Mr. President:
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.
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.
[Page 488]
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.
[Page 489]
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.
Approve negotiation now
Defer and resubmit as part of combined AID and P.L. 480 package4
Disapprove
