Office of the Historian

430. Memorandum From the Presidentʼs Assistant for National Security Affairs (Kissinger) to President Nixon1

Washington, undated.

SUBJECT

  • FY 1970 Economic Assistance Program for Turkey

Secretary Rogers (Tab A) requests your approval of a $40 million AID program loan to Turkey. The funds will finance imports of capital goods, raw materials, and spare parts required by Turkey to expand its industrial and agricultural capabilities. All agencies, including Budget (Tab B), concur.2

U.S. development lending to Turkey is provided in the framework of a consortium of aid donors sponsored by the OECD. For 1970, as in the past two years, other bilateral donors will provide $60 million in new program loans, and the U.S. is expected to again provide $40 million.

More than two years ago, Turkey announced a plan to end reliance on concessional loans by 1972. The U.S. subsequently reduced its bilateral lending level (project and program loans) to Turkey from $125 million in FY 1967 to $68 million in FY 1968 to $40 million in FY 1969. The current proposal does not further reduce the total largely because the Turks have not yet devalued the lira and made the economic adjustments required to become more self-reliant.

There is general agreement among consortium members that the most urgent development issue for Turkey is the need for a comprehensive reform of trade policies and a substantial devaluation of the lira. The Turkish Government is fully aware of the views of the consortium members, recognizes that this is a crucial development policy issue, and has recently begun serious negotiations with the IMF on these matters. The Secretary feels that, while supporting the IMF, the U.S. should avoid direct involvement in these politically sensitive negotiations and that we should not make the U.S. loan, or any part thereof, dependent upon Turkish devaluation or reform.

I fully agree, since any such pressure might cause political friction and jeopardize the negotiations. Prime Minister Demirel is having [Page 1064] political difficulties and devaluation will be difficult enough without resentment of U.S. pressure. Besides, he understands the need; his problem lies mainly in finding a way to manage this step politically.

Should devaluation be effected, substantial supplemental financing would be needed to counter possible speculation and permit a measure of import liberalization. Secretary Rogers suggests that we stand ready to contribute up to $25 million as our share of such assistance and AID is prepared to make such funds available if they are required.

Secretary Kennedy had originally raised an objection to providing this loan until Turkey had agreed to eliminate its opium production. Treasury subsequently withdrew its objection for this year and agreed with State that withholding our aid loan might aggravate political relations and restrict Demirelʼs ability to be helpful on the opium problem. This is being actively pursued with Demirel and Foreign Minister Caglayangil.

In addition to the requested $40 million, the U.S. is providing Turkey $45 million under PL 480 and $4 million in technical assistance for a total FY 1970 economic aid program of $89 million. We are also providing $150 million in grants of military equipment and supplies, including excess stocks.

This continues to be one of our most important aid efforts. Turk performance remains spotty, but it is sound enough to justify the aid, and our joint objective of preparing Turkey for eventual full membership in the European Community continues to be of high strategic importance.

Recommendation

That you approve the proposal for a $40 million AID loan to Turkey for an additional $25 million as part of special consortium financing if necessary in the event of Turkish exchange reform.3

  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 633, Country Files—Middle East, Turkey, Vol. II 1 Jan 1970–31 Dec 1971. Confidential. Bergsten sent this memorandum to Kissinger under a June 1 covering memorandum recommending it be sent to the President.↩
  2. Tabs are attached, but not printed.↩
  3. Kissinger initialed the approval line for Nixon on June 8.↩