499. Memorandum From the President’s Special Assistant (Rostow) to President Johnson1
SUBJECT
- Your Questions on the Aid Fertilizer Package for India
I have looked into the two questions you raised. Bill Gaud and Charlie Zwick concur in the observations that follow:
[Page 983]1. Would we be criticized for shoveling out money in June?
Gaud doubts that we would. He told the House Appropriations Committee this spring that he would cut corners elsewhere at the end of the year to lessen the $100 million gap in Indian fertilizer financing caused by last year’s aid slash. There was no objection.
In any event, we have a very strong case against any such critic:
- —AID’s FY 1968 appropriation was signed January 2, 1968, the latest ever. Congressional slowness crammed virtually all the Agency’s loan obligations into less than six months.
- —Nevertheless, AID will commit a lower percentage of its 1968 Development Loan funds in June than ever before. If you approve the India package and a few other loans now on their way to you, AID will commit only about 23% of its loan money in June, compared to 32% in 1967 and 53% in 1966.
- —Including this package, only about 18% of AID loans to India in 1968 would be committed in June.
- —Most of this money—the $37 million for the fertilizer plant—will be expended slowly as the construction proceeds. The bulk of it will not be spent for 2–3 years and the last of it probably won’t be disbursed in less than 4 years. Expenditures from both loans in FY 1968 will be nil, so that it can’t be argued that we are trying to spend the money before the $6 billion cut comes into play.
2. If we don’t commit this money now, will we have it for next fiscal year?
Technically these loan funds would remain available next year if we didn’t commit them now. In fact, however, unobligated loan money would be Passman’s most powerful “evidence” that Congress was right to cut the aid bill to ribbons last year and that it should cut even more deeply this time. This is not to say that he would not push such cuts in any event, but experience suggests that this is the best argument he could have. (We may not be able to avoid giving Passman some such ammunition this year. There may be a substantial—$35–50 million—unobligated balance in Alliance for Progress Loan funds. But we should present as small a target as possible.)
You should also consider the following points:
- —The fertilizer financing need in India must be met now, in June and July, if the ground is to be prepared for next spring’s crops. India should let contracts for at least $95 million in fertilizer imports by the end of August, $33 million in June alone. The second of these loans provides some of the foreign exchange necessary to do that. If we don’t commit this loan now, yet we want to help get fertilizer on the land before the spring crop, we would need to commit the money very early in FY 1969—in July or August.
- —This money comes from AID’s Development Loan account. Along with the Alliance appropriations, this is the most important development instrument we have. It is also the most vulnerable on the Hill. Last year it was cut nearly in half—down to $435 million for loans around the world ex Latin America. This is the place we can least [Page 984] afford to give Passman an opening by ending the year with unobligated balances.
Recommendation
Delaying these loans would not save on 1969 expenditures unless AID is to abandon further help to the fertilizer program in India for this crop year. Even then, it would not save more than $20–$30 million in FY 1969. On the other hand it would weaken our support for the most hopeful current advance in the poor world—the agricultural revolution in India—and, at the same time, give Passman another potent weapon to beat the aid program.
I recommend you approve the loans.