Foreign Relations of the United States, 1961–1963, Volume IX, Foreign Economic Policy

133. Memorandum From President Kennedy to the Administrator of the Agency for International Development (Hamilton)⁰

Washington, March 2, 1962.

SUBJECT

• Terms of Aid Development Loans

I concur in your proposal in your memorandum of February 9, 1962,¹ to establish liberal terms as a basis for development lending. Our fundamental purpose in offering these loans is to advance the development of countries who are already mobilizing their own resources extensively, whose needs are great, but whose capacity to repay will come only with the long run development of their national economy. Long term, low interest loans will allow carrying out many high priority and worthwhile development projects and programs which meet the stiff stand-ards set by Congress and the Executive Branch, but for which financing on conventional terms would be either unavailable or inappropriate.

At the same time, I agree that we must also retain substantial flexibility in our loan term policies so that we can suit both interest rates and maturities to the individual situation. Countries have different repayment capacities justifying differing loan terms. Some kinds of loans, such as those for private and public revenue-producing projects or for short and medium term economic requirements, should usually be made on terms considerably more strict.

As we expand our lending programs, I am concerned that we construct a lending strategy involving foreign assistance loans, the Export-Import Bank, and the Inter-American Bank Trust Fund which builds on the individual advantages and specialties of each agency, and which ties in closely with the international lending agencies. To this end, I would like you to investigate thoroughly the use of consortia as a means of correlating our programs with those of others, and ways by which we can strengthen the organizational and administrative leadership of consortia.² I would further like to have your advice on other steps we might take to increase the coordination of the several U.S. and international lending agencies in major countries, and on whether it might be possible to build up functional specialties in certain of these agencies to attack specific development problems. You should assume a primary part in examining these questions and I look forward to your recommendations at such time as you have formulated them.

John F. Kennedy

0. Source: Washington National Records Center, RG 286,AID Administrator Files: FRC 65 A 481, Development Financing,FY 1962. No classification marking. An attached memorandum from Dungan to Hamilton, March 5, stressed that the President wanted AID loan policy to be applied in a flexible way and that he was concerned about the United States picking up the soft loans in consortia with other countries. Dungan added that it would be useful during the upcoming review of the AID program with the President “to discuss AID loan term policy along with the other matters under consideration.” Regarding this review, see Document 134.

   Subsequently, it was decided to distribute the memorandum, along with Dungan’s memorandum, in the NSAM series, and they became National Security Action Memorandum No. 130, March 2. (Memorandum from Charles E. Johnson (NSC Staff) to Battle, Charles Sullivan (Treasury), Joseph Toner (AID/EXSEC), and Osborne Hague (Budget), March 8; Department of State, S/S-NSC Files: Lot 72 D 316, NSAM No. 130)

1. Document 132.
2. In a memorandum to McGeorge Bundy, June 6, 1963, Executive Secretary Brubeck noted that he concurred with AID’s opinion that this requirement for a study of the use of consortia and of the methods of coordination between the United States and international lending agencies had been fulfilled in the many reports on various aspects of AID programs and should be dropped from follow up reports to the White House. A handwritten note on this memorandum reads: “8/7/63, ‘OK to drop’ per Bromley Smith.” (Department of State, Central Files, AID (US) 2)