Foreign Relations of the United States, 1961–1963, Volume IX, Foreign Economic Policy

94. Memorandum From the President’s Deputy Special Assistant for National Security Affairs (Rostow) to President Kennedy⁰

Washington, February 28, 1961.

SUBJECT

• Crucial Issues in Foreign Aid

Note: You will be getting George Ball’s official view shortly.¹ Here are the highlights as I now see them. I shall be prepared to comment on finer points as you wish.

The Old Look.

1. The foreign aid program we have inherited has these characteristics. The bulk of the resources available is either for direct military purposes (about $2 billion), or to assure military base rights, to support military forces, or to avoid short-run political or economic instability or collapse. Of the $2.2 billion sought in the last Eisenhower budget for non-military purposes, less than $500 million was for development purposes. We are in the position of, say, the New Haven Railway, pouring out large sums to keep afloat, but with neither a defined forward objective nor the fresh capital to move towards it. We begin with a program that is almost wholly defensive in character and one which commands neither the resources, the administration, nor the criteria designed to move the underdeveloped countries towards sustained economic growth.

2. In addition, the program has the following familiar weaknesses. Its financing, as well as its perspective, is short-run rather than long-run. The small development component is mainly guided by a project approach rather than an approach in terms of developing whole nations. Its legislative underpinning is piecemeal, reflecting geological layers of past interests and problems. Its administration is diffuse. Its personnel is, for the most part, mediocre: in particular, the program is long on technical assistance types and desperately short of men at home and in the field who understand the economic development problem. The European contribution to the whole program is inadequate, somewhat misdirected, and there is no effective machinery for coordinating our own efforts with those of the Europeans. At home there is profound uneasiness and dissatisfaction with a program which has appeared to yield little result at great cost. This is where we start.

The New Look.

3. In general, the new look consists of a turn-around from a defensive effort to shore-up weak economies and to buy short-run political and military advantage, to a coordinated Free World effort with enough resources to move forward those nations prepared to mobilize their own resources for development purposes. The goal is to help other countries learn how to grow. Aid ends when self-sustained growth is achieved and borrowing can proceed in normal commercial ways; e.g., Mexico. This notion can be made an effective basis for a new non-colonial approach of the Atlantic Community to the southern half of the world; and even relatively poor countries, who have passed the take-off, can contribute—in technical assistance if not in long-term capital; e.g., Mexico, Israel, Philippines, as well as Japan.

4. The crucial element here is the new criteria we wish applied in granting aid. Aid shall go to those who have developed at home the capacity to absorb capital productively. We cannot, clearly, pull the plug immediately on countries we are shoring up (e.g., Viet-Nam, Laos, Jordan); nor can we eliminate aid from places where we are buying what we regard as a serious military advantage [less than 1 line of source text not declassified].What we can do is shift rapidly out of defense support and special assistance into long-term development lending in places where there appears to be a basis for turn-around (e.g., Taiwan, Korea, Turkey, Greece, the Philippines, and even, perhaps, Iran). We can put countries which are asking for aid but do not now have good development programs, on notice that they must develop serious domestic programs before any increases in aid will be granted; e.g., Indonesia and Afghanistan. This kind of response, however, can only be given without grave political risk if we have long-run borrowing authority, or its equivalent, so we can say the funds are, in effect, earmarked against the time when, with our help, they have qualified under the new criteria. Most important of all, we must promptly expand our commitments to those countries which now have the capacity to absorb capital productively in a reasonably short period; e.g., India, Pakistan, Nigeria, Argentina, Brazil, Colombia, Venezuela.

5. It will take some time and the greatest discipline in our whole establishment to bring this turn-around about; but it is the only path that makes sense. And it can be promptly begun.

6. More concretely, the program we must devise should have these technical characteristics:

• —Military aid should be separated in the budget; but it should be under tighter civil control with respect to policy than it now is.
• —Both the scale and the type of forces we support under the military aid program should be put under fresh scrutiny, notably in the light of the guerrilla problem.
• —A concerted effort should be made, through our military aid programs, to induce the local military to use their military resources for constructive purposes.
• —Given the situation in Korea, Viet-Nam, Taiwan, and Jordan, it is doubtful if in the first year we can much reduce total aid to our rickety partners; but a concerted effort to squeeze non-development aid this year should be attempted.
• —The development funds available must be put on a long-run basis. This is crucial.
• —The volume of American development funds available over, say, a four-year period must be enlarged at about an average rate of $1 billion a year more than the $500 million or so we now command. But the application of the new criteria makes it unlikely that actual disbursements would increase very much in the first year of the new program. Of this average $1 billion per annum increase, half might well consist of expend-itures for agricultural commodities.
• —The outcome of the burden sharing exercise in OECD should be a net increase in long-term development aid from other industrialized countries of about the same order of magnitude; that is, an extra $1 billion per annum over present levels. This would give us an extra Free World margin of about $2 billion a year. Over the four-year period something like a third of the net increase in European lending should come from Germany; a bit less than a third from Great Britain; and the balance from other European countries, Canada, etc.
• —Perhaps the most crucial technical decision you will have to make is whether you seek this long-term element in the program via borrowing authority for a banking institution within the foreign aid organization, or whether we go on with annual appropriations with a vague Marshall Plan type of forward commitment by the Congress as to scale. There are other alternatives Ball will present.
• —Contingency aid for emergencies should be at least as high as it has been ($250 million); and it should be much more firmly in your hands.
• —Administratively the foreign aid effort must be unified firmly under the direction of a single, strong person. If we decide that it should remain within the State Department, as at present, and under the direction of the Under Secretary of State, the choice of his deputy for foreign aid is a crucial choice.
• —The greatest weakness within the foreign aid organization, both at home and in the field, is the lack of first-class development planners; and whatever table of organization is finally agreed, this fundamental weakness must be remedied.

Education and Human Resources Development.

7. In addition to the capital fund, we need radically to reorganize the whole ICA technical assistance program in new directions. It is now, both at home and in the field, weighted heavily with traditional technical assistance projects, some of them of a low order. In the field our embassies are loaded with too many people doing small jobs where the net gain is probably not worth the administrative burden and cost, either to ourselves or to the local governments. A major and ruthless overhaul of existing programs is necessary with a new emphasis on basic education; on bringing modern science to bear in the underdeveloped areas; on technological training (notably in local institutions) to complement economic programs; and the financing of projects aimed at modernizing social institutions—land tenure; self-help housing; etc.

8. The Peace Corps, while separate in important ways, should be linked to Education and Human Resources development. This program might cost over-all perhaps about $500 million per annum.

9. In presenting this part of the new effort, we should dramatize the relation between education and human resources development, on the one hand, and a nation’s capacity to absorb capital productively on the other.

Organization Structure.

10. Since November 8, 1960, a most extraordinary concentration of thought and memoranda-writing has taken place on the question of how to reorganize foreign aid. Much of this literature is centered about whether the foreign aid structure should be built around a country or a functional approach. The crucial issues to watch are these:

• —Who the boss will be. He must be very good.
• —Is there provision for a new group of first-rate country planners who understand the new criteria, who will be able to deal firmly with the military aid component, who will be able to weave together sensible country programs from what foreigners contribute in capital, what we contribute in capital, what human and institutional development can provide along with what the locals are doing. Such men are not now in our organization.
• —Is there a definable unit which Congress and the public can see, to which the large development funds we are requesting can be allocated.
• —Is there serious provision made for conducting surgery on the present ICA technical assistance program and staff.

11. Should you decide to go ahead with this new look which would commit this country to a substantial increase in development funds over a four-year period (but not much increase in disbursements in the first year), these problems should be settled soon:

• —Congressional consultation before your message to Congress.
• —The drafting of a dramatic message which you may well wish to deliver personally—which would give life to the new look, the turn-around process, and our whole stance towards the underdeveloped areas.
• —We must arrange a first-class mobilization of the public groups now waiting in place within Eric Johnston’s old outfit,² ready to back your play.
• —We shall need a maximum effort at the March meeting of DAG to get contingent commitments from the Europeans so that Congress will understand that any cutting of your program is likely to involve at least a dollar-to-dollar loss of European contributions.

12. Only you can make a judgment as to whether the launching of this new program, with its dual components of long-term development and tough banking criteria, can be pulled off. None of us underestimates the reality of the political problem, the unpopularity of foreign aid as it has been, and the dissatisfaction with the results it has yielded. On the other hand, these things should be borne in mind:

• —Unless we move on an expanded basis, it is unlikely that we shall, in the end, get anything significant out of the Germans and other Europeans. We have given the Western alliance a real lift with our recent initiatives in this direction. Unless we back our play, these moves will properly be regarded as empty gestures in the Eisenhower tradition.
• —We have stirred great hopes in Asia, the Middle East, Africa and Latin America and acquired very serious commitments to development, notably in the Indian Peninsula and in Latin America. We must back our play or these hopes will fade. Foreign aid will not solve the guerrilla problem; but a program like this may be the necessary backdrop to a solution.
• —With respect to the balance of payments situation, we can put ourselves in a fairly good position on foreign aid. If there is a radical breakthrough on the reserves question this spring—which is doubtful—we could go ahead making our loans untied. If the balance of payments situation is still unresolved, we can make these new loans on tied basis. This will mean that the new development program can be honestly presented as a measure which would increase American domestic production and exports.
• —If we can translate the fair shares principle into some kind of reality in OECD this spring, the political basis in the U.S. for our program will be strengthened before Congress finally votes.
• —From having worked with the American groups interested in foreign aid (enlightened businessmen, labor leaders, churches, women’s clubs, etc.), I know that their efforts and tenacity will be directly proportional to the boldness of our vision and our program.

13. Finally, I simply report what Dick Bolling³ told me: “The bigger the President goes in foreign aid, the easier it will be in the House.”

0. Source: Kennedy Library, President’s Office Files, Staff Memoranda, Rostow. Secret.
1. Not further identified.
2. Johnston, a motion picture executive, had served as chairman of the International Development Advisory Board since the early 1950s.
3. Presumably Representative Richard Bolling (D-Mo.).