127. Memorandum From the Assistant for National Security Affairs (Kissinger) to President Nixon, Washington, April 15, 1970.1 2

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THE WHITE HOUSE
WASHINGTON
ACTION

MEMORANDUM FOR THE PRESIDENT
FROM: Henry A. Kissinger
SUBJECT: FY-1970 Economic Assistance Program for Brazil

In the memorandum at Tab A Secretary Rogers requests that you approve a FY 1970 aid program for Brazil of up to $187 million, consisting of:

-- a $75 million program loan

-- $75 million in sector loans

-- $12 million for technical assistance

-- a $25 million PL 480 wheat sales agreement

A decision on the FY 1970 aid program involves two sets of issues (1) technical/economic and (2) your flexibility with regard to our overall policy stance toward Brazil.

Technical/Economic Issues

The proposed $75 million program loan is designed to provide foreign exchange to finance imports and to induce the adoption of significant import liberalization policies by the GOB. The Budget Bureau and Treasury, however, question the need for a program loan at this time because (1) Brazil’s foreign exchange reserves are at their highest point in a decade and are expected to increase and (2) the GOB has not yet formulated an import liberalization plan which requires US support, (3) past experience casts doubt on the thesis that our aid can induce significant policy changes.

AID has in preparation four sector loans, designed to support modernization in education, agriculture and health. Although these loans total $125 million, State/AID expects to be able to authorize no more than $75 million in this fiscal year. On the basis of past experience with similar loans BOB doubts that AID can actually negotiate $75 million in sector loans before June 30. The Bureau, therefore, proposed that you authorize only $50 million in sector loans, and only a $25 million portion of the program loan which would be designed to assist private investment financing and capital market development.

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Your Flexibility with Regard to Our Overall Policy Stance

A major NSC program analysis study has been prepared as the basis for a review of our overall policy towards Brazil. All agencies agree that it would be preferable for you to complete this policy review and determine our overall future stance toward Brazil before deciding on the size and composition of the FY 1970 aid program. However, interagency staffing of the NSC study probably will not be completed for at least another month and Secretary Rogers believes a decision on the 1970 aid program is needed now.

Deferring a decision on the entire FY 1970 aid program until the NSC policy review would in effect mean that we would have no aid program with Brazil in FY 1970 because there would not be enough time to negotiate any new loans before the end of the fiscal year. Such a situation would involve a substantial foreign policy risk for our relations with Brazil, because failure to negotiate any new aid loans would be interpreted by the GOB as a signal of a US intention to disassociate or withdraw from Brazil--a position which no agency recommends.

Failure to negotiate any new loans with Brazil this fiscal year would also present a practical problem for AID, since the proposed loans for Brazil represent almost half of the FY 1970 Alliance for Progress loan appropriation. Although some of these funds could be used elsewhere in Latin America there would undoubtedly be a substantial amount which would remain uncommitted at the end of the fiscal year--and thus present problems on the Hill in trying to obtain new appropriations for FY 1971.

On the other hand, going forward now with the entire proposed $187 million aid program, before the NSC policy review, would reduce your flexibility in determining an overall policy stance. Renewal of a large scale bilateral aid program of the kind we carried out in the past, after a year and a half lull and at a time when Brazil’s economic need for external aid is questionable, would be taken by the Brazilians, as well as by our own Congress and press, as an endorsement of the present government and its policies. Thus, your flexibility to set an overall stance after the NSC review would be reduced by either deferring a decision on the total FY 1970 aid program or authorizing the entire program as proposed, since either course would signal a fairly strong policy direction (i.e., disassociation or endorsement).

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There is an intermediate option which can reduce the disadvantages of this all or nothing dilemma: you could approve part of the FY 1970 program now and reserve your decision on the remaining portion until the overall NSC policy review. Given the technical uncertainties, you would reserve decision on the program loan, and approve the rest of the program proposed by Secretary Rogers, which would total up to $112 million. This option would allow one or two new sector loans and a PL 480 program to be negotiated this fiscal year, but would not constitute a definitive policy signal either to the Brazilians or to our own Congress and press. My own feeling is that this option best preserves your flexibility until the NSC policy review without unduly straining our relations with Brazil.

RECOMMENDATION

That you approve negotiation of a FY 1970 economic assistance program for Brazil of up to $112 million, including $75 million in sector loans, and that you reserve decision on a program loan until (a) we have more detailed information on the GOB’s import liberalization plans and (b) you have completed your review on Brazil.

Approve [HK initialed 5–2–70]

Alternatively, approve entire $187 million program now

Alternatively, defer decision on entire program until NSC review

Attachments:

Tab A - Memo from the Secretary of State
Tab B - Memo from BOB

  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 771, Country Files, Latin America, Brazil, Vol. 1, Through August 1970. Confidential. Sent for action. Kissinger approved for Nixon on May 2. Attached but not published are Tabs A and B. Tab A is a March 18 memorandum from Rogers to Nixon and Tab B is an April 3 memorandum from Schlesinger to Nixon. In a covering memorandum from Vaky to Kissinger, Vaky argued against the $75 million program loan at the present time, because “it would lock the President into an overall policy stance toward Brazil before he has had an opportunity to consider all of the policy issues and implications involved… We should at least consider the question of whether this kind of close identification with the Médici regime will alienate other sectors of Brazilian society which in the longer term may be more important to achievement of a constructive U.S.-Brazilian relationship.”
  2. President’s Assistant for National Security Affairs Kissinger, for President Nixon, approved $112 million in sector, technical assistance, and PL 480 support for Brazil. In addition, $75 million in program loans was deferred, awaiting a NSC policy review.