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

98. Circular Telegram From the Department of State to Certain Diplomatic Missions⁰

Washington, March 17, 1961, 10:12 p.m.

1415. Department calling in Economic Counselors Embassies DAG countries Monday March 20 for delivery following paper as US paper for new DAG agenda item. Make text available appropriate officials earliest opportunity, Monday at latest. Washington Embassies will be told you have text.

Text memorandum following:

Begin Verbatim Text

The Fourth Meeting of the Development Assistance Group will be the first since the United States Senate approved U.S. membership in the OECD.¹ The Senate action symbolizes the American commitment to progressively closer cooperation in solving our common economic problems. In this spirit we have certain proposals to make for expanding joint efforts to assist the less-developed areas.

A. The Problem and the Opportunity.

1. The poverty of large parts of the world is the central problem of the 1960’s. We should jointly mobilize the capital and skills of the industrialized countries to help solve this problem.

2. Opportunities for progress in the economic development of the less-developed countries are greater than they were in past decades. The poor nations realize that their poverty is not preordained and immutable. They aspire to the fruits of development, and are determined to break the bonds of poverty.

3. Many countries are now able to use effectively more outside resources. The industrialized countries have the resources which in many cases are of vital importance.

4. We have a moral obligation to help these less-developed countries. As President Kennedy said: “To those people in the huts and villages of half the globe struggling to break the bonds of mass misery, we pledge our best efforts to help them help themselves, for whatever period is required—not because the Communists may be doing it, not because we seek their votes, but because it is right.”²

5. Without substantial outside help there is small chance that most less-developed countries will achieve rapid economic growth in freedom. Only by the hope and reality of achieving an adequate level of growth will they be able to turn their energies toward constructive purposes. If they are frustrated in this—if progress proves a delusion—then their energies will be diverted to purposes which are not only self-destructive, but destructive of our whole Free Society.

B. A New Approach to the Needs of the Less-Developed Countries.

1. The collective needs of the less-developed countries for development assistance are very large. By any reasonable calculation, however, these needs are small when measured against the wealth of the industrialized countries. The amount of such assistance which can be used effectively for economic development will vary from country to country, depending in part on its stage of development.

2. Both for the countries in the stage of preparation and for those already growing rapidly the problem of external assistance must be viewed as a long-term one. It can not be thought of, or dealt with, in terms solely of individual projects, or of annual programs. If external assist-ance is to be effective in accelerating economic development, it must be used to support and encourage the less-developed countries in undertaking long-term national or regional development programs.

3. Not only the quantity of resources, but the terms on which they are made available, are important. The terms must correspond to the economic situation of the individual recipient country. It is not enough to examine only the individual projects on which the money is spent and the extent to which they are self-liquidating. Rather, it is in relation to a country’s total expected growth rate and its balance of payments that a judgment must be made as to its capacity to service additional external debt. In most less-developed countries today, the principal need is for grants or “soft” loans. Only when a country is well on the way to achieving cumulative growth should an increasing fraction of outside resources be made available on normal banking terms. There appears to be general agreement on these propositions, to judge from the papers on Terms and Conditions of Aid submitted by member governments, and the Secretariat’s summary.³

C. The Joint Program.

1. The prospective members of the OECD have accepted the principle of cooperation in contributing to the sound economic expansion of countries in the process of economic development.DAG is the appropriate vehicle for continuous consultation, for reaching together some consensus on principles and procedures, and for mounting an adequate effort.

2. What is required is an increased, long-term, joint effort to help meet the needs of the developing countries. For this purpose, we can perhaps set as a collective target a sum of one per cent of our aggregate income.

3. This is not proposed as a specific target for each member country. Rather it is proposed that the members of DAG seek to agree on equitable principles for sharing the common effort.

D. Principles of Fair Sharing.

1. There is no simple formula. The benefits of an effective aid program are joint and indivisible. They accrue to each member from the scale and quality of the total program—not in proportion to the member’s own contribution.

2. In deciding how to share the total program, we should look to the principles which have come to be accepted within our countries as fair and reasonable. These principles can be briefly stated. The contribution of each should be in relation to his capacity to pay. The rich should contribute a larger fraction of their income than those less well off. The contribution to economic aid must take full account of the contribution to the joint defense.

3. The balance of payments and state of reserves of an aid donor are particularly relevant to the form in which aid is given.

4. We should be able to endorse these general principles, and, on this basis, to agree on what it is reasonable for each member to do.

E. The New United States Program.

The President is about to send to the Congress a message requesting authority for a long-term economic assistance program.⁴ This message will be made available before the DAG meeting convenes.

F. Proposals.

1. All the more advanced countries accept the obligation to join in assisting the less-developed countries. The members of DAG have assumed a special responsibility in this effort.

2. The members of DAG would, at the Fourth Meeting, consider expanding their aid programs and agree on a mechanism for the coordination of aid efforts. The following principles would guide the joint efforts:

a. A sustained and enlarged aid program, systematically financed;

b. Government assistance on terms more favorable than normal banking terms, including grants, loans repayable in the currency of the borrower, and loans repayable in foreign exchange at low interest and with long maturities;

c. Fair sharing of the joint aid effort, taking into account capacity to pay and contributions to the common defense.

3. Each member would seek to develop its own aid effort embodying the foregoing principles.

4. In order to facilitate consultation on the joint development of new programs, and in order to prepare for the transition to the Development Assistance Committee of the OECD, all DAG members would:

a. Agree to the selection of a permanent Chairman, who would be empowered to initiate and carry forward the work of the group;

b. Assign to DAG senior officials, empowered to speak for their Governments. These officials should be prepared to meet on call of the Chairman between regular meetings of the DAG.

5. The Chairman would:

a. Initiate and carry forward, with the assistance of the OEEC Secretariat, any studies required to carry out the purposes of DAG.

b. Undertake such discussions with member governments as might be required to assist in the development of effective and adequate programs of economic assistance.

6. The DAG would provide:

a. A forum in which member governments can systematically consult regarding their individual economic assistance efforts and through which cooperation can be effected.

b. A central point for the collection and compilation of information regarding the assistance activities of all members. In this way the DAG should serve as a clearing house through which all members can be kept continually informed as to the economic assistance activities of other members in each underdeveloped country. This would require an expansion of the system of reporting on new aid commitments.

c. A mechanism for improving the effectiveness of existing programs and for bringing about a greater total effort on the part of the member countries.

End Verbatim Text.

Rusk

0. Source: Department of State, Central Files, 398.00-LO/3-1761. Official Use Only. Drafted by James C. Lobenstine (E/OFD/ED); cleared (all in draft) by Myer Rashish and Bator (B), Edwin M. Martin (E), Foy D. Kohler (EUR), John C. Renner (EUR/RA), Isaiah Frank (E/OFD), Jacob J. Kaplan (B/FAC), Walter J. Stoessel, Jr. (S/S), and Griffin and Hooker (Treasury); and approved by Ball. Transmitted to Bonn, Brussels (pass BUSEC), The Hague, Lisbon, London, Ottawa, Paris (pass USRO), Rome, Bern, Dublin, Madrid, Stockholm, Tokyo, and Vienna.
1. See footnote 2, Document 97.
2. The quotation is from President Kennedy’s inaugural address of January 20, 1961. For text, see Public Papers of the Presidents of the United States: John F. Kennedy, 1961, p.1.
3. Neither identified.
4. See Document 100.