31. Memorandum of Conversation1

SUBJECT

  • Thai Economic Problems

PARTICIPANTS

  • Foreign:
  • Sunthorn Hongladarom, Thai Ambassador to the U.S.
  • United States:
  • U. Alexis Johnson, Under Secretary for Political Affairs
  • John B. Dexter, Country Director, Thailand/Burma

The Under Secretary asked the Ambassador what he saw as his most important problems as Ambassador in Washington. Sunthorn immediately responded that his most important concern was that the United States Government maintain economic assistance at past levels. Past assistance had been successful, he said, but Thailand’s economic outlook was such that continuation of substantial assistance was desirable. He pointed out that the trade balance was adverse, primarily because of declining rice exports, and noted that the World Bank had reported that this year for the first time Thailand would suffer a balance of payments deficit. The decline in exports is a major factor [Page 69]and another is increasing domestic expenditures for development purposes, especially the accelerated rural development program (ARD) which has been sufficiently successful to justify increasing allocation of Thai resources.

The Under Secretary asked how U.S. economic assistance compared in magnitude with U.S. military expenditures in Thailand. The Ambassador could not give statistics but said military expenditures were considerably larger. He added that, while U.S. assistance has been substantial, U.S. exports to Thailand have also been increasing. In response to a question by the Under Secretary the Ambassador indicated there was also a growing trade deficit with Japan.

There followed a discussion of Thailand’s efforts to diversify its agricultural production and exports through development of corn, millet, tapioca, cassava, etc. The Ambassador said there was little expansion of exports of manufactured goods, the development of manufacturing thus far serving primarily for import substitution (with the exception of cement).

Ambassador Sunthorn then reiterated that the main problem was rice and commented that our Department of Agriculture was familiar with RTG complaints about PL–480 sales in the area and exports of U.S. rice to Hong Kong, an important traditional Thai market. The Under Secretary said one of the problems affecting decisions on U.S. aid to Thailand was Thailand’s high level of foreign exchange reserves. Some argue that this means Thailand does not need foreign assistance. On the other hand, one could question whether the Thai should be “penalized” for the good management which resulted in accumulation of reserves. In any case, the high reserve level was a problem when we tried to justify aid to Thailand on the Hill.

The Ambassador explained that the RTG had to maintain substantial reserves because it needs flexibility in the event of contingencies such as drought, floods, etc. which might suddenly reduce exports and require rapid drawdown of reserves. He added that Thai reserves will probably be down this year about $30 million and this trend is expected to continue for the next few years. This is one reason the RTG hopes U.S. economic assistance will remain at a high level. Under Secretary Johnson responded that it was nevertheless desirable to look toward a termination of all foreign assistance to Thailand as soon as possible, as had occurred with Taiwan. Thailand, he said, is a “success story” and it is healthy for both sides in the circumstances to anticipate an end to aid and to placing relations on an equal footing. The Ambassador agreed but argued that timing is important.

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  1. Source: National Archives, RG 59, Central Files 1967–69, POL 17 THAI–US. Confidential. Drafted by Dexter, approved by Green, and approved in J on December 1. The memorandum is part 2 of 3; part 3 is ibid; part 1 is Document 30.