245. Memorandum From the Deputy Assistant Secretary of State for Far Eastern Economic Affairs (Peterson) to the Assistant Secretary of State for Far Eastern Affairs (Harriman)0


  • Economic Aid to Souvanna Government

The attached memorandum and proposed telegram1 is a first step toward bringing into perspective the nature and direction of aid in Laos designed to substitute economic and social development for past support via the military.

It does not give the size of the program, but in the remaining half of the current fiscal year I think it can be taken as assured that the rate of cash grant for budget support will certainly use up the $29 million now projected. My hunch is that if budget costs of demobilization arise concurrently with an upswing in road building, enlarged agricultural and health programs, etc., the needs for the fiscal year will approximate $40 million.

Previous briefings given me on the issue of cash grant versus a commodity import program and its attendant import and foreign exchange controls have been rather persuasive that the cash grant system is the best in Laos.

I recommend you approve the telegram to Vientiane to obtain country team comments and have at least a conditional proposition for Ambassador Brown to put forward to Souvanna.

[Page 542]


Memorandum From the Director of the Office of Southeast Asian Affairs (Anderson) to the Assistant Secretary of State for Far Eastern Affairs (Harriman)


  • Economic Aid to Souvanna Government

I am enclosing a draft telegram outlining our economic aid program to Souvanna that we propose to send to Ambassador Brown, first for his comments and then to be presented to Souvanna. It is the first of a series outlining our future relations with Souvanna.

In the telegram we have not specified how or when this program should be presented to Souvanna as these questions will be determined by events in Laos; it may be, for example, that we may wish to offer this program to Souvanna when he comes to Vientiane for the three Princes’ meeting or it may be that we will want to postpone it for a while. In the same way we have made the program itself as flexible as possible and have focused on the immediate future rather than the unpredictable longer run.

In essence we are prepared to provide Souvanna with an enlarged project program—roads, rural development, etc.—and a continuation of the present rate of budget support. Our only conditions are: 1) that he join with us to establish procedures that will insure the effective use of the aid; and 2) that we undertake a joint review of the means of providing the aid. Details of our aid program, the type and number of projects, the personnel that will be required, and the amount of money needed are now being worked out by AID and State and will soon be sent to Vientiane.

We have had lengthy discussions with AID about this telegram, occasioned largely by their desire to change from a cash grant program to a commodity import program which would be put on a competing basis with that of the U.S.S.R., i.e., we would tell Souvanna that we will match the Soviets’ commodity gifts. While we agree that the cash grant system should be reviewed to see if there is not a more efficient and productive method of providing our aid and that other nations should make aid available to Souvanna, we certainly do not believe that we should take an active role in inviting the Soviets into Laos. These subjects will be discussed in later telegrams.

  1. Source: Department of State, FE/SEA (Laos) Files: Lot 65 D 169, Aid Program to Laos, Laos 1961. Secret. No drafting information appears on the source text.
  2. The proposed telegram was attached, but is not printed. It was sent with only minor changes as telegram 563 to Vientiane, December 22. (Ibid., Central Files, 751J.00/12–2261)
  3. Secret. Drafted by Bruns, cleared by Cross and Usher, and sent through Peterson.