369. Telegram From the Embassy in Thailand to the Department of State1

5603. For Gaud, Bundy and Bullitt. Subject: FY 68 AID Program. Ref: Bangkok 4020 (TOAID 1106).2

1.
Now that I have had time to get reacquainted with the Thai situation I would like to provide assessment promised in parens in para 10 reftel. The situation here clearly demonstrates an urgent need for an increase in AID funds for Thailand during the current fiscal year over the FY 67 figure of $49.8 million. I am also impressed by the opportunities here. With an adequate U.S. program we can build on strength and upon the Thaiʼs own effort, so that we can get more and better results per dollar invested than is currently possible in other countries where crisis has dampened the ability of the host government to mobilize its own resources and utilize the dollar effectiveness of the U.S. input.
2.
Thai Government attempts at coming to grips with the problem of insurgency and the villager are beginning to pay dividends. Not only suppression but also village security and village development are making progress. The number of people in the government in Bangkok and in the provinces who are working to help the villager overcome these problems is increasing. Nevertheless, the number is still small and the structure of the effort, though beginning to have a positive effect on the problem in the northeast, is still fragile. The limited numbers of Thai officials who understand what needs to be done and are willing to take the lead in gearing the RTG to wage an effective fight on insurgency are encouraged to do so by our support under the aid program. These same officials are carrying the fight to use more and more Thai resources in the rural areas—emphasizing the security-threatened areas. The iron is hot and now is the time to strike. A grant aid level in excess of FY 1967 will parallel the increased Thai effort and take advantage of an increasing momentum, thereby supporting those bold Thai officials who are taking the risks involved in counterinsurgency efforts. In Thailand it is essential that we not risk a set back in the building of an effective security-development structure now under way in the threatened areas. It is clear that the cost of fighting insurgency at its present stage in Thailand is far less than it will be if insurgency is permitted to grow.
3.
A fundamental problem in Thailand and the one toward which a substantial portion of our aid program is directed results from the fact that the post-war socio-economic progress has not had time to reach the [Page 820]rural areas—the remote villages in particular, and above all those in the NE. In fact, per capita GNP for the entire country has reached only $135. At the lower end of the scale on the income distribution is, of course, the subsistence farmer in the remote areas. Rice yields for the whole of Thailand are no more than rice yields in India and are less than half that of Taiwan. Rice yields in the northeast are 35 percent below the national average. Per capita GNP in the northeast is less than $65: per capita cash income in the northeast is less than $30. The unfortunate aspect of the Thai situation is that the least advantaged population is the farthest from Bangkok and most accessible to the insurgents. This the CTs can and do exploit. The villager in the northeast has little social economic base or stake for which to fight. As of now less than 9 percent of the population of fifth grade school age in the northeast actually has the opportunity of attending the fifth grade, primarily because of the lack of space. Government employees, either to help protect the villager or to provide knowledge about how the lot of the villager can be improved, are very limited in number, particularly in the remote areas. Communication, transportation and credit facilities are grossly inadequate to permit a villager to become a better farmer and market the product or receive even the most essential services from his government. Data are given mostly for the northeast since main concentration aid effort is there. But Thai must quickly get on top of rural situation all over Thailand to provide the essential backing for counterinsurgency measures. Thus, resource requirements are enormous for the Thai—making it imperative that we keep our aid at high level.
4.
Due to the inadequate infrastructure in rural Thailand, particularly in the security threatened areas, the resource requirements for the counterinsurgency effort in a five-year period are very large. For example, merely to double the cash income of the farmer in northeast Thailand in five years, while providing the necessary infrastructure to sustain this growth in farm incomes, would require investments exceeding those called for in the RTG five-year plan by over one billion dollars. The proposed five-year plan funding already includes an estimated $250 million from the U.S. This billion dollar requirement is in addition to that $250 million plus liberal anticipated assistance from the IBRD and other countries.
5.
The USOM program proposals for FY 68 and onward have been sharply refocused to enhance the conjunction of our aid program, and the Thai resources used in connection with it, so as to improve increasingly the life and future of the villagers as a lasting answer to the insurgents. At the same time we will administer the program so as to commit the technical ministries increasingly to this objective. The emphasis is a logical add-on to the infrastructure which has been built with the assistance of previous aid programs. The composition of the program under [Page 821]various funding levels was discussed thoroughly with Bullitt and Simmons during their recent visit. That composition, of course, reflects our estimates of our needs in Thailand. It is assumed that the distribution of funds among projects will be based on our estimate of the needs and that we will have ample opportunity to review with you the allocation of funds among projects under the aid level eventually adopted. The projects in the program at the $50 million level are being discussed in detail with the Thai on the assumption that funds will be available in the amount or larger. This is being done to insure that the Thai will put up the necessary support—both money and people—to make these projects effective. Of course, no commitments with respect to the amount of money is being made with Thai. Funds are only committed against definite allotment of funds from AID/W.
6.
While it seems to me that the program can stand on its own merit on the foregoing basis, it is also important to relate it to a broader economic and political framework. The basic requirement needed to meet U.S. objectives in Thailand (and indirectly in SEA) over the next five years is an increased capability among the Thai people to handle their own economic, social and security affairs as indicated above, this means getting out to the people, particularly to the 80 percent who reside in the rural areas. The Thai are doing this with increasing success and their plans are sound. However, there is a problem of finding adequate resources to do the job in the time available to meet U.S. objectives and to beat the Communists in their effort to achieve their Southeast Asian program. It will not suffice to “euplize[?] the poverty” by draconian measures which in effect lower the growth rate in the central plains area while raising it elsewhere. Rather, it is necessary to aim at all rural areas but with emphasis on those with the greatest vulnerability or the most immediate threat. The resources contributed by the U.S. to the process this year can mean a saving in crash programs of emergency assistance in the next few years.
7.
For the most part the U.S. program can dovetail neatly with Thai second five-year plan concept. The five-year plan in most respects is fundamentally good but as permanently formulated we do not feel it recognizes sufficiently the basic needs in rural areas discussed above, and it is our objective over time to persuade the Thais to modify the plan accordingly so that correlation between it and the U.S. program will be complete. The plan, perhaps over-ambitiously calls for almost doubling the first five-year plan, and the World Bank feels that the plan is too large and will result in inflation. For these reasons we believe expenditures under the plan will fall short of the estimates, but it remains nevertheless a valid target with the qualification note above and even [garble] short-fall it will require large amounts of foreign assistance if it is to produce the greatest effect. The requested U.S. aid will be a necessary component of [Page 822]the total effort if we are to achieve minimal U.S. and Thai development objectives. In the USOM program there really is no safety factor for further paring. Accordingly, the U.S. should seek to stimulate DAC, the World Bank and others to step up the rate of their aid rather than cut our back.
8.
The Thai are doing well in the mobilization of their own resources. They have increased revenues last year by almost 14 percent; so far this year they have stepped up revenues at a rate approaching 16 percent. They are properly concerned about the threat of inflation with its catastrophic consequences but are willing to take a risk in order to meet the minimal needs for continuance of Thailand as an independent nation. We expect the Thai FY 67 actual budget deficit to be about 18 percent, a substantial increase of deficit over the previous year. Almost 40 percent or some $400 million of the FY 68 budget is directed to five-year plan projects. However, they will face increased unanticipated costs which must be met such as replacing forces sent to Vietnam, recruitment and the support of additional forces, additional internal security requirements on the Thai budget to complement foreign aid, salary increases which have long been postponed, and the like.
9.
It should not be necessary to argue the relevance of the aid program to our deep political stake here. However, a few points are of particular importance for the following year. The RTG, so deeply identified with our posture in Vietnam, Laos, SEATO and other Asian associations, will shortly undertake to promulgate a constitution and to hold elections creating representative bodies. Our relationship with Thailand in the eyes of the world will benefit accordingly. Simultaneously during this time of political experimentation the RTG is in the process of committing itself to provide a large additional ground force deployment to SVN, a decision which will lay the RTG open to criticism by its opposition during the expected elections next year, the first in over ten years. The U.S. is on the verge of committing itself to major increases in military assistance in conjunction with the new Thai forces deployment to SVN. Even though the U.S. assumes a great deal of the direct budgetary cost of an expeditionary force itself, there will be new indirect burdens upon the Thai defense budget which will either impose limitations upon RTG programs addressed to meeting vital civil needs, or require new levies upon the private sector to sustain them. In the face of unquestionable needs, it is critically important that U.S. help the civil side to maintain the pace being set on the military side. Special emphasis is laid upon the need to maintain some balance in civil-police-military programs because of the recent assignment of an increased role to the second army in counterinsurgency operations in the NE, and to the first army west of Bangkok. That the size and pattern of the aid program can and do affect the direction of the Thai effort is evident from the kind of thinking reflected in FTB [Page 823]11,677 which clearly suggests that failure to get the necessary support from AID will slant the Thai counterinsurgency effort increasingly to the military side.
10.
We have too much invested in Thailand, politically, economically and militarily, to jeopardize it with chancy budgetary surgery. There are signs that the Communists are seeking also to operate in the north, the west central, the mid-south and the far south of Thailand.
11.
In these areas their lines of communication are less direct but they hope to dissipate the Thai effort by forcing the RTG to spread itself thinly. This is only one of the reasons why the requested resources are needed this year, not later.
Unger
  1. Source: Department of State, Central Files, AID (US) THAI. Confidential; Priority.
  2. Not found.