Foreign Relations of the United States, 1964–1968, Volume IX, International Development and Economic Defense Policy; Commodities

1. Memorandum From the Administrator of the Agency for International Development (Bell) to the President’s Special Assistant for National Security Affairs (Bundy)¹

Washington, January 7, 1964.

SUBJECT

• Impact of Cuts in Foreign Aid Appropriations

This memorandum is the response to NSAM 276 of December 26,² which requests a report for the President on how we propose to adjust the economic and military assistance programs to the large cuts made by the Congress. It includes an analysis of military assistance supplied by the Department of Defense and is concurred in by the Secretary of State and the Secretary of Defense.

We would suggest that the President should be informed of the following major points:

1. Fund Availabilities. The President requested $4.5 billion in new appropriations and anticipated carryovers of $300 million more. $3 billion was appropriated and carryovers of $684 million are now estimated (including reappropriation of $127 million of last year’s Contingency Funds, which we had not requested, and $37 million of uncommitted funds of the Social Progress Trust Fund which are with the Inter-American Development Bank). The total now available therefore is $3.7 billion, 24 percent less than was requested. The cut was fairly evenly divided among appropriation categories:

	Request to Congress	Total Available	Reduction
Development Loans and Grants—Latin America	$ 907	$ 743	-164 (18%)
Development Loans and Grants—Rest of World	1,433	1,036	-397 (28%)
Military Assistance	1,555	1,173	-382 (25%)
Supporting Assistance and Contingency Fund	745	540	-205 (28%)
Other	223	192	-31 (14%)
Total Foreign Assistance	4,863	3,684	-1,179 (24%)

2. Comparison with 1963 Commitments. Compared to last year, FY 1964 funds are down by $470 million, almost entirely in military assistance. Total economic assistance funds are about the same as were used last year. However, on a geographic breakdown, funds available for Latin America have been increased by $160 million; those available for the rest of the world have been reduced by $200 million.

	1963 Commitments	1964 Available	Reduction
Military Assistance	$ 1,599	$ 1,173	-426 (27%)
Economic Assistance (including Supporting Assistance)	$2,555	$2,511	-44 (2%)
	4,154	3,684	-470 (11%)

3. Allocation of Cuts: Economic. In the last few weeks a country by country review has been conducted of the economic aid program with the purpose of allocating available funds to achieve maximum progress toward U.S. objectives. In each case we have applied the basic criteria we use for determining priorities:

• — the importance to the U.S. of the results to be sought through aid;
• — the extent to which the country is applying self-help measures and can use aid effectively;
• — the availability of assistance from sources other than the U.S.

The results are very roughly summarized in the following table, which groups countries by the general purpose and nature of the economic aid program the United States conducts there. (There were of course variations among countries in each group.)

	Request to Congress	Present Allocation	Per Cent Change
Relatively Small Cuts
1. General Support of Strategic Countries (Korea, Vietnam, Laos, Thailand, Jordan, Congo, Bolivia)	450	395	-12%
2. General Support of Economic Growth and Security in Priority Countries (India, Pakistan, Turkey, Tunisia, Nigeria, Colombia, Chile, Peru)	1,151	941	-19%
3. Maintenance of Access to U.S. Facilities (Morocco, Libya, Ethiopia, Panama, Trinidad, Cyprus)	56	59	+5%
Relatively Large Cuts
4. Successful Development Programs Approaching Termination (Taiwan, Philippines, Israel, Greece, Mexico, Venezuela, Jamaica)	159	57	-65%
5. Conditional Support of Countries Requiring Improved Self-Help (Argentina, Brazil, Ecuador, Central America, Liberia, Sudan, Iran)	437	256	-41%
6. Programs with Limited Objectives	210	134	-36%
(44 programs averaging $3 million, of which 28 are in Africa)	-	-	-
Total Country Programs*	2463	1842	-25%

Attached to this memorandum are annexes which show the reduction made in each region and discuss countries in which substantial changes have been made in the program presented to the Congress.³

4. Allocation of Cuts: Military. A preliminary review has been made by the Office of the Secretary of Defense and tentative proposals put forward for adjusting Military Aid programs to the limited funds available. These figures will be reviewed further this week with the Unified Commanders and the Joint Chiefs of Staff and with officials of State and A.I.D. We do not anticipate any substantial modification as a result of these further reviews.

On the basis of country by country reviews to date, the Defense Department has proposed figures which would:

• — honor all explicit commitments;
• — meet the increased needs in Vietnam and Laos;
• — defer a large amount of implied commitments for modernization of forces, and
• — radically reduce small programs of little military importance, including termination in Cambodia and very heavy cuts in Indonesia and Burma.

Reductions by major groups of countries are as follows:

	Request to Congress	Present Allocation	Reduction
Asia—Nine periphery countries (Greece, Turkey, Iran, Pakistan, India, Vietnam, Thailand, Taiwan, Korea)	$ 1005	$ 791	-214 (21%)
Rest of Asia	153	49	-104 (68%)
Latin America	77	63	-14 (18%)
Africa	24	18	- 6 (27%)
Europe and Other	296	252	-44 (15%)
Total	1555	1173	-382 (25%)

The State Department and Department of Defense are currently reviewing the allocation to Latin America, which is below the Congressional ceiling for equipment of $55 million and also somewhat reduces the $17–20 million originally planned for training. Assistant Secretary Mann is urgently considering this issue and the Department of Defense is prepared to consider restoring the program to approximately a total level of $70 million if it is State’s judgment that this money can be effectively spent and that the priority is deserved in relation to other areas.

5. Contributions to International Organizations. You will recall that the Congress for the first time reduced the appropriations needed to meet pledges and commitments of the United States to International Organizations such as the UN Special Fund. They appropriated $116 million compared to a present estimate of needs of about $124 million. If the needs do not shrink further, we would propose to transfer Contingency Funds to cover the gap, a possibility mentioned explicitly in the Floor debate by Chairman Passman.

6. Effect of Cuts. Our present assessment is that the reduced economic assistance funds are:

• — relatively plentiful for Latin America, where some carryover of unobligated funds into next year seems likely;
• — tightly budgeted elsewhere in the world, but sufficient to meet all firm commitments and high priority purposes.

The Military Assistance Program on the other hand is not adequate to cover priority requirements in several countries.

We are therefore considering the possibility of recommending a transfer of up to $50 million worth of economic Contingency Funds to the Military Assistance Program, and some shift in the financing of commercially available commodities from military assistance to economic aid appropriations. If it is undertaken, we would of course discuss it fully with the Congressional committees and would expect it to become permanent.

David E. Bell

1. Source: Johnson Library, National Security File, National Security Action Memoranda, NSAM 276, Distribution of Foreign Aid Cuts, Box 2. Confidential.
2. Printed in Foreign Relations, 1961–1963, vol. IX, p. 392.
3. omits funds not allocated by country
3. Not found.