398. Memorandum From the President’s Special Assistant (Rostow) to President Johnson1
SUBJECT
- The Next Step in Pakistan: a second $70-million Loan
When you sent Gene Locke out for his initial meeting with Ayub last spring, you authorized him to say we would resume our AID lending in six-month slices provided the Paks would do certain things. We wanted them to limit their defense expenditures, to make an honest effort to maintain the “spirit of Tashkent,” to demonstrate a satisfactory appreciation of our interests in Asia, to cooperate on arrangements for our facilities and to live up to the economic conditions laid down by the World Bank Consortium.
Locke feels that Ayub has done an honest job of living up to his share of this bargain. I recommend you read the attached excellent [Page 775] memo from Secretary Rusk detailing our conditions and Pak performance.2 Of course, there is room for improvement in relations with India, but we at least have both capitals thinking about quite substantive talks, though probably not until after Indian elections. On all the economic and bilateral issues, Pak performance looks pretty good.
Now is the time to go ahead with the next six-month slice—a second $70-million commodity loan through the Consortium—if you are satisfied that Ayub has lived up to your understanding with him last December and the conditions you laid down in April. Secretary Rusk recommends that you approve.
Charlie Schultze finds that their economic performance has been good, their need clear, and that our share of total assistance is declining.3 This loan fits within the reduced Development Loan authorized by Congress for FY 67 and leaves room for a U.S. loan to help finance U.S. equipment sales on the Karachi Steel Mill, for which your authorization will be sought later.
This $70-million loan will be for purchases in the U.S. Secretary Fowler concurs.
My own feeling is that we are back on an even enough keel to warrant taking this second step. Ayub has responded well to your sending a personal friend as Ambassador, and his removal of Foreign Minister Bhutto was a major step in rooting out the anti-American tone which characterized Pak policy in 1964 and 1965. Our policy on military spares may be the next big test in our relationship. Going ahead with this economic step now shows that we consider our relations still to be on the upgrade and gives us a firmer base for working toward the tough resolution of the military aid problem.
I recommend you authorize the proposed loan.
- Source: Johnson Library, National Security File, Country File, Pakistan, Memos, 10/66–7/67, Vol. VII. Secret. A handwritten note reads, “Rec’d at Ranch 11–30–66, 9:20 a.m.” A handwritten “L” indicates the memorandum was seen by the President.↩
- The memorandum from Secretary Rusk to the President is dated November 21.↩
- Schultze recommended approval of the loan in a November 28 memorandum to the President. (Johnson Library, National Security File, Country File, Pakistan, Memos, 10/66–7/67, Vol. VII)↩
- Johnson checked this option. Rostow noted in a December 13 memorandum to the President that he did not receive word of the President’s response until December 12. He asked if Johnson wanted to make a decision at that point. There is no indication on the memorandum of the President’s response to Rostow’s question. (Ibid., Files of Walt W. Rostow, Meetings with the President, April–December 1966)↩