Foreign Relations of the United States, 1964–1968, Volume IX, International Development and Economic Defense Policy; Commodities

44. Memorandum From the Administrator of the Agency for International Development (Bell) to President Johnson¹

Washington, October 21, 1965.

SUBJECT

• Proposed New Aid Commitments Through December 31, 1965

In accordance with previous instructions, since July 1, pending passage of the aid appropriation bill we have been funding only ongoing projects and programs, or new ones when specifically authorized by the White House.² Now that the appropriation bill has been approved,³ we need to resume more normal operations. Mr. Schultze has asked us on your behalf what new projects and programs we propose to fund between now and December 31. This memorandum and its attachment⁴ respond to that request.

This memorandum includes no proposals for new commitments in India, Pakistan, the UAR or Indonesia. Any proposals affecting these countries will be transmitted separately.

For the remaining countries where we have aid programs, our intentions are as follows:

1. To authorize $548 million in development loans—assuming in every case that, as we now expect will be the case, the borrower fully meets our standards, the feasibility studies are satisfactory, and borrowing countries agree to the self-help measures we deem appropriate.

Large amounts in this total include the following:

Brazil—$170 million. The Castelo Branco government has been firmly following the stabilization, development, and reform policies agreed with us a year ago. Progress in stemming inflation, improving the tax system, expanding exports and curtailing imports has been very good. We are now preparing to discuss with the Brazilians the policies that should govern their further economic progress. Assuming, as we fully expect, that we and the Brazilians reach agreement on a program of maximum Brazilian self-help, we would want to enter into a new program loan of $150 million, to finance commodity imports from the United States over the next year. The loan would be disbursed quarterly, against satisfactory performance by the Brazilians under their self-help commitments, as has been the case under the similar loan entered into in early December 1964. The amount of the loan has been calculated in the light of Brazilian import requirements under its stabilization, development, and reform program, taking into account likely earnings from exports, and the availability of other sources of capital (World Bank loans, aid from other countries, private foreign investment, etc.). The counterpart local currency received by the Brazilian Government for the commodities imported under the U.S. loan will be applied—as has been the case this past year—to jointly agreed development projects in transportation, education, housing, and other fields.

In addition to the $150 million program loan, we expect to complete action in this quarter on two loan applications, totalling $20 million, one for an electric power project and the other to a Government institution for feasibility studies. Assuming, as we expect, that the results are favorable, we would propose to authorize these loans before December 31st.

Chile—$75 million. The Frei government in Chile has made satisfactory progress over the past year on the stabilization and development measures to which that government and ourselves agreed a year ago. In terms of the political interests of the United States, the continued success of the Frei government is at least as important as that of the Branco government in Brazil, since the Frei government is a democratically elected reform-minded government of exactly the kind we hope to see emerge gradually in more and more Latin American countries. We are now preparing our negotiating instructions for reaching agreement with the Chileans on their stabilization and development program for the next year—including some raising of the self-help standards we asked last year. Assuming, as we expect, that our negotiations are successful, we would propose to enter into a new program loan of $75 million—with similar conditions regarding purpose and disbursement as described above for the Brazil program loan.

Colombia—$65 million. This country is in a somewhat different position from Brazil and Chile. For about the last year, the Colombian Government has not met what we considered proper self-help standards, and accordingly we have withheld major assistance. In recent weeks, however, the Colombian Government has reformed the exchange rate and taken other necessary steps to restore a sound economic basis for further progress. We have now prepared a specific set of self-help actions, including major measures in the fields of taxation and rural development, for discussion with the Colombians. Assuming agreement is reached, as we expect, we would propose to enter into a new $65 million program loan, similar to those described for Chile and Brazil.

Turkey—$95 million (plus an additional $45 million consortium pledge). U.S. aid to Turkey has been made available in recent years within the framework of a multinational OECD consortium which, after a rather faltering start has operated very well during the last year. Germany and the U.K. are the principal donors in addition to ourselves, and for the present year the other consortium members are providing about 50 per cent of the total economic aid to Turkey—which has meant a welcome reduction in the U.S. share from what it was a few years ago. The Turkish consortium will meet in November to discuss Turkish performance and prospects and in December for a pledging session.

Turkish performance has been very good for the past two or three years. Domestic savings and export earnings are both moving up in very healthy fashion. Prospects for continued economic progress are bright as a result of the recent elections which returned the Justice Party; the Prime Minister will be Suleyman Demirel, who is strongly development-minded and will be as favorable as any Turkish premier can be toward strengthening private enterprise and gradually reducing the area of the state-owned business enterprises. (Mr. Demirel, incidentally, was one of the first Turks to be sent to the United States for advanced training under the foreign aid program some fifteen years ago.) With continued good performance by the Turks and continued aid from the consortium, we can expect to see sufficient economic progress to permit the termination of aid in the early 1970’s. Depending on adequate pledges from other donors, and on agreement with the Turks on further measures to strengthen the policies toward private enterprise, we propose to pledge up to $140 million in December for loans during the next year, and to authorize before the end of December, within the $140 million pledge, a new program loan of $70 million and three project loans totalling $25 million. The project loans are for a sintering plant at the Eregli steel mill, for the expansion of International Harvester’s Turkish plant and for increasing coal production at Tuncbilek and Seyitomer, all of which are needed urgently and are expected to be ready for authorization by December 31.

Korea—$49 million. This represents six loans. Five of these are project loans—respectively for a thermal power plant, two synthetic fibre plants in the private sector, a cement plant in the private sector, and the Seoul waterworks—totalling $39 million. The sixth is a $10 million program loan. All six will be made against the $150 million pledge made by the United States when President Park was here last spring. The Koreans, under the spur of President Park (who reportedly has a progress chart on his wall entitled “Johnson Loans”), have already submitted project loan applications totalling around $90 million, all of which are now being reviewed. The five indicated above appear to be sound and high priority projects which will be ready for authorization before December 31.

The proposed $10 million program loan has special significance. We have been pressing the Koreans to adopt steadily better monetary and trade policies. The prospect of this program loan has been a strong inducement for the Koreans to pursue these policy reforms, especially in view of the continuation of the scheduled phase down of Supporting Assistance grants to Korea. In addition to its value as an incentive, the loan is needed to finance raw materials, machinery and equipment for the increasing Korean private industry.

Other countries—$94 million. The remaining loans we expect to authorize this quarter are itemized in the attachment. In summary, they include $46 million to Latin America (apart from Brazil, Chile, and Colombia), including $15 million to the Dominican Republic; $37 million to Africa, including $15 million to Tunisia; and $11 million to the Near East ($8 million to Jordan and $3 million to Afghanistan).

2. To commit $26 million to new technical assistance activities, including $4 million for Latin America, $4 million for the Far East, and $18 million for Africa. (The bulk of our technical assistance funds are used each year to carry forward ongoing projects.)

The proposed new commitments are itemized in the attachment. Each has been carefully reviewed in the field and in Washington for feasibility, urgency, and significant contribution to U.S. objectives in the country in question.

3. To commit $21 million to new supporting assistance activities, including $19.5 million for Southeast Asia and $1.5 for Africa. $13 million of this amount is for the Nam Ngum project, being the U.S. share of the first Mekong River project to proceed under the President’s special program for Southeast Asia. Details are itemized in the attachment.

(As with technical assistance, the bulk of our Supporting Assistance funds are used each year to carry forward on-going activities.)

4. To commit up to $11 million to new military assistance activities. (Here again, the bulk of the funds appropriated each year are committed to carry forward on-going activities.) The new commitments, detailed in the attachment, represent the cost of financing credit sales of military hardware to Lebanon, Argentina, Brazil, Colombia and Ecuador.

I should emphasize that these plans for committing funds are based on our present best expectations of when each project, loan, etc., will be ready for funding. Some may turn out to be delayed for one reason or another; a few others which are not now expected to be ready before January may reach the stage at which earlier approval is both possible and desirable.

With your concurrence, we will proceed along the lines outlined in this memorandum, keeping you advised of any significant changes in our present plans.

Please let me know if you would like any further information about any of this.

David E. Bell ⁵

1. Source: Johnson Library, National Security File, Agency File, AID, Vol. II [2], Box 1. Confidential. A handwritten note on the source text reads: “Orig Buddy 10/21.”
2. These instructions have not been further identified.
3. H.R. 10871, P.L. 89–273, was signed into law on October 20; it appropriated $3,218 million for foreign aid in fiscal year 1966, a figure $142 million below the amount authorized and just $241,470,000 or 6.9 percent below the administration’s revised budget request. The final figure represented the smallest percentage reduction in the President’s request in the program’s history. (79 Stat. 1002)
4. The attachment, “Anticipated New Economic Aid Commitments Through 12/31/65,” is not printed.
5. Printed from a copy that bears this typed signature.