122. Memorandum From the Assistant Secretary of State for Economic Affairs (Martin) to the Administrator of the Agency for International Development (Hamilton)0
SUBJECT
- Terms of Reference for AID Negotiations
I concur fully in the belief expressed in your memorandum of October 11 that it is necessary to establish clearly the basic decisions, terms of [Page 269] reference, and level for our aid programs in individual countries.1 A procedure such as you suggest may well be the most satisfactory approach to this question. In arriving at the determination of the individual elements in this procedure, I believe that we should above all seek to avoid some of the pitfalls of the past. In the first instance, this means being very clear on the meanings of the terms we use.
You suggest that a maximum aid level should be established for each country which would be controlling in any aid discussion with the foreign government. I fully share your preoccupations in this regard. We must, I believe, be careful regarding the use of this term “aid level,” and regarding what we include in it. The meaning of the term varies considerably from country to country depending on the kind of assistance each has been receiving from the United States in years gone by. The term has greatest relevance in a country which, in the past, received little from the United States other than Defense Support or Special Assistance grant aid, and would now be receiving predominantly Supporting Assistance.
In those relatively few countries which have progressed sufficiently far so that we will in the future be able to make use of our long-term commitment authority in support of their development plans, there may be a commitment of development loan funds in support of the (annual segments of the) development plan, which come close to being an “annual aid level.” Otherwise these funds can be included only on a very rough and preliminary basis.
In our new approach, we are to place greatest stress on the totality of U.S. instruments in meeting the development problems of development countries. In some countries it would certainly be quite appropriate to include P.L. 480 and Export-Import Bank loans in the U.S. aid figures. However, except in the Indian type of situation, it is not only impossible to include Exim loans in an “aid level,” but would, I believe, be undesirable.
Regardless of what kind of “maximum aid level” you decide is necessary, I believe that we should keep clearly in mind the distinction between a level determined for internal programming purposes, and one which forms the basis for discussions with other governments. The former is necessary if you and your programming staff are to keep control over the funds appropriated annually to AID. If you are to maintain control over the program, and maintain your ability to meet constantly changing political as well as development situations, the programming levels must be kept under constant review, particularly in the development [Page 270] lending field, and cannot be permitted to become “frozen” early in the fiscal year.
Regardless of what kinds of provisos we hedge our statements with, any figure mentioned to another government invariably and inevitably becomes the minimum commitment with which we then have to live. If this is the annual allocation to a Supporting Assistance country, this is necessary and acceptable on both sides. To the extent that we really mean to turn over a new leaf in the development loan field, this becomes undesirable except in those few cases where we are making a commitment to support a development plan.
With respect to your second and third points, we certainly should have very clearly in mind the specific terms of reference and conditions under which aid commitments would be made and programs conducted. In some cases it may be possible, as you suggest, to prepare a statement of these terms and conditions for presentation to the other government. In some cases, I would imagine that we might be able to secure a greater degree of host government acceptance of the kinds of conditions we would consider desirable if we did not seek to present these in writing as conditions of U.S. aid, at least at the outset. We need to maintain a posture of supporting the most forward-looking elements in the country. We might find, for example, that we encountered intense resistance on the part of the government to reforms which the country team and we gave top priority in the particular country, but that much more progress was possible in another area than had been suspected. This, however, is a question of negotiating techniques. I certainly agree that before agreements with other governments are concluded, there should be a very clear understanding of what the conditions are.
There is one further reason for us to maintain a considerable degree of flexibility on maximum aid levels for individual countries. It is most important that we be able to show Congress some progress in getting other industrialized countries to increase their aid efforts and to improve their terms. Whether in formal consortium arrangements such as those organized by the IBRD for India and Pakistan, or whether in far more informal bilateral discussions with other potential donors, we can maintain some bargaining leverage only to the extent that our own position is not frozen in advance. If the recipient country is already fully aware of what we intend to do, our position is frozen.
- Source: Washington National Records Center, RG 286, AID Administrator Files: FRC 65 A 481, Oct. 11 Memo “Terms of Reference for AID Negotiations”. Official Use Only.↩
- This memorandum on the terms of reference for AID negotiations has not been found, but it apparently was sent to several Assistant Secretaries of State with requests for comments and suggestions on four specific areas. Replies from the Assistant Secretaries of several regional bureaus are ibid.↩