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

SUBJECT

  • AID Program Loan to India

Herewith, Messrs. Gaud and Zwick recommend a $225 million AID loan to India. This loan will provide all the AID capital assistance now planned for India during FY 1968.

Charlie Zwick’s memorandum (Tab I)2 is a reasonably short summary of requirements, self-help performance, balance of payments effect, and relation to Indian military expenditures. Gaud’s memorandum (Tab II)3 gives you somewhat more detail.

I think the economic case for the loan is clear. India is now in the first stages of a massive economic recovery, led by her record grain harvest. If she can find the foreign exchange required to get and keep her slack industrial capacity moving, she can start a cycle of growth which would be the most hopeful event in the history of our foreign aid efforts. If she can’t find that foreign exchange, we can expect not only severe economic pressures, but much larger burdens on an already creaking—though still democratic—political system.

As you know, we have had our problems with the Indians of late on the NPT and on their military expenditures. I think it would be a mistake, however, to withhold this loan on either count. We seem to be having somewhat more luck in establishing conversation with the Indians on the NPT precisely because we are not threatening aid cut-offs, whereas the Russians are apparently taking a very hard line which includes such threats. On the Conte amendment and military spending, we would propose to hedge the disbursements of this loan against the possibility that we will learn later that the GOI is playing fast and loose with us. As of now, we are fairly certain that no arms payments will be made during the period we have been assured that they will not. But we are prepared if we find out otherwise.

This loan, like all our aid to India, would be made within the multilateral context of the consortium, in which our share will drop [Page 967] this year to about half the bilateral contributions. The loan would involve no balance of payments outflow.

W. W. Rostow 4

Approve package

Disapprove

Call me5

  1. Source: Johnson Library, National Security File, Memos to the President, Walt W. Rostow, Vol. 72, April 12–23, 1968. Secret.
  2. Memorandum from Zwick to the President, April 12, entitled “AID Program Loan to India.” (Ibid.)
  3. Memorandum from Gaud to the President, April 10, entitled “$225 Million Production Loan to India.” (Ibid., Country File, India, Vol. XI, Memos and Miscellaneous, 2/68–10/68)
  4. Printed from a copy that bears this typed signature.
  5. This option is checked and the date April 23 is written next to this line in an unknown hand.