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

75. Draft Memorandum for President Johnson¹

Washington, May 21, 1968.

SUBJECT

• Negotiating Package for Foreign Aid

As you know, foreign aid and related bills are in deep trouble on the Hill. There is widespread talk of a one-year “moratorium”. Mr. Passman has spoken privately of a $1.7 billion foreign aid appropriation, a cut of $1.2 billion below your request. Amendments have been introduced in the House which would decimate the program at the authorization stage, perhaps driving the appropriations committees to even deeper cuts. The vital IDA replenishment (Bob McNamara’s soft-loan window) and regional bank bills are faring no better. Last Wednesday² we were forced to ask the House Banking and Currency Committee to defer consideration of the IDA bill because a poll showed only 13 (out of 33) votes in favor of our share in the replenishment schedule painfully negotiated with other donors.

It now appears virtually certain that if events are allowed to take their natural course these bills will be left until the last frantic days of this short session. The pressures of time and fiscal concern may then be overwhelming and force deferral of some items and massive cuts in others. The odds will favor deferral of the IDA Bill and a Passman-type slash in the Foreign Aid Bill, both of which would have disastrous effects on our image and policy in the poor countries.

We continue to believe that the requests in the present budget represent the absolute minimum necessary to sound foreign development programs. But it is also clear that major cuts are going to be made. Our best tactic is to try to limit those cuts and influence their distribution among the foreign aid elements. It is terribly important, for example, that the Congress pass the full IDA authorization; a reduced amount would force us to reopen negotiations with the seventeen other donors—delaying the flow of IDA funds to countries that desperately need it to maintain economic momentum.

We are persuaded, therefore, that the President ought to consider trying to strike a bargain on foreign aid—after the tax bill is passed—with the leadership and the chairmen of the relevant committees of the Congress. The Executive Branch would reluctantly accept major cuts on the understanding that there would be an all-out effort to keep them to agreed levels and that they would be applied in accord with agreed priorities. We are not at all sanguine that this approach will work. But we have concluded that, at least in terms of legislation on foreign affairs, there is less risk to a package approach than to inaction. We are all aware, of course, that you have a much broader sweep of legislation to consider.

Below is a package which would commit us to accept a cut of about $1 billion in appropriations from the full complex of aid legislation. We believe that a package offer must be in this range to be credible. Our priorities are clear: (1) to avoid any cuts in your requests for IDA and the Inter-American Bank; (2) to limit the cuts in foreign aid; and (3) to get some authority and money for military credit sales.

There also follows a possible negotiating scenario for dealing with the important people on the Hill. It assumes prior passage of the tax bill, although we may have to think again if the tax bill drags into July. The most immediate problem is whether to ask Chairman Morgan to hold up final mark-up and floor action on the Foreign Aid Authorization Bill pending a package negotiation. Obviously, we would not want to urge him to fight for every dollar in the authorization request and then pull the rug out by agreeing to large appropriation cuts. We will need your guidance on this question soon.

The Bills

We have the following aid-related bills before the Congress:

1. Foreign Aid (authorization and appropriation)

2. IDA Replenishment (3-year authorization, 1-year appropriation)

3. Inter-American Development Bank—soft-loan window (appropriation only)

4. Asian Development Bank—soft-loan window (4-year authorization, 1-year appropriation)

5. Military Credit Sales (authorization and appropriation)

6. PL 480 (2-year authorization, no direct appropriation required)

There is one further bill—authorization of callable capital for the Inter-American Development Bank—which is not in this list because it is not controversial. We hope to have it passed very soon.

The PL 480 extension has passed both Houses and is going into conference. Hearings have been held on all the other listed bills except the Military Credit Sales BILL and the appropriation bills for IDA and the Asian Bank. The Asian Bank authorization bill has been reported favorably by House Banking and Currency. None of the others is out of committee, although the House Foreign Affairs Committee is in mark-up on the Foreign Aid authorization bill.

Together these bills involve appropriations of about $3.8 billion.

The Package Offer

We would propose to offer a package cutting appropriations by $1.056 billion as follows:

	(In Millions)
Element	Cut	Final Appropriation
Economic Aid	$700	$1,795
MAP	80	340
IDA	801	160
IDB	-0	300
Military Credit Sales	96	200
PL 480, Title II (Donations)	502	—
Total	$1,056	$2,795

These are extremely deep cuts. Economic aid would amount to more than $100 million less than the current year, inflicting serious damage on development programs in critical countries. For example, we could not provide anything close to the level of aid to Latin America that you spoke of at Punta del Este; nor could we take full advantage of excellent economic opportunities in India and Pakistan. (The probable geographic distribution of the cut in economic and military aid is at Tab A.)³

Negotiating Tactics:

A bargain of this kind in the present atmosphere will be difficult and dangerous. There is a serious risk that any new Administration proposal, however quietly proposed, will be rejected but will at the same time become a new ceiling from which the Congress will make its cuts. Moreover, it is hard to find anyone on the Hill today who can deliver on the Congressional end of the bargain. Still, we believe it is worth a try.

We believe the key man is Chairman Mahon. If he thinks the package approach is sensible and our concessions significantly enough to be negotiable, it is worth trying to persuade the leadership, Chairmen Fulbright, Morgan and Patman and other key people. If Mahon rejects the proposal out of hand, we should probably drop it. We believe it is hopeless to try to bargain with Passman, but it is important to maintain protocol by talking with Passman at an early stage in the conversations with Mahon. The chances of success with all of these people are heavily dependent on very high level Executive Branch representation.

Our scenario would proceed as follows:

1. Chairman Morgan would be quietly asked to put off final mark-up and floor action on the Foreign Aid authorization bill until after passage of the tax bill and possible negotiation of a foreign aid package. (We should talk to Morgan this week if possible.)

2. The President might have a private conversation with Mahon to sound him out on the general notion of a package.

3. If Mahon sounded receptive, the President, accompanied by the Secretaries of State, Defense, and Treasury and the Budget Director, would receive Mahon and Passman and lay out the proposed package.

4. Assuming Mahon were still interested, the President might convene a larger meeting including the leadership, the chairmen of all relevant committees and subcommittees and perhaps the Republican leadership and ranking members.

5. The Foreign Aid authorization bill and the Military Credit Sales bill would be amended to the agreed amounts and put on the floor of both Houses. The IDA, IDB, and ADB authorizations would be passed in full.

6. The Foreign Aid and Related Agencies appropriations bill—which includes money for all the elements except PL 480 and possibly military sales—would be passed at the full authorized levels.

Clearly, the weakest link in this scenario is passage of the appropriations bill with no cuts from the authorization level. This is unprecedented and obviously risky to try, but it would be our hope to let Mahon and Passman handle the publicity in such a way as to get credit for the cuts reflected in the authorization bill and avoid the “obligation” to add to the misery in the appropriation process.

A Possible Alternative

There is another approach which seems to have some popularity in the Congress and which could possibly bring us out as well as the above package. Essentially, it involves ducking the problem by passing simple 9-month extensions of the present Foreign Aid authorization and appropriation bills. The authorization bill would extend expiration dates and authorize nine months’ worth of appropriations (hopefully at 90% of this year’s rate). The appropriation bill would do the same. A variant now being pushed by Carl Marcy would be a single continuing resolution to cover both authorization and appropriation through only one vote in each House. In all of these cases the justification would be to put off serious substantive action on the foreign aid program until the new Administration takes power.

The House Foreign Affairs Committee has instructed Doc Morgan to check out the continuing authorization idea with the House leadership. They will undoubtedly be asking our view soon.

We think this solution looks less attractive now than the package approach, but that it will look better and better as and if the session drags on with no action on foreign aid. The main problem is that it would not suffice for IDA and the regional banks. Still, it is at least worth mentioning to Mahon if the package idea does not appeal to him. If he prefers it—and has some means of handling the Bank bills—we should probably go along.

Recommendation:

We recommend that you:

• —authorize Bill Gaud to tell Doc Morgan that we are thinking about a foreign aid package, and that we would suggest he hold off final mark-up and floor action on the Foreign Aid authorization bill until after the tax bill is passed and we reach a definite decision on whether to proceed with the package.
• — that you instruct us to prepare a case for the package to be made to Chairman Mahon when and if he seems receptive.
• —that you approach Mahon as soon as the tax bill is through and sound him out on the package approach.

(Signatures:)
The Secretary of State⁴
The Secretary of The Treasury
The Secretary of Defense
The Secretary of Agriculture
The AID Administrator
The Budget Director

Eugene R. Black

1. Source: Johnson Library, National Security File, Subject File, Foreign Aid, Box 16. Secret; Sensitive. The source text bears no drafting information. No record of whether it or a revised version went to the President has been found.
2. May 15.
1. This is a paper cut and the weakest item in the package. Your budget showed a request for $240 million for IDA because we were trying to negotiate the Europeans up to a substantially higher replenishment level than was actually achieved. The “cut” to $160 million simply reflects our share of the bargain we were able to strike as opposed to our initial objective. We should not try to hide the fact that this cut is unreal in the sense that we could not use the full budget request if it were appropriated.
2. This is actually a cut in expenditures, not appropriations. (It is above and beyond the $300 million in PL 480 expenditure cuts we have already told the Congress we will absorb.) However, it would reduce CCC appropriations in future years.
3. Not found.
4. Printed from a copy that bears these typed signatures.