270. Memorandum of Conference With President Eisenhower0
OTHERS PRESENT
- Secretary Anderson
- Under Secretary Dillon
- Director Stans
- General Persons
- Colonel Eisenhower
Mr. Stans opened by requesting the President to examine our mutual security program for the 1962 budget. He thought it would be pointless at this stage to try to address the budget on an item-by-item basis. As of now, guidance can be reduced to two questions regarding (1) the level of mutual security program budget requests for 1962, and (2) whether there should be a supplemental request of $150 million for the Development Loan Fund in 1961. At this point the President read the paper appended hereto2 which analyzes these two questions.
The President then recalled the statement by Mr. Anderson in NSC meeting to the effect that the foreign aid program does not affect the balance of payments problem as much as does the procurement of military items overseas.3 Mr. Anderson agreed with this statement since much of the military assistance program funds are spent in the U.S. However, he fears that the type of economic help which will be necessary in Africa will not be susceptible to U.S. procurement.
Turning to the first question, Mr. Dillon said the State Department had originally thought $5.5 billion desirable, but in view of the tight budget, they had reduced this figure. They now feel that $4.75 billion MAP is the lowest adequate figure. The greatest difference comes in the DLF which has loaned out over half a billion dollars this year. As examples, in India and Pakistan their total DLF loans come to some $500 million. Mr. Dillon said that the next Administration4 has made considerable noise over the DLF. This fact may justify our going to the usual level in our own budget with the expectation that the new Administration will raise it. If this Administration had responsibility all through next year, we could not live with this figure. Mr. Dillon pointed out that the large figure for new obligational authority of the DLF will not translate much into expenditures.
[Page 544]The President asked whether other countries are doing their share to pick up the load. Mr. Dillon said that other countries are merely working in the direction of picking up their fair share. The demands in India, for example, are so large as to absorb any differential and to preclude the possibility of reduction of U.S. funds. Britain, for example, doubled her foreign aid last year and Germany has now begun with a program of $1.7 billion. The French and the British have a program of $0.5 billion apiece per year. The Dutch and Swiss are contributing.
Mr. Anderson expressed concern over the posture that this program puts the President in. We have now reached the end of an era and we can no longer live as we did in the past. Other nations have financed their deficits and this has resulted in withdrawal from our gold supplies. We have supported the World Bank, the International Monetary Fund, the Inter-American Development Board, and we have now embarked on a $600 million program for development in Latin America.5 All in all, our contributions to these will come to $10 billion capital investment total. If we attempt to afford the same levels as in the past, our expenditures are likely to exceed our revenues.
Mr. Dillon pointed out that the military assistance program does not affect balance of payments very much. Mr. Anderson said that it does affect balance of payments some and that it is not sufficient to avoid exacerbating the balance of payments situation.
Mr. Stans said he thought we should cut our mutual security program country by country. He feels a figure of $3.46 billion is best. At all odds, it should not exceed the figure of $4.25 billion, but would be preferable not to exceed a round figure of $4 billion. This figure will give us good support in Congress.
The President expressed some doubt about the support in Congress and said that we are now approaching the hardest choice possible to make. The world situation is worse rather than better, and, therefore, demands more help. On the other hand, he himself is concerned with balance of payments as much as anyone; and he realizes that we can defeat ourselves by violating fiscal soundness. The only way out is to find a means of forcing other countries to do their full share in carrying world responsibilities. He pointed up the privileged status of Germany, which, while she is willing to contribute $1.7 billion dollars this year, has the background of contributing nothing. She has been living in the best of two worlds. On our own part, one move we can make is to redeploy troops.
[Page 545]Mr. Anderson said he realizes this is a poor time to do such a thing. We should not redeploy many troops, but we should begin the process. If forced to the choice, we should deploy major forces rather than place ourselves in a position where we must starve other nations by cutting mutual security. The President pointed out that he has been taking a position for eight years that we should reduce the size of our forces in Europe.
Mr. Anderson said that if we make a move to redeploy troops he will be able to withdraw many objections to maintaining sizeable mutual security. The President said he had checked with General Lemnitzer on withdrawing troops from Japan and found that all that is left there are two important air bases. Mr. Anderson said the hard money area in Europe is the key to the problem.
Mr. Dillon said maybe we can take half our forces out of Germany within the next few years. To Mr. Anderson’s question, he said he personally would be willing to begin this movement in calendar year 1962, but could not speak for Secretary Herter.
Mr. Stans said we have to hit the problem again in a couple of days. Secretary Gates has bad news from Defense and estimates that Defense budget will go up $2 billion for a total of $43.3 billion. All he can see is substantial redeployment and a reduction of forces. The Air Force is willing to redeploy units from Europe, but the Army, however, is not. Mr. Dillon commented that the Army can see this as a move toward reduction in their total force.
Mr. Anderson reviewed recent withdrawals, to include $490 million in gold in the month of November. Britain withdrew $50 million yesterday and the Treasury will have to announce an additional $75 million on Thursday. This is beginning to resemble a run on gold. The President said we must tell the British that while they have certain traditions, we have some also; one of these is the soundness of the dollar, and we will take all means necessary to preserve it. Mr. Anderson said that if we continue the current rate of withdrawals, we will reach an annual rate of $6 billion which will constitute a real run on gold. It is impossible, of course, to predict circumstances which will exist in a year. Yesterday the dollar was stronger than it had been in weeks. By contrast, pound sterling was weaker. It is possible, though not certain, that the dollar was strengthened by the fact that we have placed Europe on notice. He further admitted that short term capital may be coming back to the U.S. He does not visualize the rate of interest as affecting this problem too much. With whatever optimistic signs one may find, however, the fundamental fact is that people abroad are concerned over the dollar.
Mr. Stans said that he hopes that State can agree that the redeployment of forces in Europe might be taken up in December NATO meeting. Mr. Dillon agreed that the matter should be brought up, but [Page 546] had not figured on the exact amount. Mr. Anderson admitted that the psychological problem is difficult because the people abroad do not know the facts, such as this figure of $490 million withdrawal in November. Only sophisticates know this. He has made an exhaustive study of the purchase of gold bonds in Toronto. There has been a large amount of this purchasing from the U.S., particularly from the west and south. Texas is the worst offender. Oddly enough, it is not the rich. This matter in itself does not concern [him] too much since he feels this action is the result of gold speculators.
Recently Senator Murray had asked Secretary Anderson to come to the Senate and testify on the balance of payments. He himself had called Senator Fulbright and had said that he does not want anyone in the government to testify at this time. Senator Fulbright agreed to back us up on this matter.
The President said that our budget message should start out with an explanation of our objectives in the monetary field. It should set out the facts of life baldly. It should admit, however, that we cannot keep the peace if we turn our back on the world. He expressed doubt regarding Mr. Dillon’s position concerning the disastrous consequences of cutting mutual security below $4 billion. Our budget must reflect our basic philosophy and our budget must be balanced. We cannot afford to neglect measures which will be useful in cutting down a balance of payments deficit. In general terms, he prefers to submit mutual security requests in round terms such as $4 billion rather than $4,175 billion. Further, we should go to NATO and tell them that we plan to withdraw two divisions. We should reduce the overstaffed NATO infrastructure, bring home Americans, and hire French and Germans.
Mr. Dillon said if mutual security must be cut drastically, he would hope that $2 billion would be taken off MAP and $50 million off economic assistance. The President referred to the new Latin American assistance program and said that unless this shows some promise of success, we are in real trouble. Castro is showing success in exporting Communism. Latin American governments must be willing to make social reforms if we are going to continue a level of aid to them. Mr. Anderson said he felt that Latin America is the area where we should concentrate our efforts on aid. We should say to the European countries that they are the ones who have had vested interests in Asia and Africa. The President expressed agreement and said he had been talking to heads of some of the Latin American countries for a couple of years on this matter.
Mr. Stans then brought up the second question of the DLF. He expressed the hope that we would not add an extra $150 million to the fund this year. Mr. Dillon said this is necessary, since we had a battle over this matter last year and promised to come back to reopen the [Page 547] battle this year. Mr. Stans argued that Congress has exercised its will in refusing an extra $150 million for the DLF twice. Mr. Stans accused the DLF staff of getting rid of money by the end of the year to prove requirements for the next year, and Mr. Dillon admitted there was some of that going on. The President said that he himself had put personal pressure for this $150 million for the DLF and he felt he must follow through with this request.
As the meeting ended the President mentioned again that he had always been in favor of troop redeployment. He reiterated his request that Mr. Dillon discuss with the Secretary of Defense the proposal to inform the North Atlantic Council, during the forthcoming December meetings, that unless relief is obtained in the coming year in meeting the costs of maintaining American units in Europe, and other methods are found to relieve the adverse effect of our balance of payments position, it will be necessary for the United States to withdraw a portion of its European contingent by the end of calendar year 1962.
- Source: Eisenhower Library, Whitman File, Eisenhower Diaries. Privileged. Drafted by Colonel Eisenhower.↩
- The meeting was held at the White House.↩
- Not printed.↩
- See Document 266.↩
- John F. Kennedy was elected President in national elections held November 8.↩
- Authorized by P.L. 86–735, September 8. For text, see American Foreign Policy: Current Documents, 1960, pp. 290–292.↩