335. Memorandum From the Executive Secretary of the Department of State (Battle) to the President’s Special Assistant for National Security Affairs (Bundy)0

SUBJECT

  • Laos

Enclosed are answers to the questions1 concerning Laos that Mr. Johnson telephoned to Mr. Rice, Deputy Assistant Secretary, Bureau of Far Eastern Affairs.

L.D. Battle2

[Enclosure 1]

QUESTIONS

1.
Should the President and Macmillan3 mention Laos in their communique?
2.
Referring to the AP column from Vientiane, no date line, entitled “US aid loss strikes Laos a bitter blow” and Alsop’s Wednesday column: What effect is loss of aid having?
3.
Alsop implies Meo capability a product of Royal Laotian Army policy over last year rather than a US guided operation. Please comment.
4.
Referring to your first memo to Lao overseas funds4 which stem from our aid, how long has procedure been in effect whereby we deposit funds in NY banks and may transfer them abroad? What about the flow of gold?

[Enclosure 2]

LAOS

1.
We believe it would be desirable for the President and the Prime Minister to reaffirm the present policy in Laos. Such a statement would demonstrate clearly our unanimity of views and would be especially valuable in indicating our determination to continue on the path of peaceful settlement. The developments of the next few days would, of course, have a bearing on the actual language used.
2.
The suspension of economic assistance—civilian and military budget support—has not yet had major economic repercussions in Laos because of the RLG’s foreign exchange reserves and the emergency economic controls the government has instituted. There has been some dislocation—price rises and shortages—but it has not yet become serious. There is, however, a limit to how long the RLG can hold out. If the controls are effective, and if the RLG can reduce its requirements for foreign exchange, this limit might be 10–12 months. It is more reasonable to assume that there will be severe economic dislocation in another 4–6 months. This dislocation might be expressed within the RLG by political pressure for a change in Phoumi’s policy of “going it alone”.
3.
Meo capability is not a result of Royal Lao Army (FAR) policy. The Meo guerrilla operation [less than 1 line of source text not declassified] receives the advice and assistance of MAAG/Laos. Meo guerrilla operations [Page 706] have been very carefully worked out [less than 1 line of source text not declassified] and the success of the Meo is largely a result of American participation. Because the Meo are not dependent upon the FAR, Meo operations are not hampered by FAR logistic inefficiency and poor leadership and are much more responsive to our direction.
4.
Ever since we began to provide economic assistance to the Lao Government in 1955 we have used the cash grant method, which involves the deposit of dollars in New York banks for the credit of the Lao Government. For some time the RLG kept all these dollar deposits in New York banks, but after New York bankers informed the Lao of the higher interest rates paid on deposits abroad, the RLG has from time to time transferred these funds abroad. More recently we had some evidence that the RLG might be transferring funds abroad to move them from United States control.

When we deposit the cash grant to the credit of the RLG this shows up as an expenditure in the balance of payments. When the dollars are transferred abroad, no change takes place in the United States balance of payments. So long as the Lao funds are maintained as dollar balances their transfer abroad does not in itself result in a gold outflow. An outflow of gold could occur if, after the expenditure of the Lao funds outside the United States or their conversion into a foreign currency, they cause an increase in the dollar holdings of a central bank which uses its holdings to buy gold from the United States.

  1. Source: Department of State, Central Files, 751J.00/4–2562. Secret. This memorandum and the enclosures were drafted by Bruns and cleared by Cross, Koren, and Rice.
  2. These questions, according to an additional attached memorandum of April 25, were put to Rice over the telephone on April 25 by Chuck Johnson of Bromley Smith’s office in the White House and originated from the President in Palm Beach, Florida.
  3. Printed from a copy that bears this typed signature. Warren Slater of S/S signed for Battle.
  4. Macmillan was on an informal visit to the United States, April 25–29. For his discussions with the President on Laos, see Document 336.
  5. There is a more extensive memorandum from Battle to Bundy, April 24, which was pouched to Palm Beach, Florida, for the President. It explains the operations of cash grants to Laos and the nature and extent of Laos Government exchange reserves. (Kennedy Library, National Security Files, Countries Series, Laos: General, 4/23/62–4/30/62)