Foreign Relations of the United States, 1961–1963, Volumes VII, VIII, IX, Arms Control; National Security Policy; Foreign Economic Policy, Microfiche Supplement

369. Memorandum of Conversation, March 20, between Ball and German State Secretary van Scherpenberg¹

March 20, 1961

UNDER SECRETARY BALL’S TRIP TO EUROPE
March 19–22, 1961

PARTICIPANTS

• • U.S.
  • Under Secretary Ball
  • Ambassador Dowling
  • Minister Bourgeria
  • Mr. Schaetzel
  • Mr. Rashish
  • Mr. Bator
  • Mr. Getzin
  • Mr. Cizauskas
• • Federal Republic of Germany
  • Foreign Office
  • State Secretary van Scherpenberg
  • Ministerialdirektor Dr. Harkort
  • Ministerialdirigent Dr. Hess
  • Dr. von Schweinitz
  • Dr. Dumke
• • Economics Ministry
  • Ministerialdirektor Dr. Hanckel
  • Ministerialdirektor Dr. Myer-Cording
  • Ministerialdirigent Dr. Stedfeld
  • Dr. Seiberlich
• • Finance Ministry
  • State Secretary Hettlage
  • Ministerialdirigent Dr. Fechner
  • Dr. Klamser
• • Chancellor’s Office
  • Ministerialdirektor Dr. Vialon
  • Bundesbank
  • Vice President Dr. Troeger

SUBJECT

• New U.S. Aid Program and Proposals for Fourth DAG Meeting

State Secretary van Scherpenberg welcomed Under Secretary Ball on behalf of the German Government, and hailed the opportunity to examine with friendly frankness and a cooperative spirit common problems in preparation for the Fourth DAG meeting.

Under Secretary Ball responded in kind. He then referred to the opening of a new period of Atlantic cooperation. He mentioned that the Senate had just ratified U.S. participation in the OECD which the President regarded as an important instrument of such cooperation. One of the most vital tasks confronting the OECD would be the problem of justifying the developing countries’ hope for reasonable progress. This was important not only as a moral obligation of the West but also as a means of channeling those countries’ energies constructively so that they might not be drawn into the Soviet orbit. In the short time the Under Secretary was here he realized the Federal Republic also viewed this problem in the same light.

Under Secretary Ball wished to make suggestions to help the [illegible in the original] meet its challenge more effectively and to make known in advance to his hosts the substance of a new U.S. aid program which would shortly be announced by the President. This program would call for a very large effort by the U.S., with authority to commit resources over a long period since development aid was a problem which could not be met by a single-year, or even a two- or three-year program. Secondly, a long-term program would enable the U.S. to respond more effectively to the following basic types of situations encountered in the less developed countries: (1) Countries in which little hope of real economic development existed, although strategic and political considerations required the extension of financial aid. He cited Jordan as a country in this category. (2) Countries which required social and economic infrastructure assistance as a prerequisite in development. (3) Countries already in the development stage, which had to be assured of external resources in order to plan effectively further advances and to undertake the requisite internal measures to ensure such progress.

Specifically, the President was asking the Congress for authority to centralize the somewhat diffuse aid efforts of the U.S. within a single new agency under the overall authority of the Secretary of State. This would enable the U.S. to achieve the maximum of efficacy in its aid programs by commanding a flexible mix of various types of aid to meet the variable requirements of the developing countries. For example, the new agency will be empowered to extend grants for technical assistance, very long-term credits at low interest rates and repayments in soft currencies if necessary (and the bulk of this aid) would probably be in this category), and the utilization of surplus agricultural products. U.S. overseas missions responsible for [illegible in the original] country aid programs would also be strengthened to facilitate country [illegible in the original] and to prevent too little attention being paid to the impact of any one project on the country’s overall needs to realize self-sustaining growth.

Under Secretary Ball emphasized this program because of the large funds being requested of Congress at a time when revenues were substantially reduced because of the domestic recession. This action underlined the importance which the Administration attached to development aid.

The Under Secretary also wished to discuss the substance of the proposals which he would present to the DAG. He would recommend a general agreement on the [illegible in the original] obligation of the advanced countries to help less developed countries [illegible in the original] self-sustaining growth. A general consensus would be required on the means to meet this goal. In the U.S. view, two principles were involved here. One was quantitative for which he had no precise formula, but believed that the aggregate contribution of DAG members might approximate one percent of [illegible in the original] annually on a systematized budgetary basis as much as possible. In this respect, however, he would suggest that other relevant factors such as military contributions should also be taken into account and that the principle of progressivity be adopted in which the richer countries would assume a larger relative share of the common burden. These were, however, all matters for the experts to discuss.

The second principle referred to the qualitative nature of development aid which had to be considered in conjunction with the quantitative measure. In the U.S. view, foreign aid should meet the three general types of situations to be encountered in the less developed countries listed above. Under Secretary Ball would exclude primarily commercial, short-term (under seven years), high-interest credits since they generally represented a burden on a developing country’s resources rather than a net addition thereto. The U.S. definition of genuine foreign aid embraced grants, loans repayable in local currency, or if in hard currency then for very long amortization periods (20 to 50 years) and at very low rates of interest (2 percent or about 2 percent). The Under Secretary recognized that the latter involved a substantial element of grant assistance and he thought that this was desirable. Moreover, aid to be effective had to be considered within the framework of the recipient country’s overall development needs rather than on the isolated virtues of a single project. The Under Secretary also wished to mention that in his view the balance of payments was relevant in determining not the amount but the form of assistance, that is, whether or not aid should be tied.

The second general proposal to be presented to the DAG would be a recommendation to establish a reporting mechanism which would represent an improvement over and expansion of the present system. It was important that DAG members be collectively informed about the details of each member’s individual programs in every country. He himself had been unfavorably impressed by the fact that U.S. officials working in Far Eastern countries did not possess exact information on the assistance programs of other friendly countries in those areas. Precise and complete exchange of information was an indispensable first step in a more effective free world aid effort.

Thirdly, the Under Secretary proposed to recommend that membership in the DAG be assigned at high levels in order to enable decisions to be taken more effectively and rapidly. He would also recommend that a permanent chairman be appointed who would be able to spend full time on DAG problems. A permanent chairman, equipped with full information on member capabilities and programs, would be able to suggest specific programs to individual countries or to several countries acting in consort. The chairman should be an American in view of the past experience of the U.S. in this field and [illegible in the original] of its aid effort.

State Secretary van Scherpenberg expressed his appreciation for the Under Secretary’s statements which he thought were very important. With regard to sharing the burden of development aid, he said that a one percent GNP annual aid contribution as modified by a progressivity formula was basically not unacceptable to the Federal Republic. However, it would be difficult to determine relative national wealth in order to apply progressivity. He also suggested for consideration per capita income adjusted by relative purchasing power as a more accurate criterion of ability to contribute [illegible in the original] or the balance of payments. Among possible distortions he cited the fact that Communist China would be in the forefront if GNP alone were used as a yardstick of national wealth, while the U.K. would come off poorly if only the balance of payments were looked at. The State Secretary then quoted some 1959 data, on per capita income for several countries: the United States—$2,700; Switzerland—$1,500; Sweden—$1,500; the United Kingdom $1,260; Belgium—$1,260; France—$1,140; and the Federal Republic $1,100. Corrections for relative external purchasing power would scale the U.S. per capita income down to $1,800. However, the absolute magnitude of a country’s GNP should also be taken into account so that its ability to contribute would not be magnified by unadjusted per capita income nor minimized by taking the lower figure but would fall somewhere in between. He mentioned these factors as points that would have to be considered in arriving at an acceptable and realistic measure of a country’s capacity to contribute to development aid but he believed that the problem was not insuperable, although adjustment and flexibility would be required.

Dr. van Scherpenberg expressed more concern about a qualitative definition of aid. For example, the availability of export capital, including grants, from the smaller developed countries was proportionately less than from the larger developed countries since the former had limited internal markets and required relatively more foreign capital to sustain a desirable level of productivity. He stressed the importance of considering private credits in determining a country’s total aid contribution. In this respect he cautioned that the usefulness of commercial credits should not be minimized since these often financed the soundest investments. Dr. van Scherpenberg acknowledged that special assistance including grants might be appropriate particularly when a country was at a very primitive level of development. However, he believed that grants should be the exception rather than the rule and that even long-term, low interest credits repayable in soft currency are preferable to outright grants. It was important in his view that the DAG should develop procedures and rules relating to qualitative criteria most carefully. This would also obviate the possibility of invidious comparisons by LDCs on the different types of assistance extended by donor countries.

Although Dr. van Scherpenberg was not too well acquainted with the organizational framework of the DAG, his initial reaction was favorable to Under Secretary Ball’s proposal for a permanent chairman who would be an American. He also agreed that DAG should act as a clearing-house of information on members’ aid programs but he believed that detailed exchanges could probably be worked out more satisfactorily at the field level. He said that elements of competition would continue to exist so long as export-type of assistance was given by all countries including the U.S. This might [illegible in the original] a full exchange on all projects a difficult goal to achieve. He expressed surprise at the Under Secretary’s statement that U.S. foreign aid officials in the War past did not have data on German programs in these countries as he was under the impression that this was in fact being provided.

The meeting adjourned at this point.

1. Aid commitments and proposals for Fourth Development Assistance Group meeting. Confidential. 6 pp. Department of State, Conference Files: Lot 65 D 366, CF 1819.