Foreign Relations of the United States, 1964–1968, Volume XXXII, Dominican Republic; Cuba; Haiti; Guyana

204. Action Memorandum From the Presidentʼs Special Assistant (Rostow) to President Johnson¹

Washington, November 11, 1967.

Mr. President:

Herewith are memoranda from Gaud, Freeman² and Schultze on a $12 million PL–480 loan to the Dominican Republic.

There is agreement on the size and nature of the PL–480 loan but not on the timing of negotiations. Gaud and Freeman prefer to proceed immediately. Schultze recommends delay until the PL–480 agreement can be combined with our AID Supporting Assistance negotiating package. The delay would be for 4–5 weeks.

Charlie argues that our leverage in negotiating self-help conditions will be increased by making PL–480 and AID one package. He also notes that the Dominicans are obtaining the commodities they need under reimbursable purchase authorizations and the amounts involved are so small that they would have no effect on US prices.

There do not seem to be any compelling reasons why the PL–480 agreement should be negotiated right away. Consequently, Charlieʼs recommendations of deferral until the PL–480 and AID are combined into one package seems reasonable.

Walt

Approve negotiation of PL–480 agreement now

Defer and resubmit as part of combined AID and PL–480 package³

See me

Attachment

Washington, November 9, 1967.

Memorandum From the Director of the Bureau of the Budget (Schultze) to President Johnson

SUBJECT

• Proposed P.L. 480 Program for the Dominican Republic

In the attached memorandum, Orville Freeman and Bill Gaud request your authorization to negotiate a $12.3 million P.L. 480 agreement with the Dominican Republic.

Summary

I have no objection to their basic proposal. But I recommend that we defer the P.L. 480 negotiation until it can be combined with negotiations on an AID Supporting Assistance loan—which will be ready for review in the next few weeks. By combining the two forms of assistance we maximize our leverage for self-help conditions. We are trying to combine P.L. 480 and AID loan negotiations wherever possible.

Background

The commodities to be supplied are wheat (30,000 tons), soybean oil (15,000 tons), tallow, cotton, tobacco, oats, and cotton yarn. This will be the first P.L. 480 agreement ever to include cotton textiles. (The textile interests got the law changed in 1966 to permit the full financing of cotton yarn and cloth.) The agreement would provide a twenty-year dollar credit, with shipments made during this fiscal year.

Usual marketing requirements would be waived since most imports of these commodities have been financed by AID loans.

This assistance will ease the Dominicans’ balance of payments problem and help finance public investment in agriculture. It is also intended to supplement domestic production damaged by drought.

Commitments will be sought from the government of the Dominican Republic to take several self-help actions in the agricultural sector, which will be financed mostly by the local currency proceeds of this loan.

A $20 million Supporting Assistance AID loan, also to provide balance of payments and budgetary support in FY 1968, has been requested by Ambassador Crimmins. It will probably be ready for your review within the next few weeks. The key purpose of that negotiation is to influence the allocation of the Dominican budget for 1968. The self-help measures to be negotiated with the AID loan will improve the effectiveness of our aid. They will include commitments to

• —increase tax revenues and reduce military expenditures,
• —limit inflationary government borrowing,
• —establish procedures to promote greater export additionality for our aid.

A good portion of the $12.3 million P.L. 480 agreement is a budgetary cost to us. In view of the anticipated reduction in the Supporting Assistance appropriation, it is very important to utilize the P.L. 480 loan to the fullest extent possible to obtain the important overall self-help reforms we seek. $12.3 million represents a substantial resource for the Dominican budget. Joint negotiation of the P.L. 480 and Supporting Assistance loans would strengthen our bargaining power and be consistent with your desire to treat P.L. 480 and dollar aid as equivalent resources.

Using P.L. 480 this year to negotiate budget and monetary policy will lay the groundwork for similar joint dollar aid and P.L. 480 negotiations next year, when we will need all the economic leverage we can muster. We face a critical negotiation with the Dominican Republic sometime after the municipal elections in May, on the issue of devaluation. Without devaluation, continued high aid levels will bring little, if any, basic improvement in the Dominican economy or in the high level of unemployment.

Although Gaud and Freeman would prefer not to delay the P.L. 480 agreement for joint negotiations, their reasons are not compelling. At worst, delay might cause some political embarrassment. However, holding the P.L. 480 presents no real problem for us or the Dominicans because the commodities are now being shipped under reimbursable purchase authorizations. The amounts of wheat and soybean oil involved in this agreement are so small that they would have no effect on U.S. prices.

I recommend that you defer negotiation of the proposed P.L. 480 agreement at this time, with the understanding that you wish to have it resubmitted as part of a total balance of payments and budget support package.

Charles L. Schultze

Approve negotiation now

Defer and resubmit as part of combined AID and P.L. 480 package⁴

Disapprove

1. Source: Johnson Library, National Security File, Country File, Dominican Republic, Vol. XVIII. Confidential. Handwritten notations on the memorandum indicate that Bowdler was notified on November 13, and a copy was sent the same day to the Bureau of the Budget.
2. Attached was a 2-page memorandum from Gaud and Freeman, dated October 30, in which they recommended that the President authorize them “to negotiate a P.L. 480 sales agreement with the Dominican Republic to provide approximately 15,000 tons of soybean oil, 30,000 tons of wheat, 12,000 tons of tallow, 5,600 bales of cotton, 933 tons of tobacco, and other items for export totalling a market value of $12.3 million.” The Departments of State and the Treasury concurred in this recommendation.
3. This option is checked.
4. This option is checked.