Foreign Relations of the United States, 1964–1968, Volume XXVIII, Laos

271. Memorandum From the President’s Special Assistant (Rostow) to President Johnson¹

Washington, December 27, 1966.

SUBJECT

U.

S. Contribution to the Laos Inflation Stabilization Fund

For the past three years we have contributed to the Laos Foreign Exchange Operations Fund (FEOF) to help control inflation. FEOF contributors are now renewing pledges for CY 1967 based on an IMF review which has ascertained that approximately $20 million is needed.

Our share would be $13.8 million, roughly $100,000 more than our commitment for CY 1966. The balance would come from Japan, the UK, Australia, France and possibly West Germany.

FEOF was initiated in 1964 by the IMF with our cooperation. Lao government military operations against the Pathet Lao and North Vietnamese caused expenditures far greater than the government could collect in revenue. The annual budget deficit threatened serious inflation and the country’s political and economic stability. Lao military operations directly support our security objectives in Southeast Asia. We agreed that FEOF was the best available means to check runaway inflation.

Bill Gaud notes in his memorandum that the IMF believes the CY 1967 commitment represents the peak in FEOF demands.² IMF is confident Laos will be able to cut its budget deficit after 1967, thereby reducing the FEOF requirement. During fiscal year 1965/66 Lao revenues covered 97 percent of civilian expenditures (excluding military and police). The IMF gives them high marks for commendable budget performance these past two years.

Of our proposed $13.8 million commitment, $8.9 million can be provided out of FY 1967 funds. The remaining $4.9 million is included in the FY 1968 budget and is not due for payment until the second half of CY 1967.

State, AID and BOB approve the proposed commitment.³ Secretary Fowler is concerned about the balance of payments effect. However, he sees no satisfactory alternative immediately available to us.

Secretary Fowler recommends that the $4.9 million installment of the commitment which would come from FY 1968 funds be offered Laos on a conditional basis to permit an overall review of alternative options. This is agreeable to State, AID and BOB.

I recommend your approval of the CY 1967 commitment of $13.8 million to FEOF on this basis.⁴

Walt

1. Source: Johnson Library, National Security File, Country File, Laos, Vol. XVI, Memos, 2/66–1/67. Confidential. The source text indicates that the President saw this memorandum.
2. Dated December 14. (Ibid.)
3. The Department of State’s concurrence was in the form of Slutz’s clearance of Gaud’s memorandum of December 14. The Bureau of the Budget concurred in a December 17 memorandum from Director Charles B. Schultz to Johnson. (Ibid.) Secretary of the Treasury Henry Fowler’s concern was expressed in a memorandum to Johnson, December 23. (Ibid.)
4. The source text indicates that the President approved the commitment and the Bureau of the Budget was notified on January 5, 1967.