372. Memorandum From Secretary of State Rusk to President Kennedy0


  • Summary of Developments Regarding Philippine Decontrol Program

Soon after President Macapagal took office in December 1961, he sent a Presidential Mission to the United States to obtain financial support [Page 801] for a program of elimination of trade and exchange controls and adoption of a flexible military exchange rate.1 In view of the economic and political situation in the Philippines at the time, President Macapagal thought he had to implement this program by Presidential decree before the Philippine Congress convened a few weeks later. My letter dated January 17 to Acting Secretary of Finance Sison, who headed the Philippine Mission, set out the financial support which the United States Government was prepared to extend (Enclosure No. 3).2 The amounts from the United States official sources were as follows:

$ 23.25 million Federal Reserve Gold Loan due in three months (subsequently renewed for three months)
35 million Export-Import Bank for financing projects and commodities
50 million Agency for International Development for financing projects which meet AID criteria
$108.25 million TOTAL

My letter stated that Treasury would negotiate a Treasury Stabilization Fund Agreement but the amount and date were not mentioned. In addition, the Philippines obtained a drawing from the International Monetary Fund of $28.3 million, and negotiated a roll-over of $75 million of existing short-term credits with United States commercial banks and also obtained standby credits from these banks of $77 million of new money.

An International Monetary Fund Mission visited the Philippines in February 1962, and negotiated a standby arrangement for $40.4 million effective April 12 this year. Of this amount $10 million may be used to June 30, 1962; up to $20 million through September 30, 1962; and up to $30 million through December 31, 1962. The remaining $10.4 million will be available through April 11, 1963.

The United States Director of the International Monetary Fund reported to the National Advisory Council that so far as the domestic side of the Philippine stabilization program is concerned, progress has been satisfactory; prices are firm, credit expansion is about at the level expected, and the fiscal position is also within the expected range. The principal difficulty confronting the Philippines is related to the external position, including external debts which the Central Bank must meet during 1962 and the management of the exchange rate.

[Page 802]

On May 16, President Macapagal sent the enclosed letter to you (Enclosure No. 2)3 describing the constructive actions in the financial field which his administration has taken thus far and gratefully referring to the effective cooperation given by the United States to the Sison Mission. He mentioned the commitment of the United States Government to provide assistance from the Treasury Stabilization Fund in association with arrangements which might be worked out with the International Monetary Fund. He endorsed a need for $450 million (the bulk of which he expected to come from the United States) to carry the program forward. There is no economic justification for setting $450 million as the minimum amount required by the Philippines.

The opinion of United States experts is that the present and projected foreign exchange available to the Republic of the Philippines totals approximately $400 million and is sufficient to meet Philippine commitments, and, should the need arise, for market operations to stabilize the peso at the appropriate time. These funds are as follows:

From Philippine sources:

$ 127 million held as reserves on April 30, 1962, by the Central Bank and the commercial banks
72 million mandatory sale of 20 per cent of export proceeds
30 million Central Bank purchases in the free exchange market

From United States and other sources:

$ 35 million Export-Import Bank
77 million standby United States commercial banks
58.75 million IMF, of which $40.4 million has already been agreed
$ 399.75 million TOTAL

In addition, the Agency for International Development still has available $50 million for projects which meet AID criteria. By coincidence these available resources total approximately $450 million.

Secretary Dillon has replied to the joint letter he received from the Secretary of Finance and the Governor of the Central Bank of the Philippines stating that the Treasury Department is willing to begin negotiations promptly on an agreement covering money from the Stabilization [Page 803] Fund.4 This reply does not mention a figure or terms. These will be determined during the course of negotiations. These resources will carry the Philippines over the period of stringency through August and the end of 1962.


It is recommended that you reply to President Macapagal along the lines of the enclosed draft letter (Enclosure No. 1).5

Dean Rusk6
  1. Source: Kennedy Library, National Security Files, Countries Series, Philippines, General, 6/62–7/62. Official Use Only. The Department of State copy of this memorandum indicates it was drafted by Matilda L. Milne (Officer in Charge of Exchange Rates and Systems, Bureau of Economic Affairs) and Jarvis of SPA, and cleared by Bell, Peterson, Leonard Weiss (Director of the Office of Trade and Finance, Bureau of Economic Affairs), Isaiah Frank (Special Assistant to the Assistant Secretary of State for Economic Affairs), Heyl of AID, Diehl of Treasury, Irvine of the Federal Reserve Board, U.S. Executive Director of the IMF Southard, and Houston of the Export-Import Bank. A note on the memorandum indicates it was signed by Rusk. (Department of State, Central Files, 896.10/6–1165)
  2. See Document 364.
  3. Attached but not printed; see footnote 1, Document 364.
  4. Not attached, but a copy is attached to a May 23 memorandum from Brubeck to McGeorge Bundy in the Kennedy Library, National Security Files, Countries Series, Philippines, General, 6/62–7/62.
  5. Castillo’s letter to Dillon of May 16 is attached to Brubeck’s May 23 memorandum to Bundy. On May 25, Dillon replied that the U.S. Treasury was ready to begin negotiations of an agreement covering use by the Philippine Government of resources of the Treasury Stabilization Fund. (Department of State, FE/SPA Files: Lot 64 D 523, Stabilization, 7.9)
  6. The attached reply to Macapagal, approved by the President on June 14, reiterated that the United States was prepared to provide funds to ensure the success of the Philippine program, but then added the qualifications presented to the President in the last three paragraphs of the memorandum from Rusk. The letter was sent to the Embassy in Manila in telegram 1529, June 14. (Department of State, Central Files, 896.10/6–1462)
  7. Printed from a copy that indicates Rusk signed the original.