85. Information Memorandum From Richard T. Kennedy of the National Security Council Staff to the President’s Assistant for National Security Affairs (Kissinger)1

SUBJECT

  • Foreign Assistance Act, Deposit Requirement

Section 514 of the recently signed fiscal 72 foreign assistance authorizing legislation prohibits any grant military aid under this act unless the recipient country agrees to deposit 10 percent of the value of the assistance in a special account for the official foreign currency use of the USG. (The Administration fought this but was unsuccessful in attempts to have it deleted in conference.)

  • —The President may waive this requirement if the U.S. can pay all its official costs without having to spend dollars to purchase the local currency. (Covers Tunisia, Morocco, India, Pakistan, and Burma, at present.)
  • —The section does not apply where grant aid is provided under an agreement in exchange for base rights (applies to Spain; the Philippines and Ethiopia may also qualify).
  • —No deposits are required from the service funded countries: Vietnam, Cambodia, or Laos.
  • —The term “under this act” also excludes (1) Thailand for fiscal 72, but would include Thailand beginning with fiscal 73, and (2) Korean forces in Vietnam.
  • —No country must deposit more than $20M in any one year.

The President may waive the deposit under section 614 (which permits use of FAA authorized funds without regard to the requirements of the Act, if the President determines such use is important to U.S. security). However, Congress imposed two new limitations on 614 in this bill (Congress must be informed in writing of any waiver, its justification, and its extent; and the President must notify Congress ten days before changing any country or organization’s allocation by more than 10 percent). If the waiver prerogative were used too freely, new restrictions or even deletion of section 614 could result.

Most Embassies have reacted predictably by pointing to the serious consequences of approaching aid-recipient governments with the unhappy news.

Section 514 was among the provisions of the Senate bill to which we objected most strongly. We provided House conferees an explanation of [Page 208]its serious impact and of our objections; however, we could not get it deleted, though it was softened substantially. Going into conference the Senate bill provided for 25 percent deposits, applied to all countries, and contained no maximum deposit provisions. In conference these were reduced to 10 percent deposits, MASF countries were excluded, and a $20M maximum was inserted.

For minor returns from 10 percent deposits, this provision could cause several states (Philippines, Thailand, Turkey)—which provide us extremely important bases without a specific quid pro quo—to begin charging for them. Such costs could readily amount to very large figures indeed. In small MAP programs in politically sensitive states (for example, Mexico), mistrustful governments may take offense and cancel our programs altogether, ending important contacts and channels of influence.

No single solution seems feasible. Where major base rights are involved, it may be possible to justify MAP as a de facto reimbursement and so exempt a few highly critical states. In a few of the most sensitive countries where our programs are entirely training and very small, a congressional waiver may be possible. Finally, in some cases we may wish to consider presidential waivers.

The preferable solution, of course, is repeal of this provision. Prospects, however, are not bright. Senator Fulbright will probably fight hard for retaining section 514. He had proposed it twice previously and feels he has softened it considerably. Both State and Defense are reviewing the foreign assistance authorization act carefully in order to document fully our opposition to its most objectionable features. (The Authorization Act this year carried an extraordinarily large number of restrictive provisions.) The section 514 deposit requirement is high on the list for deletion from the law.

We will keep you informed as the situation progresses. No action is necessary at present.

  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 324, AID, Volume II 1972. Confidential.