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

15. Information Memorandum From the Assistant Administrator for Program of the Agency for International Development (Chenery) to the Administrator of the Agency for International Development (Bell)¹

Washington, October 17, 1964.

SUBJECT

• Review of FY 65 MAP—Meeting Scheduled for 4:30 P.M. Monday, October 19, with Assistant Secretary McNaughton, Ambassador Thompson and PC

We received on October 13 General Wood’s transmittal of Secretary McNamara’s proposed MAP for the current year (copy previously provided).² This program is based on the $1,055 million of NOA and $117.8 million recoupments expected to be available for meeting FY 65 requirements. Original requirements were modified by program increases in Vietnam, Laos and the Congo of about $65 million and reductions from DOD estimates of about $60 million of anticipated reappropriations and recoupments. The resulting short-fall primarily affects four forward defense country programs in Greece, Turkey, Taiwan and Korea. State regional bureaus and the JCS have strongly objected to $88.8 million in cuts proposed for these four countries and another $5.3 million cut from Iran.

A total of $440.9 million has been approved by A/AID including the entire FY 1965 MAP for Vietnam and Laos. All approvals were specifically concurred in by G/PM and the State and AID bureaus concerned. As of October 16, DOD has made FY 1965 MAP allocations to the military services totaling $502.3 million, which includes the $440.9 million approved by A/AID, plus continuing MAP administrative and supply operations costs, which will later be largely attributed to and included within full annual country program levels.

Our task is to evaluate the full seriousness of these reductions against alternatives to cut elsewhere in the program or to supplement total funds available.

Possible Additional Resources

A supplemental appropriation request for MAP alone or use of section 510 authority to draw down Defense stocks is probably excluded unless there is a significant new situation which justifies an emergency appeal to the Congress this year or next. A shift of some of the Southeast Asia combat requirements to the DOD budget, which has been actively discussed in DOD and State, appears to be a possible course for the future, but given legislative history would be difficult to undertake this year unless, again, a new situation arises of the kind justifying a supplemental request or use of Section 510. Aside from small additional recoupments which might become available later in the year, this leaves a possible transfer from AID to MAP as the most practical course open to augment FY 65 funds. Attachment A³ contains a statement of the current status of economic aid program claims against the Contingency Fund and a rundown of the prospective DL demand and supply situation. DOD also has potential claims of $61 million for Vietnam, Congo and possible increased cost of the F–5 program. Contingent economic needs appear low leaving room for consideration of substantial transfer later in the year to MAP. Note however a legislative relations question on using contingency funds to supplement regular appropriations (John Funari feels strongly that this is not desirable).

Possible Reductions in the DOD Proposed Program

ISA has done a good job in screening requirements, we believe. To date we have found only four categories of proposed MAP which need further examination but are potentially sources of savings up to $50 million in:

(1) NATO infrastructure for Europe—$50 million looks high, as it has turned out to be in past years, and although DOD has already cut this item $10 million, up to another $20 million reduction appears reasonable to us and to some ISA staff. The U.S. is however committed to support the construction program and would have no option but to pay any bills presented.

(2) Credit revolving fund—the proposed program includes $66.8 million for the fund, which added to an expected $40 million in repayments available for further credit financing this year, gives $106.8 million to carry out a proposed $205 million lending operation. The credit assistance program provides $70 million of increases for India, Iran and Libya offset by $18 million of decreases for LA compared to the Congressional presentation.⁴ Attachment B³ indicates the loans which DOD is considering and which have remained unchanged since June. We have seen little evidence that the credit assistance program has been submitted to the same review, in light of MAP short-falls, as the grant program in Greece, Turkey, Taiwan and Korea. There is a possible saving of $10 to $30 million if some proposed credits (Venezuela for example) which appear to be low priority are denied, deferred, or met by means outside of the Foreign Assistance Program. (Note that most of this potential saving is lost if the guarantee cannot be used for India.) It might also be worth exploring how bank guaranteed credits might substitute for grants in Greece, for example, with a resulting net saving for use in the short-fall countries.

(3) Indonesia—Asian fixed communications project financed in prior years included $8 million of equipment for Indonesia, which could now be diverted to Thailand or elsewhere, with resultant savings for FY 65 program.⁵

(4) Reductions in Laos, resulting from Secretary McNamara inquiry.⁶

Alternative Courses of Action (See Attachment C)⁷

(a) Defer program approval until overall 65 funding question is clearer.

(b) Hold back approval for the amount on the five short-fall countries and four possible reduction items noted above, and apply savings if later found to increases in Greece, Turkey, Iran, Korea and Taiwan, but proceed with the balance of the program.

(c) Permit DOD to overprogram by $40 million at this time on the assumption of a later consideration of a transfer from A.I.D. funds. This would permit partial restoration of cuts in the five problem countries.

(d) Combination of (b) and (c), with potential restoration of all of $94.1 million cuts.

Hollis Chenery

1. Source: Washington National Records Center, RG 286, AID Administrator Files: FRC 68 A 2148, DEF 19 Military Assistance FY 1965, July–October. Secret. Drafted by Robert B. Black (PC/MAD) on October 16.
2. See footnote 1, Document 12.
3. Not printed.
4. A handwritten note in the left margin at this point reads: “$20 can be saved.”
3. Not printed.
5. A handwritten note in the left margin next to this paragraph reads: “Maybe $3 or $4 next year.”
6. A handwritten note in the left margin next to this sentence reads: “Prob. $6 can be saved.”
7. Not printed.