Foreign Relations of the United States, 1977–1980, Volume XVIII, Middle East Region; Arabian Peninsula

68. Memorandum From the President’s Assistant for National Security Affairs (Brzezinski) and the Director of the Office of Management and Budget (McIntyre) to President Carter ¹

Washington, April 1, 1980

SUBJECT

• Aid to Oman (U)

The maximum package of economic aid to Oman proposed by the SCC was $105 million over the three fiscal years 1981–83 (composed of $15 million ESF grants to fund the proposed Joint Commission, $40 million ESF concessional loans, and $50 million EXIM credits).² In the impending negotiations, Mr. Bartholomew is instructed to offer initially only the $5 million ESF annually to support the Commission. This economic aid would be in addition to FMS credits you approved earlier ($50 million over 1980–81) and US military construction benefiting Oman internally (over $100 million in 1981, probably more in later years). (S)

Since Saturday,³ we have been exploring ways to reduce the ESF component, because it will be difficult to absorb within current budget planning levels and is more likely than EXIM credits to provoke criticism in Congress. Although EximBank’s budget will be tight also, John Moore ⁴ has told us the Bank could provide all of the maximum package in the two years 1982 and 1983, except for the $5 million to be provided annually for the Joint Commission. Accordingly, it should be feasible to limit the ESF component to $5 million grant aid in each of FY81, 82, and 83 ($15 million total), plus $10 million in ESF loans in each of FY82 and 83 ($20 million total). (S)

It may be possible to avoid any increase in the ESF component beyond our minimum offer ($5 million a year for the Commission): If the initial offer is not sufficient to conclude the negotiations successfully, Mr. Bartholomew should (and now plans to) seek agreement on amounts less than envisaged in our full package before offering that package. This will be reinforced in a cable that we will send instructing him to limit our ESF offer to a total of $15 million per year or, in a more positive tone, to indicate that EXIM credits would make up at least 70% of our maximum package.⁵ (S)

The complete package of offers, including the $50 million in FMS credits you approved earlier for 1980–81, would be as follows:

	($ millions)
	1980	1981	1982	1983
Initial Offer
FMS	25	25	*	*
ESF Grant	—	5	5	5
A Possible Middle Outcome
FMS	25	25	*	*
ESF Grant	—	5	5	5
EXIM	—	—	25–35	25–35
Maximum Offer
FMS	25	25	*	*
ESF Grant	—	5	5	5
ESF Loan	—	—	10	10
EXIM	—	—	35	35

*No commitment has been made beyond 1981, but State will want to continue FMS at the 1980–81 level and Oman will expect some continuing FMS.

In addition to economic and military aid, Oman will receive a substantial further injection of funds into its economy from our military construction expenditures (over $100 million in 1981 but likely to be several times this eventually). This will provide jobs and other economic stimulus; and we will be building facilities (improved air strips, warehouses, water systems, roads, etc.) that will add to Oman’s infrastructure. Mr. Bartholomew is instructed to emphasize these benefits in his negotiations. (S)

We recognize it is not easy to justify economic aid to Oman at any level. Oman is a relatively wealthy country (per capita income $4,000) with excellent prospects for rapid future growth if oil prices continue to rise. Oman’s current earning from oil exports are, in fact, so large that the government plans to create a special fund to sterilize its financial surpluses. Thus, providing ESF aid will be a major departure from past policy of focusing on the poor and middle income developing countries (except Israel, which has had a lower per capita income than Oman). (S)

Nevertheless, a meaningful level of economic aid (mostly EximBank, as indicated above) is likely to be necessary to develop our new security relationship with Oman. Oman’s government has continually stressed the political requirement for an economic component that shows the Omani people, in the face of mounting hostile propaganda from Iraq and other sources, that they benefit directly from the relationship with the US. Moreover, Oman remains an underdeveloped country: Its relatively high per capita income is a phenomenon of very recent years, not yet reflected in its economic infrastructure or popular well-being. (S)

We will consult some Congressional staff and members informally today about the above, making clear that any commitment to provide economic aid to Oman would be absorbed within current planning levels. We will inform Mr. Bartholomew of the results of this consultation prior to his discussions in Oman. (S)

We believe the approach described above offers a good chance of successful negotiations, while holding the ESF offer within a range that we consider acceptable and that is below the level proposed by SCC.

1. Source: Carter Library, National Security Affairs, Brzezinski Material, Country File, Box 58, Oman: 4–9/80. Secret. Sent for information. Aaron initialed for Brzezinski and sent the memorandum to Carter under an April 1 memorandum that recommended Carter approve the approach outlined in the memorandum, noting that “Jim McIntyre supports this package.” An unknown hand circled that sentence and noted Carter’s approval. Carter initialed the memorandum. The memorandum was in response to a March 31 handwritten note in which Carter noted: “I understood Sat. that Oman package would be ≈$20 mil in ’82 and ’83. Get with Jim & give me a complete picture of what is proposed.” (Ibid.)
2. See Document 66.
3. March 29. See Document 67.
4. Chairman of the Export-Import Bank.
5. Reference is likely to telegram 89463 to Muscat, April 5. (National Archives, RG 59, Central Foreign Policy File, D800169–1032)