335. Memorandum From the Executive Secretary of the Department of
State (Battle) to the
President’s Special Assistant for National Security Affairs (Bundy)0
Washington,
April 25,
1962.
SUBJECT
Enclosed are answers to the questions1 concerning Laos that Mr.
Johnson telephoned to Mr.
Rice, Deputy Assistant
Secretary, Bureau of Far Eastern Affairs.
[Enclosure
1]
QUESTIONS
- 1.
- Should the President and Macmillan3 mention Laos in their
communique?
- 2.
- Referring to the AP column from Vientiane, no date line,
entitled “US aid loss strikes Laos a bitter blow” and Alsop’s
Wednesday column: What effect is loss of aid having?
- 3.
- Alsop implies Meo capability a product of Royal Laotian Army
policy over last year rather than a US guided operation. Please
comment.
- 4.
- Referring to your first memo to Lao overseas funds4 which stem from our
aid, how long has procedure been in effect whereby we deposit
funds in NY banks and may transfer them abroad? What about the
flow of gold?
[Enclosure
2]
LAOS
- 1.
- We believe it would be desirable for the President and the
Prime Minister to reaffirm the present policy in Laos. Such a
statement would demonstrate clearly our unanimity of views and
would be especially valuable in indicating our determination to
continue on the path of peaceful settlement. The developments of
the next few days would, of course, have a bearing on the actual
language used.
- 2.
- The suspension of economic assistance—civilian and military
budget support—has not yet had major economic repercussions in
Laos because of the RLG’s foreign exchange reserves and the
emergency economic controls the government has instituted. There
has been some dislocation—price rises and shortages—but it has
not yet become serious. There is, however, a limit to how long
the RLG can hold out. If the controls are effective, and if the
RLG can reduce its requirements for foreign exchange, this limit
might be 10–12 months. It is more reasonable to assume that
there will be severe economic dislocation in another 4–6 months.
This dislocation might be expressed within the RLG by political
pressure for a change in Phoumi’s policy of “going it
alone”.
- 3.
- Meo capability is not a result of Royal Lao Army (FAR) policy. The Meo guerrilla
operation [less than 1 line of source text not
declassified] receives the advice and assistance of
MAAG/Laos. Meo guerrilla
operations
[Page 706]
have been
very carefully worked out [less than 1 line of
source text not declassified] and the success of the
Meo is largely a result of American participation. Because the
Meo are not dependent upon the FAR, Meo operations are not hampered by FAR logistic inefficiency and poor
leadership and are much more responsive to our direction.
- 4.
- Ever since we began to provide economic assistance to the Lao
Government in 1955 we have used the cash grant method, which
involves the deposit of dollars in New York banks for the credit
of the Lao Government. For some time the RLG kept all these
dollar deposits in New York banks, but after New York bankers
informed the Lao of the higher interest rates paid on deposits
abroad, the RLG has from time to time transferred these funds
abroad. More recently we had some evidence that the RLG might be
transferring funds abroad to move them from United States
control.
When we deposit the cash grant to the credit of the RLG this shows up
as an expenditure in the balance of payments. When the dollars are
transferred abroad, no change takes place in the United States
balance of payments. So long as the Lao funds are maintained as
dollar balances their transfer abroad does not in itself result in a
gold outflow. An outflow of gold could occur if, after the
expenditure of the Lao funds outside the United States or their
conversion into a foreign currency, they cause an increase in the
dollar holdings of a central bank which uses its holdings to buy
gold from the United States.
