Foreign Relations of the United States, 1969–1976, Volume IV, Foreign Assistance, International Development, Trade Policies, 1969–1972

134. Action Memorandum From the President’s Assistant for National Security Affairs (Kissinger) to President Nixon ¹

Washington, July 14, 1970.

SUBJECT

• The New U.S. Foreign Aid Program

Issue

Your message to Congress outlining your new foreign aid program will be ready for submission shortly.² Your decisions are therefore needed now on several issues which are disagreed among the agencies.

Peterson Program

All agencies agree that our new foreign assistance program should incorporate most of the recommendations of the Peterson Task Force (summary at Tab A) including:

• —Clear separation of our program into its three component parts: security assistance, to promote our short-run political objectives; humanitarian assistance; and assistance to economic and social development, to promote our long-term interest in a more peaceful world.
• —A new aid role for the U.S., in which we support the initiatives of others rather than seek to dominate the international development process.
• —Maximum possible freedom of our development assistance from short-term political objectives, mainly through increasing our use of multilateral channels.
• —Creation of a U.S. Development Bank and a U.S. Development Institute, replacing AID, to carry out the new thrusts of our bilateral development assistance program.
• —Emphasis on non-financial programs as an integral part of our development assistance: tariff preferences for LDC exports and other trade measures; untying of aid, to improve its quality and reduce political frictions; debt rescheduling; family planning; and concrete steps to promote private enterprise in the LDCs.

Extent of Multilateralization

The key substantive issue is the extent to which we should seek to multilateralize our development assistance.

Peterson recommends that we multilateralize as much as possible immediately, to pursue the new international thrust of our development effort and to divorce our development aid from short-term political objectives.

Peterson takes no explicit position on the eventual extent of multilateralization. However, he recommends that our remaining bilateral program be regarded as a diminishing residual. His logic thus points to complete multilateralization when the international institutions and the other donor countries are ready for it. There are three variants on this theme which you could announce in your message:

• —A target of complete multilateralization by a fixed date, probably 1975.
• —A target of complete multilateralization with no date.
• —A target of complete multilateralization of development assistance appropriations by 1975, retaining the option of a bilateral lending program thereafter with repayments on old loans and the other authorities to use non-appropriated funds recommended by Peterson for the new Development Bank.

State recommends (Tab B)³ that we retain an important bilateral development assistance program indefinitely while supporting an increasing use of the multilateral agencies. They feel that we will always need a strong bilateral program to pursue our special regional and functional interests.

I recommend that you set 1975 as a target date for complete multilateralization of all U.S. development assistance appropriations. This approach would achieve the Peterson objective of internationalizing our aid effort, while also meeting State’s position by retaining a significant bilateral development assistance effort as well as a strong bilateral security assistance program:

• —We have already multilateralized about 50 percent of our development aid appropriations. It is thus impossible to multilateralize much further and retain a sizable bilateral program from appropriated funds, unless Congress were to increase total aid appropriations far beyond present (and anticipated) levels.
• —An indication that we intend to completely multilateralize our aid appropriations, if not our total development assistance, thus becomes virtually necessary to set a truly new course. Anything less would imply a slowdown of the multilateral shift, raising serious doubts about our efforts to depoliticize development lending and jeopardizing the image of newness of the entire program.
• —Setting such a target is the best way to galvanize the international institutions to gear up to play the leadership role we want them to assume.
• —We could still promote our regional interests readily, by altering our contributions among the various international institutions: the Inter-American Development Bank for Latin America, the Asian Development Bank for Southeast Asia, etc.
• —We could still promote our special functional interests readily, through our other bilateral institutions: the Overseas Private Investment Corporation for private enterprise, the new Development Institute for family planning and agriculture, etc.
• —Over-all Congressional support would probably be maximized by maximizing multilateralization, though some key Congressmen in the aid area will oppose it vigorously.
• —By retaining the option of a bilateral lending capacity with non-appropriated funds, this approach retains a great deal of flexibility. We would, of course, always retain a sizable bilateral program of security assistance.

Recommendation:

That you indicate that the U.S. hopes to be able to channel all of its appropriated funds for development assistance through multilateral institutions by 1975. Bill Timmons concurs.

Approve⁴

Disapprove, prefer objective of complete multilateralization but with no target date.⁵

Disapprove, prefer no statement on eventual extent of multilateralization.

Management of U.S. Development Aid Effort

There is agency disagreement on two aspects of the organizational structure of our new development assistance program. Peterson , supported by Budget and Dr. Hannah personally,⁶ recommends that:

• —The new U.S. Development Bank, which all agencies agree should replace AID, be managed by an independent president reporting directly to you and by a Board of Directors comprising Government officials and private citizens.
• —We create an International Development Council, chaired by a new Presidential Assistant in the White House, to plan our overall development strategy and coordinate the numerous programs involved in it (Treasury for the multilateral lending institutions, the Special Trade Representative and Commerce for trade matters, Agriculture for PL-480, the Export-Import Bank for debt rescheduling, the Peace Corps, and the three new institutions—OPIC, the Development Bank, and the Development Institute).

State recommends that you install the Secretary of State as Chairman of the Board of the Development Bank.⁷ They would coordinate all development activities through the Bank, obviating the need for a Development Council.

Treasury supports the Peterson proposals, except for recommending that the President chair the Development Council himself with operational coordination run through existing Treasury-chaired committees.⁸

The Ash Council will shortly recommend that you create a new coordinating council for all foreign economic policy, including foreign assistance, chaired by a Presidential Assistant in the White House.⁹ It would pursue the same objectives as the Peterson proposal, but link foreign assistance with trade and monetary policy in a broader coordinating body.

I recommend that you adopt the Peterson and Ash proposals to create a Coordinating Council chaired by a new Presidential Assistant in the White House. It would operate at the Under Secretary level and receive its general policy guidance on aid issues from the National Security Council. I recommend that you leave open whether the Council coordinate development assistance alone or over-all foreign economic policy until you can consider the recommendations of the Ash Council.

Whatever your decisions on the Ash proposals, it is clear that aid issues badly need coordination and the Peterson-Ash approach would give us an organization parallel to the NSC to provide it. The State approach would essentially replicate AID, jeopardizing the depoliticization of the new lending institutions and thus jeopardizing the image of newness of the whole program.

Recommendations (The Ash Council concurs):

1. That the new Development Bank be run by an independent President, reporting directly to you;

2. That its Board of Directors include private citizens as well as Government officials;

3. That a new coordinating council, chaired by a Presidential Assistant in the White House, be created to coordinate the various facets of our development assistance program—either alone or with the rest of foreign economic policy, pending the Ash Council recommendations. It would operate under the general policy guidance of the National Security Council on aid issues. The Ash Council concurs.

Approve¹⁰

Prefer State approach: the Secretary of State to chair an all-Government board of directors for the Bank, with no Development Council

Prefer Treasury approach: President to chair Council, with operations coordinated through Treasury

Management of Security Assistance Program

Peterson , supported by State, recommends that we set up a single security assistance program including MAP, military credit sales (FMCS), disposal of surplus military stocks, our economic assistance for security-related programs (“supporting assistance”), perhaps the public safety program, and the contingency fund. State would set policy for the program and coordinate its operation. Administration of MAP, FMCS and surplus disposal would be left with Defense.

Defense recommends that MAP and FMCS be located completely in Defense.¹¹ Their objective is to avoid the Senate Foreign Relations Committee, which would have authority over a combined security assistance program but would not, of course, over DOD’s own budget. The other aspects of security assistance would then be distributed among the other agencies.

I have talked to Secretary Laird, who thinks we could win a battle to get MAP/FMCS out of Foreign Relations. Bill Timmons thinks the outcome would be uncertain. Everyone agrees that such a proposal would touch off a furious fight—especially in Foreign Relations but also in the House Foreign Affairs Committee, which have commitments to get back the military assistance now in the Defense budget (Vietnam, Laos, Thailand) and would vigorously resist the loss of jurisdiction. Our making the proposal might therefore jeopardize the whole new foreign assistance effort, like the Taiwan jets did on a smaller scale last year, although Timmons doubts that Fulbright could block the whole program and is less concerned about the House.

Putting MAP/FMCS in Defense would preclude the extremely desirable Peterson-proposed effort to better coordinate all aspects of our security assistance via a single security assistance program; leave supporting assistance to stand alone in State, which would raise major problems in getting Congressional support for it; and shift to Defense the present major authority now given the Secretary of State for MAP. However, our requests for MAP/FMCS would clearly fare better in the Armed Services Committee; if successful, this approach would obviate our having to move Southeast Asia MAP back to Foreign Relations/Foreign Affairs; and the approach could lead to better developed tradeoffs between MAP/FMCS and our own overseas military expenditures.

Recommendation:

The choice on this issue rests on whether we are willing to touch off a major battle on the Hill in an effort to get better receptivity for our MAP/FMCS requests, recognizing that the effort might not succeed and that there could be serious costs for the rest of the new assistance program whether or not it does.

Include MAP/FMCS in a new security assistance program comprising all related programs, under the policy guidance of State and with DOD continuing to administer both, as proposed by Peterson and supported by State and Budget.

Propose to Congress that MAP/FMCS be included in the Defense budget with other security assistance programs divided among the other agencies, as proposed by DOD.¹²

Implementation of New Program

Finally, we must decide how to put the new program into effect:

• —To work out the myriad of details involved and get them into legislative form;
• —To handle Congressional consultations prior to, and following, the submission of legislation next January.

There are four alternatives:

• —AID. Dr. Hannah has asked to be given the mandate, has now got some good people, and will have to be relied upon for many of the details anyway. However, it would be extremely curious for AID to preside over its own burial, and its interests and expertise are neither sufficiently widespread to handle the non-financial issues (trade, debt rescheduling, etc.) nor very sensitive to foreign policy considerations.
• —State. This would assure foreign policy control. However, it would risk the credibility of the new, depoliticized nature of the development part of the program and State is not staffed sufficiently to do the job alone anyway.
• —The Budget Bureau. They have a fair amount of expertise but are distant from foreign policy and do not feel adequate to do the job alone.
• —A special White House operation, using individuals from the agencies (and some people from outside) and calling in an outsider such as Peterson to head it up. This would assure foreign policy direction, White House leadership, and hence the talent to do the job.

Recommendation:

That we create a temporary White House operation to manage the creation of the new program, asking Peterson to head it up. Budget and Bill Timmons agree.

Approve¹³

Prefer AID

Prefer State

Prefer Budget Bureau

Tab A¹⁴

Summary of the Peterson Report Recommendations

1. The Report recommends a clear separation of the U.S. assistance program into three component parts to reflect the three different objectives we seek to promote through aid:

• —our short-term political and security interests,
• —our humanitarian interests, and
• —our interests in long-term economic development of less developed countries.

2. Our security assistance program should include military assist-ance, military credit sales, supporting assistance, and the contingency fund. The State Department should set policy for, direct, and coordinate the security assistance program, but administration of military grants, sales, and surplus disposal should be left with the Defense Department.

3. LDC development is in the U.S. national interest and our foreign assistance program should be as effective and efficient as possible in promoting this interest. It should not be influenced by short-term political goals.

4. Multilateral lending institutions, which are expanding in capacity and capability, should become the major channel for U.S. development assistance. At present, however, the U.S. should retain a bilateral program because other developed countries are not yet willing to multilateralize sufficiently and the institutions themselves cannot yet utilize the total amount of resources which this country provides.

5. In order to increase emphasis on the multilateral approach, the Report recommends that the U.S. take the lead in supporting an increase in the level of contributions to IDA from its present $400 million annually to $1 billion a year by 1972 and $1.5 billion by 1975. It also recommends that the U.S. support an increase in resources for the Inter-American Development Bank and an increase in capital in the International Finance Corporation.

6. To carry out our bilateral development program, Peterson recommends establishment of a new U.S. Development Bank, managed by a full-time President doubling as Chairman of a Board of Directors, which would include private citizens as well as public officials. The Bank should make loans for projects, sector programs, and general import requirements; finance related preinvestment and feasibility studies, and technical assistance activities related to its program.

7. The Bank should, in order to have bank-like autonomy, seek a $2 billion multi-year authorization and appropriation, be authorized to borrow $2 billion from the public to support its appropriated funds, (use receipts from old loans to subsidize the interest rate on these borrowed funds), and be authorized to guarantee foreign official borrowing on international capital markets as a transitional device to help countries to become independent of U.S. concessional lending.

8. The U.S. should place emphasis on the quality, structure, and style of its lending program as a major supplement to financial flows and should be free of legislative and administrative restrictions which make the administration of U.S. assistance inefficient.

9. The Peterson Report calls for international joint action to devise and implement a strategy for long-term solutions to the debt service problem over the next decade.

10. It recommends that all industrial countries should begin working toward an agreement to completely untie bilateral lending; until then, the U.S. should unilaterally permit goods and services financed under U.S. development loans to be purchased in all developing countries as well as in the U.S.

11. It recommends also elimination of the Hickenlooper Amendment, the Conte-Long restrictions concerning LDC arms purchases, all political restrictions on U.S. development assistance, and the administrative restrictions and political requirements which unnecessarily encumber the assistance program.

12. A U.S. International Development Institute should be set up as an independent government agency to bring U.S. science and technology to bear on the problems of development and help LDCs develop their own scientific and research capabilities. It should have a $1 billion authorization.

13. The report also recommends increased assistance to the private sector. The U.S. should seek to bring into operation the proposed International Investment Insurance Agency, as soon as the minimum number of countries agree; use OPIC’s guarantee programs, in combination with those of other countries, to encourage international joint ventures; and eliminate restraints on U.S. direct private investment in developing countries.

14. The report recommends that U.S. economic policies toward the LDCs be coordinated by a White House Coordinator, chairing a Cabinet-level International Development Council. The Council and Coordinator would formulate overall U.S. development strategies and assert the importance of the development objective in the formulation of all U.S. policies affecting LDCs.

1. Source: National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 193, AID, Volume II 1/70-8/10/70. Confidential.
2. The message went to Congress on September 15; see Public Papers of the Presidents of the United States: Richard Nixon, 1970, pp. 745-756.
3. See Document 133.
4. Next to this option the President wrote: “no I’m not so sure—a target date might not be in our interests.”
5. The President initialed this option.
6. In an April 22 memorandum to the President on AID’s position on foreign assistance renewal, Hannah proposed that the Bank be headed by a President under the general supervision of a Board of Directors chaired by the Secretary of State. (National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 193, AID Volume II 1/70-8/10/70) Hannah’s memorandum is attached to a May 23 memorandum from Kissinger to Nixon regarding the latter’s meeting with Hannah on May 25. According to Kissinger, Hannah strongly supported using the Peterson Report to stimulate a fundamental reappraisal of foreign assistance and he was “particularly firm on the need for independence—from State Department control—of the new Development Bank [but was] circumscribed in saying so openly because of AID’s present location in State.” Kissinger and Hannah met with President Nixon on May 25. (Ibid., White House Central Files, President’s Daily Diary)
7. See Document 133.
8. On March 31 Volcker sent Secretary Kennedy a memorandum on “Peterson Report Matters” that supported this position. (Washington National Records Center, Department of the Treasury, Secretary’s Memos/Correspondence: FRC 56 74 A 7, Memo to the President, January-April 1970) Volcker’s memorandum is attached to an April 3 memorandum from Kennedy to the President fully endorsing Volcker’s views and cautioning against any weakening of Treasury Department responsibilities.
9. The President’s Advisory Council on Executive Organization, know as the Ash Council after its chairman Roy Ash, was appointed by President Nixon on April 5, 1969, to review the organization of the Executive Branch. The Council proposed major changes in the organization of the Executive Office of the President, including the establishment of OMB, which were instituted in Reorganization Plan 2 of 1970, effective July 1, 1970. Documentation on the Council’s activities is in the National Archives, Nixon Presidential Materials, White House Special Files, Staff Member and Office Files, Ehrlichman Files, Box 32, Executive Office Reorganization.
10. The President initialed this option.
11. This position is set out in a May 6 memorandum from Secretary of Defense Laird to the President. Laird supported the Peterson recommendation that security assistance be legislatively separated from development and humanitarian assistance, and believed there was a reasonable chance to obtain Congressional approval for putting MAP and FMS into the Defense Department budget. (National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 193, AID, Volume II 1/70-8/10/70)
12. The President initialed both options.
13. The President initialed this option.
14. No classification marking.