227. Memorandum From the President’s Special Assistant (Rostow) to President Johnson 1

SUBJECT

  • Program Loan for Brazil

AID requests (Tab A),2 under the new commitments procedure, your authorization to negotiate the following assistance package for Brazil for 1967:

  • —a $100 million program loan
  • —up to $90 million for project loans (fertilizer plant, power generating facilities, highway maintenance equipment, seed capital for a national savings and loan system, and agricultural diversification) without submitting each project for your approval.

AID also asks your approval to start discussions with the Brazilians on “sector” loans in agriculture, education and health for 1968 without making any specific dollar commitments. This lead time is necessary in order to influence the Brazilian 1968 budget preparations which begin in early 1967.

The $190 million loan level is $40 million less than you authorized for 1966.

BOB recommends approval of the AID request (Tab B).3 Treasury objects to only one aspect. Joe Fowler is against the use of dollars for a $20 million savings and loan (home financing) project included in the $90 million project loan level. He argues that cruzeiro counterpart funds generated by the program loan should be used instead (Tab C).4

Joe Fowler consistently opposes the use of dollar loans for local cost financing because of their alleged adverse impact on our balance of payments position. To get at the facts, an inter-agency group under the direction of Charlie Schultze recently made a thorough study of this issue. State, CEA, AID and BOB—with only Treasury objecting— found that there was no inherent reason why project dollar loans for local costs should have any different effect on the balance of payments than other forms of aid.

[Page 507]

Other reasons why I do not go along with Joe Fowler’s objection are:

  • —In Latin America in particular we find that our dollar assistance does not leak to any significant degree to other areas.
  • —The project loan in question is designed to stimulate institutional development in one area where Brazil is most deficient—home financing.
  • —The Brazilians agreed to our terms for the loan on the basis of dollar support and will probably scrap the project unless we carry through with it.
  • —Cruzeiro counterpart funds generated by the program loan are already largely earmarked for equally pressing local cost projects.

I am satisfied that the $190 million package has been carefully tailored to Brazil’s needs and ability to use the money effectively. The safeguards on self-help, performance review and tied procurement will be adequately covered. Brazil’s economic and political record in 1966 has not been all that we desired. But its over-all performance has been satisfactory and its collaboration with us on hemisphere and world issues continues to be close. The Costa e Silva administration is not expected to change this.

I recommend that you approve the package requested by AID.

Walt
1.

Approve $100 million program loan:

Yes5

No

Speak to me

2.

Approve $90 million project loan level (i.e. without subsequent individual project review):

Yes

Yes, but with $20 million savings and loan project covered by counterpart funds6

Prefer project-by-project review

Speak to me

3.

Approve AID’s request to start discussions on “sector” loans without specific dollar commitments:

Yes7

No

Speak to me

  1. Source: Johnson Library, National Security File, Country File, Brazil, Vol. VI, 12/65–3/67. Confidential.
  2. Tab A was a memorandum from Gaud to the President, November 22; attached but not printed.
  3. Tab B was a memorandum from Schultze to the President, November 29; attached but not printed.
  4. Tab C was a note from Fowler; attached but not printed.
  5. The President checked this option.
  6. The President checked this option.
  7. The President checked this option and wrote: “Very confidential. Conditionally, provided I don’t get boxed in as I have been by AID, Ag[riculture] and State on India.” The United States and Brazil signed the program loan agreement on March 11, 1967.