Foreign Relations of the United States, 1961–1963, Volume XXIV, Laos Crisis

395. Memorandum From Michael V. Forrestal of the National Security Council Staff to the President’s Special Assistant for National Security Affairs (Bundy)⁰

Washington, June 12, 1962.

SUBJECT

• Laos Planning (Supplement)

As Carl¹ mentioned to you in the staff meeting this morning, the President reacted negatively to the idea of resuming aid to Phoumi. He did so after what must have been a trying meeting with Roger Blough, Henry Alexander, et al,² where the balance of payments problem was very much on his mind.

Averell is convinced, and so am I, that we must quickly make a gesture in Phoumi’s direction. The gesture he expects and has been planning for is a resumption of his monthly allowance. To haggle unduly at this after he has behaved more or less like a little soldier (see attached cable)³ would really wreck the morale of Phoumi, his followers, and his Uncle Sarit. It would also shake Souvanna considerably, since he is obviously looking to Phoumi and through him to us for a counter-balance to Soviet and DRV power.

It also seems clear to me that we will have to envisage continuing aid to the Souvanna Government on terms which will be the subject of some tricky negotiation. It has been the keystone of this whole brittle policy of ours that the United States would rush to the support of Souvanna to shore him up as best we can at least at the outset of his new Government.

The President also wondered about the political impact of an announcement that we had restored aid to Phoumi. The President wondered whether we could justify restoration of aid to a dying government with whom we have had so much difficulty.

I have thought about this some more over night and I think that our public posture requires us to behave with reasonable consistency on this matter. We have told Phoumi and the world that we were withdrawing aid because he was not cooperating in the formation of a coalition government. He is now cooperating (perhaps only for the moment) and I think we are expected to make a gesture in his direction. I also think that our policy towards Laos will continue to require some form of budget support to the Souvanna Government.

I have suggested to the President that any money that we give to Phoumi, and if we can negotiate this, to Souvanna, should be required either to be kept in the United States, or to be kept in joint accounts. It might also be possible to dole the money out on a semi-monthly—rather than a monthly—basis, adjusting the payments so that we do not produce an increase in Lao dollar reserves. We can get some comfort perhaps from the fact that we have saved about $15 million by our past suspension of aid and have probably reduced Lao monetary reserves to a much healthier point.

I have asked Averell’s office to prepare a short memorandum for the President, stating precisely what they propose to do.

Mike

0. Source: Kennedy Library, National Security Files, Countries Series, Laos: General, 6/6/62–6/12/62. Secret.
1. Carl Kaysen.
2. Roger M. Blough, Chairman of the Board of U.S. Steel, and Henry C. Alexander, Chairman of the Board of Morgan Guaranty Trust Company, were members of the Business Advisory Council which met with the President, Treasury Secretary Dillon, and other Treasury officials from 6:04 to 6:58 p.m., June 11. (Kennedy Library, President’s Appointment Book)
3. Not attached, but it probably was telegram 1698 from Vientiane, June 11, in which Brown reported his discussion with Phoumi after the agreement on the new slate for the Souvanna government. According to Phoumi’s account of his meeting with Souvanna, he had impressed Souvanna with his reasonableness, and Souvanna successfully insisted that Souphanouvong be equally constructive. Phoumi stated that he thought the coalition government would work out. His parting remark to Brown was, “You must think of us now.” (Department of State, Central Files, 751J.00/6–1162)