Foreign Relations of the United States, 1952–1954, East Asia and the Pacific, Volume XII, Part 1

U/MSA files, lot 56 D 551

Memorandum by Frederick E. Nolting, Jr., Special Assistant to the Secretary for Mutual Security Affairs, to the Under Secretary of State (Hoover)

secret

[Washington,] December 15, 1954.

Subject:

• Suggested Position on Economic Assistance for Asia.

I know you share the view that it is highly important for the State Department to formulate a position in this matter. Other departments, notably Treasury and FOA, have firm positions. Regardless of whether the final decision rests with the Ad Hoc Committee and the NSC or whether the matter will be referred to Mr. Dodge for his study,¹ the State Department should have a clear position if it is to participate in an effective and constructive manner in the process of formulating an Executive Branch position. The longer the matter drifts, without State Department leadership, the greater the risks of further premature publicity and consequent political damage to the program at home and abroad.

I am fully aware of the difficulties of formulating a State Department position. I have read all of the papers that have been produced on this subject and have attended many meetings on it. There are differing views within the Department. Personally, I see merit in many of these views and I respect those who hold them. Without pretending to have found the exact formula, I feel that there are certain points on which agreement can be reached which would give us a substantially sound position.

These basic points are as follows:

1. The concept of the area should extend from India and Pakistan on the west to Japan on the east, and should include Korea, Formosa, and Indo-China. Although Korea, Formosa, and Indo-China are countries in which the United States, because of unusual security considerations, is more heavily committed than elsewhere in the area and towards which we will wish to continue special bilateral measures, we should include them in the computation of dollar amounts required in the area, and we should seek, in our planning and execution of programs, to encourage the regional relationships of those countries.

2. While a more aggressive attack upon the economic ills of these countries will not in and of itself be the answer to the Communist challenge to the free world position in the area, it is an essential weapon in the “cold war”. From the reports I have read and from the people I have talked to, I cannot escape the conclusion that the Communist agents working in these countries are making headway by pointing to the generally impoverished lot of the people and by holding out specious promises of economic improvement under a Communist regime. This challenge must be met and this means of exploitation and subversion denied to the Communists. Our efforts should be directed both toward exposing the Communist lie and toward demonstrating that economic improvement can be attained under free institutions. There are many things other than economic assistance which we should be doing better and more aggressively to complement our efforts in the assistance field—for example, a more effective educational program, including especially an enlarged exchange-of-leaders program, and improved anti-subversive measures.

3. In the economic field, there are basically two types of activities which we are carrying on. One is Technical Assistance and the other is Development Assistance—i.e., the financing of activities designed to bring about greater productivity, better exchange of goods, etc. Programs of these two kinds have been conceived and put into effect mainly on a single-country basis, without much thought to their regional significance.

In the Technical Assistance fields, it is generally agreed that a great deal more could be usefully accomplished. The limiting factor of our Technical Cooperation Programs world-wide is the definite limit of capable U.S. technicians who are devoted enough to make the sacrifices inherent in such work. This matter has been given intensive thought and effort by FOA, but with only small success in recruiting additional capable personnel. There may be untapped sources of supply and recruitment techniques as yet undeveloped which will help break this bottleneck. In any event, it seems clear that if we could accelerate and intensify our Technical Assistance Programs in these threatened areas, it would be to the advantage of the United States to do so. This could be accomplished at a relatively low cost to the United States.

In the development field, the limiting factor seems to be the “absorptive capacity” of the economies of most of these countries. As you know, these countries themselves have failed to come up with anything like a comprehensive and sound development program from which a screened list of development projects could be made which would warrant U.S. support. Where such plans do exist, as in India and to a lesser extent in Pakistan, these plans have been developed largely on a nationalistic basis and without particular regard for regional contribution. However, where national development programs exist, our own ability to make a useful contribution is more evident. Given the present facts—i.e., the countries’ lack of sound development blueprints and our own nebulous ideas of concrete undertakings—it stands to reason that the U.S. investment in these fields should not be greatly increased until we have a better idea of just what undertakings we wish to back. Nevertheless, for the reasons which follow, I think that a moderate increase of U.S. assistance in the development field could and should be planned.

4. It is generally agreed that in the U.S. interest, we should undertake a more effective economic development program in this area. This could, of course, mean simply that we do more effective work within the present rates of expenditure, or at less cost. While improvements in the planning and conduct of our assistance programs are possible and desirable, I think it is unrealistic to suppose that, within present rates of expenditure, we can bring about through more efficient operations a degree of improvements which would result in a significant gain in the attainment of development objectives. I do not believe that our present programs and operations can be so greatly improved as to yield the results we seek at the present rates of expenditure. If it is in the U.S. interest to strive for an appreciable betterment of economic conditions in these countries, I think we must face up to the fact that this will entail not only qualitative improvement in our programs, but also a quantitative increase in U.S. funds.

As you know, the President has approved a world-wide figure of $2.13 billion for non-military assistance in FY 1956 (the military assistance budget figure is $1.4 billion). This amount becomes a part of the President’s FY 1956 Budget as a one-line estimate for proposed legislation to be presented to the Congress. This fact more or less freezes, for practical purposes, the top limit of assistance. However, this amount of $2.13 billion is high enough to permit an increase in the amount of development assistance for this area over fiscal year 1955 or any previous year, if it is concluded that we should do so.

5. Implicit in the above is the thought that we should avoid any further public utterances on the subject of the extent of our aid to the area. In particular, the use of such adjectives as “massive” (or “moderate”), and the use of such descriptive phrases as “Marshall Plan for Asia” should be rigorously avoided. I think an NSC decision and ruling on this particular point is required. Without it, I fear that any good effect to be expected from an increase in U.S. assistance will be nullified by the disappointed hopes of the people of the countries concerned.

There are several other factors which have complicated a decision in this matter. Comment has been made on the fact that, in the so-called Baldwin group paper,² a large majority of the aid projected over the next three years was earmarked for India. There have been views expressed that this is not only unsound policy in view of India’s less-than-helpful attitude in international bodies, but also totally unrealistic vis-à-vis Congress. In this connection, I think it necessary to point out that the Congress, admittedly after considerable debate, has been willing consistently to vote large appropriations for India despite her international attitude. A cut is made regularly each year in the amount appropriated for India, but generally speaking the Congressional committees have felt—as certainly I do—that it is in our overall interest to see that the Indian Five-Year Plan succeeds, since the alternative to such success is judged to be disastrous to U.S. security interests. As you know, the Secretary has agreed to a significantly increased program for India for fiscal year 1956.

Finally, it seems now to be the majority view in the Department that (a) the Colombo Plan grouping represents the most promising approach to a regional attack on the economic problems of the area; (b) that the time is not yet ripe for a U.S. “underwriting” of the Colombo Plan in the sense of a contribution toward the establishment of a regional bank or a regional payments union. I am not satisfied in my own mind that the abandonment of the idea of a regional bank is wise. However, it may be premature to undertake the promotion of a regional lending institution at this stage. At the least, however, we should try to develop a closer association with the Consultative Committee of the Colombo Plan to the end that our bilateral programs with the countries in the area can be geared into any emerging regional schemes, including plans for the expansion of Japanese trade in the area, which the Consultative Committee may develop. We should encourage the cohesion and growth of this forum for the exchange of economic ideas and plans for the gradual development of regional activities.

Recommendation

I recommend that you consider a position which would (1) advocate a moderate increase within the limits of proposed FY 1956 budget figures, and as much of an increase qualitatively as possible, in U.S. bilateral assistance programs for these countries in FY 1956; (2) stress principally the Technical Assistance Programs, supplemented by such economic development aid as can be wisely planned and effectively absorbed by the countries; and (3) call for these programs to be undertaken as unobtrusively as possible.

1. On Dec. 11, the White House made public the appointment of Joseph M. Dodge, Jr., as Chairman of the Council on Foreign Economic Policy, with a mandate to recommend improvements in the Executive branch for the development and coordination of foreign economic policy. For President Eisenhower’s letter to Dodge released on Dec. 11, see Department of State Bulletin, Dec. 27, 1954, p. 987.
2. Baldwin was Chairman of the Working Group which had produced the report summarized in Murphy’s undated memorandum, p. 1019.