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

418. Memorandum From Michael V. Forrestal of the National Security Council Staff to President Kennedy⁰

Washington, August 15, 1962.

Proposed Economic Assistance Program for Laos

The memorandum delivered to you this morning¹ proposes essentially a new approach to our economic assistance to Laos. In the past we have been supporting the Lao budget at very high levels made necessary by a disproportionately large army. We gave this support through cash grants with some very undesirable results. Local production of food stuffs in the country has fallen off, most of the imports purchased by our aid have been concentrated in the hands of relatively few people, and relatively little has gotten out into the country where it might have done some good.

The new aid program does not contemplate a significant reduction in total aid to Laos. It does, however, adopt as a goal our disentanglement from support of the Lao budget. Instead we would agree to finance imports into Laos, continue our project assistance, and, in extraordinary cases where necessary to preserve political stability and encourage the demobilization of the armed forces, we would be prepared to consider special purchases of kip for dollars.

The proposal recognizes the political strain which is bound to occur when the Laos are forced to grapple with their own budget without direct help from us; and consequently a great deal of authority is given to the Ambassador and Aid Director to apply the new program flexibly, especially in the first year.

You should note that this program does not ensure a significant reduction in dollar drain.² Most imports into Laos come from non-dollar sources and cannot readily be switched to the U.S. Provision is made, however, for controls designed to ensure that our dollars are not used for purchases in bloc countries and that our local currencies do not go directly to the support of the Pathet Lao.

0. Source: Kennedy Library, President’s Office Files, Countries, Laos Security. 8/1/62–8/31/62. Secret. Drafted by Forrestal.
1. The undated memorandum is ibid., National Security Files, Countries Series, Laos: General, 8/1/62–8/22/62.

2. At the daily White House staff meeting, August 15, the issue of aid to Laos was discussed as follows:

   “Forrestal is trying to take the Laos economic program to the President this afternoon. Kaysen is supporting this program although he recognizes that it is both expensive and risky. It will cost somewhere between 30 and 40 million a year with about 10 million being in hard gold outflow. Bundy wished them luck, saying that ‘old hard head,’ referring to the President’s attitude on gold outflow, would probably give them a very rough reception.” (Memorandum for the record by Ewell, August 15; National Defense University, Taylor Papers, White House Daily Staff Meetings, May to Sept. 1962, T–123–69)