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

SUBJECT

  • Status of Panama Account

This is where we stand on implementation of the directives which you gave at the Panama Review Meeting on July 26.

[Page 922]

1. Review of [less than 1 line of source text not declassified]

less than 1 line of source text not declassified] have been made. [1½ lines of source text not declassified]

2. Contingency Plans Against Negotiation Impasse

Linc Gordon has prepared a paper (Tab A).2 It is being reviewed by the Country Team, our negotiators and the Latin American IRG. The deadline for completion is September 27.

Jack Irwin was not able to make an estimate of the prospects for successful negotiations by our target date of September 15 for the reasons discussed in the last paragraph of this memorandum.

3. List of Possible Concessions

Jack Irwin was charged with determining maximum concessions which we might make to the Panamanians, taking into consideration our requirements for control and defense of the Canal and what Congress is likely to accept. A paper listing possible concessions (Tab B)3 is being reviewed in State and DOD. Ambassador Anderson, who is in town today, will also be going over it.

4. Economic Study Group

A team under the leadership of Philip Klutznick recently completed a survey of Panama’s short-term and longer-term needs. A summary of the contents of the report is at Tab C.4

The short term recommendations call for an immediate impact program of $16 million covering urban renewal and rehabilitation projects. As indicated in George Ball’s memo at Tab D,5 these recommendations have been accepted and Ambassador Adair instructed to begin negotiations immediately.

5. Plan for a Panama Development Authority

Ambassador Adair has discussed the desirability of setting up an Authority with President Robles and Foreign Minister Eleta. He got a non-committal, lukewarm response.

The Klutznick team looked into the matter and concluded that the better part of wisdom was to work through the existing Planning Board [Page 923]and try to strengthen it. They found that the Board as an institution is equipped to handle budget, economic and social planning as well as physical planning and evaluation. The main problem is an incompetent Director. State/AID are trying to get him replaced and the staff augmented with capable people.

6. Stimulate Private Investment in Panama

We are not doing well on this. Bill Gaud is making a survey of investment guarantee applications which AID has received. Beyond that State and AID have done nothing. I will have another go at Linc and Bill. I recommend the next time you talk to them, you press hard for immediate action. Our private sector can play an important role in Panamanian development and we must take advantage of this asset.6

7. Assistance to the National Guard

We have told the Panamanians that we are willing to subsidize (indirectly) an increment of 500 men for the balance of this fiscal year if they will put the increase in their budget. (We are already paying for 500 men added to the force last year.) They want us to pay for 1000 men without it showing in the budget in the mistaken idea that this is the best way to hide our subsidy.

A 500 increment is as much as they can successfully handle. President Robles’ opposition is already starting to make political hay of the fact that the government is carrying 500 more men on the force than appears in the current budget and that the U.S. is footing the bill.

8. Status of the Negotiations

Negotiations advanced at a steady clip during July and August. The first round on the draft treaties served to identify areas of difference. The second round focused on analysis of the differences and means for resolving them.

Half way through this round (September 1) the Panamanians asked for suspension of talks while they returned to Panama to help work out their government’s position on economic compensation. This has caused a delay in our timetable of September 15 for Jack Irwin’s estimate of the prospects for reaching a settlement.

Negotiations are tentatively scheduled to be resumed on September 27. Jack expects that it will be several more weeks before he can give you a valid judgment on the prospects. Jack is understandably cautious. But the record of the negotiating sessions show a good spirit and flexibility on the part of the Panamanians. At this point, there is more reason for optimism than pessimism.

[Page 924]

9. Congressional Consultations

On August 24 Jack Irwin briefed the Senate Foreign Relations Committee on the status of the negotiations. Fulbright, Hickenlooper, Gore, Lausche, Carlson and McGee were present. The Senators were interested, full of questions and appreciative. There were no surprises beyond Fulbright’s comment that he would vote against a sea-level canal treaty that did not provide for multilateral operation.

Walt
  1. Source: Johnson Library, National Security File, Country File, Panama, Vol. VIII (part 2 of 2), September 1966–May 1967. Secret. A note on the memorandum indicates that the President saw it. Copies were sent to Moyers and Henry Rowen of the Bureau of the Budget.
  2. See footnote 3, Document 432.
  3. Tab B, attached but not printed, is a draft report, “Possible Unilateral United States Activities,” September 8.
  4. Tab C, attached but not printed, is an undated report prepared by Klutznick on Panama aid program.
  5. Tab D, attached but not printed, is a September 9 memorandum from Ball to President Johnson.
  6. A handwritten note by Rostow next to this paragraph reads: “I’m going to dig into this personally.”