Foreign Relations of the United States, 1964–1968, Volume XXV, South Asia

459. Memorandum From the President’s Special Assistant (Rostow) to President Johnson ¹

Washington, October 5, 1967, 2 p.m.

SUBJECT

• Situation Report: Selling Wheat to Pakistan

As you look ahead to decisions on the full range of food aid, I thought you would want to know the specific considerations we have to take into account in a case like Pakistan’s.

The Paks calculated their food import requirements for FY 1968 at 2.25 million tons of wheat. We have already provided 1.25 million. They purchased another 200,000 tons. They’re getting 66,000 tons from Canada and Australia. That leaves 734,000 tons for them to get.

Of this 734,000 tons, we have told them we will provide 500,000 tons under PL 480. As you instructed, we have offered to provide half of the final 234,000 tons if the Paks would match it with cash purchases. This means we sell them 117,000 tons for about $9 million.

When the instruction to sell the 117,000 tons went to Ben Oehlert, he cabled back his deep concern. (His cable is at Tab A.)² The AID economists share his feelings. The argument goes like this:

• —The Paks have already bought 200,000 tons, and they have squeezed their foreign exchange budget to the bone. (Pakistan’s foreign exchange now stands at $166 million—enough to finance five weeks of imports. Most countries are very uncomfortable with anything less than enough foreign exchange for four months’ imports.) In the last two years they have tripled their cash food buying in world markets.
• —Their wheat reserves are dangerously low. Their target is a reasonable 950,000 tons. They are now at 300,000 tons. With scheduled imports—including our 734,000 tons, if they get it all—they will only raise reserves to 500,000 tons by June 1968.
• —If we play our cards well, we have a good chance of a big package of wheat for Pakistan—purchases and PL 480—for the whole of calendar 1968. The total might run over 3 million tons ($195 million). With that kind of bait, we might get them to agree to a much higher level of purchases, starting within the next three months. If we use the time between now and the abundant new Pak harvest (December) wrangling about this small portion, we may lose the opportunity for the large deal which would really help our domestic wheat price and our balance of payments.
• —The Paks will need every penny of foreign exchange to back up the import reform planned for January 1968. AID and the IMF have encouraged this reform. The Paks badly need to devalue. They need to simplify import controls to let market forces work freely and take up slack in the economy. They also need to provide more incentives for exports. The hard fact is that our forcing even a small additional outlay (the $9 million we’re asking them to spend on our wheat) might strengthen the factions in the GOP who oppose reform so that the January package would be canceled.
• —Finally, we must look at the wheat bargain in terms of our overall negotiating position with the Paks. Our large, important intelligence installation at Peshawar comes up for renegotiation in mid-1968. The current betting is no better than even money that Ayub can hold off his neutralists well enough to sign a renewal. Whether he can will be largely determined by the tone of our relations over the next few months. The wheat business certainly won’t kill the Peshawar renewal, but it will be one more irritant and one less generosity which we could cite next year as evidence of our reliable good will. (This is particularly true in light of the fact that we have been urging the Paks to conserve foreign exchange to maintain their economic health.)

Despite these concerns, Oehlert is carrying out the instruction we have given him to try to work out a sale and will see Ayub Friday morning. We have given him firm instructions along the lines you directed (Tab B).³ Judging from Ben’s effectiveness so far, we just might do it—however adamant the Paks (below Ayub) seem, and however reluctant Ben and people here in town are about this particular deal. Ayub might well conclude that even a big sacrifice now—and helping you when you need it—will pay dividends in the long run.

Meanwhile, we have been playing the same tune with the Pakistan Finance Minister who is now in Washington. I told him Wednesday⁴ about the staggering load you carry with the budget, and how important even small wheat sales are to your ability to go on financing programs in the poor countries.

We certainly have to look carefully at this whole range of questions before we come to you for food decisions. I am not convinced, for example, that Pakistan should devalue right now. I have commissioned a study to examine this problem in a new light. Maybe the Paks will just put us off until 1968, taking only 617,000 tons now with a promise to buy the 117,000 in next year’s deal. They just might take that risk with their food stocks.

I take your time with all this because it is reasonably typical. I’ve got the “sell wheat” message loud and clear, and I think the bureaucracy is getting it too. But I thought you would want to know what kinds of judgments are involved. I will have papers to you within the next few days looking toward an NSC meeting on the whole food outlook. The meeting is now scheduled for next Wednesday (October 11).

Walt

1. Source: Johnson Library, National Security File, Country File, Pakistan, Vol. VIII, Memos, 8/67–4/68. Secret. A handwritten note on the memorandum reads, “Rec’d 10/5/67, 4:15 p.” A handwritten “L” indicates that the President saw it.
2. Reference is to telegram 1074 from Rawalpindi, September 29. (National Archives and Records Administration, RG 59, Central Files 1967–69, AID (US) 15–8 PAK)
3. Reference is to telegram 49058 to Rawalpindi, October 5, in which Oehlert was instructed to “stick to 500,000 ton offer.” (Ibid.)
4. A summary of Rostow’s conversation on October 4 with Finance Minister N.M. Uqaili was sent to Rawalpindi in telegram 49050, October 5. (Ibid., POL 15–1 PAK)