343. Telegram From the Embassy in Thailand to the Department of State 1

12316. For Gaud and Poats.

When I testify next month before the HFAC, I fully expect to cover the economic and security justifications of aid from the US—with that from the 18 other contributors to Thailandʼs development. It is important that the US presentations on Thailand should be consistent with the facts—facts which, of course, I will have to lay on the table.
I am mildly disturbed by what I have heard in the past week about a DOD paper for unspecified “use on the Hill” which reportedly says that is “no economic justification” for aid to Thailand.2 We gather that AID staff have supported that statement. This is disturbing in its conflict with the facts. I find it doubly disturbing when we also receive requests from Washington questioning the MAP level because of grave questions as to the ability of the Thai budget and economy to bear the burden of the proposed MAP. I just donʼt think you can have it both ways.
I plan to make quite clear to the HFAC that the Thai economy is strained in meeting its development and security requirements and that, with our and other help combined with sound Thai management, Thailand can achieve the necessary goals. I shall make clear also that we have, frankly, been fortunate in seeing Thailand put its main emphasis on economic development while doing its utmost on its own “security”. For that matter, economic and social development is demonstrably a vital part of security as we see hour-by-hour in Vietnam. Thailandʼs $125 per capita GNP does not make it easy to sustain the growth rate needed for accelerated development and security. Per capita GNP is less than half what it is in Malaysia and even less than that when compared to Singapore albeit a bit more in India for example. Even in this situation, I would say that the US could relax in its help to Thailand if Thailand were a mid-Pacific island. However, we cannot relax because Thailand is vitally involved in SEA, vitally involved geographically in Thailandʼs as well as US interests in Asia.
The key point here, however, is that we have been fortunate in having generally effective policy lines, with determination and pride on the part of the Thai, we have not been forced to pour in vast sums in order to keep Thailand from “going under.” We have not had to justify our programs on the basis of poverty and hopelessness. Rather our aid to Thailand is economically justified as a means of accomplishments which prevent relapse into a US “salvage” aid program. Our aid is justified because of the short time fuse which Communist aggression imposes upon Thai efforts to produce unity and economic stability. Above all, our aid is justified because it has worked. It is one of your real success stories—up to this point.
Our relatively small present effort promises to be effective in a classical sense because the Thai are willing and able to make their own great budgetary effort (a record-sized budget with an unprecedented 26 percent deficit this year). They are willing and able to press their effort with deficit finance through the use of their foreign exchange reserves, even though the IBRD is deeply concerned about inflation and too much [Page 763] use of those reserves. They have built reserves by borrowing and attracting investment. They have responded to the call we issue to all US aid recipients—to manage well, to diversify agriculture, to stimulate private initiative, to increase tax revenues to effect some redistribution of income to the farmer, and the like. The vast bulk of second plan development is aimed at the rural areas. The economics of continuing this momentum require and justify US aid.
Recently, I heard of an AID/W memorandum3 which commendably noted that Thailandʼs foreign exchange reserves were not the equivalent of budgetary resources. We were amazed, however, to read that there is no economic justification for aid to Thailand and that Thailand has no budgetary problem, because “the Thai Government enjoys an extremely comfortable budgetary cash position” which the memo goes on to describe as Treasury cash balances. Honest to Gaud! I am really tempted to suggest a pre-school seminar in economics. I suppose the IBRD and other able groups have always assumed most elementary economists are aware that cash balances can be built up or erased by simple actions of printing more money or by paying off government debt. If the RTG used its cash balances to redeem an equivalent amount of its debt, would your adviser then say that US aid to Thailand is economically justified? This could easily be done but of course we and the Thai policy makers would oppose such action because of the very inflationary effects which so much concern the IBRD. The simple facts are that while Thai cash balances in 1966 were rising by some 900 million baht (from 2,804 million baht in December 1965); the governmentʼs internal debt rose 2,250 million baht (to a level of 12,263 million baht). It was a calculated counterinflationary step, encouraged by us on the assumption that you had all the inflation you needed or could handle in Vietnam.
I would certainly agree that in the words of your adviser, “It is a dilemma.” Listen to him and you can have Vietnam all over again. I would rather not.
Quite seriously, we just must quit picking out isolated bits of statistics and spinning conclusions from them. If there are any serious problems in your minds or in DOD about the economic facts, I trust that they will be resolved before my testimony conflicts with yours, since I faithfully promised the Secretary in December I wouldnʼt argue with anybody until May.
  1. Source: Department of State, Central Files, AID (US) THAI. Confidential.
  2. Not further identified.
  3. Not further identified.