Among the recommendations in the Rockefeller Report on Latin America, November 10, 1969, was a proposal on debt repayment. Regarding the Nixon administration's initial reactions to this proposal, which recommended the use of local currency payments in lieu of dollars, see Document 12. A few months later Secretary of the Treasury Kennedy reported to President Nixon that he and George Woods had met several times and agreed on some general considerations, the first of which (as summarized by Kennedy) was: "We are dealing with the most sensitive subject in the financial field I can imagine." They also opposed the term "debt rescheduling," which "connotes a credit and balance of payments crisis and a bail-out," and instead suggested using the term "amortization assistance," which would "associate the scheme with development assistance."

Kennedy continued that because of the large number of creditors and different kinds of indebtedness, he and Woods believed the amortization assistance would have to be done multilaterally and on an individual per country basis. Moreover, if an amortization scheme resulted in cutbacks by the donor countries, other capital sources, and U.S. bilateral assistance, "an increased net inflow of capital to Latin American countries, which is the basic purpose behind the scheme, will not be achieved." Kennedy and Woods also recommended some next steps, most immediately to obtain Inter-American Economic and Social Council (IA-ECOSOC) agreement to have the Inter-American Committee on the Alliance for Progress (CIAP) and the World Bank jointly study the problem. Kennedy further noted that the use of local currency payments "has many attractions and I do not consider this an especially troublesome area. The application of the technique will have wide variation from country to country." (Memorandum from Kennedy to President Nixon, January 17, 1970; National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 289, Treasury Volume I)

The Department of State generally agreed with Kennedy's memorandum but added a few comments and suggested more specific initiatives to take to the IA-ECOSOC meeting. (Memorandum from Theodore L. Eliot, Jr., Department of State Executive Secretary, to Kissinger, January 23; ibid., RG 59, S/S Files: Lot 83 D 305, NSDM 41)

In National Security Decision Memorandum 41, February 18, President Nixon directed the creation of an interagency Special Task Force, chaired by Under Secretary of the Treasury for Monetary Affairs Paul Volcker, to study the debt service problem in Latin America and other developing nations, initiate an action program involving close cooperation with CIAP, the IDB, and other creditor nations and international agencies, and implement the action program "on a priority basis, including recommending to me such legislation as may be required." The President also noted that he had authorized the U.S. delegation to the IA-ECOSOC to announce that he was prepared to appoint a special representative to work closely with CIAP and the IDB on the issue. He requested the first status report by March 15. (Ibid.)

In his first monthly status report, Paul Volcker stated, among other things, that the working premises of the Task Force were that the approach had to be multilateral, could not be limited to Latin America, and had to be implemented on a case-by-case basis. (Memorandum to President Nixon, March l3; Washington National Records Center, Agency for International Development, AID Administrator Files: FRC 286 73 A 518, IPS 7-1 FY 70 Feb-June 1970)

Washington, March 4, 1970.

SUBJECT
IDA Replenishment III

In our memorandum of December 10,/2/ we alerted you to the commencement of discussions on the Third Replenishment of IDA (International Development Association) resources. In addition, we pointed out that an increase of the capital resources of the World Bank was also under consideration. This second matter is now dormant.

The Part I IDA donor countries will continue negotiations in London on March 9 and the United States needs to have a view at that time on a specific amount if the meeting is to progress well.

The outlook is that Sweden, the Netherlands, the United Kingdom and Canada, joined probably by other small countries such as Denmark and Norway, are prepared to suggest and endorse a figure involving an annual replenishment of $1 billion for each of three years (U.S. share about $400 million), up from the present $400 million annual level (U.S. share $160 million). We do not anticipate any clear statement of position from four major countries: Germany, France, Italy and Japan who are probably thinking of a lower amount and may so influence the final outcome. The management of the World Bank is pushing quietly but strongly for a $1 billion replenishment and they urge that our delegation be prepared to endorse that number.

The Pearson Commission Report/3/ recommends that contributions to IDA should reach the order of $1 billion annually in 1972 and $1.5 billion by 1975.

I discussed the matter with Rudy Peterson in November and again with his full Commission in December. I indicated to them that I believe we should go for a substantial IDA increase and that the United States may have to declare itself on an amount prior to the completion of the Commission's Report. I was encouraged by them to press ahead and get as large a replenishment as possible and that we should not be concerned about making our position known before the Peterson Report is completed. We have recently coordinated our thinking with the Peterson Commission via its staff and have been assured that a $1 billion replenishment is in full accord with the position they will be recommending./4/

In your recent foreign policy statement you indicated your readiness "to respond positively" to proposals for the replenishment of IDA./5/

This has been coordinated through the National Advisory Council, expanded to include representation of AID, Bureau of the Budget and the National Security Council staff. We recommend to you that the U.S. delegation be authorized to indicate that the U.S. Governor would recommend to the President that the United States support a $1 billion IDA replenishment. Expressed this way in private, you would still be left the opportunity to support the figure publicly in your mid-April Economic Assistance message. From a negotiating point of view, that may also prove to be a desirable sequence.

There are several reasons for taking this step now:

1. It furthers your objective of increasing the role of multilateral development institutions in the provision of aid.

2. With the United States declaring itself at the London meeting, we can improve considerably the World Bank's chances of achieving the IDA replenishment goal. On the other hand, failure to move now would increase the possibility that the ultimate consensus would develop nearer the lowest rather than the highest common denominator.

3. In IDA we get very favorable burden sharing, with other donors putting up $3 of soft term aid for every $2 we do.

We do not believe that budgetary considerations should keep us from supporting an over-all replenishment of $1 billion in view of our priority for multilateral economic assistance and our preference for IDA as an aid-giving institution. The three $400 million per year U.S. contributions would be paid by letters of credit, and budget outlays would occur only as cash drawings were made. These would be spread out over a period of up to 8-10 years.

Congressionally, the amount will not be easy. We are talking FY 1972, 1973 and 1974. You obtained ratification of IDA Replenishment II early in the last legislative year (covering appropriations in FY 69-71). We will have to work hard to do as well for FY 1972, but I believe we can. The inherent Congressional strength of IDA is that 18 countries join together to contribute resources to the lesser developed world and the multiplier effect we receive on our funds is a compelling argument on the Hill.

A replenishment of $800 million (double the present size) would only reduce the United States annual appropriation from $400 million to $320 million. On an expenditure basis, in view of the lengthy disbursal period, the savings to our annual expenditure budget would only be in the neighborhood of $25 million average. Moreover, it is not clear that dropping the replenishment from $1 billion to $800 million would give us additional support on the Hill: those who oppose foreign aid would be just as strong against the lower figure as the higher.

Another alternative is to step up the annual amount from $800 million the first year to $900 million the second and $1 billion the third. An advantage of this proposal is that it would show an upward thrust, but it might be more difficult to negotiate with some other donor countries. Also it might be more difficult for us legislatively because it would break the established precedent for IDA of three-year authorizations with equal annual payments and create an implication of progressively higher contributions in subsequent years. Besides, the over-all amount by this method is 10 percent less than the total we recommend. It might nevertheless be considered as a fall back position if one should become necessary.

Should the United States recommend a replenishment of $1.2 billion per annum? While the lesser developed countries would be able to use resources at this volume, we do not consider this figure to be negotiable within the established burden-sharing formula of the donor countries. Recommending it would raise U.S. visibility at the negotiations which we do not believe to be consistent with your approach to international negotiations or with your concept of partnership. If the United States were to raise its share of IDA contributions above 40 percent to achieve a larger replenishment, it would, I believe, grievously impair chances of legislative ratification and also seriously compromise the burden-sharing and partnership approach we are seeking.

In our earlier memorandum, we indicated that the World Bank was considering a capital increase of about 25 percent. The Bank has decided to withdraw this idea--because it seriously complicates the IDA replenishment negotiations and would probably require a lower level of replenishment. While this issue may resurrect itself at a later time, it is no longer part of our considerations in the present exercise. You have already approved a small selective capital increase in the World Bank as a normal counterpart to the IMF quota increase, but this selective increase has no implications for the IDA replenishment.

We do not recommend that the United States require the same balance of payments safeguards for the Third Replenishment which we have at present. These permit immediate disbursement only against U.S. procurement, with the balance of our contribution disbursed on a "last-in basis". To be sure these safeguards were very helpful--if not critical--in obtaining Congressional support. However, they did complicate the last negotiations, and they do represent a privilege available to the United States which other donors do not have. I fear this negotiating complication outweighs the balance of payments and Congressional advantages.

At the same time we must be aware of the substantial balance of payments cost. We contribute 40 cents of each IDA dollar and currently receive in U.S. procurement about 14 cents on the dollar (over the whole period of IDA operations this figure is 19 cents on the dollar). This means the total balance of payments cost to the U.S. of the Third Replenishment of IDA will be between $630-780 million during the calendar 1972-1980 period.

I think we must recognize that with the U.S. providing 40 or 50 percent of the world's official aid, and our share of the goods imported by the LDCs around 15-25 percent in general, the difference between our share of total official aid and our share of LDC imports is a good rule of thumb guide to the balance of payments cost. It may not be necessary to take a definitive position on balance of payments safeguards at this round of talks, but I believe they will have to be dropped in the interest of multilateral cooperation; and this should be recognized and accepted as a cost of aid-giving through IDA.

In conclusion, I recommend, with the concurrence of State, AID, Commerce, Eximbank, BOB and NSC Staff, your approval for the U.S. delegation (headed by Treasury Assistant Secretary for International Affairs Petty) to support a $1 billion annual IDA replenishment (U.S. share about $400 million) at the March 9 London meeting./6/

David M. Kennedy

Washington, March 19, 1970.

SUBJECT
Third Replenishment of the International Development Association

The meeting of donor countries last week ended as anticipated with the United Kingdom, Canada, Sweden, Netherlands, Norway, Denmark and Finland joining us in support of an annual replenishment of $1 billion for each of three years (United States share about $400 million) and France, Germany, Japan, Belgium and Australia talking about a lower amount. If agreement is to be reached on a $1 billion per annum replenishment, or something reasonably approaching it, it will be crucial that Germany and France raise their sights.

To achieve this, it will be essential that top political support for a high figure be generated in each of these countries. They both are experiencing severe budgetary pressures, and have long-range budgetary plans which probably would not allow them to take their appropriate share in a $1 billion per annum replenishment (present level is $400 million) without cutting back bilateral programs or raising internal ceilings at the expense of domestic programs.

World Bank President McNamara put in a strong pitch for a $1 billion replenishment when he saw President Pompidou on March 16. We understand that he feels there is "give" in their position. France has been talking $500 million and probably had in mind going to $600 million if pressed. It is clear that it is necessary to get beyond the Finance Ministry if French support for a higher figure is to be obtained.

Chancellor Brandt is the next key as it is clear Germany will have to raise her sights if there is to be real hope for the French to come along. Indications are that the Germans are thinking of something around $600 million (although internally their aid ministry has suggested $800 million). The size of the replenishment came up at an EEC Finance Ministers' meeting a couple of weeks ago, at which it appeared that $500 million was the highest figure all could support. At the Deputies' meeting in London last week,/2/ however, the Dutch supported $1 billion and the Italians indicated privately that they probably would have also, had it not been for the lower amounts favored by the Germans and French at the EEC Finance Ministers' meeting.

Treasury Assistant Secretary Petty, who is the Deputy in these negotiations, believes that perhaps the only (and certainly the best) chance of achieving the $1 billion objective would be for you to stress the importance we see in a replenishment of this magnitude to Chancellor Brandt during your meeting with him in early April./3/ Secretary Kennedy believes this judgment is correct.

Secretary Kennedy will also have an opportunity to discuss this directly with the Japanese in early April/4/ and with the French Finance Minister, Giscard d'Estaing, in early May./5/

/5/Secretary Kennedy and Finance Minister Giscard d'Estaing met at Camp David May 3-5, and IDA replenishment was one of the topics they discussed. See Foreign Relations, 1969-1976, vol. III, Document 146.

Paul A. Volcker

In early 1970 the Nixon administration began to focus intensively on the question of replenishment of the resources of the Inter-American Development Bank (IDB). In a March 13, 1970, memorandum to President Nixon, Secretary Kennedy outlined the points on IDB replenishment he would be discussing with the Latin Americans but did not yet require Presidential decision. In his memorandum he referred to the President's message to the IA-ECOSOC meeting in Caracas (read by Assistant Secretary Meyer on February 4), which indicated that a substantial amount of the $540 million FY 1971 expanded multilateral assistance account would be available for IDB replenishment. (Washington National Records Center, Department of the Treasury, President—January-April 1970) For text of the President's message, see Public Papers of the Presidents of the United States: Richard Nixon, 1970, page 80. The Department of State provided its suggestions on IDB replenishment in a March 19 memorandum from Under Secretary Samuels to Secretary Kennedy. (National Archives, RG 59, Central Files 1970-73, AID (IDB) 9)

In a follow-up memorandum to the President on April 3, Kennedy presented issues on IDB replenishment for comment and approval before his departure on April 17 for the IDB Governors' meeting in Uruguay (April 20-24). Among other things, he proposed a U.S. contribution of $1.725 billion (broken down in various forms). (Washington National Records Center, Department of the Treasury, Secretary's Memos/Correspondence: FRC 56 74 A 7, Memos to the President--January-April 1970) In an April 13 memorandum to Kissinger, Vaky and Bergsten recommended that the President approve Kennedy's proposal. On this memorandum Haig wrote that Kissinger might want to clear for the President, and Kissinger wrote, "I signed off." (National Archives, RG 59, S/S Files: Lot 83 D 305, NSDM-54)

In National Security Decision Memorandum 54, April 16, Kissinger noted that the President had approved Kennedy's proposal for the U.S. financial contribution (including the component figures) over 3 years to the replenishment of the IDB resources and authorized Kennedy to support this position, subject to legislative authority, at the meeting of the IDB Governors. President Nixon also approved positions on three policy issues (the one on performance conditions required no decision): use of soft-loan resources, broadening of IDB membership, and level of Latin American countries' contributions to the Fund for Special Operations (FSO). (Ibid.)

Kennedy reported that, at the IDB Governors' meeting, most of the Latin Americans refused to accept the U.S. position of an increase in their contribution to the FSO from $300 million to $450 million when the United States wanted to keep its own contribution at $300 million. Believing the impasse on the question would likely prevent agreement on IDB replenishment, Kennedy requested the President's approval to increase the U.S. contribution to $1 billion in return for a Latin American increase to $500 million. (Telegram 711 from Montevideo, April 22; ibid., Nixon Presidential Materials, NSC Files, Subject Files, Box 333, IADB)

In an April 22 memorandum to Kissinger, Vaky argued that the revised U.S. position would still achieve the same 2:1 ratio the delegation was seeking, and the marginal U.S. increase "would not adversely affect the prospects for Congressional approval if we can achieve a substantial increase in the Latin contribution to $500 million." On the basis of an earlier conversation with Kissinger after which Kissinger had concurred in the U.S. increase, Vaky cabled Kennedy, in White House telegram 535 to Montevideo, April 22, the authority to negotiate the increase while reserving the option of deferring partial payment until the fourth year. (Both ibid.) In telegram 742 from Montevideo, April 24, Kennedy reported that the IDB Governors had agreed to the U.S. terms on the replenishment of the IDB's ordinary capital and had also acceded to the FSO contribution on the revised $1 billion/$500 million basis. (National Archives, RG 59, Central Files 1970-73, AID (IDB) 9)

On April 25 Kissinger signed a memorandum to President Nixon indicating that he had approved the U.S. negotiating position at the IDB meeting and that Kennedy would report to the President more fully on the highly satisfactory outcome of the meeting upon his return to Washington. (Ibid., Nixon Presidential Materials, NSC Files, Subject Files, Box 333, IADB)

Washington, June 16, 1970.

SUBJECT
United States Position in the United Nations on Aid Targets

That you approve a United States statement in the United Nations, along the lines below, reaffirming the international aid target of 1% of GNP./2/

In my memorandum to you of April 17, 1970,/3/ I recommended that the United States reaffirm the 1% of GNP target for public plus private resource flows to LDCs which we have consistently supported since 1965. The course of United Nations work on a Second Development Decade Declaration,/4/ in which the aid target question has become a major issue, makes it desirable that you act on this now since silence is not an available option.

Given the symbolic importance of the target for LDCs, its acceptance by all other non-communist aid donors and its usefulness to them in dealing with their parliaments, and long-standing United States support for it, a reversal of our position now, however put, would be taken as a retreat from our concern with development. Failure to reaffirm the existing target could thus poison the atmosphere this fall at the 25th Anniversary General Assembly where the focus will be on development. This would be particularly unfortunate if you should decide to appear there personally.

At the same time we must be forthright about the prospects of our meeting the 1% objective. (Our aid and investment flows to LDCs last year were only 0.5% of GNP, placing us sixteenth among the sixteen members of the Development Assistance Committee.)

To meet these competing requirements I propose a statement in the United Nations as follows./5/ The United States faces staggering domestic needs which have given rise to a national debate, still unresolved, on how to apply limited public and private resources to seemingly limitless requirements. The combination of these internal requirements and of the enormous burdens carried by us externally, plus the frustrations, as well as the successes, of nation-building in the developing world have brought a profound reexamination of aid policy in the United States and the best means for conducting it in the future. We are thus unable now to say when the United States may meet the 1% aid objective, or even whether our efforts towards this objective will be successful. At the same time it is important to bear in mind that while the flow of official resources requires Congressional action in our country, the flow of private resources is expandable without such action and is, of course, likely to be responsive to mutually beneficial investment policies in the developing countries. We are prepared to make our best efforts to increase both official and private flows and we hope we can be successful in moving closer to the aid objective. It is in this spirit that we are willing to join in international reaffirmation of the aid target.

Such a position will be short of that other donors are ready to take. Most others, including France,/6/ Germany, and Japan, are willing to accept a specific deadline (1972 for some, 1975 for others) for their meeting the 1% target. Germany and several others will also accept a sub-target of 0.7% of GNP for public aid. I think we must make it clear in the United Nations at a stage earlier than the coming General Assembly, which you may address, that we cannot go beyond reaffirmation of the existing target, but that we will not back away from it either. The best opportunity would be the meeting of the Economic and Social Council in July.

William P. Rogers

In the first half of 1970, the Nixon administration continued to consider the sale of jet aircraft to Latin American countries. Regarding the administration's deliberations on this issue in 1969, see Document 12. In response to a request by Argentina in September 1969 to purchase 32 subsonic, reconditioned A-4B Skyhawks, the Nixon administration agreed to sell 16 such planes. It was believed that the Argentine Government had the financial resources to purchase these planes for about $5 million, but if credit became an important issue, the administration would agree to finance the sale under the Military Assistance Program. The administration also authorized the sale of F-5 and A-4 aircraft to Brazil, Chile, and Colombia, if and when the governments requested them, and, as necessary, the provision of credit up to the legislative limit of $75 million for grants and sales of military equipment to individual Latin American countries. (Memorandum from Richardson to Nixon, February 2, 1970; NSDM 42, February 19; and memorandum from Richardson to Kissinger, February 20; all in the National Archives, RG 59, S/S Files: Lot 73 D 288, Box 837, NSC/USC Memo)

In NSDM 46, March 5, President Nixon also agreed to waive the aid penalty provision in Section 119 of the Foreign Assistance Appropriation Act if Chile, Colombia, or Brazil decided to purchase A-4 or F-5 aircraft. NSDM 46 further asked the NSC Under Secretaries Committee to consult with Congress on the additional step of waiving the credit restrictions in the Foreign Military Sales Act, "to plan for and undertake a major effort to amend both Conte provisions appropriately so as to provide a permanent solution to the problems continually being raised by the restrictions," and "to keep the President informed of what is being done." (Ibid., Nixon Presidential Materials, NSC Files, Subject Files, Box 363, NSDMs 1-50)

The Committee reported nearly 4 months later that the consulted Senators and Congressmen generally approved the Argentine sale and agreed on sales with waivers to Colombia and Chile, but expressed "considerable concern" regarding possible sales to Brazil, which seemed interested in buying more modern, Mach-2 generation aircraft. Furthermore, "those who disapproved of a waiver for credit equally opposed the aid deduction waiver," and conversely "those who favored or did not object to one waiver took the same attitude toward both." (Memorandum from U. Alexis Johnson, Acting Chairman, to President Nixon, June 29; ibid., RG 59, S/S Files: Lot 83 D 276, NSC-U/DM 43) Peter Vaky of the NSC Staff had earlier argued that the sale of modern planes such as F-4s to any single Latin American country would cause serious problems with Congress, which had objected to such modern weapons sales to Latin America on the grounds the sales would stimulate an arms race and would be destabilizing. (Memorandum from Vaky to Kissinger, March 18; ibid., Nixon Presidential Materials, NSC Files, Subject Files, Box 338, HAK/ELR Meetings 1/70-3/70)

Washington, July 3, 1970.

SUBJECT
Foreign Military Sales Act

I had a meeting Wednesday with DOD, including DOD and State Congressional people, on the foregoing subject. Unfortunately Mr. Timmons was not able to attend, but Mr. Abshire has now talked to Bryce Harlow. From this, as I see it, the following issues emerge with respect to the Administration's attitude as the bill goes to conference. Naturally this is a subject in which I am sure the President will want to make his own decisions, and I offer the following for any possible help in this regard. Chairman Morgan of the House Committee is very cooperative and is waiting to hear our views.

The major issue is whether it would be possible to achieve the complete deletion of both Cooper-Church and sections 9 and 10 of the Act. This would obviously be the ideal. The question is whether the Senate has painted itself into such a corner that insistence on this by the House will result in such an impasse that no FMS legislation is passed this year.

The consequences of no legislation would be inability to fulfill our commitment to finance $100 million in both 1970 and 1971 for Iran and $44 million in 1970 and $75 million in 1971 for Israel; and to carry out planned programs of $20 million in 1970 for Greece, $15 million in both 1970 and 1971 for Jordan, $35 million for Taiwan in 1971, $15 million for Korea in 1971, and $48 million for four Latin American countries in 1970. These countries are by law unable to obtain credits from the Exim Bank.

If the House should compromise by exchanging deletion of Cooper-Church for retention of sections 9 and 10 as they now stand, the practical effect would be virtually to nullify all of our major MAP programs. This is because our major programs are based upon the use of both MAP appropriations and excess stocks, and the necessity under section 9 of charging excess stocks against MAP appropriations virtually wipes out one or the other. In addition, the requirement under section 10 for recipient countries to deposit counterpart funds against both MAP and excess equipment that they receive is clearly unmanageable in the budgets of such major recipients as Korea and Turkey.

In this connection it is the judgment of State and Defense that we could accept section 9 if amended to raise the present limitation of $35 million to $150 million and reduce the valuation basis from 50% to 30%.

With respect to section 10, the entire concept is unsound, and the section should be deleted. However, if this is entirely out of the question, obviously the lower the percentage of counterpart, the less harmful it is. The present 50% figure is entirely unrealistic and if it is not possible to obtain deletion of this section, we should seek to obtain a nominal figure, such as 5%.

Putting aside the domestic and international political factors of Cooper-Church, from an administrative point of view DOD and State feel that we could live with it if paragraph 4 were amended by the insertion of "United States" before "combat" so as not to prohibit our support of Vietnamese and Thai Air Forces in Cambodia. Legislative history indicates that such an amendment should not present serious difficulty.

With respect to other objectionable concepts of the bill we would hope to be successful in deleting the section cutting off economic aid to Korea unless the President certified that they are "not fishing for salmon east of 175° west." We would also hope to deal with the "gas amendment" by having the conference report interpret "the United States" as used therein as applying only to the 50 states; thus, protecting our plans to move gas from Okinawa to Johnston Island.

UAJ

Washington, July 7, 1970.

SUBJECT
Problems Facing Military Assistance Program for FY 1971

A number of extremely serious issues confront our military assistance program for FY 1971, not to mention the longer run:/2/

--Cambodia will probably require at least $50 million, and perhaps much more, which was of course not anticipated when the present $350 million level was authorized last January. (You will recall that MAP for Vietnam, Laos and Thailand is now in the DOD budget.)

--As much as $150 million more than now programmed may be desirable to implement the President's Korea decisions to persuade Park to undertake the necessary force modernizations.

--The President's Indonesia decision will require an extra $10 million, and the Indonesians want more.

--"Recoupments" (unused authority from previous years) now look about $15 million less than earlier estimated.

--Our transfers of excess U.S. military stocks, which have provided a vital supplement (not requiring appropriations) to MAP in the past, could be severely limited by Congressional action. The acquisition cost of the stocks transferred in FY 1970 was $500 million, and some estimates suggest that the amount could go up to $1 billion this year. A Senate amendment to the foreign military sales bill, however, would limit transfers to $70 million in FY 1971. The countries most hurt by the restrictions would be the GRC, Korea, Turkey and Greece.

--Failure to get a foreign military sales bill could further increase the pressure on MAP, since credit sales (the proposed level is $350 million)/3/ are an alternative to MAP in some countries. This would be especially true in the Eastern Mediterranean, since about two-thirds of the sales bill is for that area; Presidential commitments to Israel and Iran are involved.

I have made no attempt to develop detailed options in this quick summary. The Under Secretaries Committee is supposedly doing so right now, and should have them available in a few weeks./4/ However, the options in broad terms seem to be as follows (they could of course be adopted in combination):

--Request a supplemental MAP authorization, for all or part, (e.g., Korea only, Cambodia only) of the $200-$250 million shortfall now anticipated. The obvious problem is Congress.

--Cut our MAP programs in the other countries to make room for at least part of the new needs. Funding Cambodia and Indonesia alone would require further sharp cutbacks for Turkey, Greece and the GRC and smaller cuts for Latin America and the Philippines (see attached table). All of these cutbacks would of course cause problems, especially in the eastern Mediterranean when the Soviet presence is increasing dramatically. This option could not provide much if any additional MAP for Korea without severe cutbacks in some countries and/or complete elimination of MAP in many.

--Defer some of the "new" programs, particularly Korea.

--Make a major effort to avoid Congressional restrictions on excess stocks, and utilize them as much as possible to relieve the strains on MAP. This can apparently be done on a substantial basis, though by no means as a dollar for dollar substitute. It appears to be a particularly strong possibility in Korea and Cambodia.

--In addition to any of the other options, make a major effort to get authority for military credit sales at the proposed $350 million level. If Cooper-Church derails the present bill permanently, we might have to submit separate country bills; this could help with some countries (Israel, Iran) but would meet strong opposition for others (Greece, Turkey).

Within a day or two, State will submit a proposal for about $40 million for new Cambodian MAP, with cutbacks in other programs to make room./5/ There is apparently great urgency because the $8.9 million already authorized is running out. Budget will present, as an alternative, a much smaller amount to get us through a few months and enable us to put the total Cambodian requirement in the overall context outlined in this memorandum.

Within a few weeks, the Under Secretaries Committee will present recommendations on the entire FY 1971 program. It will include options on MAP levels for Korea and Cambodia, with options for providing these levels either via a supplemental or cutbacks for the other countries.

PRESENT MAP LEVELS FOR FY 1971 AND POSSIBLE
CHANGES TO PROVIDE $40 MILLION FOR CAMBODIA
(AND $10 MILLION MORE FOR INDONESIA)/*/
(Millions of Dollars)

Washington, August 4, 1970.

SUBJECT
State Department Position on Military Assistance and Foreign Military Sales

I understand that Secretary Laird, in a recent memorandum to you commenting on the Peterson Task Force Report,/2/ takes issue with the proposal that all security assistance be funded in a single International Security Cooperation Act. Secretary Laird recommends that the Military Assistance and Foreign Military Sales portions of security assistance be funded within the Defense Department. He also proposes that exploratory consultations be initiated with Congressional leaders to determine their receptivity to this approach.

I have reservations concerning Secretary Laird's funding recommendation and urge that no Congressional consultations be launched at this time. The intent of the Peterson Task Force recommendations was to create an integrated approach to security assistance. To this end the Task Force felt it desirable that all security assistance be funded in a single International Security Cooperation Act, that such security assistance be tied firmly to our foreign policy objectives and priorities, and that, in line with the Secretary of State's responsibility for the overall direction, coordination and supervision of the US Government's activities overseas, the responsibility for setting our security assistance policies and directing and coordinating these programs be assigned to the Department of State. As you know, I believe that these recommendations are right.

In a period of change, when we shall want to look closely at the allocation of our national resources and in any event must expect continued Congressional scrutiny of all foreign aid programs, it becomes a matter of considerable importance to be able to develop a coherent rationale for these programs. We must make an effort to integrate all aspects of security assistance into a comprehensive plan for each recipient country./3/ This is the one way, I believe, we shall be able to make a strong case for Congressional support and to insure coordination between foreign policy and its implementation. To fund the Military Assistance and Foreign Military Sales Programs in the Defense budget would run counter to such an effort and undoubtedly make the foreign policy direction and coordination of these programs quite difficult.

The principal reason advanced by Secretary Laird in support of the proposal to separate MAP and FMS from other security assistance is that by so doing it would be possible to gain Congressional support for eliminating the plethora of legislative restrictions attached to MAP and FMS./4/ I agree with Secretary Laird that it would be highly desirable to eliminate these restrictions, but I wonder if the proposed separation might not have the opposite effect. Indeed, it seems clear that the Senate Foreign Relations and House Foreign Affairs Committees are likely to resist the funding transfer proposal./5/ These two Committees have in the past amply indicated their strong determination to maintain jurisdiction over Foreign Aid programs. If overridden, they should be expected to provide formidable opposition to these programs, and perhaps attach even more restrictive legislation.

William P. Rogers

Washington, August 26, 1970.

The President's message on Foreign Aid is being drafted on the basis of National Security Decision Memorandum 76 (Tab A)/2/ which sets forth a number of agreed new approaches to the subject. Among these new approaches are 6(d) and (e), which repeal the restrictions relating to the Hickenlooper Amendment and the "barnacles" provisions (i.e., aiding countries that assist countries unfriendly to the U.S.) and replace them with provisions directing the President to "take into account" certain actions by AID recipients.

NSDM 76 is based on the July 14 Memorandum to the President attached at Tab B./3/ While this covers a large number of the points in NSDM 76 it does not refer to the Hickenlooper Amendment or the "barnacles" restrictions. The July 14 memorandum is apparently based on a July 13 memorandum to Dr. Kissinger numbered 11208 (attached at Tab C)/4/ and an undated memorandum to Dr. Kissinger numbered 11208A (attached at Tab D)./5/ In 11208 decisions by Dr. Kissinger are indicated on all issues except the Hickenlooper Amendment and the barnacles provision, while in 11208A the decision that is set forth in NSDM 76 is indicated, presumably by Dr. Kissinger.

In May of 1969 the Hickenlooper and barnacles provision were also under attack, and Dr. Burns brought them to the President's attention (in the memorandum attached at Tab E)./6/ When focusing directly on these problems at that time, the President determined not to repeal them (as opposed to repealing the provisions and having "the President take into account"). As Burns points out, repeal would be contrary to the President's campaign policy statements and to the general foreign policy enunciated by the Republican Party. At that time a discussion with Ross Adair indicated that he felt the restrictions were essential to any AID legislation.

After the meeting on the Trade Message I discussed with Mr. Harlow the proposed new approach to the Hickenlooper Amendment and the barnacles provision. His immediate response was that "this is very poor politics. It could become extraordinarily controversial on the Hill and poison the whole package." By their nature "AID bills become hotter than trade bills."

Based on the above, I recommend that:

(1) You be entirely satisfied that the President has focused on these two issues. He should be fully aware that he is reversing his previous position. The fact that he must "take into account" (as he obviously would anyway) will not alter the fact that he is repealing the Hickenlooper Amendment and the barnacles provisions; and

(2) If the President wants to go forward with these changes, they be fully discussed with Senator Aiken and Congressmen Adair and Frelinghuysen before the Message is sent to the Hill. These are only two relatively minor provisions among a long list of major new initiatives. It may be that it will be decided not to endanger the whole package for these two changes.

One final consideration, though perhaps not major, is the predictable reaction among the business community. However unsophisticated they may be in this area, businessmen generally feel the government gives them no help in their efforts abroad. They deplore the lack of support when their properties are nationalized. If the President repeals the Hickenlooper Amendment and the barnacles provision, their enthusiasm for AID will be even further diminished and their support for this Administration somewhat impaired./7/

Washington, September 11, 1970.

We are involved in a real crisis in our key programs for grant military assistance (MAP), Foreign Military Sales (FMS) and Supporting Assistance (SA).

In the first place, the resources currently available and being requested from Congress are inadequate to support ongoing implementation of the Nixon Doctrine and to assist in maintaining adequate balances of power throughout the world. Requirements continue to mount which have led--and continue to lead--to overcommitment of limited available funds in the basic security assistance programs. The only possible result, without supplemental help, is that Defense is unable to achieve specified national security goals.

In the second place, the time to make the request for additional resources is now. The necessary action has not been forthcoming. I am convinced the only viable solution to the current MAP/FMS crisis is to ask for more resources.

I know the Executive Branch has preferred not to seek supplementary FY 1971 funds from Congress until much later in the year. The on-rush of events in the Middle East, Southeast Asia, and Korea will not, however, afford us the luxury of waiting. The failure to move now for a supplemental is contributing to the current MAP/FMS crisis. The irony is that the present circumstances are favorable for receiving favorable Congressional consideration of a supplemental request. The corollary is that future circumstances almost certainly will not be as favorable. In the following paragraphs, I would like to outline in more detail our current situation.

We have urgent additional MAP requirements for at least $260 million. A summary breakout of the MAP supplemental needs is as follows:

The $150 million for the Republic of Korea is needed to initiate a balanced force modernization. This modernization is essential to compensate, in part, for ongoing U.S. troop withdrawals. The Cambodian situation presents a no-less-urgent requirement. Currently, $48.9 million is available to cover the outlays for both FY 1970 and FY 1971 ($8.9 million in FY 70 and $40.0 million in FY 71). All except $13 million of the $48.9 million has already been obligated. In the meantime, estimates of FY 1971 Cambodian requirements are $100.0 million, i.e., $60 million more than is currently at hand. Without a supplemental, our alternatives are (1) to restructure further an overall MAP pool of funds which is insufficient to achieve U.S. goals, or (2) to design a military strategy in Cambodia within the confines of the existing funds, a course which may likewise lead to failure to achieve stated U.S. objectives. Obviously, both of the currently available alternatives are undesirable. In addition to the additional ROK and Cambodian needs, there is an urgent requirement for $50 million to restore Turkey, the Republic of China, and Greece to the pre-existing FY 1971 MAP levels.

Drastic reductions in grant aid make the need for credit sales more important than ever. Authorizing legislation for FY 1970 and FY 1971 Credit Sales, however, remains in joint Senate-House Conference, and we cannot offer even this sort of help to foreign countries.

With respect to credit, we have a particularly serious situation in Israel. That nation's military orders placed with us are mounting rapidly and, in the absence of FMS credit, we are compelled to request payment from Israel on a cash basis. Payment requirements for approved sales total $297.7 million for the current fiscal year--a level beyond Israel's ability to pay without great hardship. Additional firm orders now under review, most of which we cannot refuse, will increase the FY 1971 payment requirements to about $390 million. Adding $40 million in repayments due on past FMS credit transactions brings total FY 1971 payments due to the U.S. up to $430 million, a level clearly requiring extraordinary measures.

Unless we can provide additional credit, Israel faces a grave financial situation and might be forced to default on payments due this year, the first such default in the history of Foreign Military Sales. If this should occur, the Military Departments may not be reimbursed for many millions of dollars in costs already incurred, ongoing contracts may be canceled at considerable cost, and Israel might not receive equipment it expects and urgently needs. A chaotic situation would prevail until the problem is resolved.

During this period of continuing U.S. troop redeployments from Southeast Asia and concurrent Vietnamization, we must do what we can to assure that the South Vietnamese Government survives. The economy of South Vietnam is strained by the demands of Vietnamization, and as anticipated in defending the Foreign Aid Bill before Congress, additional supporting assistance, estimated at about $100.0 million, will be needed. Similarly, there is a pressing requirement for about $130.0 million in Supporting Assistance for Cambodia. Funds are immediately needed to assist the Cambodian Government to pay and support its growing forces and limit the impact of this action upon its fragile and underdeveloped economy. Supporting Assistance is required for both these programs now. Failure to supply such assistance could seriously jeopardize Vietnamization and/or contribute to Cambodia's fall. Our already significant investment, both in terms of military equipment and prestige, could be lost.

Now is the time to make the supplemental request. There is general approval for our initiation of U.S. troop redeployments from the Republic of Korea. Likewise, the situation in Cambodia is more stable than we may expect after the North Vietnamese have had time to infiltrate new men and supplies. The time to make the request for a MAP supplemental is when patterns and trends are going reasonably well from our standpoint. Congress will act, in my judgment, to keep the situation going well. To delay asking for the MAP Supplemental is to risk making the request at a much less propitious time. In my judgment, if we do not request a MAP Supplemental within 30 days, there will be no chance of obtaining the added--and critical--MAP funds.

Likewise, the time to move on the FMS situation is now. The Middle East situation is such that favorable consideration could be expected on the Israeli-equipment funding. More pragmatically, if the Defense Department does not obtain relief on the funding, the military departments will literally have to take major funding increments out of their hide--and that at a time when our available resources for our own needs are only marginally sufficient to meet our major strategy objectives.

Furthermore, we may now expect Congress to work towards a mid-October adjournment. If we do not press now for MAP/FMS action, we shall lose the opportunity for relief until February 1971 at the earliest. That presents a clearly intolerable situation.

I consider our programs for Military Assistance and Credit Sales to be of highest priority and essential to U.S. foreign policy objectives. We have done our best to design our assistance programs in a fashion that will minimize the need for stationing U.S. forces overseas and, at the same time, give us reasonable assurance that our interests abroad are protected. We cannot succeed unless we are provided with the resources requisite to the job.

We should take immediate and forceful action to obtain:

--The FY 1971 appropriations requested for military assistance.

--The FY 1970 and FY 1971 Foreign Military Credit Sales appropriations.

--The requisite supplemental funds for each of our assistance programs, viz,

--MAP supplemental of $260 million.

--An amendment to the DoD Procurement Appropriations request to fund credit military sales to Israel amounting to $390 million.

--Supporting Assistance supplement of $230 million.

These steps are essential if the United States is to carry out programs which are essential--and on which actions have already been taken--in the Far East, in Southeast Asia, and in the Middle East. I strongly urge immediate action.

Melvin R. Laird

Washington, September 16, 1970.

Dear George:

As you probably are aware, we have been working very closely with the Department of Defense concerning their grant military assistance (MAP), foreign military sales (FMS), and supporting assistance (SA) programs. Considerable difficulty is being encountered with Congress concerning the funding of these programs. We do believe that the Defense Department's budgetary situation, coupled with the crucial developments occurring in those parts of the world related to these programs warrant immediate consideration. We, therefore, concur in the Defense Department's request that we seek supplementary FY 1971 funds from Congress as soon as possible.2

Specifically, we believe action should be taken to obtain supplemental funds for MAP in the amount of $260 million; an amendment to the DOD procurement request to fund credit military sales to Israel amounting to $390 million. Additionally, we should seek a supporting assistance supplemental in the amount of $230 million.

There should also be a major effort given toward obtaining the basic appropriations for FY 71 covering military assistance and the foreign military credit sales appropriation for both FY 70 and 71.

In our opinion, these programs warrant a high priority in order to implement the foreign policy objectives as enunciated in the "Nixon doctrine" and the budgetary problems being encountered by the Department of Defense.

I would appreciate any assistance you can give this matter. If there is any additional specific help we can provide, please give me a call.

With best wishes.

Sincerely,
David/3/

Washington, September 17, 1970.

SUBJECT
U.S. Position on Aid Targets

Your memorandum of September 15 asked for our views on the State Department proposal on a U.S. position in the United Nations on aid targets./2/

It is our understanding that the President has consistently opposed any pledge on aid targets. NSDM No. 76/3/ stated "the U.S. will avoid any pledges to meet the international targets relating foreign assistance to GNP but will seek to minimize damaging their usefulness to other donor countries." It seems to us that State's modest proposal goes beyond the bounds of that statement. For example, the last sentence of their proposed statement reads, "it is in this spirit that we are willing to join in the reaffirmation of the aid target."

Moreover, you will recall that during the meeting in his office on the evening of September 10/4/ Dr. Kissinger stated quite firmly that we should not take a position establishing any specific percentage as an aid target. His view was that foreign assistance, like national defense and other programs, must compete each year in the total process of resource allocation. In view of his statements that evening it would not seem to us advisable to send this memorandum forward.

James R. Schlesinger/5/

Washington, September 26, 1970.

SUBJECT"

Possible supplementals for Military and Economic Assistance

With the exception of military credit sales to Israel, Secretary Laird's proposal to proceed immediately with supplemental appropriation requests for military and economic assistance raises serious problems of both timing and amounts./2/

The severe constraints on the availability of budget resources to meet new and pressing requirements, particularly in Cambodia, argue for proceeding at an early date to seek necessary supplementals. The longer we wait to seek additional funds the greater the risk that this Congress will not act, requiring us to start all over again with the new Congress. Such a delay would open a gap in meeting the needs in Cambodia that would have to be filled by reprogramming funds away from other countries with the political costs that such action would entail.

However, there are persuasive reasons not to proceed until after the November election:

1. New legislation to authorize appropriations will be necessary before the appropriations process can begin. Military credits for Israel are the only exception. This means hearings before the Senate Foreign Relations Committee which almost surely would rekindle the debate over our policy in Southeast Asia. Such a debate might well induce the very delay in action we wish to avoid.

2. The request as proposed by Secretary Laird, including $500 million for military credits for Israel, would total almost $1 billion at a time when you have been urging restraint upon the Congress in acting upon your budget requests and backing up those urgings with vetoes of excessive domestic appropriation bills.

3. In any event, since the Congress will recess in just a few days, it would not be able to start action on the authorizing legislation until it reconvenes after the election.

4. As outlined below, the executive branch is not yet in a position to set forth a convincing justification for specific levels of aid for Cambodia.

Korea MAP. Secretary Laird proposes an additional $150 million in grant military assistance to Korea and a special two-year authorization to turn over to Korea equipment of withdrawing U.S. forces (estimated value $117 million in FY 1971). Korea also will probably receive substantial material from Defense excess stocks. Thus, total 1971 grant military aid to Korea would be approximately $450 million, estimated as follows:

The proposed level of military aid would represent a substantial "front-end loading" of the $1.5 billion five-year modernization program you recently approved subject to a funding ceiling of $1.25 billion. We believe that a "front-end loading" approach would not be desirable for the following reasons:

--It could lead to unrealistic Korean expectations for future aid levels.

--The funding requirement for ROK Air Force modernization may increase in the later years of the five-year period since the proposed aircraft may not be available until 1973 or 1974.

--Congressional receptivity to additional aid to Korea at this time may suffer from the recent Symington subcommittee report on the cost of Korean forces in Vietnam as well as the advertisement of the ROK Minister of Defense in the September 25 Washington Post urging more U.S. military aid and postponement of planned withdrawals of U.S. troops.

We recommend seeking $177 million in authority from the Congress, to enhance the Korea package, consisting of a supplemental request of $60 million and authority to turn over equipment worth about $117 million. This would provide total 1971 grant military aid of about $367 million.

Cambodia MAP. Estimates of Cambodia's military assistance requirements are uncertain. Based on the initial NSSM 99/3/ estimate that $125 million in additional MAP will be needed beyond the $40 million already allocated, the $60 million proposed supplemental probably would not be sufficient to support the strategy favored by the Senior Review Group. On the other hand, there is doubt about the level of Cambodian forces that it will be feasible to organize and train during this fiscal year. These uncertainties should be sufficiently resolved by the end of October to permit a more accurate estimate of requirements. We believe $100 million is a better current estimate than the proposed $60 million.

Economic Aid to Vietnam. Secretary Laird is recommending a $100 million supplemental for this purpose. NSDM 80,/4/ which you approved on August 13, 1970, established a target input level for Vietnam of $750 million to be financed by a combination of AID funds, PL 480, and U.S. purchases of piasters by Defense. NSDM 80, based on thorough analysis, concluded that no supplemental would be required to meet this level. Nothing has occurred since then to suggest that a supplemental would now be needed to carry out that decision.

Economic Aid to Cambodia. Secretary Laird recommends a supplemental of $130 million for this purpose. Lack of basic information, however, precludes accurate calculation of economic support requirements for Cambodia at this time. The best current estimate, by the NSSM 99 study group, is that Cambodia may need roughly $180 million in FY 1971 to finance needed imports during that period and to build the necessary pipeline for FY 1972, in order to meet military related needs and prevent a serious deterioration in standards of living. After using other sources of import financing estimated to be readily available (Cambodian foreign exchange holdings, PL 480 food aid, third country aid, and a portion of the AID contingency fund), the Cambodians may need roughly $75 million in Supporting Assistance to meet this total import target. Since AID has some flexibility on reprogramming current funds, a supplemental request of more than $75 million would be difficult to justify at this time. Even this amount is speculative and is subject to considerable revision.

On balance, we believe that the odds for favorable congressional action will be considerably better if we wait until after the elections to send forward supplemental foreign aid requests.

If, however, you decide that it is better to proceed now, we recommend the following levels:

--$100 million for Cambodia MAP, as compared to the $60 million proposed by Secretary Laird.

--$60 million for Korean MAP (compared to the $150 million proposed), together with authority to turn over equipment worth about $117 million.

--$50 million for MAP for other countries, as proposed.

--$75 million for Cambodia Supporting Assistance, compared to $130 million proposed.

--No supplemental for Vietnam Supporting Assistance.

Consideration is now being given to military assistance of $30 million for Jordan. If we proceed now with supplemental requests, it is important to include all identifiable requirements at one time.

Caspar W. Weinberger

Washington, October 2, 1970.

SUBJECT
U.S. Position on Aid Targets

We oppose options (1) and (2)./2/ Regarding option 1, we believe that: (1) The statement on the 1 percent target is so weak as to be worthless, and this will be clearly recognized by the LDC's. (2) Certainly, we should not emphasize our "staggering domestic needs." To any outside observer these will appear trivial compared to the needs of starving millions in the third world.

Regarding option 2: This is subject to misinterpretation. The LDC's may misjudge the President's influence with Congress on this issue and may feel betrayed when Congress rejects the request, which it is quite likely to do.

We favor a variant of option 3, but one which would place primary emphasis on the positive aspects of the President's Foreign Aid Message./3/ In making his statement the President might first note that although some less developed countries have made efficient use of our aid, elsewhere much aid has been dissipated in waste and corruption. This mixed record, combined with instances in which countries receiving American aid have expropriated U.S. firms and condoned anti-American demonstrations, has created widespread disillusionment with aid on the part of the American public. The result has been a steady fall relative to GNP in the amounts of aid appropriated by the U.S. Congress. Unless the effectiveness of aid is made more visible, a significant quantitative increase in U.S. aid can hardly be expected in the foreseeable future. Therefore, it is essential that both the donor and the recipient countries focus on improving the effectiveness per dollar of aid. The American people are ready to help those less fortunate, but they like to see results.

The President's Foreign Aid Message places high priority on greater effectiveness. The proposal to untie aid would alone make each aid dollar at least 20 percent more effective, according to the conservative estimates of the Pearson Commission (p. 172). This estimate covers only the direct costs of tying and does not include a variety of indirect costs. For example, tied aid sometimes prevents funds from being used for the projects of highest priority to the LDC. The proposal to channel aid through multilateral institutions will result in a greater coordination of the U.S. efforts with those of other nations and thereby improve effectiveness.

As a complement to aid reform, the President has proposed that tariff preferences be granted to the manufactured exports of the lower income countries. The economic benefits which would accrue to the LDC's from such a system of generalized preferences are equivalent to a substantial increase in the flow of aid.

In summary, we urge that the President's statement avoid mentioning (either positively or negatively) quantitative formulations of any kind and should focus on our efforts to improve the quality of aid. This approach may also have a favorable impact on domestic opinion.

H.S. Houthakker

Washington, October 6, 1970.

SUBJECT
Supplemental FY 1971 Foreign Aid Requests

Secretary Laird has sent you a memorandum (Tab A) which refers to your decision to proceed immediately with supplemental FY 1971 Foreign Aid requests./2/ Secretary Laird proposes a supplemental request of $990 million broken out as follows:

There is disagreement both with some of the amounts he proposes and with the inclusion of some countries in the justification for the request. I believe, however, that all of the issues relating to the composition are minor and can be resolved providing we can resolve the tactical issue of when the request should be submitted.

The State Department's position is that the request should be submitted after the elections when the Congress reconvenes. Since we will have to request new authorization through the Senate Foreign Relations Committee, we face a new round of debate on your foreign policy which could well have an adverse impact on the election if the request is submitted immediately. Moreover, the Foreign Aid appropriation is still before the Congress and requesting a supplemental now could well affect its outcome.

Bill Timmons also opposes making the request immediately for essentially the same domestic political and pending legislation reasons outlined above. Timmons also points out that Congress is scheduled to adjourn on October 15 and we would face an extremely tight schedule even if little opposition was expected.

The Office of Management and Budget also believes that submission should be delayed both because of timing and because OMB has some difficulties with the current composition of the request. (Weinberger's memorandum is at Tab B.)/3/

My own view is that the risks in requesting a supplemental at this time are quite high. It is almost certain that we will get considerable criticism both on the issue of military spending and, as mentioned previously, on your foreign policy. While these criticisms will be leveled whenever we make the request, their intensity (and political effect) will be less after the elections. Finally, our analysis indicates that we can carry out our essential program without an immediate supplemental./4/

That you discuss the issue of timing of the request with Secretary Laird and Secretary Rogers and myself at your first convenience. When that issue is resolved, we can move to resolve the issues regarding composition and implement your decision.

Washington, undated.

SUBJECT
U.S. Position in the United Nations on Aid Targets

We must take a position in the UN on aid targets by October 13, when the General Assembly is to vote on the "strategy" for the Second Development Decade. Targets are the major issue in the strategy. There are three options:

Option 1: U.S. "reaffirmation" of the international aid target (public and private flows) under which industrialized countries endeavor to extend one percent of their GNP in foreign assistance.

State has proposed a statement to do so (Tab A)./2/ However, it would not be much of an affirmation. It would:

--Emphasize our "staggering domestic needs" for public and private resources and our "enormous" external burdens.

--Note that we are unable to say when we may meet the one percent aid objective, or whether our efforts to meet it will be successful at all.

--Conclude that we are prepared to make our "best efforts to increase both official and private flows and hope we can be successful in moving closer to the aid objectives."

The statement would create no illusions about our reaching one percent. It would imply that the world should not expect us to attain that target in the foreseeable future--or perhaps ever. However, it would not completely negate the target, which is of great political importance to developing countries and apparently provides some assistance to other governments in getting Parliamentary support for aid appropriations.

Its main drawback is that its weakness would expose us to major criticism in the UN from the lower income countries. No stronger position, however, seems consistent with budgetary and Congressional realities.

Option 2: A commitment to seek from Congress a 10 percent annual increase in official U.S. aid expenditures, multilateral and bilateral.

Senior AID officials (Tab B)/3/ have suggested this new approach, which would:

--Let bygones be bygones, frankly recognizing that we are so far below the one percent target that it would be unrealistic to expect to reach it in the foreseeable future even if we wanted to.

--Be recognized by other countries as an important step forward, since it would add concreteness to the general statement in your Aid Message "that the downward trend of U.S. contributions to the development process should be reversed."

--Focus on official aid, which governments can control, and thus avoid one of the many major weaknesses of the one percent target (which lumps together official aid and private capital, making Switzerland the top "donor" in some years).

This option would help shift attention away from the one percent target, which is both intellectually indefensible and wholly unrealistic for the United States. (There is growing sentiment among other donor countries to back away from one percent, and we could expect a sizable following if we were to take the lead in doing so.) In addition, such a commitment would provide a better basis for long-range planning in the developing countries, which our new aid program will stress, than a vague "affirmation" of the one percent target.

There are three major drawbacks: it would represent a commitment to ask Congress for annual increments (about $200-$250 million at present levels) for a particular program; it would not satisfy the foreign policy community as much as a U.S. endorsement--probably however vague--of one percent; and it could even be misleading to the foreigners by appearing to promise more than it really could.

This would probably be the most honest indication of our budgetary situation and new approach to foreign assistance, with its focus on quality and non-financial programs. It would avoid raising unrealistic hopes among the foreigners, and might even help the program domestically.

However, State feels strongly that overt reversal of our long-standing support for the one percent target would be read as a U.S. retreat from concern with development and "could poison the atmosphere" at the 25th Anniversary General Assembly. This is so particularly because the U.S. now ranks last among the sixteen OECD donor countries, having contributed last year only 0.5 percent of our GNP to development through official and private channels (though we still contribute much more than any other donor in absolute terms). All other industrialized countries pay at least lip service to one percent, and the U.S. would be completely isolated if we opposed it.

The problem is to balance our aversion to targetry with the foreign policy importance of avoiding a negative stance toward the Second UN Development Decade, and on aid levels in general. I think that State's proposed "reaffirmation" of the one percent target (Option 1) achieves this objective without committing us to anything new. However, all of your domestic advisers--OMB, CEA, Peter Flanigan, Bill Timmons, and Martin Anderson--recommend that we make no commitment beyond the general statement in your recent Aid Message (Option 3).

That you adopt Option 1: the statement "reaffirming" the one percent target proposed by State.

Approve/4/

Disapprove, prefer Option 2: a commitment to ask Congress each year for annual increments of 10 percent in U.S. official aid expenditures

Disapprove, prefer Option 3: no new commitment on aid levels, recommended by OMB, CEA, Flanigan, Timmons, and Anderson

Washington, October 14, 1970.

SUBJECT
FY 1971 Requirements for Supplemental Funds

That you request supplemental funds in the amount of $380 million for Military Assistance and $185 million for Supporting Assistance.

That in order to have any hope of obtaining these supplemental funds in this session of Congress, you personally present the request to the Congressional leadership./2/

On the question of going forward in this session of Congress to seek economic and military assistance, there are two issues involved on which we need your decision: one of magnitude, and the other of timing. This Memorandum only addresses the first issue; the second we would like to discuss directly with you.

Requirements for supplementary funds are as follows:

I. Cambodia--Military Assistance $125 million

This is a tentative figure, developed in NSSM-99,/3/ which is under study by the Senior Review Group. It would be in addition to the $40 million already provided and it does not include funding of ARVN and other third country operations under consideration in NSSM-99./4/

Based on NSSM-99 strategies and our best present estimates pending review of the IMF study which may shed further light in the coming weeks. [sic] This level presumes temporarily untying AID funds on an emergency basis (for Cambodia only) for world-wide procurement and includes $40 million in forward funding of FY 1972 requirements in order to avoid a break in the pipeline. If a Cambodian initiative to organize an international Consultative Group of donor countries is successful, requirements for U.S. assistance may be reduced.

II. Military Assistance Program (General)--$70 million

This amount is needed to compensate for the diversions made from the originally planned world-wide MAP to meet the Cambodian emergency ($40 million); to increase the Indonesian program ($13 million) and to make up for a shortfall on past years recoupments ($17 million). These diversions have caused serious problems for certain allies, (e.g., Greece, Turkey, Taiwan), created severe difficulties in finding even $.8 million to assist Uruguay and Guatemala and raised anxious questions regarding the direction of American policy.

III. Korea--$150 million

Inclusion of funds for Korea in a supplemental to Congress would publicly reassure the Koreans of our intentions concerning modernization, and would have a highly beneficial impact on our joint planning for U.S. troop reductions. In addition, we shall be providing Korea with considerable assistance in 1971: $140 million in regular MAP, plus $117 million of equipment of U.S. troops to be withdrawn, plus perhaps $30 million in long-supply stocks.

IV. Jordan--Military Assistance $30 million

In July 1970 we signed a sales agreement with Jordan on an arms package of some $53 million. It was assumed that Jordan could obtain the necessary funds from subsidies from Kuwait, Libya and Saudi Arabia, and $30 million from credits we had planned to provide it in FY 1970 and 1971. As the Foreign Military Sales bill remains stranded in the House-Senate Conference, we have no funds for credits and, following the events of this month, Kuwait and Libya have discontinued payments. At the same time, Embassy Amman is sending long lists of requirements. We are flying to Jordan some of the ammunition that is now urgently needed and plan to ask the Embassy to establish priorities on the undelivered balance of the arms package.

What is being provided now is necessarily on a sales basis. We expect that Jordan will require substantial additional amounts of equipment for which it will be unable to pay. We have found no way of providing credits. Therefore, to give substance to the assurances of support you have given King Hussein, we recommend requesting $30 million in grant military assistance for which we are preparing an illustrative program.

V. Lebanon--Military Assistance $5 million

Available facts do not permit the formulation of a specific list of requirements for the Lebanese armed forces. However, the maintenance of a stable, moderate regime in Lebanon is in the interest of the United States. The major threat to this stability and to Lebanon's continued economic development stem from fedayeen activities within Lebanon, fedayeen incursions into Israel (with resultant retaliations from Israel) and the presence of Syrian forces on the Lebanese border with the capability to intervene at any time to assist the fedayeens, as with the case in recent fighting in Jordan. To bolster Lebanon, we believe that we should request funds amounting to $5 million for grant assistance to Lebanon. Not only is credit not available, but we also believe that grant aid would have both a greater political impact in Lebanon and better serve notice to the Syrians and other parties that the U.S. intends to give strong support to the maintenance of the Lebanese government.

VI. Israel--Credit $500 million

A Memorandum has been sent to you recommending $500 million of credits be offered Israel under the Jackson Amendment to the Defense Procurement Act./5/ The first $350 million is to be on concessional terms (5 year grace period, 20 year repayment period and 3% rate of interest) and the balance of $150 million on regular FMS terms (10 year repayment at the cost of money to the U.S. Government).

VII. Vietnam--Supporting Assistance $65 million

An additional $65 million of Supporting Assistance funds are needed for Vietnam, for the following purposes:

$50 million for additional funds for the Commodity Import Program (CIP), which provides for the tied procurement of commercial imports. While NSDM-80 provided for a minimum level of economic support for FY 1971, this additional amount will establish a more adequate pipeline for FY 1972 funding when DOD expenditures will be declining rapidly.

$15 million for additional support to the Land Reform Program. Present funds for land reform provide U.S. payments to be made at the time that the GVN makes payments to land owners for the purchase of their property. The additional request would provide payments to the GVN at the time titles are issued to the new land owners, as an extra incentive to the GVN to make rapid distribution of titles. This request would be responsive to widespread Congressional support for land reform, including Congressional suggestions that U.S. financial support be increased and consistent with your earlier indication to Congress that a Vietnam Supplement might be required.

William P. Rogers
Melvin R. Laird

National Security Decision Memorandum (NSDM) 76 (Document 136) provided for a small office in the White House to manage the transition to the new foreign aid program that the President outlined to the Congress in his September 15 message. Rudolph Peterson, Chairman of the Task Force on International Development, whose report had stimulated the new proposals, was invited to head the office.

On October 27, 1970, C. Fred Bergsten sent a memorandum to Henry Kissinger informing him that Peterson might be unable to head the temporary White House office, and suggesting some alternatives. As Bergsten recommended, on October 30 Kissinger sent a memorandum to the President suggesting he call Peterson, using attached talking points, to try to recruit him for the position. (National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 195, AID 10/7/70-12/31/70) On Kissinger's memorandum to the President, Haldeman crossed out the October 30 date and wrote, "Re-raised Nov 18, 1970." At the end of the memorandum, the President wrote: "H--I don't want to use my prestige on this one--Have Pete [Flanigan] or someone else who knows him do it on my behalf."

On November 24 Bergsten sent a memorandum to Kissinger noting that Flanigan did not know Peterson well and a call from Kissinger would carry more weight. He pointed out that, since the new legislation would not be ready to go to Congress until the new Congress convened in January, the position would be of shorter duration and Peterson might reconsider. (Ibid.) Peterson did reconsider, and in early 1971 he was taking soundings in Congress on the impending submission of the Nixon administration's aid reform proposals. (Memorandum of conversation, March 2, 1971; ibid., AID 1/1/71-12/31/71)

Washington, undated.

SUBJECT
Supplemental Requests for Foreign Aid

As you know, Secretaries Rogers and Laird, in their October 14 memorandum to you, proposed supplemental appropriations for 1971 for foreign aid totaling $1,065 million, as follows:/2/

		($ millions)
Israel Military Credits		500
Military Assistance (MAP)		380
Korea	150
Cambodia	125
Jordan	30
Lebanon	5
Other countries	70
Supporting Assistance		185
Cambodia	120
Vietnam	65
Total		1,065

Decisions on these amounts depend on an assessment of various factors:

--the receptivity of the lameduck session of the Congress to the proposals;

--the relative urgency of the items proposed;

--the relative firmness of the estimated requirements; and

--the possible effect of the total amount proposed on congressional action on other pending appropriations, particularly in those cases where you vetoed an appropriation bill containing excessive amounts.

Three basic alternative approaches are available:

1. A supplemental package which would represent the minimum needs for only the most urgent items. Such a theme would be the clearest and least difficult to present to the Congress. However, because of the inherent uncertainty in the estimates of some of the requirements--e.g., Cambodia--and the fact that the Congress is likely to cut any request, this approach has major risks.

2. A somewhat larger and more balanced package which could be accurately characterized as urgent and would not be regarded by the Congress as excessive, but which would be large enough to accommodate the uncertainties and to provide "cut insurance" against the risk of congressional reductions.

3. A large supplemental package incorporating the maximum estimates of needs not only for the most urgent items but also for others where the need and urgency are less readily apparent. This would be the most difficult to justify and to sell and runs the greatest risk of severe and indiscriminate congressional cuts. The risks of generating this response appears greatest in the case of military assistance. The proposed MAP supplemental of $380 million will be perceived by the Congress as more than doubling the $350 million included in the 1971 budget, even though that figure was a ceiling imposed by the Congress and was lower than the Administration wanted. In addition, since the countries involved are recipients of substantial amounts of excess stocks, a large supplemental could stimulate renewed congressional attempts to impose tight restrictions on the amounts of such stocks that can be used for military aid.

I believe the second alternative is preferable.

You have already approved $500 million for military credits for Israel,/3/ urgently needed to enable Israel to pay for military equipment already delivered or on order. Similarly, there is general agreement on inclusion of the proposed amounts for military assistance to Jordan and Lebanon.

With respect to the other items, there are a range of possibilities.

Cambodia MAP and Supporting Assistance. These items are of great urgency. The proposed amounts totaling $245 million--$125 million for MAP and $120 million for Supporting Assistance--exceed the estimated supplemental requirements of $205 million set forth in the recently completed NSSM 99 study on Cambodia--$115 million for MAP supplemental (plus $10 million in excess DOD stocks) and $90 million for Supporting Assistance (plus P.L. 480 sales of $30 million). Some of these funds would be used to replace diversions to Cambodia from other country programs.

The higher State-Defense figures reflect the uncertainty of both the requirement and congressional reaction. State is now considering reducing the proposed $245 million by $30 million. I would concur.

Supplementals totaling $245 million with a possible reduction of $30 million
Supplementals totaling $205 million

Other MAP. The State-Defense proposal of $70 million would restore all MAP country programs--principally Greece, Turkey, and Taiwan--to 1971 budget levels. Those levels have had to be reduced because of diversions to Cambodia and Indonesia and because of shortfalls in recoveries of prior-year obligations.

Failure to restore those programs would cause irritation in our relationships, particularly with Taiwan. Greece, however, will benefit from the release of the $56 million in major items of MAP equipment withheld since the 1968 military coup, will receive excess stocks of about $30 million, and is reported to be purchasing an estimated $20-40 million in tanks and patrol boats from France. Similarly, Turkey and Taiwan will receive substantial amounts of excess stocks.

There are two options lower than the proposed $70 million supplemental: (a) $45 million, which would be sufficient to restore the Taiwan and Turkey programs to their 1971 budget levels and provide $10 million for other high priority country programs; and (b) $40 million, the amount diverted to Cambodia, which might be the easiest to justify to the Congress.

Supplemental of $70 million
Supplemental of $45 million
Supplemental of $40 million

Vietnam Supporting Assistance. The NSDM 80/4/ directive on Vietnam outlines a program which would finance commercial imports of $750 million to Vietnam in 1971. Current estimates suggest that sufficient funds will become available to meet this target without a supplemental. Since the $50 million additional funding recommended by State and Defense for the commercial import program is not likely to be used in 1971, it would be difficult to justify the request to the Congress as part of a package of urgent requirements.

The remaining $15 million of the proposed $65 million supplemental would be for the Vietnam land reform program. These funds are not likely to be needed to carry out U.S. plans for support of that program. The basic rationale for the proposed amount is that it might gain congressional support for other parts of the supplemental package among those who are interested in the land reform program (e.g., Senators Muskie and Magnuson and Representative Moss).

Supplemental of $65 million
No supplemental

Korea Military Assistance. You have decided on a 5-year modernization program for the Korean forces totaling $1.5 billion in U.S. aid, of which not more than $1.25 billion should be funded by MAP grants or military credit sales./5/ The proposed $150 million supplemental would mean a total 1971 military aid program for Korea, approximately as follows:

Korea may also receive $15-30 million in additional grant materiel if the ROKG agrees to pick up the costs of certain consumable items available on the local economy but now provided by MAP.

Thus, both the total program for 1971 as well as the funded portion substantially exceed one-fifth of the maximum amount approved for the 5-year program. This might help reassure the Koreans of our commitments to them as we carry out planned U.S. force reductions. However, it might also unrealistically raise Korean expectations for the future. In addition, since the costs of Korean Air Force modernization are likely to rise in subsequent years, a large first-year program might make it difficult to stay within the overall limits on the 5-year program.

There are two alternative levels which you might consider: (a) a $110 million supplemental, and (b) a $60 million supplemental.

Supplemental of $150 million (total 1971 program of $482 million)
Supplemental of $110 million (total 1971 program of $442 million)
Supplemental of $60 million (total 1971 program of $392 million)

My recommendations are below, as compared to the State-Defense proposal and to estimated minimum requirements. I do not recommend the latter because it does not provide adequate margin against congressional cuts; nor does it take care of the uncertainties. I believe my recommendation does provide such a margin./6/

/*/Subject to reductions totaling $30 million

Director/7/

Washington, November 18, 1970, 3:40 p.m.

PARTICIPANTS
The President
Secretary of State
Secretary of Defense
Dr. Kissinger
Bill Timmons
Ron Ziegler
C. Fred Bergsten

Senator Mansfield
Senator Scott
Senator Russell

SUBJECT
Foreign Aid Supplemental Request

The President began the meeting by noting that the house leadership, who had also been invited to this meeting, were unable to attend because of the floor debate on the Trade Bill./2/ He hoped to see them at a different time to discuss the Foreign Aid Supplemental which he was submitting to the Congress later in the afternoon./3/

The President noted that he was asking about $1 billion in supplementary aid funds for FY 1971, and listed the countries included in the request. In the Middle East, the additional aid to Israel, Jordan and Lebanon was necessary to make viable the present ceasefire arrangement. In Asia, the funds were necessary to implement the Nixon Doctrine, both in Korea and to guarantee complete US withdrawal from Vietnam.

Senator Mansfield asked whether the quid for the aid was a reduction in US forces. The President responded that this was correct. In the Middle East of course it would enable us to stay out. In Asia, we wanted to continue our withdrawals in Korea and to continue our Vietnamization program.

At the President's request, Secretary Rogers elaborated on the proposal. He noted that US foreign policy was now highly esteemed around the world. For the first time, hopeful signs had developed in the Middle East where there had been no fighting for over 100 days. The UAR was thinking of its own problems for a change. Jordan and King Hussein are now stronger, and we had told him that we would help. We had also told Lebanon that we would help it control its guerrilla problem.

The President interjected that the Congress would no doubt provide support for Israel. If Jordan and Lebanon came apart, however, the possibility of a flare-up in the Middle East would increase greatly. Secretary Rogers added that the request for Israel would not itself cause any flare-up, since the amounts were already known.

The President made clear that domestic US politics were not the justification for seeking new aid to Israel./4/ The aid was essential to maintain Israel's confidence, so that Israel would be willing and able to negotiate. The aid will thus help induce Israel to talk, which would be impossible without such help. The $500 million is necessary to assure ratification of the ceasefire violations--there will not be a rollback on the Egyptian side.

Secretary Laird added that DOD had been financing the military sales to Israel through its normal 180-day credit mechanism. These had been rolled over to the maximum permitted by law, so Israel now must pay the bill. Secretary Rogers concluded by expressing optimism that the negotiations could get started again, and indicated that he would be seeing Eban on the subject shortly.

On Korea, Secretary Rogers indicated that here we were implementing the Nixon Doctrine. Secretary Laird said that we were saving $185 million in the FY 1971 budget already on direct US troop costs there. Even with the additional $150 million of assistance, there would be a net saving of $35 million already in the FY 1971 budget due to the Nixon Doctrine. The savings would be much greater over the course of the five-year plan for modernizing Korea's forces.

Secretary Rogers then indicated that new aid for Vietnam and Cambodia were all part of Vietnamization and necessary to continue that program, which was working well. In addition, we wanted $13 million for Indonesia. Secretary Laird added the detailed figures that we were seeking for Southeast Asia and noted that the diversion of North Vietnamese troops to Cambodia is much cheaper for us to handle than if they remained in South Vietnam.

Senator Russell interjected that he would certainly support such a request if it enabled other countries to take on the burden of their defense themselves.

The President replied that, in the Indonesian case, the issue was internal security. Suharto was thinking of Indonesian needs, and rejected any notions of foreign adventures. In response to the President's question whether the Indonesian aid was in line with Indonesia's request, Secretaries Rogers and Laird answered affirmatively.

The President then noted that Cambodia was the part of the package that would trouble some people. There will be fears of new US involvement, that we are trying to bail out of a situation which we should not have entered in the first place. Our Cambodian action, however, now appears to be enormously in the US interests. For example, it has choked off the enormous supply of equipment through Sihanoukville which had been the mainstay of the North Vietnamese supplies in South Vietnam.

The President continued that the Southeast Asian/Korean package is part of the Nixon Doctrine. We wanted to let others do the job themselves; we wanted to get out ourselves. But we must remember the assistance part of the Doctrine. These countries are not going to be building up military machines of their own. We hope that Vietnam and Cambodia will become lesser burdens over time to us. We now see this as the best road in that area.

Senator Scott asked whether Cambodia was not developing a war machine. The President replied that in fact Cambodia's military operation was rather lean. Secretary Laird concurred, and added that we were proposing a reasonable investment in Cambodia's military. They were making an all-out effort, and had done well so far. The aid will go for ammunition, small arms, trucks, and the like. It will provide no aircraft, helicopters, or other heavy equipment.

Concerning the restoration of funds to programs from which money was borrowed for urgent need in Cambodia and elsewhere, Secretary Laird noted that we should honor our commitments. We had told the recipient countries about the size of their programs, and thus needed to restore funds to implement them. Senator Scott added that this also was a Congressional commitment, because Congress had voted the country funds too.

Secretary Laird then suggested that Korea would not be as controversial. There we would have to anticipate Korean military needs to permit US withdrawals. The Koreans had asked for $350 million of additional assistance, but the $150 million request is as far as we should go.

Secretary Rogers added that some would ask why we did not wait to submit our request. One answer was that the South Koreans were very jittery about North Korea and that it was psychologically important for them that we move quickly. Secretary Laird said we should supply the assistance as we withdraw; Secretary Rogers commented that the withdrawals and assistance go hand in hand. The Koreans are terribly upset by our withdrawals. Secretary Laird noted that this was our first cutback there in at least 10 years, and that a 20,000 man reduction is a pretty good cut from a ceiling of 65,000.

Secretary Laird then noted that no authorization was needed for Israel; it had been obtained in the Defense Procurement Act. However, we should keep both parts of the appropriation in the same bill. This would be easier to handle than two separate supplemental appropriations. We would, however, need authorization for the other parts of the package. Senator Scott agreed that it would be easier to hold the package together in view of the time pressure of the present session. Senator Mansfield also appeared to agree.

Senator Mansfield then asked about the total cost of the package. Secretary Laird replied that it was $1,035 million. It included $195 million for economic assistance, $340 million for military assistance, and a $500 million credit for Israel. The objectives were to keep us out of the Middle East and compensate for our withdrawals in Asia. The President added that it was to assure the withdrawals. Senator Mansfield responded "just so long as there is a quid".

Secretary Laird noted that military assistance to Vietnam could be handled in the DOD budget. However, we could not handle Cambodia there. Senator Mansfield asked whether the request would to the Armed Services Committee. Secretary Laird said he was afraid not; it would go to the Foreign Relations Committee. Senator Russell then twitted Senator Mansfield about moving it to the Foreign Relations Committee after he (Russell) had left the Armed Services Committee. Secretary Laird said that the Armed Services Committee had taken jurisdiction on Israel, and could take this although he assumed it would not.

The President then said that he did not like to bring up such a request at the end of a Congressional session. He had found it was necessary to do so, however, so was now bringing it to the leadership. He would do the same with the House leadership, when they were out of the Trade Bill discussion. The package was essential. He was not seeking a Congressional fight.

Secretary Laird said that the shopping lists for the countries were well worked out. However, they were too detailed to go into now. The President noted that three or four Senators probably would want to look at them.

Secretary Rogers injected that the foreign policy of this Government was now extremely well regarded. He hoped this request would not disturb that regard. We were getting praise everywhere for our approach in the Middle East.