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117. Telegram From the Embassy in the Republic of China to the Department of State 0

968. Joint Embassy-AID message. Purpose of this message is to take stock of situation and outline our thoughts on appropriate course of action re special military expenditures program and US aid to GRC following Janow visit.1

Believe combination of delay in action on economic assistance programs and emphatic views expressed to senior GRC officials has convinced latter we are seriously concerned at possible adverse effect of military preparedness program on economy and has served to warn them effectively against any future action of this sort without adequate consultation. Postponement of long term Title I2 agreement and cutback of program loan also served this purpose.3 Economic Ministers were especially worried; they probably heard Janow’s recommendations [Page 245]Embassy telegram 9214 (i.e., to proceed with reduced program loan and interim Title I agreement) with more relief than dismay. We believe conversations during Janow visit and subsequently will strengthen their hand in holding special expenditures down to surtax revenues. They may even be able, with help of our continued prodding, to cut back planned civilian procurement under preparedness program or stretch out into FY 1964.

Re public concern at delay in approval aid program, statements made at Janow departure5 supported by interim Title I signing6 did fill psychological need for affirmation US aid continuing as well as promise to meet immediate assistance needs.

Problem now as we see it is to find ways of continuing to emphasize US concern that adverse effect of military preparedness program on economy be minimized and of inducing GRC to reduce or stretch out future military spending. Situation appears to require coordinated action along three lines:

Re economic assistance we should continue proceed with caution not only to assure that approved programs are in accord with new situation but also to maintain impression that we are not relaxed in accepting non-performance of commitment to restrain defense expenditures and continue to be concerned that expenditures and economic impact be minimized. In this line would suggest no action for time being on long-term Title I agreement, proceeding with deliberation in implementation program loan, and parallel attitude with respect to smaller aid projects.
MAAG review of information provided by MND on special expenditures shows very small proportion of purchases to date are items programmed for future MAP delivery. Action with respect such items and other elements military expenditures will be discussed with Chief MAAG on his return from Washington appropriate recommendations made.
We should seek authoritative reaffirmation GRC still considers valid its commitment to limit military expenditures as specified under 19 [Page 246]points and that other commitments there stipulated which form basis of accelerated development program must also be honored. In effect this would be a return to the status quo ante after special preparedness program. This might be appropriate topic for Ambassador Kirk to take up with President Chiang following review of US attitude regarding special expenditures program and present mainland return prospects.

  1. Source: Department of State, Central Files, 811.0093/6-1562. Confidential.
  2. Seymour J. Janow, Assistant Administrator for the Far East in the Agency for International Development, visited Taiwan June 4-6.
  3. Reference is to Title I of P.L. 480, the Agricultural Trade Development and Assistance Act (approved July 10, 1954; 68 Stat. (pt. 1) 454), as amended.
  4. Ambassador Tsiang called on AID Administrator Fowler Hamilton on May 31 to request an early decision on a pending nonproject (program) loan and a new P.L. 480, Title I agreement. Hamilton told him the increased GRC military budget necessitated a reappraisal of the basis for aid. Telegram AIDTO 456 to Taipei, June 2, summarizes the conversation and states that the nonproject loan authorization was being reduced from $30 to $20 million. (Department of State, Central Files, 811.0093/6-162) A memorandum of the conversation and other related material is in Washington National Records Center, Agency for International Development Files, Administrator Files: Lot 286-65-481, China, Nationalist, FY 1962)
  5. In telegram 921, June 5, Janow reported that he had seen the President, Vice President, Foreign Minister, and ministers concerned with economic affairs and he recommended proceeding with the $20 million program loan and in interim P.L. 480 agreement. (Department of State, Central Files, 811.0093/6-562)
  6. Janow’s June 6 statement pledged continuing assistance for the GRC economic development program and in it he declared, “I look to Taiwan as one of the success stories of Asia in the postwar years.” (Filed with a June 7 memorandum from AID Executive Secretary Donald B. Easum to Kaysen; Kennedy Library, National Security Files, Countries Series, China)
  7. Telegram 940 from Taipei, June 9, reported that notes amending the Title I P.L. 480 agreement were exchanged that day. For text of the notes, see TIAS 5090; for text of the agreement they amended, signed at Taipei on April 27, 1962, see 13 UST 461.