207. Memorandum From the Director of the Bureau of the Budget (Schultze) to President Johnson 1

SUBJECT

  • P.L. 480 and Supporting Assistance Program for the Dominican Republic

Bill Gaud requests your approval to negotiate a $30 million assistance package with the Dominican Republic, consisting of a $16.1 million supporting assistance loan and a $13.9 million P.L. 480 agreement. In November you approved deferral of the P.L. 480 negotiation requested by Gaud and Schnittker so that it could be combined with the dollar loan to assure maximum leverage for self-help. (Previous memoranda to you on the P.L. 480 agreement are attached.)2

The basic purpose of this assistance package is to assure continued stability of the constitutional Balaguer government through the Dominican municipal elections in May 1968. The $30 million aid package will prevent a significant deterioration in the Dominican balance of payments during the first half of 1968. Coupled with increasing tax receipts, it will permit the government to maintain its investment budget at about the same level as in 1967. This $30 million, covering the last quarter of 1967 and the first half of 1968, is essentially the same rate of assistance as we provided with our $40 million commitment of June 1966. Without devaluation, there is no prospect for reducing this level of aid.

[Page 495]

Covey Oliver and Bill Gaud accept Ambassador Crimmins’ judgment that Balaguer is not strong enough now to take necessary economic reforms, particularly devaluation. Balaguer will be informed during the negotiations that further balance of payments assistance for the rest of the year will be related to essential self-help actions, which we hope he will be in a position to take after the May elections.

Gaud and Oliver will use the $30 million assistance package to negotiate for limited but important self-help measures which will improve the effectiveness of our aid. Commitments will be sought from the Dominicans to

  • —prevent further deterioration of the balance of payments position, mainly by restraining monetary expansion,
  • —improve tax administration and collection,
  • —better allocate budget resources to increase education, health and agriculture activities and gradually reduce the military and police budgets,
  • —increase agricultural development by a variety of measures listed in the Gaud/Schnittker memorandum.3

In addition to maximizing our negotiating leverage, by programming food aid and dollar aid as equivalent resources, the supporting assistance loan was reduced $3.9 million below the originally contemplated $20 million level. P.L. 480 commodities were substituted for scarce AID dollars. Cotton textiles in an amount slightly less than $1 million are included in the proposed agreement.

Balance of Payments

Secretary Fowler agrees that successful negotiation of the proposed procedures to increase the U.S. share of Dominican imports and to avoid substitution for U.S. commercial exports under the AID loan would minimize the impact on the U.S. balance of payments.

I recommend approval of Gaudʼs request to negotiate the $30 million package with the Dominican government.4

Charles L. Schultze
  1. Source: Johnson Library, National Security File, Country File, Dominican Republic, Vol. XVIII. Confidential.
  2. Not attached; but see the attachment to Document 204.
  3. John A. Schnittker, Under Secretary of Agriculture. The memorandum has not been found.
  4. The approve option is checked.