207. Memorandum From James C. Thomson, Jr., of the National Security Council Staff to the President’s Special Assistant (Rostow)1
SUBJECT
- The VP’s Inquiry about Cotton for Indonesia
This is a murky subject on which State sounds bureaucratic but is probably right, for the time being.
We do have a sizeable cotton surplus, and it would be good for us and for them if we were to unload some of it on the Indos. The two possible routes are (1) PL 480 Title IV, and (2) commercial sales, with CCC guarantee of an Indo letter of credit.
Prior to the recent PL 480 rice deal, we resisted both possibilities on the say-so of Suharto/Nasution (who didn’t want their struggle with Sukarno complicated by any visible U.S. government involvement).
Our present aim is both to meet bona fide Indo emergency needs and to push the Indos toward doing more than living off the dole (ergo, tidying up their house, planning, organizing multilateral aid, etc.).
So far, State has been reluctant to follow up too closely on the rice deal with a cotton deal; but the prediction is that a PL 480 cotton deal is probable within the next two months. (See attached overly caustic Deptel 1325 to Djakarta.)2
As for CCC guarantee of Indo letters of credit: the Bank of Indonesia is still patently and totally bankrupt, and a CCC guarantee of a bankrupt bank would be de facto foreign aid—which Agriculture is so far anxious to avoid.
In addition, while the PL 480 route permits a fair profit to U.S. rice brokers and shippers, under USDA supervision, the CCC route permits rather exorbitant profits to Indo middlemen and (if they can collect) U.S. dealers. Some dealers, I am told, actually prefer the PL 480 safe-and-sure arrangement. But there are obviously conflicting viewpoints here.