57. Memorandum From the Deputy Assistant Secretary of State for East Asian and Pacific Affairs (Gleysteen) to the Under Secretary of State for Political Affairs (Habib)1


  • ROC’s Request for Fall-Out FMS Credits

As you guessed, I’m against any fall-out funds for the ROC this year. Despite Jimmy’s pitch,2 the ROC is not hurting for money; they have a $1.4 billion trade surplus with us, rapidly rising foreign exchange reserves, and ready access to foreign commercial loans. Our decision is, however, political not economic. We want to convey a signal by continuing the phase-out of FMS credits. We do not want the ine[Page 230]vitable public knowledge of an additional credit from fall-out funds appearing on the eve of the Secretary’s meeting with Huang Hua. Our failure to provide a couple of million extra credits will not become an issue on the Hill.3

  1. Source: Department of State, Papers of Philip C. Habib: Lot 81 D 5, Box 2, PCH Official Correspondence, June 1977–March 1978. Confidential. Drafted by David G. Brown (EA/ROC) on September 16 and cleared by Ericson (PM).
  2. Shen’s September 12 letter to Habib, attached but not printed, requested additional money for foreign military sales credits to help finance ROC purchases of U.S. military equipment.
  3. A letter dated September 20 for Habib to send to Chen is attached but not printed. A copy of the signed letter is also attached. The letter informed Shen that although it “will not be possible to supplement this sum [$35 million in foreign military sales credits for the ROC in FY 1977] with fall-out funds this year, the Administration has budgeted $25 million in credits for FY 1978. The size of our credit allocation is, of course, not a limitation on your continuing access to military equipment required for your defense.”