344. Telegram From the Department of State to the Embassy Office in Pakistan 1

610. Subject: Aid Bargain with Pakistan. For Charge. This message contains instructions for use by Ambassador Locke 2 with Ayub in conveying steps President has now authorized on US side of economic aid bargain presented to Shoaib during April visit here. Ambassador Locke will convey this information to Ayub immediately following presentation credentials. Charge should inform Shoaib in advance that Ambassador will be under instructions seek substantive conversation with Ayub at time he presents credentials, in order convey next steps USG prepared take in economic aid.

GOP response to conditions of Pak performance in bargain is less than we had hoped for. GOP has accepted concept defense budget ceiling and indicated an intention reduce over-all spending next year. But its continuing efforts to expand armed forces, including Chicom procurement, add to arms race potential in subcontinent and we have no certain assurance of downward trend defense spending in either Pakistan or India. Pakistan is clearly keeping up the pressure on Kashmir and its frustration on this score could lead it to new efforts of agitation with real risk for peace on subcontinet. The result could be that events might negate or undermine what we otherwise believe to be determined GOP efforts to resume economic development program and restore import liberalization.
We recognize that renewed US economic aid in these circumstances involves a calculated risk. Nevertheless we have concluded that on balance the situation justifies decision resume aid on short-leash basis. In doing so we would be affirming to Ayub and other friendly elements in Pakistan that we are prepared do our part to rebuild our relationship on new and firmer ground. But we would condition our follow-through in aid bargain on same elements of per- formance that we originally posed to Shoaib and thus serve new notice [Page 666] that we intend keep these elements under careful, continuing review as our relationship evolves.
Action Instructions
We want Ayub to be directly aware of importance we attach to economic aid steps we now ready to take. We want him and GOP to understand that these steps are intricate part of process begun with Ayub’s visit here and our subsequent talks with Shoaib at highest level.
You should preface your remarks to Ayub on this subject by recalling President’s satisfaction over growing sense of confidence in our relationship begun in his talks with Ayub in December and strengthened as result meeting he had with Shoaib here in April. As evidence of our desire strengthen this trend, and our confidence in similar intentions Ayub and GOP, President asked that you go out immediately to Pakistan and to convey directly on his behalf information as to several steps USG now prepared take in economic aid field with Pakistan, despite some uncertainties that remain as to trends in subcontinent. FYI: What you should get across here (in fairly low key with Ayub but more strongly to Shoaib in subsequent conversation) is point that our decision move ahead was not easy one in view response we have had from Paks on conditions we posed, and that as consequence we intend keep these conditions under continuing review as our relationship evolves. End FYI.
You should state President has authorized us begin negotiations immediately on $70 million commodity loan, on assumption GOP prepared follow through this month on economic aspects of aid bargain; i.e. announcement of budget with restored priority to development and return to import liberalization. In addition President has authorized us tell GOP we prepared consider further $70 million commodity loan in fall after Congress has acted on aid bill, if review at that time indicates continued progress in our relations and economic performance. USG also prepared meet its commitments on Karachi Steel Mill ($85 million EXIM and $35 million AID) provided GOP decides go ahead with project after reviewing revised cost estimates when these available and provided Pakistan meets any added costs. We will also be prepared begin negotiations on Pakistan’s food needs under PL 480 for balance CY 66 after returns spring wheat harvest assessed.
You should indicate to Ayub that these actions on our part and our follow through on them depend on several factors. Above all there is need for peace on subcontinent and conditions in which development efforts can proceed with maximum effect, including downward trend in defense spending. You should note the highest importance the President continues attach to efforts by both India and Pakistan find ways to deal peacefully with problems between them, including Kashmir. You should indicate great weight President [Page 667] personally attaches to reaffirmation conveyed to him by Shoaib of understanding reached between Ayub and the President on our respective interests in Asia. And you should say that we believe it incumbent on both of us to seek ways to improve atmosphere in which we conduct our bilateral relations, an objective that is of highest importance to you as you begin your mission.
You should frame your remarks on small facilities (AEDS stations Lahore and Malir) problem in context our desire improve bilateral relationship; noting our satisfaction that negotiations underway, that you believe basis for agreement exists and that you assume this problem will be resolved. You should also say that you believe it in interest both of us that reopening and refurbishing of stations not be delayed pending final signature agreement. FYI: We hope GOP will agree interim reopening stations but do not wish make actual reopening condition for first steps on aid.3 End FYI.
Following your talk with Ayub, you should go over same ground with Shoaib but in greater detail as to our requirements, emphasizing the difficulty of our decision and making perfectly clear that we intend keep situation under continuing review as we take each step in economic aid; i.e. we will expect tangible, continuing evidence that Pakistan:
will stick to a course of moderation and negotiation with India;
will assure a downward tend in its defense spending (reasserting points Embassy will have made pursuant Deptel 604);4
will continue demonstrate appreciation US interests Asia;
will follow through quickly in negotiations begun on small facilities (making strong pitch on reopening);
will indicate, in its budget presentation June 11, top priority to development, agricultural self-help and restored import liberalization and will follow through in subsequent actions.
and will move promptly to release seized AID and MAP Cargos impounded last September and reimburse USG for unlocated Cargos. 7. FYI: We are also considering follow up Presidential letter, content of which would depend in part on report of conversations with Ayub and Shoaib. End FYI.
  1. Source: National Archives and Records Administration, RG 59, Central Files 1964–66, AID (US) PAK. Secret; Priority; Limdis. Drafted by Laingen on June 4; cleared by Schneider, Rees (AID), Wriggins, Handley, in draft by Hoopes, and in substance by Horbaly (Department of Agriculture); and approved by Handley. Also sent to Karachi and repeated to New Delhi, USUN, and London and pouched to CINCMEAFSA, Ankara, Tehran, and Bangkok.
  2. Ambassador McConaughy left Pakistan on May 15. Cargo served as Charge until Ambassador Locke arrived. Eugene M. Locke was appointed Ambassador May 27 and presented his credentials June 9.
  3. On June 7 Cargo reported that Additional Foreign Secretary Agha Shahi had called him in and told him that the Ayub government was certain that it would encounter serious political and military repercussions if it agreed to reopen the stations. (Telegram 737 from Rawalpindi; National Archives and Records Administration, RG 59, Central Files 1964–66, DEF 18–8 PAK) Howard Wriggins sent a copy of the cable to Rostow on June 7, noting that it was not certain whether the position taken by Pakistan represented the situation as actually perceived by the Ayub government or was a bargaining ploy. (Johnson Library, National Security File, Country File, Pakistan, Vol. VI, 1/66–9/66)
  4. Telegram 604 to Rawalpindi, June 3, repeated to New Delhi as telegram 2383, expressed the Department’s continuing concern over the high levels of military spending by Pakistan. The Department instructed the Embassy in Pakistan to pursue the issue of restraint in military expenditure with members of the Ayub government. The Department noted that restraint on the part of Pakistan was conditioned upon similar restraint on the part of India. (National Archives and Records Administration, RG 59, Central Files 1964–66, AID (US) PAK)