounds for an institutional change which would improve the quality and style of technical assistance, the draft advances two options: on the one hand, a nongovernmental foundation to administer technical assistance, which the paper admits is unrealistic if appropriations in the order of $400 million annually are to be obtained from the Congress, and on the other, reshuffling of responsibilities within AID, retaining the present dominance of the regional bureaus with technical assistance still subordinated to capital development. Neither option offers the new Administration an attractive alternative.

It is understandable that the present quality of AID technical assistance programs in general does not inspire confidence that additional funds devoted to this purpose would be effectively used. Yet, I cannot agree that new funds are not justified to carry out the programs advocated as essential by the PSAC reports and by Dr. Hannah's group and by others in the professional, scientific and technical community. There would of course, be no justification for increasing technical assistance funds unless necessary institutional changes in the administration of technical assistance are made.

The new Administration is not burdened with the errors of the past. It can boldly admit that technical assistance as presently administered needs to be revitalized and given professional direction, taking into account the factors so ably identified in Dr. Hannah's report. In my view, $100 million in addition to the amount proposed for technical assistance in the FY 1970 budget would provide a significant start toward closing the gap in the present technical assistance program and would merit priority over capital assistance.

In order to effectively bring about a new leadership and direction in technical assistance, two options need to be included in the paper, neither of which is present in the existing draft:

Option 1: A new Technical Assistance Agency separate from AID but within the Government.

Comment: This is the proposal advanced in the report of Dr. Hannah.

Option 2: A separate and equal Technical Assistance Department within AID./4/

Comment: Unlike Option 3 in the draft memorandum, this proposal contemplates that the new Technical Assistance Bureau will have full responsibility for justifying its budget to the Congress and for the administration of its funds./5/ The present regional bureaus would continue with responsibility for capital assistance in its different forms.

Although this would lack certain of the advantages of option 1 above, it would make coordination between capital assistance and technical assistance easier, being within the same agency, at the same time making possible more effective coordination with technical assistance programs of the multilateral agencies than has been done in the past.

I believe strongly that Technical Assistance offers the new Administration the best opportunity to make a significant advance in our foreign assistance program within existing budgetary constraints. I believe we would be ill-advised not to take this opportunity to repair a critical weakness in our foreign assistance program.

I would appreciate it if you would allow Mr. Daniel Margolies of my Office to attend your meeting Friday to enlarge on these remarks as may be desired and to assist in any drafting requirements that may arise./6/

Lee A. DuBridge

Washington, March 25, 1969.

SUBJECT
NSSM 4--Choices in Foreign Aid

You have the response to NSSM 4 at Tab A./2/ It starts with objectives of foreign aid, runs through alternative budget levels and alternative techniques to the decisions required this spring.

Let me take it in a different order in giving my recommendations:

1. The key is of course the budget. Normally a single year's aid budget would not be critical for our foreign relations. The pipeline provides a cushion, and the relationship between our aid inputs and the internal politics and external orientation of most aid receivers is indirect.

However the President's first budget request is a signal of his approach to development assistance. Another very small AID appropriation in FY 1970--on the order of the $1.3 billion passed last year--would mean that the actual aid resource flow--still about $2.0 billion in FY 1969--would be set on a downward trend which could not be reversed until late in this Presidential term.

2. AID appropriations stabilizing at $1.3 billion over the next four years would fundamentally change both the prospects for the third world, and our role in it. In specific this means:

--A major U.S. withdrawal from participation in the third world's efforts to develop;

--That the Alliance for Progress link would cease to be credible to the Latins, as we are forced to cut back an effort which they now regard as a minimum Congress forced on the Executive last year;

--Economic frustration in India/Pakistan, as we pass up the opportunity created by past aid (particularly in agriculture) for a true breakthrough;

--Undermining other rich countries' aid efforts, as we fail to pick up our share.

3. I do not regard such a medium-term outcome as acceptable, nor do I think the Administration should. This is one point to nail down at the NSC meeting.

4. The problem is how to avoid it. There are two immediate choices to be made:

--Should the President's asking figure for AID in FY 1970 be close to last year's (say $2.2 billion) or significantly less (say $1.8 billion)? (This is the range under debate at BOB.)

--Should the President establish a distinctive style and approach to aid in this year's budget--or should he put the whole question into a Special Commission and defer decision for a year?

5. There is no way to say for sure that we would come out with higher appropriations than last year if we start at $2.2 billion. The request of course is only the first stop in a major Congressional effort, and Passman says that we can't get more than last year no matter where we start.

But I believe the asking figure makes a crucial difference this year, for it establishes what the new President thinks we ought to be spending on foreign assistance. This is a second point to determine at the NSC.

6. If the President decides to go for the $2.2 billion, he can improve his chances of coming reasonably close if he establishes his own style and direction for aid. This he can do by including in the package the private investment corporation, more multilateral aid (but basically within the burden sharing formulas), and sharper emphasis on technical assistance. These are all sound ideas, ready to go, and together they make a defensible new Administration program.

This combination ($2.2 billion budget request, plus new directions) is Package A on page 31 of the report. I strongly prefer it; so do John Hannah, Rud Poats, and the regional Assistant Secretaries. This is a third point to determine at the NSC.

7. If the President decides to go for the $1.8 billion, I think he would do well to hold off on new directions--and instead throw the question to a Commission:

Deferral serves two purposes: (i) it reserves something attractive to put into a higher budget request next year, and (ii) it recognizes that the program of new departures won't help much if the President gives an uncertain signal on his intentions for aid by coming in with the lower budget request.

8. No matter what the budget decision, I believe we should establish generalized preferences (page 26) as U.S. policy (but in a trade policy context and at a different time). They have a big political payout (except possibly in Africa) for relatively little economic input.

We should also see whether we can persuade Congress to let us give easier terms on PL 480 (page 28).

As a result of a meeting chaired by Under Secretary Richardson,/3/ there is interagency agreement we should not shift MAP out of the Foreign Assistance Act this year.

9. One lesser issue the NSC should settle tomorrow is the U.S. contribution to the Special Funds of the ADB. The President has told Marshall Green he favors it, but we need a formal decision. Tab B gives details./4/

10. Finally, I suggest you emphasize development as a valid, long-term objective of this program. In the past we have emphasized near-term political and security benefits of aid. The security objective remains real in many cases--and is a significant basis for support of the program by the House Foreign Affairs Committee and conservative Congressmen in general. But in the future we will have to establish the development objective in Congress and gain greater recognition of longer-run political benefits of participating in the third world's development.

Washington, undated.

SUBJECT
NSC Meeting on Foreign Aid/2/

The U.S. foreign aid program is in major crisis. Public support has virtually disappeared and President Johnson's last two budget requests were cut by 25 and 50 percent. We have fallen behind most other developed countries in the percentage of GNP provided in aid. Our aid objectives are uncertain and have been poorly articulated. The problem cannot be blamed solely on Vietnam and our budgetary stringencies.

Aid is central to our relations particularly with key regions and countries such as Latin America and India. It is also central to our leadership in the industrialized world, which will not move decisively to bridge the North-South gap unless we show the way.

The basic requirement is to reverse the sharply downward trend of appropriations for AID. They fell to $1.2 billion last year--the lowest since World War II, at a time when our GNP was growing rapidly.

President Johnson asked for $2.2 billion for FY 1970. Given budget pressures, you may not be able to avoid some cut in his proposal. At the same time, a cut in your AID request greater than the cut for most other agencies would be interpreted as a further deceleration of U.S. interest in the less developed world. But if you were prepared to support vigorously a request of $2.0 billion--holding the inevitable cuts to $0.2-$0.3 billion--and announce an intention to increase your requests in the future as budgetary pressures eased, you would reverse the trend. You would have both reduced the Johnson proposal and gained a larger appropriation--a major achievement that would serve both domestic and foreign policy objectives.

The organizational chances discussed in the paper are of marginal usefulness, at best, in a substantive sense. Economic development will occur only through hard work on the part of the LDCs and resource transfer on our part. However, there is widespread feeling that these changes will help you buy budget figures along the lines proposed above. And all agree that almost any budget request you make will be emasculated without them.

At the heart of the problem is a need for clear articulation of our aid objectives and strong Presidential leadership in implementing them. A constituency for aid must be built and it will take time and your personal direction to do so. We will not know much more about the problem a year or two into the future. So I recommend that we start now.

NSC Meeting
26 March 1969
Aid
Analytic Summary and Issues for Decision

The attached paper/4/ provides alternatives for the Administration's approach to foreign aid for the next four years and for the aid submission to Congress for FY 1970. The paper is divided into four parts: the objectives of U.S. aid, budget levels, organization of our economic assistance program, and supplements to our main-line Governmental efforts. Its main focus is on economic assistance; military assistance levels will be covered primarily in the budget review. The final section presents two illustrative packages for submission to Congress this year.

Decisions on all major aspects of the FY 1970 program are needed within a few days after the NSC meeting and the parallel budget review if the Administration is to submit legislation by the early May deadline "set" by Congress. Time must be left for Congressional consultations, however, after your initial decisions and before final preparation of the bill. Decisions must be made on the issues listed below. My recommendations follow in parentheses.

Four major objectives which the U.S. seeks through aid are listed: maintenance of military security for countries around the rim of the communist world, achievement of short-run political leverage through extending and withholding aid in response to others' policies towards the United States, continued participation in the longer-run development effort of selected countries, and a sharp acceleration of growth in these countries. There may often be conflicts among these objectives and they can be accorded different priorities within any given aid level. All of them are under serious attack from some segments of American public opinion.

(Announce that your Administration's aid program will concentrate on speeding long-term economic development, consistent with the self-help efforts of the LDCs, while continuing to support the security requirements of U.S. allies in exposed positions. You will seek to move forward together with the other major industrialized countries and will not use aid primarily as a lever for short-term political gain, although we will probably have to continue to use supporting assistance for overtly political purposes.)

Aid levels relate closely to our choice of objectives. The following alternatives relate to the longer-term aspects of Administration policy. The numbers refer to actual appropriations and do not address the tactical question of how much to ask for in order to achieve them.

A minimal program--around $1.2 billion per year in budget authority for AID, the level appropriated by Congress for FY 1969, and $0.5 billion for multilateral institutions--could assure security around the rim and a minimum U.S. contribution to development efforts in the major countries. A request for this level would create widespread foreign policy problems and would seriously undermine our efforts to get other donor countries to raise their contributions. Such a program would require sharp cutbacks in our lending to Latin America and India-Pakistan and would preclude a major reconstruction effort in Southeast Asia after the war.

Only a major program--moving toward $3 billion for AID and $1.2 billion for multilateral institutions--would enable the U.S. to again provide decisive leadership to the economic development process and achieve a resource transfer relative to GNP equal to our contribution prior to 1963 and equal to that of most other industrialized countries. It would make virtually certain economic progress in the Subcontinent, enhance greatly the Alliance for Progress, assure a major Southeast Asia postwar development program, and give you flexibility to respond to new opportunities in Africa.

A medium program--around $2-$2.3 billion annually for AID and $0.5-$0.8 billion for multilateral institutions, about what was sought in the last Johnson budget--would enable us to maintain our present flow of public resources to the less developed countries (LDCs) and hence retain our participation in the development process. It would relegate us to a middle position among donors and hence weaken our position of leadership. It would provide sufficient resources to make continued growth in South Asia likely, maintain our present involvement in Latin America and Africa, and enable us to exercise a choice among several options in postwar Southeast Asia.

(a) Decision for FY 1970. Could range from a "low option" of around $1.3 billion, as was appropriated in FY 1969, to the "medium option" of about $2.2 billion, the highest realistic possibility. (Propose $2.0 billion and support it wholeheartedly. Congress will make some cuts in any event and $1.8 billion at most--still a decisive improvement over FY 1969--will probably emerge. See my memorandum to you for rationale.)

(b) Decision for beyond FY 1970. Could indicate your intention to seek increased U.S. contributions, perhaps linked to the conclusion of the war and other budgetary factors. Absence of such indication, or at least of a call not to reduce the flow of resources, could be read as an implicit decision to let the level fall. (Express intent to raise the level toward internationally accepted targets and thereby to reassume U.S. leadership in the economic development process.)

There are four major parts of our economic assistance program which could be reorganized. The proposals run from complete dismemberment of AID to maintaining or even strengthening the role of the central agency. All of the proposed organizational changes would satisfy, and meet the expectations of, some segments of Congress and the informed public. The benefits are essentially cosmetic and may even be purchased at some cost to some of our objectives.

--A public corporation could be created to promote U.S. private investments in the LDCs and take over all AID programs in this area. It would do so primarily through expanded use of specific and extended risk guarantees but would also lend to U.S. firms and carry out some promotional activities. Such a proposal is widely expected on the Hill and would reflect a decision to give greater emphasis to private sector participation in our aid effort. However, there is no assurance that it will, even over time, increase the flow of private resources or provide any other concrete benefits.

Issue for Decision: Creation of a public Private Investment Corporation. (Propose such a corporation, essentially for cosmetic reasons.)

--Technical assistance could also be separated from AID with a publicly supported foundation created to handle all, or an important part, of it. Or AID could be reorganized to give greater weight to technical assistance. All agree that this aspect of aid is crucial through its role in upgrading the capabilities of the poor countries themselves--the major requirement for long-term development. A new emphasis on technical assistance, through either of these routes, would reflect an underlying decision to focus on real development and self-help by recipient countries.

One problem in the U.S. is attracting top flight people to participate in technical assistance programs. It is probable that either change would help meet this problem at least marginally. However, we honestly do not know the full effects of changing the level of our programs or organizing them differently.

Issue for Decision: Creation of a foundation for technical assistance or a separate bureau within AID to handle the subject. (Announce creation of a new AID bureau to dramatize a new emphasis on technical assistance.)

--An increasing share of our capital assistance could over time be channeled through multilateral institutions, especially the IBRD/IDA and regional development banks, either on the present burden-sharing formula with other donors or without regard to this criterion. Such an approach would reflect a basic decision to focus on the objective of long-term economic development and to seek less short-term political payoff for our aid money.

Issue for Decision: Shift of capital assistance to multilateral channels, with or without requirement of similar increases in multilateral contributions by other donors. (Announce full support for the present multilateral contributions bill now pending. Announce intent to expand such contributions in the future. Propose authority to shift a sizable part of U.S. capital assistance to these institutions without increasing the U.S. share in each--except perhaps in Latin America.)

--The remainder of military assistance could be transferred from the Foreign Assistance Act to either the Defense Department budget or into a new act combining grant military assistance and military sales. (Grant military aid to Vietnam, Laos, and Thailand is already in the DOD budget.) The resultant separation of military from economic assistance, while artificial to some extent in some countries, would be a logical delineation of functions and more rationally treat our military assistance alongside other defense costs. However, the change could reduce foreign policy and budgetary control over military assistance.

Issue for Decision: Shift of military assistance to DOD budget or creation of a new Foreign Military Sales and Assistance Act. (All agree that creation of the latter is desirable, but Congressional consultations suggest that it is infeasible this year.)

There are numerous programs outside AID which the U.S. could undertake or support, which would contribute to economic development and meet some of the most vocal interests of the LDCs.

--We could liberalize the operations of our own PL-480 and Export-Import Bank programs, or at least reverse the hardened trend of PL-480.

--We could actively promote increased U.S. private investment in the LDCs, by providing tax incentives or removing some of the constraints of existing Government programs. (This is a separate issue from creating the private investment corporation.)

--We could take the initiative to seek international programs to boost export earnings of the LDCs, e.g. by tariff preferences for their products or commodity agreements to stabilize prices of their major foreign exchange earners. The LDCs have a major political interest in preferences but the economic payoff is likely to be small.

--We could take steps to meet the coming critical problem of LDC debts to the industrialized world. Rising debt burdens are becoming a major burden and will reach 25 percent of export earnings for numerous major LDCs within a decade. There are several ways to meet the problem, such as liberalizing our own loan terms, but the most direct approach is to encourage reschedulings for specific major countries.

(a) Trade preferences for LDCs. (Await outcome of NSC meeting on trade policy on April 9 before making decision.)

(b) New commodity agreements. (Await outcome of NSC meeting on trade policy on April 9 before making decision.)

(c) Debt reschedulings. (Be ready to deal with it on a country-by-country basis as problems arise.)

(d) Private investment. (Do nothing new beyond proposing creation of the Private Investment Corporation, but indicate hope that it will lead to increased private flows to LDCs. Also announce that the liberalization of U.S. balance of payments controls will contribute to this objective and express hope that the new Corporation will relax the present tying requirements of extended risk guarantees.)

In conclusion, the paper presents two illustrative packages for FY 1970. The first would include $2-$2.2 billion for AID and $0.5 billion for multilateral institutions, to reverse the trend of last year and maintain the flow of U.S. public resources at previous levels, and an expression of intent to increase the level in the future. On the organizational side, it would establish a private investment corporation, reorganize technical assistance within AID and propose a sharp increase in our contribution to the UN technical assistance effort, express an intent to expand our contributions to multilateral agencies as other donors do so, and shift the rest of military assistance to a new Military Assistance and Sales Act. It would also include Administration support for trade preferences. The organizational innovations are logically separate from the budget level, but are deemed necessary by most observers to purchase the larger amounts of money.

The second package would defer any major organizational changes until next year, establish a high-level commission to recommend what those changes should be, and trim the budget request close to what was actually appropriated in fiscal year 1969 ($1.5 billion).

(My recommendations on each of these issues are listed above. Taken together they closely approximate the first package. However, the possibility of modification for Latin America should remain open until the NSC meeting on Latin America and Governor Rockefeller reports on his mission.)

Washington, April 3, 1969.

MEMORANDUM FOR
The Secretary of Defense
The Secretary of the Treasury
The Under Secretary of State
The Chairman, Joint Chiefs of Staff
The Director of Central Intelligence
The Director, Office of Emergency Preparedness
The Director, Bureau of the Budget
Acting Administrator, Agency for International Development
Administrator-Designate, Agency for International Development
The Director, Office of Science and Technology

SUBJECT
NSC Meeting of March 26, 1969, on Foreign Aid

Attached is the list of actions resulting from the meeting of the National Security Council on AID held on March 26, 1969, which has been approved by the President.

Because of the sensitive nature of the guidance contained therein, a formal NSDM will not be circulated. Rather, an "Eyes Only" copy is furnished for the retention and guidance of the principals who attended the meeting on this subject. No reproduction or circulation of this document is authorized.

Henry A. Kissinger

List of Actions Resulting From Meeting of the National Security Council
on March 26, 1969

1. The President indicated his continuing support for a foreign assist-ance program. However, since Congressional sentiment tends to be increasingly isolationist, it will be necessary to justify new programs in a more meaningful way. The humanitarian aspect should be emphasized in justifying economic aid (other than war-related programs in Southeast Asia); the long-run economic benefit to the U.S. of a higher level of economic development elsewhere is also important. The aid effort should not be built on expectations of immediate political returns to the United States.

2. The President decided that the requested authorization for foreign assistance in FY 1970 should be on the generous side, as an early reflection of the Administration's attitude toward foreign assistance and of the likelihood that pressures on expenditures will be eased in subsequent years. Some Congressional reductions should be anticipated, and technical assistance should be increased, if possible. An effort should be made to reduce foreign assistance expenditures in FY 1970, recognizing that post-1970 expenditures will probably be easier to support. Accordingly, Budget Director Mayo, Secretary Kennedy, and Messrs. Hannah and Poats are to produce specific recommendations concerning both the requested authorization and expenditure levels for FY 1970.

3. The President indicated his support for a U.S. contribution to the proposed Special Fund of the Asian Development Bank,/2/ but desires a larger contribution from other nations, especially Japan.

4. It was agreed that the forthcoming proposal should: (a) give greater emphasis to transferring American technological know-how to the less developed countries thus giving greater emphasis to technical assistance/3/ (especially in the area of food production); (b) give AID a clearer mandate to emphasize private enterprise in the recipient countries; (c) set up a private investment corporation; d) permit continuing technical assistance to recipient countries no longer in need of development loans; and (e) retain the Military Assistance Program as part of the foreign assistance program.

5. The President directed that consideration be given to the establishment of a non-governmental commission which would review the foreign aid program during early FY 1970/4/ and provide a basis for the President's consideration of further changes in U.S. programs, especially contributions to multilateral agencies, during the 1970's. The Commission's report would be drawn upon in making the final response to the Javits amendment due March 1, 1970. Concurrently, the Assistant to the President for National Security Affairs was directed to initiate a governmental study effort designed to examine the relationship between foreign assistance and U.S. national security objectives./5/

Washington, April 11, 1969.

TO
The Secretary of State
The Secretary of Treasury
The Secretary of Agriculture
Director, Bureau of the Budget
Administrator, Agency for International Development

SUBJECT
AID and PL 480 Commitments

The President has directed the Secretary of State to submit for approval a country memorandum setting forth the total economic assistance program, including AID and PL 480, for each of the major countries indicated by him. The memorandum should be initiated by the Administrator of AID, and should incorporate the views of the Secretary of Agriculture and the Secretary of the Treasury. It should be submitted through the Bureau of the Budget for inclusion of its views, and the Assistant to the President for National Security Affairs prior to the first major commitment of funds in each fiscal year.

The memorandum should set forth the proposed program for the period under consideration (normally one year) and its implications for the longer run. It should discuss the underlying foreign and domestic policy considerations for the United States, and the relation of the program to specific U.S. objectives in the country. It should also specify the related actions we expect the recipient country to take and the strategy proposed to negotiate and carry out the program. The memorandum should indicate how economic and PL 480 assistance will be coordinated to assure the best use of both resources and effective self-help efforts. It should include the effects of the program on the U.S. economy and balance of payments. Alternative possibilities for both the program itself and negotiating strategy should be presented where appropriate. The memoranda directed by this decision will be coordinated with the overall country studies directed by NSDM 4 for countries covered by that memorandum.

The countries for which programs will be submitted to the President will at present include Korea, Indonesia, Vietnam, Thailand, Laos, India, Pakistan, Turkey, Brazil, Chile, Colombia, and Nigeria. The Secretary of State, in consultation with the Assistant to the President for National Security Affairs and other interested agencies, shall request the Administrator of AID to initiate other country programs involving issues or matters of concern to the President. Following the same procedure, he shall also request re-submission to the President of country programs already decided in the event of significant changes in circumstances or where original decisions could not be carried out. If the Secretary of State and the Assistant to the President for National Security Affairs, in consultation with the other addressees of this memorandum, determine that the President has already considered the major issues involved in a country program, they may decide not to submit that program to the President under this directive. (Programs already negotiated for this year need not be re-submitted.) All other country programs will be determined through normal interagency procedures.

These procedures should not delay necessary obligations for continuing activities in Technical Assistance or urgent requirements during the Continuing Resolution period if presentation of a full-year program is impossible.

The present procedure, by which the President must approve all PL 480 agreements, all AID project loans exceeding $10 million, and all AID program loans exceeding $5 million, is hereby rescinded.

Henry A. Kissinger

Washington, May 20, 1969.

SUBJECT
Aid Issues

I suggest that you make the following points to the President at this morning's briefing:/2/

1. Arthur Burns raised several points yesterday on the new aid legislation,/3/ which will be ready for you to send to Congress in a few days. (FYI: After you left last night, Richardson and Harlow decided to seek a meeting between the President and the Congressional leadership later this week to avoid having to postpone the hearings which start next Monday. I think we are in good enough shape to give the President an adequate briefing if the meeting is held no earlier than Thursday.)/4/

2. Most of his points are minor matters and have been agreed upon by all agencies. (FYI: They dealt with specific features of the proposed Overseas Private Investment Corporation.)

3. Only one point which he raised requires your personal attention and it had already been flagged in a memorandum to you from Bob Mayo on the bill./5/ (FYI: This is the proposed removal of a long series of country restrictions written into the aid legislation by Congress over the past eight years. They are explained in the "background" section of this memorandum.)

4. I will be getting to you later a package of papers on the aid legislation including: (a) briefing material for your discussion of aid with the Congressional leadership;/6/ (b) the final draft of your aid message to the Congress, which will transmit the bill;/7/ (c) recommendations on the several issues in the bill which require your personal decisions. (FYI: They are the formation of a commission, how to handle the Hickenlooper amendment, the omission of the country restrictions, and Secretary Laird's proposal to add $108 million of military assistance for Korea to the request.)

Arthur Burns has two objectives in his memorandum of last night to the President on aid:/8/

1. To take credit for achieving minor changes in the Overseas Private Investment Corporation section of the bill. All agencies agreed with his points so they are not an issue.

2. To warn the President against seeking removal of the series of country prohibitions ("barnacles") in the present Foreign Assistance Act. This is the only substantive issue raised by Burns and it was already raised by Bob Mayo in his memorandum to the President on the overall legislation./9/

Attached is an analysis of the provisions whose omission from the new bill is proposed./10/ (Five of the present restrictions would be retained--Hickenlooper, a revised Conte-Symington concerning LDC military expenditures, and those on aid to Communist countries and to countries with whom we do not have diplomatic relations.)

Of the thirteen provisions whose omission is proposed, four are encompassed in other laws and the other nine have not been applied anyway.

This led Burns to compare the risk of Congressional demagoguery against what appeared to him as small gains of omitting them. It is true that a request for omission could be portrayed as an effort by the Administration to eliminate laws which "protect the interests of the United States" against Communist countries, welchers on debts, military adventurers, countries permitting mob action against U.S. embassies, seizures of U.S. property, etc.

The main arguments for omission are:

1. The restrictions can pose problems for the administration of the program without providing any benefits for overall U.S. interests.

2. They shift exercise of foreign policy prerogatives from the President to the Congress and can reduce the President's flexibility in specific cases.

3. The new Administration has a chance to get rid of them now but will probably forfeit that chance forever if it endorses them in its first aid bill.

In my view it is a close issue. Removal of the "barnacles" is clearly desirable but is not of high priority. I know of no specific aid loan or country program which has been seriously handicapped by any of the restrictions which would be dropped.

On the other hand, the risk is probably not too high either. Every change has been cleared with its Congressional sponsors (except where they are no longer in Congress). It must be admitted, however, that other Congressmen eager for an issue could raise trouble.

I therefore recommend that we propose omission of the restrictions in the new legislation but retreat if significant Congressional opposition develops. The probable result is that some will be omitted and a few retained, with a net gain for aid.

Washington, May 22, 1969.

SUBJECT
Foreign Aid Bill

I interested myself in the Foreign Aid Bill originally because of certain questionable features in the proposed Overseas Private Investment Corporation. These matters have now been straightened out.

In the course of my study I became concerned, also, about certain non-financial proposals. I have discussed these with Henry Kissinger, and I feel he has put the issues fairly and objectively before you.

I think, nevertheless, that the political dimension merits emphasis, and that you will want to ponder carefully the following facts.

The prohibition section of the Foreign Assistance Act (Section 620) has been drastically changed in the proposed bill. Specifically, this bill repeals a number of present restrictions on distribution of foreign aid. Some of the changes include:

(1) Repeal of the prohibition of assistance to countries which permit shipping to or from Cuba, or of assistance to countries which trade with or permit shipping to or from North Vietnam./2/

(2) Repeal of the prohibition against assistance to countries engaging in or preparing for military aggression against the U.S. or any aid recipient.

(3) Repeal of the prohibition against assistance to a country in default on debt owed to U.S. citizens.

(4) Repeal of prohibition against aid to be used to compensate owners of expropriated or nationalized property./3/

(5) Repeal of discouragement of assistance to countries failing to prevent mob action against U.S. property.

Such changes appear to go directly contrary to your campaign policy statements and to the general foreign policy enunciated by the Republican Party.

Washington, May 22, 1969.

SUBJECT
Your Foreign Aid Program

Attached are six items on the FY 1970 aid program which require your early attention. Congressional hearings on aid begin next Monday and you are scheduled to brief the Congressional leadership on Thursday./2/

Two items on which there is disagreement require your decision:

1. A proposal to eliminate some of the country prohibitions contained in the present AID legislation. (Budget Bureau memorandum at Tab A.)

2. A proposal to include an additional $108 million of military

assistance for Korea in your budget request. (Separate package at Tab B.)/3/

There are two items agreed by all relevant parties on which your decision is also needed:

3. A proposal that you announce in the message the formation of a Presidential Commission or Task Force on aid. (AID memo at Tab C.)

4. A proposal that you announce in the message a decision to launch a special study of the Hickenlooper Amendment. (State Department memo at Tab D.)

Also attached are two items for your presentation of the aid program:

5. A draft of your message to Congress transmitting the new legislation (Tab E), (which ought to go up on Friday).

6. Talking points for your meeting with the Congressional leadership, a briefing paper on the program itself, and a set of questions and suggested answers on the program (Tab F).

1. The proposed bill omits or changes, in substance or in form, a number of restrictions on the aid program written into the law by Congress over the years. These are mainly prohibitions on aid to countries taking specific actions against the United States. (For example, defaulting on debt to U.S. citizens or preparing for military aggression against us.) Only two of the changes are of substantive importance to the program. The Budget Bureau memorandum (Tab A) analyzes each proposed modification in detail.

All but one agency agrees and the other is neutral that you should seek all of these changes. The major arguments for doing so are:

1. The restrictions shift exercise of foreign policy prerogatives from the President to the Congress and reduce the President's flexibility in specific cases.

2. The new Administration has a chance to get rid of them now but will have a reduced opportunity to do so in the future if it does not seek to change them in its first aid bill.

3. The changes would simplify administration of aid.

An effort to get all of the changes, however, would cause domestic political problems. The request could be interpreted, both in the Congress and by the public, as an Administration effort to eliminate laws which protect the interests of the United States. And, in practice, the restrictions have had little effect on the actual operation of the aid program.

Arthur Burns and I have discussed this issue (and the other issues of concern to him on the bill, all of which have been satisfactorily resolved). We agree that it weighs a marginal gain against a risk which is also probably marginal but could turn out to be serious.

On balance, I think it would be a good idea to rid ourselves of these restrictions. However, if you think there is any political price, I agree with Arthur Burns that we should not take the risk. This is a political judgment.

Seek modifications
Not seek modifications/4/

2. Attached at Tab B is a detailed analysis of Secretary Laird's proposal to add $108 million of military assistance (in addition to the already programmed $139 million) for Korea to your aid request.

Budget Bureau and State oppose this additional amount, arguing inter alia that: 1) it will run into substantial Congressional opposition; 2) there is already some $230 million in the pipeline; 3) the items programmed under the increase do not really relate to the threat posed by the EC-121 incident./5/

Laird argues that an increase would: 1) be an unequivocal response to the EC-121 shootdown, (Kissinger note: particularly in light of the delay in reinitiating reconnaissance flights); 2) reassure the South Koreans; 3) the equipment is needed. On balance, I slightly favor the Laird proposal.

That you approve adding $108 million to the FY 1970 aid request.

Approve addition/6/
Disapprove addition

3. AID's memorandum at Tab C proposes that you appoint a Commission or Task Force to conduct a thorough appraisal of the U.S. aid program. At a meeting on Monday, there was general agreement that it would be preferable to set up a Task Force or Study Group, rather than a Commission, on the grounds that a report from such a group would be less likely to commit you to a particular course of action.

The most important suggestions made in the AID memorandum are as follows (my comments are in parentheses):

(a) The report should focus on both the objectives of the aid program and the scale and form of assistance necessary to achieve those objectives. (The relationship to foreign policy is clearly articulated. The memorandum also envisages a number of fairly detailed specific tasks for the study, however, which could easily dilute its focus on objectives and make it appear to duplicate the many reports already completed on specifics. The focus should be on basic objectives and foreign policy.)

(b) The Commission or Task Force should not include representatives from either the legislative or executive branches of the Government. (Ross Adair has personally made the same suggestion to my staff.)

(c) Several possibilities are mentioned for the chairmanship, most prominently J. Irwin Miller, President of the Cummins Engine Company of Indiana. He chaired President Johnson's Commission on East-West Trade in 1965 and is by all accounts an exceptionally able individual. Other AID suggestions are Dan Parker, Arjay Miller, Bill Blackie, Rudolph Peterson, and Bill Scranton. (An interagency group comprising State, Commerce, Agriculture, STR, and my staff suggests Irwin Miller as the best man to chair the Commission on Trade Policy, which you decided upon at the NSC meeting on trade policy,/7/ so I suggest we turn to one of the other names for this one.)

(d) The staff should be based at Brookings, although organized specifically for this task with a staff director and members drawn from all over the country. Secretary Laird opposes even this link to Brookings. (I, too, have doubts about Brookings. More work is needed before we can decide on the staffing.)/8/

That you announce in the Aid Message that you have decided to appoint a Presidential Task Force to study the future of the U.S. aid program. (If you wish to enhance the prestige of the study and your personal commitment to its findings, you could label the group a Commission.)

Approve Task Force/9/
Approve Commission
Disapprove both

That I inform AID that your approval of the Task Force (or Commission) does not imply approval of every specific suggestion in their memorandum; that you wish to make the final decisions yourself on the terms of reference, membership, and staff; and that they should submit alternatives on each aspect shortly.

Approve/10/
Disapprove

4. Secretary Rogers feels strongly that we should make no effort now to amend the Hickenlooper Amendment because such an effort would complicate the Peru crisis, appear as a surrender to Peruvian intransigence, and because no substantial weakening could get Congressional support at this time./11/

At the same time, the State Department does not wish to imply that the Administration favors Hickenlooper. Under Secretary Johnson thus recommends (at Tab D) that you indicate in your Foreign Aid Message an intention to order a special study of the Hickenlooper problem and, specifically, a willingness to entertain changes if they are recommended to you.

I agree that a special study of Hickenlooper would make sense. However, whether you should mention it in the message depends largely on how you want to proceed on Peru. If you want to follow State's recommendation to continue to defer a confrontation, mentioning the Hickenlooper study would be helpful in establishing a climate for doing so. Moreover, it would demonstrate your open-minded approach to the Latins and win some points with liberal Senators. On the other hand, if you are not willing to continue to defer a confrontation, mentioning the Hickenlooper study would weaken your position.

That you order a study of the Hickenlooper Amendment.

Approve/12/
Disapprove

Depending on how you want to proceed on Peru,

1. That you mention the Hickenlooper study in the message

2. That you do not mention the Hickenlooper study/13/

The message and the briefing material for the Congressional consultations focus on the changes in the program which you directed at the NSC meeting on aid:/14/ a new emphasis on private sector participation, including a proposal for an Overseas Private Investment Corporation; increased emphasis on technical assistance with a new AID bureau to operate it; further emphasis on greater participation by other advanced countries; a functional emphasis on the food-population equation; and a frank recognition that we need to know more about aid, with a Presidential Commission or Task Force appointed to help in that effort. The proposed talking points, briefing memo, and set of questions and answers appended at Tab F give you the necessary background on these issues.

I think the message contains enough new rhetoric to be saleable. However, we must recognize that the program being proposed does not differ very much from the past. We thus need to stress our continuing review of aid but must be careful not to diminish support for the present bill by playing that theme too hard.

That you approve the proposed Foreign Aid Message to Congress (Tab E), subject to amendment based on your decisions on the issues listed above.

Approve/15/
Approve with changes as noted
See me

Washington, May 23, 1969.

SUBJECT
Amendments to the Foreign Aid Bill

The memorandum which you approved yesterday on the Aid Bill dealt only with areas in which your advisors or the relevant agencies were in disagreement. It did not make clear, in the discussion of possible removal of Section 620 restrictions in the Foreign Assistance Act, that there are two restrictions which, unlike the others, are of substantial importance, and that all parties, including Arthur Burns, agree that we should seek their removal. These are the Symington Amendment (and the closely related Conte-Long Amendment) and the Church Amendment.

The Symington Amendment requires termination of assistance (including PL 480) to any country with excessive military expenditures, and prohibits Presidential waiver of this requirement. The Conte-Long Amendment requires a reduction in assistance in an amount equal to any amount spent by a recipient country on sophisticated weapons systems. The new draft bill, by agreement with the sponsors, would soften these provisions substantially, by providing only that the President "take into account" certain military expenditures by recipient countries in determining the level of our assistance. It would also totally exclude technical assistance and the Overseas Private Investment Corporation from this provision. (Also by agreement, we would expect the Congress to strengthen these restrictions somewhat.)

Symington and Conte-Long presently are largely ineffective, unduly limit Presidential action, and insert the United States into internal defense decisions in other countries.

The Church Amendment prohibits grant assistance--be it economic or military--to any economically developed nation, subject to Presidential waiver. Even if such a waiver is authorized, there is an absolute limit of $50 million for military assistance. The draft bill would increase the amounts available for military assistance under Presidential waiver. This change is essential to permit the U.S. to provide Spain with military assistance in exchange for bases, estimated at $55 million for FY 1970.

That you approve the two proposed changes to the present Foreign Assistance Act indicated above./2/

In the summer and fall of 1969, the Nixon administration began to look closely at military assistance programs to Latin America. An apparent catalyst for this investigation was the meeting of President Lleras Restrepo of Colombia with President Nixon in Washington on June 12 and 13, 1969, following which Henry Kissinger sent a June 13 memorandum to the Secretaries of State and Defense informing them of Lleras' interest in F-5 aircraft and requesting their recommendation on how this might be handled. (National Archives, RG 59, S/S Files: Lot 73 D 288, Box 838, NSC/USC) The NSC Interdepartmental Group for Latin America and the NSC Under Secretaries Committee took up the study of the sale of jet military aircraft to Colombia and the implications of such a sale for other Latin American countries, particularly Argentina, Brazil, Chile, and eventually Venezuela.

In this study Elliot Richardson, Chairman of the NSC Under Secretaries Committee, reported that Congressional restrictions, such as the Conte Amendment to the Foreign Assistance Act, inhibited the ability of the U.S. Government to provide F-5-type fighter aircraft to meet Latin American nations' minimum modernization goals. In their frustration to get firm U.S. commitments for the sale of F-5s, the committee reported, Latin American governments were beginning to purchase French Mirage jets, which the Nixon administration could not prevent. Richardson reported that his committee was trying to achieve some modification to the Conte Amendment so that the administration could respond "more satisfactorily in the future to purchase requests for modest numbers of weapons like jet military aircraft," and the committee recommended specific steps in dealing with the requests of Colombia, Brazil, and Chile. (Memorandum from Richardson to President Nixon, August 13; ibid.)

On October 3 Richardson approved the recommendations of a State-AID-DOD Congressional Liaison Task Force to push for revisions of the Conte-Long and Symington Amendments to the Foreign Assistance Act in the pending mark-up of the foreign assistance bill in the House Foreign Affairs Committee (and later in the Senate); not to press at that time for changes in the Conte-Long Amendment to the Foreign Military Sales Act; but to be prepared where appropriate to use the Presidential waiver, which allowed the sales if "important to the national security." (Memorandum from the State-AID-DOD Congressional Liaison Task Force to Acting Secretary Richardson, September 22; ibid., S/S Files: Lot 83 D 276, NSC/U-DM 15)

Following an NSC meeting on October 15, at which President Nixon said that he "wanted the United States to continue to provide [military] assistance and work carefully with the Latin American military, but in ways which would reduce or lower our profile," Kissinger asked the Under Secretaries Committee to take this factor into consideration during its current study of military missions in Latin America. (Memorandum from Kissinger to the Chairman of the Under Secretaries Committee, October 20; ibid., S/S Files: Lot 71 D 175, Box 130, NSC/Mtg 10/15/69) Regarding the October 15 NSC meeting, at which the participants discussed the report of Nelson Rockefeller, then Governor of New York, on his trip to Latin America, see Document 122. Subsequently, in an October 29 letter to General Earle G. Wheeler, Chairman of the Joint Chiefs of Staff, Rockefeller clarified the recommendation in his report for a change in Latin America to the "concept of mobile military missions from the permanent mission concept." (National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 223, Department of Defense, Volume V 12/l/69-1/31/70)

Another Latin American question related to debt service, and Rockefeller's report recommended the use of local currency payments in lieu of dollar payments. At the October 15 NSC meeting, President Nixon asked Secretary of the Treasury Kennedy to consult with George Woods, former President of the World Bank, Nathaniel Samuels, and John Hannah, and then give him his views on the recommendation. (Memorandum from Kissinger to Kennedy, October 20; ibid., RG 59, S/S Files: Lot 80 D 212, NSSM-15) In an October 29 memorandum to Kissinger, Kennedy reported the views of Woods, Samuels, and Hannah, and suggested, among other things, that the Rockefeller recommendations were much too specific and that "it would be much better to bring these matters up at a later time with the individual countries involved." (Ibid., Nixon Presidential Materials, NSC Files, Agency Files, Box 289, Treasury, Volume I)

In NSDM 31, November 5, Kissinger reported that the President wanted to adopt the Rockefeller recommendation on debt service, directed Secretaries Rogers and Kennedy to consult with Woods in implementing it, and indicated that on November 10 when the Rockefeller report was released, President Nixon would announce that he had "directed an immediate study of this recommendation with a view to its adoption as may appear appropriate." (Ibid., RG 59, S/S Files: Lot 83 D 305, NSDM-31) Despite Secretary Kennedy's caution, as expressed in a November 6 memorandum, President Nixon made these announcements on November 10. (Ibid., Nixon Presidential Materials, NSC Files, Agency Files, Box 289, Treasury, Volume I) For text of the President's announcement, see Public Papers of the Presidents of the United States: Richard Nixon, 1969, pages 921-922.

Washington, November 15, 1969.

SUBJECT
Presidential Support for Foreign Assistance Bill (HR 14580)

This year's Foreign Assistance authorization bill (HR 14580) was reported out of the House Committee on Foreign Affairs on November 6, 1969, and will reach the floor early in the week of November 17. The Bill submitted by the Committee recommends an authorization of $2.18 million, roughly $500 million below your request of $2.63 million.

We understand that proposals for further cuts will be made on the House floor, and that the adherents of the Bill, primarily Democrats, are unwilling to resist these further cuts, or to attempt restoring the cuts already made, unless you strongly indicate your support for the Bill./2/ Also, Republican opposition is likely to remain strong unless party leadership effectively dampens it down. The Senate has not yet acted on the Authorization Bill either in Committee or on the floor and most importantly, the Appropriation Committees in both Houses have yet to act. Further damaging reductions could be made at any or all of these further stages.

The House Committee cuts, and those we can expect from the floor, have particular significance for Latin America. The Committee, which is generally sympathetic to the Hemispheric program, cut $100 million from the requested new obligational lending authority of $437.5 million and $16 million from the technical assistance request of $116.0 million. Following up on your Latin American address of October 31, 1969,/3/ and together with the November 17 commencement of the IA-ECOSOC meeting in Washington,/4/ our Latin American partners and interested sectors of domestic opinion will be closely watching Congressional action on the foreign assistance program and the efforts of the Administration to obtain a favorable result. The credibility of your commitment of October 31 to continue strong U.S. support and assistance for development in the Hemisphere will be weighed by those two groups in terms of Congressional action on the Foreign Assistance Bill.

The amounts recommended for authorization by the House Foreign Affairs Committee in other parts of the A.I.D. program also were sharply reduced. The $100 million reduction in Supporting Assistance will so limit our ability to help the Vietnamese Government finance the costs of Vietnamization of the war that we risk being charged with bad faith. Any further substantial reduction in Supporting Assistance would almost certainly require seeking a supplemental appropriation early next year. The $200 million reduction in Development Loan funds will perpetuate the recent failure to do our fair share in several international development consortia, particularly those programs seeking to capitalize on the agricultural breakthrough in Southern Asia.

Recommendations:

(1) That you consider a public reiteration of your support for the full foreign assistance budget request as well as direct appeals to the Congressional leadership for their active support in at least holding the levels proposed by the House Foreign Affairs Committee.

(2) That Assistant Secretary Meyer be authorized to emphasize your strong support for the Foreign Assistance Bill in his remarks to the IA-ECOSOC conference which starts here next Monday./5/

J.A.H.
WPR

Washington, November 21, 1969.

Dear Mr. President:

Many weeks ago in discussing prospects for the AID appropriation for Fiscal 1970, you indicated that you had one "chit" that you might be able to cash with Otto Passman when the time was ripe and the stakes sufficiently high. It was agreed that when that critical time came I would call upon you.

The time is now--today or tomorrow./2/

We are deeply appreciative of your timely letters yesterday to the Speaker and Jerry Ford./3/ They helped immeasurably.

The House approved the authorization bill last evening. Had it not been for an amendment offered from the floor adding some $50 million of military aid to Taiwan that was violently opposed by many friends of non-military aid, the vote would have been much more favorable. After this addition many of our supporters voted against the amended bill. The non-military authorization level in the House passed bill is at $1,739 million.

I visited with Mr. Passman for the better part of an hour yesterday morning. He repeated again what he has told me at least a half-dozen times in recent months of his great respect and admiration for you, and of the fact that he supported you in the election and intends to continue to do so. He showed me a copy of a speech he recently made in Louisiana completely endorsing your Vietnam speech./4/ He went on to say that he was inclined to want to talk to President Nixon before we begin to talk about marking up the appropriation bill. He made his usual critical speeches about spigots pouring out the taxpayer's money all over the world, etc., and about his role in protecting the American taxpayer against communism, socialism, liberals, dreamers and others who want to destroy our country through bankruptcy, etc., etc., etc. Mr. Passman was one of the sponsors of the Taiwan military assistance amendment last evening. I suspect he was more interested in cutting support for the total bill than in jets for Taiwan.

Mr. President, it is my conviction that a call from you to Otto Passman today or tomorrow emphasizing the importance of an adequate AID appropriation will produce the desired result as nothing else will.

If Otto wants to talk about specifics, there are only two soft spots in it. The $40 million put in by the Committee to provide part of the cost of a water desalter for Israel. You know the reasons why this one is impractical and unwarranted. There are some little projects for schools and hospitals in Israel inserted by the Committee but in total they are relatively insignificant ($8.5 million) and to oppose them we buy opposition from many of our friends and in my judgment the gain isn't worth the struggle. If Passman insists on further cuts out of the muscle of the bill there is only one place that the cuts can be made and that is in Development Loans. The Committee has already reduced Development Loans by $300 million, $200 million worldwide, $100 million Latin America. The House yesterday reduced this item an additional $50 million. If we have to take further cuts the need is softer in Latin America than in the rest of the world largely due to the current high prices of copper, tin, and coffee that make it more difficult than in the past to justify large loans to Chile and Colombia.

If we are to keep the commitments already made, including the increasing AID costs in Vietnam as the U.S. military presence is reduced and the raised expectations in Latin America, the rock-bottom, no-recede-from figure for non-military aid has to be an increase of at least $200 million over the 1969 figure or a minimum total of $1,585 million and it should be $100 million more than that ($1,685 million).

It is agreed that Passman and I will get together alone Monday morning at 8:00 a.m. in his office. I hope to get this pretty well settled before I leave Tuesday morning for the annual High-Level DAC meeting in Paris, followed by six days in Niger, Nigeria, and Ghana.

I am sorry it is necessary to call upon you with such urgency.

Respectfully,
John A. Hannah

Washington, December 2, 1969.

SUBJECT
AID Proposes Further Presidential Calls on AID Bill

AID Administrator Hannah has requested that the President follow up his letters to Speaker McCormack and Gerald Ford, and his talk with Otto Passman,/2/ by calling Chairman Mahon of the House Appropriations Committee and Congressman Garner Shriver, the ranking Republican on the Passman Subcommittee, to ask their support in minimizing further cuts in the AID bill (Tab B)./3/ Passman's Subcommittee is scheduled to take up the bill on December 3.

Bill Timmons, who sat in on the meeting between the President and Passman, reports that Passman said he planned to cut a further $400 million from the level authorized by the House last week. Passman also said that he would give the President "anything he really wanted", but the President reportedly did not ask him to minimize the cuts. For obvious morale reasons, I did not convey the latter to AID--which may therefore be operating on some faulty assumptions about the President's willingness to enter the fray personally.

Nevertheless, an additional cut of $400 million would seriously jeopardize three important parts of the AID bill: supporting assistance to finance Vietnamization of the war, our aid level to Latin America and hence our overall Latin policy, and technical assistance. AID hopes to hold Passman's cuts to about $100 million, including $40 million for an Israeli desalter already opposed by the Administration.

AID's proposed tactic is to end-run Passman by working on the Chairman of the whole Appropriations Committee (Mahon) of which Passman's Subcommittee is a part, and on the ranking Republican of the Subcommittee (Shriver). Both, however, have already indicated to Hannah their strong sympathy for the Administration's position; Shriver has specifically said that he would try to hold Passman's cuts to $140 million. In addition, Acting Secretary Richardson plans to call them to reaffirm our desire to minimize any further cuts. And any doubts about White House support for the bill were dissipated by the President's letters. I therefore see no need for the President to put his own position on the line any further by calls at this point, particularly since Fulbright is now posing major problems for the bill and Presidential intervention on the Senate side may become more critical.

That the President not make any further calls on the AID bill at this time. (If you prefer that he make calls, the memorandum at Tab A recommends that he do so.)/4/

Washington, December 9, 1969.

SUBJECT
Foreign Aid Bill

I had a discussion with Congressman Passman on the telephone concerning the Foreign Aid Bill on Monday afternoon, December 8 at 5:00 p.m./2/ Passman complained that there had been all kinds of end runs on this subject and he had decided that no one would get around him on it. He did indicate, however, that he wished to support the President nevertheless.

I emphasized that the $115 million cut in Passman's Committee for Vietnam posed a most difficult problem and apologized that I had not had an opportunity to talk to him earlier about it. Passman recalled that they had appropriated $375 million last year only to find that merely $240 million were needed. However, he confirmed that he would restore whatever was necessary in conference and expressed a willingness to go up an additional $75 million for Vietnam in conference.

Passman also indicated that he would make an exception this year for President Nixon and move up on Latin America but that it is important that his assistance be very closely held. I am getting the necessary figures on Latin America which I will furnish to Passman tomorrow or the next day.

Please hold this information very closely since I assured Passman we would not compromise him on it.

Washington, December 10, 1969.

SUBJECT
IDA Replenishment III

World Bank President McNamara is commencing discussions next week on the Third Replenishment of IDA (International Development Association). This first session among the donor developed countries will lay the groundwork for negotiations which McNamara hopes to have completed by mid-summer, well in time for legislation for fiscal year 1972.

IDA is the concessionary lending affiliate of the World Bank and has been replenished at three-year intervals. This spring, as one of the first activities on the legislative calendar, you obtained a three-year authorization for the Second Replenishment of IDA at $480 million as the United States' 40 percent share of a total $1.2 billion replenishment. This covers fiscal years 1969 through 1971 at $160 million per annum.

This forthcoming replenishment of IDA is complicated by the fact that the management of the World Bank would like to increase the capital of the World Bank. First, they expect increases in Bank capital corresponding to the upward adjustments of relative quotas within the International Monetary Fund. This is customary. Since, for the first time, we are asking for a quota increase at the Fund, we would be expected to go along on a selective capital increase for the United States in the Bank. In addition--and the complicating factor--President McNamara is raising the question of whether the capital of the World Bank should be further augmented by a general increase. It is not possible to increase the contributions to one member of the World Bank Group without raising the question of a "trade-off", i.e., does a general capital increase for the Bank decrease the amount of the next replenishment of IDA?

Secretary Kennedy has already raised the replenishment and capital increase issues with the National Advisory Council on International Monetary and Financial Policies. It is under study there, and recommendations will be made to you as they become timely. Treasury, in addition, has alerted Mr. Peterson of this pending matter; and we discussed the issues when we appeared before the Peterson Task Force./2/ At both the NAC and the Peterson Task Force there seemed to be a general view that the World Bank Group is a very important multilateral aid-giving intermediary and the United States should make every effort to expand the resources made available to this Group and to IDA in particular.

At the preliminary meeting of the donor countries next week, it is premature for the United States to indicate more than that we strongly favor a considerable increase in the resources of IDA at the next replenishment and that we will be working with the Bank and the other donor countries to determine how this end might best be achieved. At the same time we can indicate our willingness to take a selective capital increase in the Bank, but withhold judgment on the issue of a general capital increase. The Bank's need for usable capital requires further study and, also, we must get a better feel for the "trade-off" of the capital increase and the IDA replenishment. Contributions to IDA, negotiated multilaterally to assure burden-sharing arrangements make it necessary to consider carefully the attitude of other donors. Finally, Congressional contacts are being pursued in order that the pertinent Congressional committees can be kept informed as we proceed.

The attached tables give some of the numbers involved in the World Bank capital issue and the past history of the fundings of IDA.

Charls E. Walker/3/

IBRD CAPITAL INCREASE

/1/The Bank management has suggested payments might be made over a five year period. This would mean an annual payment of $63.4 million for the U.S.

Attachment/5/

CONTRIBUTIONS OF CONVERTIBLE FUNDS TO IDA
($ millions)

Note: In addition IDA has received a total of $385 million of net earnings transferred from the IBRD over the period 1964-69.

Washington, December 15, 1969.

SUBJECT
Meeting of study group on SDR-Aid link, December 16

We have put together some comments--brief, since you know the issue--on the questions circulated by Brookings/2/ for discussion on SDR-Aid link proposals. I also have attached a copy of the paper we did for Ambassador Korry./3/

1. Would the link of SDRs to development finance impair their usefulness as an international reserve?

--The extent to which a donor country would incur permanent loss of liquidity would depend on its share of procurement from SDR-generated aid. Countries with recurring inflation and balance of payments deficits might want the right to "opt-out" from a link agreement.

--Threat of over-creation of SDRs because of LDC pressure does not seem to us to be very serious, but there is concern among various rich countries about overissue; and this could slow down consideration of establishing a link.

--It is clearly the feeling of a good many developed countries and that of the U.S. Treasury as well, that we should go slowly on the link until the SDRs do prove themselves. We do not see why this need be so; but since it is a strongly felt position of many, it does have considerable force.

2. Is it proper for the President to ask Congress for authority to provide U.S. resources to the developing countries without going through the appropriation process?

--One might rephrase this question to ask if it is realistic to ask Congress for such authority. Aid based on SDRs would still involve transfers of real resources or net payments outflows and I doubt that Congress would take a more relaxed view of this kind of aid than it does on direct contributions to international development institutions. I doubt that the Fried approach of seeking Congressional authority before negotiating with other countries would be successful.

3. Would a link lead to a net addition to total aid or would it merely substitute for other forms of aid?

--Part of the answer to this is the judgment of how much aid would be forthcoming without the link--a diminishing amount we think. If this judgment is accurate, a link might permit more regular aid flows and in the long run might result in considerable additionality in spite of a large element of substitution.

--If there were international agreement for an informal link, I think the same consideration that pertains to us would pertain to other developed countries. My own overall guess is that a link would probably result in more total aid from all sources than is likely to be the case without a link.

--The experience of the Third IDA Replenishment negotiation will be a telling factor in considering eventual adoption of SDR-aid linkage, and also in reaching some judgment of Congressional support for aid via multilateral institutions.

4. Would other industrial countries agree?

--Bill Dale and some people at Treasury feel strongly that rejection of an organic link during SDR negotiations was quite important for the EEC countries and that most, if not all, are still opposed. We will have an opportunity to test European attitudes over the next year or so in such places as UNCTAD, where the question of a link will receive increasing attention.

--Burden sharing based on IMF quotas would more closely approximate our present view of aid-giving capacity than rough formulations such as the 40-60 sharing that we now have in IDA.

--A link might complicate future decisions on SDR creation and may make it more difficult to get agreement on the amounts we think necessary for liquidity purposes--but we doubt this will be overly serious.

--The main attraction of a link is that it would institutionalize a particular method for multilateral aid-giving within the structure of a working system with the rules of procedure and participation already set up by the prospective donor countries.

--Getting an agreement to amend IMF articles for an organic link would be far more difficult than negotiating a voluntary link with other IDA Part I countries; but it might be that only a formal link would establish a permanent mechanism for IDA replenishment. This is no moment, however, to seek a formal link even if we later might wish one.

--Unilateral implementation of a link is certainly possible, but we doubt that it is the best way to proceed at this point.

Washington, December 24, 1969.

SUBJECT
FY 1971 Military Assistance

Recently you approved a Military Assistance Program authorization request for FY 1971 of $400 million. The two-year (FY 1970-71) authorization bill subsequently passed by Congress, however, contains an authorization of $350 million for each year. The Departments of State and Defense recommend that, despite the current authorization limit, the budget request remain at $400 million.

We reaffirm our belief that a level of $400 million is barely enough to maintain the MAP in a viable state until the FY 1972 programs can be formulated to implement the "Nixon Doctrine"/2/ on a comprehensive basis. We consider this amount essential to insure our ability to implement such courses of action as may emerge from your decisions on NSC studies currently underway.

The FY 1970-71 authorization level of $350 million does not take into account our need to anticipate an upswing in MAP if we are to find a way to accomplish major U.S. defense savings by judicious and timely reductions in our forces overseas. It may raise serious doubts among our more exposed allies as to the aims and real intentions of this Administration's foreign policy.

U.S. reductions must be balanced by modest but effective and believable military assistance programs for those allied forces which are to assume an increased defense role. Service long supply and excess stocks and the Foreign Military Sales Program cannot compensate in the major MAP countries for an excessively low $350 million level. In Greece, Turkey and Korea, force modernization on a major scale is necessary and even a $400 million figure will barely start to meet these needs; because of inadequate MAP levels over the past several years, the forces of these countries have slipped slowly into obsolescence. In some countries, access to bases important to U.S. strategy has been and continues to be placed in jeopardy. Finally, the need continues for grant military assistance to developing countries in order to help them improve, without undue adverse effect on economic growth, forces sufficient to maintain internal stability, and thus providing an environment for orderly economic and social progress.

An adequate military assistance program is necessary if we are to reduce our presence, retain our allies, and maintain a foreign policy that is understandable and supported by them. I therefore recommend that you retain the $400 million MAP level for FY 1971 with the knowledge that, as our foreign policy requirements unfold, it probably will be necessary to support an even larger request.

Melvin R. Laird

Washington, December 26, 1969.

SUBJECT
FY 1971 Military Assistance Budget

Since we discussed the MAP FY 1971 budget, the Congress has enacted a two-year authorization for military assistance as well as economic assistance./2/ The authorization for grant military assistance contained in the enrolled Foreign Aid Bill is $350 million for both FY 1970 and FY 1971. You have approved $400 million in grant military assistance for FY 1971, $50 million above the congressional authorization, but $50 million below the budget level originally recommended by State and Defense.

Your decision on economic aid for FY 1971 was based on accepting, where possible, the second year FY 1971 authorization level. John Hannah and I have now agreed upon an economic aid total of $1,844 million in budget authority which conforms to the authorization level, except for $100 million in additional supporting assistance in Vietnam which is essential to the Vietnamization policy. The rationale for accepting a lower total for economic aid (State/AID and the Budget Bureau had proposed $2.0 billion to you) was to reduce the legislative load on the Foreign Affairs/Relations Committees next year. This would provide time to focus on the report of the Peterson Task Force and your new aid proposals.

The Administration should also consider extending this approach to military assistance--reducing the MAP FY 1971 request to $350 million--on the following basis:

--Congress, when it completes work on FY 1970 aid appropriations in January, will probably provide only $350 million, the amount authorized for MAP. The Senate opposition to the $54 million earmarked for Taiwan will probably prevail.

--Prospects for persuading Congress to increase the FY 1971 MAP authorization by $50 million are poor. The controversy over jets for Taiwan has produced strong feelings in both the House and the Senate, as exemplified by Senator Aiken's remarks that the foreign aid program has become "a diplomatic pork barrel and a subsidy to American industry."

--A $350 million MAP level for FY 1971 would be very tight, requiring reductions in all the major country programs but credit sales and expected increases in excess stocks would at least partially offset these reductions.

Defense and State recommend that the FY 1971 MAP budget request not be reduced below $400 million./3/ They would prefer to try to obtain the increase in authorization on the grounds that $350 million would not meet the critical defense needs of the major recipient countries like Korea, Turkey, and Spain, and fund the remaining programs at levels adequate to serve U.S. foreign policy. John Hannah is concerned about the effect a MAP authorization increase would have on congressional consideration of new foreign aid proposals next year.

For reasons of congressional tactics, you may want to consider the option of a 1971 MAP budget of $350 million and seek the views of Bryce Harlow and Henry Kissinger on the question.

Robert S. Mayo

Washington, January 12, 1970.

SUBJECT
FY 1970 Military Assistance Program

In mid-December 1969, we discussed FY 1971 funding requirements for military assistance (MAP) and you decided that $400 million would be included in the budget request for this purpose./2/ I was quite surprised to learn informally last week that the Bureau of the Budget, with no Department of Defense representative present to discuss implications, succeeded in lowering this figure to $350 million./3/ I do not question the decision which, I am sure, resulted from overriding budgetary pressures as well as the legislative situation. I am, however, concerned that the Bureau's procedure, if followed in the future, might result in defense decisions that do not take fully into account all pertinent considerations and implications.

I wish to reaffirm my belief that a level of $350 million takes the Military Assistance Program too low for you to have the flexibility and options you will need in FY 1971 to take the initial steps in implementing the "Nixon Doctrine." I am convinced that steps in this direction must be taken before we formulate our FY 1972 programs on the basis of new strategy. A marked increase in MAP must be assumed if we are to proceed with major U.S. defense savings by selected reductions in our overseas forces. If our strategy is to remain credible, U.S. force reductions must be counterbalanced by effective military assistance programs for certain allied forces which would assume an increased defense role.

It seems clear to me that we must start laying the groundwork now for an FY 1971 supplemental MAP authorization and appropriation. We are also examining the possible need for a supplemental request in FY 1970 but we do not yet have a fully fleshed-out rationale and supporting detail upon which it might be justified. A supplemental for FY 1971 would, on the other hand, embody those NSC decisions that would have been made, would provide a more thorough and orderly evaluation of important requirements, could include such recommendations from the "Peterson Committee" as may be necessary, and hopefully would be more acceptable to the Congress.

To set the stage with Congress, the public, and other elements of the Executive Branch, I recommend that you include in your forthcoming budget message a brief statement of your intent to seek a supplemental MAP appropriation for FY 1971 together with the reasons why this will be necessary. A suggested statement is attached./4/

The Department of State concurs in my views as indicated above.

Melvin R. Laird