Foreign Relations of the United States, 1969–1976, Volume IV, Foreign Assistance, International Development, Trade Policies, 1969–1972

5. Action Memorandum From the President’s Assistant for National Security Affairs (Kissinger) to President Nixon¹

Washington, undated.

SUBJECT

• NSC Meeting on Foreign Aid²

The U.S. foreign aid program is in major crisis. Public support has virtually disappeared and President Johnson’s last two budget requests were cut by 25 and 50 percent. We have fallen behind most other developed countries in the percentage of GNP provided in aid. Our aid objectives are uncertain and have been poorly articulated. The problem cannot be blamed solely on Vietnam and our budgetary stringencies.

Aid is central to our relations particularly with key regions and countries such as Latin America and India. It is also central to our leadership in the industrialized world, which will not move decisively to bridge the North-South gap unless we show the way.

The basic requirement is to reverse the sharply downward trend of appropriations for AID. They fell to $1.2 billion last year—the lowest since World War II, at a time when our GNP was growing rapidly.

President Johnson asked for $2.2 billion for FY 1970. Given budget pressures, you may not be able to avoid some cut in his proposal. At the same time, a cut in your AID request greater than the cut for most other agencies would be interpreted as a further deceleration of U.S. interest in the less developed world. But if you were prepared to support vigorously a request of $2.0 billion—holding the inevitable cuts to $0.2-$0.3 billion—and announce an intention to increase your requests in the future as budgetary pressures eased, you would reverse the trend. You would have both reduced the Johnson proposal and gained a larger appropriation—a major achievement that would serve both domestic and foreign policy objectives.

The organizational chances discussed in the paper are of marginal usefulness, at best, in a substantive sense. Economic development will occur only through hard work on the part of the LDCs and resource transfer on our part. However, there is widespread feeling that these changes will help you buy budget figures along the lines proposed above. And all agree that almost any budget request you make will be emasculated without them.

At the heart of the problem is a need for clear articulation of our aid objectives and strong Presidential leadership in implementing them. A constituency for aid must be built and it will take time and your personal direction to do so. We will not know much more about the problem a year or two into the future. So I recommend that we start now.

Attachment³

NSC Meeting 26 March 1969 Aid Analytic Summary and Issues for Decision

The attached paper⁴ provides alternatives for the Administration’s approach to foreign aid for the next four years and for the aid submission to Congress for FY 1970. The paper is divided into four parts: the objectives of U.S. aid, budget levels, organization of our economic assistance program, and supplements to our main-line Governmental efforts. Its main focus is on economic assistance; military assistance levels will be covered primarily in the budget review. The final section presents two illustrative packages for submission to Congress this year.

Decisions on all major aspects of the FY 1970 program are needed within a few days after the NSC meeting and the parallel budget review if the Administration is to submit legislation by the early May deadline “set” by Congress. Time must be left for Congressional consultations, however, after your initial decisions and before final preparation of the bill. Decisions must be made on the issues listed below. My recommendations follow in parentheses.

1. Objectives

Four major objectives which the U.S. seeks through aid are listed: maintenance of military security for countries around the rim of the communist world, achievement of short-run political leverage through extending and withholding aid in response to others’ policies towards the United States, continued participation in the longer-run development effort of selected countries, and a sharp acceleration of growth in these countries. There may often be conflicts among these objectives and they can be accorded different priorities within any given aid level. All of them are under serious attack from some segments of American public opinion.

(Announce that your Administration’s aid program will concentrate on speeding long-term economic development, consistent with the self-help efforts of the LDCs, while continuing to support the security requirements of U.S. allies in exposed positions. You will seek to move forward together with the other major industrialized countries and will not use aid primarily as a lever for short-term political gain, although we will probably have to continue to use supporting assistance for overtly political purposes.)

2. Aid Levels

Aid levels relate closely to our choice of objectives. The following alternatives relate to the longer-term aspects of Administration policy. The numbers refer to actual appropriations and do not address the tactical question of how much to ask for in order to achieve them.

A minimal program—around $1.2 billion per year in budget authority for AID, the level appropriated by Congress for FY 1969, and $0.5 billion for multilateral institutions—could assure security around the rim and a minimum U.S. contribution to development efforts in the major countries. A request for this level would create widespread foreign policy problems and would seriously undermine our efforts to get other donor countries to raise their contributions. Such a program would require sharp cutbacks in our lending to Latin America and India-Pakistan and would preclude a major reconstruction effort in Southeast Asia after the war.

Only a major program—moving toward $3 billion for AID and $1.2 billion for multilateral institutions—would enable the U.S. to again provide decisive leadership to the economic development process and achieve a resource transfer relative to GNP equal to our contribution prior to 1963 and equal to that of most other industrialized countries. It would make virtually certain economic progress in the Subcontinent, enhance greatly the Alliance for Progress, assure a major Southeast Asia postwar development program, and give you flexibility to respond to new opportunities in Africa.

A medium program—around $2-$2.3 billion annually for AID and $0.5-$0.8 billion for multilateral institutions, about what was sought in the last Johnson budget—would enable us to maintain our present flow of public resources to the less developed countries (LDCs) and hence retain our participation in the development process. It would relegate us to a middle position among donors and hence weaken our position of leadership. It would provide sufficient resources to make continued growth in South Asia likely, maintain our present involvement in Latin America and Africa, and enable us to exercise a choice among several options in postwar Southeast Asia.

(a) Decision for FY 1970. Could range from a “low option” of around $1.3 billion, as was appropriated in FY 1969, to the “medium option” of about $2.2 billion, the highest realistic possibility. (Propose $2.0 billion and support it wholeheartedly. Congress will make some cuts in any event and $1.8 billion at most—still a decisive improvement over FY 1969—will probably emerge. See my memorandum to you for rationale.)

(b) Decision for beyond FY 1970. Could indicate your intention to seek increased U.S. contributions, perhaps linked to the conclusion of the war and other budgetary factors. Absence of such indication, or at least of a call not to reduce the flow of resources, could be read as an implicit decision to let the level fall. (Express intent to raise the level toward internationally accepted targets and thereby to reassume U.S. leadership in the economic development process.)

3. Organization of U.S. Economic Assistance

There are four major parts of our economic assistance program which could be reorganized. The proposals run from complete dismemberment of AID to maintaining or even strengthening the role of the central agency. All of the proposed organizational changes would satisfy, and meet the expectations of, some segments of Congress and the informed public. The benefits are essentially cosmetic and may even be purchased at some cost to some of our objectives.

—A public corporation could be created to promote U.S. private investments in the LDCs and take over all AID programs in this area. It would do so primarily through expanded use of specific and extended risk guarantees but would also lend to U.S. firms and carry out some promotional activities. Such a proposal is widely expected on the Hill and would reflect a decision to give greater emphasis to private sector participation in our aid effort. However, there is no assurance that it will, even over time, increase the flow of private resources or provide any other concrete benefits.

Issue for Decision: Creation of a public Private Investment Corporation. (Propose such a corporation, essentially for cosmetic reasons.)

—Technical assistance could also be separated from AID with a publicly supported foundation created to handle all, or an important part, of it. Or AID could be reorganized to give greater weight to technical assistance. All agree that this aspect of aid is crucial through its role in upgrading the capabilities of the poor countries themselves—the major requirement for long-term development. A new emphasis on technical assistance, through either of these routes, would reflect an underlying decision to focus on real development and self-help by recipient countries.

One problem in the U.S. is attracting top flight people to participate in technical assistance programs. It is probable that either change would help meet this problem at least marginally. However, we honestly do not know the full effects of changing the level of our programs or organizing them differently.

Issue for Decision: Creation of a foundation for technical assistance or a separate bureau within AID to handle the subject. (Announce creation of a new AID bureau to dramatize a new emphasis on technical assistance.)

—An increasing share of our capital assistance could over time be channeled through multilateral institutions, especially the IBRD/IDA and regional development banks, either on the present burden-sharing formula with other donors or without regard to this criterion. Such an approach would reflect a basic decision to focus on the objective of long-term economic development and to seek less short-term political payoff for our aid money.

Issue for Decision: Shift of capital assistance to multilateral channels, with or without requirement of similar increases in multilateral contributions by other donors. (Announce full support for the present multilateral contributions bill now pending. Announce intent to expand such contributions in the future. Propose authority to shift a sizable part of U.S. capital assistance to these institutions without increasing the U.S. share in each—except perhaps in Latin America.)

—The remainder of military assistance could be transferred from the Foreign Assistance Act to either the Defense Department budget or into a new act combining grant military assistance and military sales. (Grant military aid to Vietnam, Laos, and Thailand is already in the DOD budget.) The resultant separation of military from economic assistance, while artificial to some extent in some countries, would be a logical delineation of functions and more rationally treat our military assistance alongside other defense costs. However, the change could reduce foreign policy and budgetary control over military assistance.

Issue for Decision: Shift of military assistance to DOD budget or creation of a new Foreign Military Sales and Assistance Act. (All agree that creation of the latter is desirable, but Congressional consultations suggest that it is infeasible this year.)

4. Supplements to Basic Economic Assistance Program

There are numerous programs outside AID which the U.S. could undertake or support, which would contribute to economic development and meet some of the most vocal interests of the LDCs.

• —We could liberalize the operations of our own PL-480 and Export-Import Bank programs, or at least reverse the hardened trend of PL-480.
• —We could actively promote increased U.S. private investment in the LDCs, by providing tax incentives or removing some of the constraints of existing Government programs. (This is a separate issue from creating the private investment corporation.)
• —We could take the initiative to seek international programs to boost export earnings of the LDCs, e.g. by tariff preferences for their products or commodity agreements to stabilize prices of their major foreign exchange earners. The LDCs have a major political interest in preferences but the economic payoff is likely to be small.
• —We could take steps to meet the coming critical problem of LDC debts to the industrialized world. Rising debt burdens are becoming a major burden and will reach 25 percent of export earnings for numerous major LDCs within a decade. There are several ways to meet the problem, such as liberalizing our own loan terms, but the most direct approach is to encourage reschedulings for specific major countries.

Issues for Decision

(a) Trade preferences for LDCs. (Await outcome of NSC meeting on trade policy on April 9 before making decision.)

(b) New commodity agreements. (Await outcome of NSC meeting on trade policy on April 9 before making decision.)

(c) Debt reschedulings. (Be ready to deal with it on a country-by-country basis as problems arise.)

(d) Private investment. (Do nothing new beyond proposing creation of the Private Investment Corporation, but indicate hope that it will lead to increased private flows to LDCs. Also announce that the liberalization of U.S. balance of payments controls will contribute to this objective and express hope that the new Corporation will relax the present tying requirements of extended risk guarantees.)

Packages

In conclusion, the paper presents two illustrative packages for FY 1970. The first would include $2-$2.2 billion for AID and $0.5 billion for multilateral institutions, to reverse the trend of last year and maintain the flow of U.S. public resources at previous levels, and an expression of intent to increase the level in the future. On the organizational side, it would establish a private investment corporation, reorganize technical assistance within AID and propose a sharp increase in our contribution to the UN technical assistance effort, express an intent to expand our contributions to multilateral agencies as other donors do so, and shift the rest of military assistance to a new Military Assistance and Sales Act. It would also include Administration support for trade preferences. The organizational innovations are logically separate from the budget level, but are deemed necessary by most observers to purchase the larger amounts of money.

The second package would defer any major organizational changes until next year, establish a high-level commission to recommend what those changes should be, and trim the budget request close to what was actually appropriated in fiscal year 1969 ($1.5 billion).

(My recommendations on each of these issues are listed above. Taken together they closely approximate the first package. However, the possibility of modification for Latin America should remain open until the NSC meeting on Latin America and Governor Rockefeller reports on his mission.)

1. Source: National Security Council, Secretariat, Schedule of NSC Meetings, Box 83, 3/26/69 NSC Meeting-Foreign Aid. Confidential. This memorandum is the lead item in the President’s briefing book for the March 26 NSC meeting.
2. The March 26 NSC meeting was held in the Cabinet Room from 10:05 to 11:58 a.m. Appendix A of the President’s Daily Diary lists the following attendees: Agnew, Rogers, Laird, Kennedy, Lincoln, Wheeler, Helms, Kissinger, Richardson, Hannah, Poats, Mayo, DuBridge, Goodpaster, Bergsten, and Haig. (National Archives, Nixon Presidential Materials, White House Central Files)
3. Confidential. This paper is the fourth item in the President’s briefing book for the NSC meeting; the second and third items are talking points for the President’s use and talking points for Kissinger’s use.
4. “The Choices in Foreign Aid”; see Document 4 and footnote 2 thereto.