431. Summary Paper Prepared by the Bureau of Far Eastern Affairs0
In accordance with the August 13th Memorandum for the White House1 we are proceeding to implement an economic assistance program to Laos that contains two major categories project—and non-project assistance.
[Page 909]Non-Project
In our new aid program for Laos2 we are shifting our emphasis from providing direct budgetary support to meeting foreign exchange requirements. Accordingly, we have programmed $15 million for financing commodities under a commodity import program and at least $10 million for cash grants that will be used to achieve particular purposes such as demobilization or maintenance of the FAR. The dollars from these cash grants will be available to meet foreign exchange requirements that are not covered in the commodity import program.
To effect this program, we have devised a reimbursable financing system that eliminates uncontrolled cash grants to the degree possible and, at the same time, maintains the flexible set of controls for accounting and auditing purposes which we believe are necessary to make such a system a viable substitute for cash grants. To ensure the legitimacy of the transactions under this system, the arrival of the goods will be certified by the U.S. at Lao customs. Although reimbursement under this system will certainly be restricted to expenditures made in non-communist countries, we may have to ease restrictions against procurement in the 19 developed countries and to allow a wider range of commodity imports than is normally financed under U.S. assistance programs.
To minimize the burden on the United States and to secure maximum free world involvement in the Lao solution, we have pressed the British and French to join with us in providing aid to Laos, our particular objective being to obtain a commitment from these countries to finance a portion of Laos’ goods and services. The British have indicated that they are prepared to finance $3 million dollars annually for three years. Although we have not yet received a definite reply from the French, we are hopeful that they will match the assistance provided by the U.K. [Page 910] Together, then, the U.S., the U.K. and France are prepared to finance about $20 million of goods, which is approximately our estimate of Laos’ annual needs. Other foreign exchange requirements will, as noted above, probably be met from cash either for the local currency costs of projects or for other purposes.
With the development of the reimbursable system to finance imports and the agreement of the British and, in all likelihood, that of the French, we are now ready to present our non-project program to the Lao Government. In doing so, we will coordinate our presentation with that of the British and French in order to impress upon Souvanna that his foreign assistance is limited and to convince him that the RLG budget must be prepared in accordance with the resources available to him, i.e. domestic revenues, and the local currency proceeds of commodity imports and cash grants, if he is to avoid financial collapse.
Project Program
For FY 1963 we have programmed $13 million to be used to meet dollar costs of the projects and up to $5 million of counterpart proceeds to meet the local currency costs. The project program, unlike non-project assistance, was not suspended and the following projects are currently being implemented: rural development, teacher training, rural medicine and health, communications media—Lao National Radio and Photo Press—Vientiane telephone plant, and refugee resettlement and relief. Unfortunately, the police program has not been resumed because Souvanna has not yet requested our assistance. In addition to the funds available for the FY 63, $8.5 million is available from prior year funds for the construction of the Nam Cadinh road.
RLG Budget
The major problem now facing Souvanna is the preparation of a budget that will not entail heavy borrowing from the BNL. To accomplish this he faces formidable obstacles: on the one hand, he cannot count on more than $8 million dollars of local revenue and not much more than $33 million in local currency proceeds from foreign assistance; on the other, he must finance the FAR, the PL, and the Kong Le forces as well as civil expenses. Together these costs could come to between $70 and $90 million depending upon Souvanna’s ability to maintain some economic sanity. To minimize the effects of this potentially dangerous situation, we have been examining with our Embassy in Vientiane methods by which military costs could be minimized and borrowing from the BNL limited.
Cash Grant
We have given Ambassador Unger standby authority for a $2 million cash grant. He has indicated he will use it to obtain a specific objective in his negotiations with the Lao.
- Source: Department of State, Central Files, 751J.00/11–862. Confidential. Drafted by Bruns and cleared in draft by Cross and by Koren and Rice. Attached to a note from McGeorge Bundy by Executive Secretary Brubeck in connection with the President’s discussion on the afternoon of November 8.↩
- See footnote 2, Document 418.↩
- At the White
House daily staff meeting on November 1, discussion of economic
assistance to Laos went as follows:
“Dungan, Kaysen, Forrestal, and Hansen discussed foreign assistance for FY 64 with emphasis on Laos as an example of some kind. Dungan wondered why we had to spend $58 million in Laos, and the answer was that we had to pay $58 million in order to subsidize the continuation of a right-wing necessary to balance Souvanna Phouma and prevent him from falling completely into the Communist camp. Dungan keeps hammering home that foreign aid for FY 64 will be substantially less than for FY 63, and said that we should assume that even the initial requests will total under $4 billion. This requires a hard look at the marginal utility and return received from applying, for example, a given $50 million in Country X as compared with Country Y. Kaysen pointed out that in some cases such as Laos it was a question of either a fixed amount—maybe about $58—million or none at all, since the $58 million is the minimum required for the minimum objective, and one may as well cut the country down to zero dollars as cut it down to $30 million, say. There was general agreement that one must focus on those few places where the really big money goes, since it is there that the amounts can be reduced without destroying the entire purpose of the program.” (Memorandum for the record by Legere, November 1; National Defense University, Taylor Papers, White House Daily Staff Meetings, October 62 to February 1962, T–222–69)
↩