Foreign Relations of the United States, 1969–1976, Volume E–11, Part 2, Documents on South America, 1973–1976

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

Washington, May 23, 1973.

SUBJECT

• Advance Commitment of FMS Credit for Brazil

Recognizing that the advance commitment of FMS credit to support large aircraft procurement programs would have the effect of severely limiting the availability of credit in future years and thereby restrict the President’s flexibility to meet other requirements that may arise, we arranged last September to have all requests for such advance commitments submitted to OMB and your staff for prior approval. The precise situation we visualized then is now upon us.

Under Secretary Tarr has recommended, with the concurrence of Defense and Treasury, that we agree now to provide FMS credit totalling about $170 million over the three years Fiscal 1974–76 to Brazil for purchase of U.S. aircraft (Tab B). OMB has asked for our comments.

The Brazilians wish to buy 9 C–130s and 48 F–5Es. The primary competition is the French Mirage. Though the Brazilians reportedly prefer to buy from us, the French are offering more attractive terms, such as a longer repayment period and guaranteed credit.

The problem is a shortage of uncommitted FMS credit in FY 74 and 75. Starting with the congressional ceiling of fiscal 1972 and 73 and subtracting present commitments, expected earmarking for Israel, and the Brazil sale, only $9 million in credit would remain uncommitted for FY 74 and $33 million for FY 75 (detailed chart, Tab A). The President’s flexibility will be severely limited, particularly in FY 74, if we authorize this commitment. We have examined every conceivable way to minimize the problem and protect the President’s flexibility.

—A cash sale would be unacceptable to Brazil.

—Using non-guaranteed private credit would mean higher interest rates to which Brazil would not agree.

—Extending financing into FY 77 in order to lower the FY 74–75 amounts would require delaying deliveries, which Brazil would not accept.

—The Ex-Im Bank will not designate a country as “developed” and finance its purchases until its per capita annual GNP reaches $1,200. Brazil’s per capita GNP is only about $500.

If Congress authorizes a FMS program ceiling higher than the $550 million of the last two years, the problem would be reduced. We have requested $760 million and Senator Fulbright’s bill cites $700 million. Something above $550 million, therefore, is a reasonable expectation, though we cannot count upon a higher authorization.

There is no question that the aircraft sale to Brazil would be in our interest. The sale would signal the end of the unilateral and unrealistic FMS restraints of the late 1960’s, which were resented as paternalistic by Latin American governments. It would respond to the Brazilian need for equipment they believe essential, would benefit our balance of payments, and would help maintain and strengthen our traditional close relationship with the largest Latin American country.

Consequently, in spite of the possible stringent limitations on FMS credit availability, I recommend that we advise OMB that the advanced commitment of FMS credit for Brazil should be approved.

Bill Jorden concurs.

1. Summary: Kennedy recommended that Kissinger approve FMS credits in FY 1974–1975 for Brazil to purchase aircraft even though it would constrain future allocations of FMS credits.

   Source: National Archives, Nixon Presidential Materials, NSC Files, Box 772, Country Files, Latin America, Brazil, Vol. 4, 1973–1974. Confidential. Sent for urgent action. Kissinger approved the recommendation. Kissinger wrote on the memorandum, “See me. HK.” Attached but not published are Tab A, a chart on FMS credits, undated, and Tab B, a memorandum to the Director of OMB from Tarr, May 1. On August 31, the Brazilian Air Ministry signed a contract with the Lockheed Corporation to purchase the C–130s, and the Ministry intended to sign a contract with the Northrop Corporation not later than September 7 to purchase the F–5s. (Memorandum from Peet to Schlesinger, September 4; ibid., RG 59, ARA/NSC–IG Files: Lot 75D224, DEF 12–5, Sale of F–5s, 1973)