Foreign Relations of the United States, 1961–1963, Volume XIX, South Asia

26. Memorandum of Conversation⁰

Washington, June 8, 1961.

SUBJECT

• Results of the International Bank for Reconstruction and Development Consortium on Pakistan

PARTICIPANTS

• Mr. Mohamed Shoaib, Finance Minister of Pakistan
• Mr. G. Ahmed, Secretary, Planning Commission, Government of Pakistan
• Ambassador Aziz Ahmed, Pakistan
• Mr. Wazir Ali, Economic Minister, Embassy of Pakistan
• Under Secretary George W. Ball
• E—Mr. Edwin M. Martin, Assistant Secretary for Economic Affairs
• NEA—Mr. Howard R. Cottam, Deputy Assistant Secretary for Economic Affairs
• SOA—Mr. J. Wesley Adams, Officer in Charge, Economic Affairs

Mr. Shoaib opened the conversation by remarking it was no secret that Pakistan was disappointed with the results of the Consortium held under the auspices of the International Bank for Reconstruction and Development, June 5-7. Mr. Ball immediately rejoined that it was no secret that the United States was also disappointed with the results. We had hoped, he said, to be able to obtain a commitment by all members of the Consortium covering Pakistan’s requirements for two years. This had not been found possible, and so it had been decided to announce initial commitments which would meet Pakistan’s immediate requirements and maintain the momentum of its development. It was expected that a further meeting of the Consortium would be called later this year to consider further commitments.

Mr. Martin said that two considerations would determine the date of the reconvened meeting. The first was the German election scheduled for mid-September. The second was the time required for the Pakistanis to come up with firm revisions in their Second Plan figures. Mr. Shoaib commented that frankly he did not know what more the World Bank expected them to produce in the way of planning. It was true, he said, that the Plan had not been officially adopted by the Government of Pakistan. Formal adoption, however, was expected to take place around the middle of June. Except for this formality the Plan had been accepted by the Government. G. Ahmed reinforced this view, asserting that the Pakistan Plan in this respect was more firm than the Indian Plan.

Mr. Shoaib said that he now faced a political problem in how to present the results of the Consortium to his people, since the results were so unfavorable in comparison with those of the Indian Consortium. The people of Pakistan were bound to reason that as allies of the West they were entitled to more favorable consideration than neutrals such as India. They would inquire “What do we have to do to obtain equitable treatment?” Mr. Shoaib contrasted Pakistan’s planning with that of the Indians, noting that the Pakistanis had not counted on Soviet aid for the financing of their Plan, and that they had not so over-committed themselves with respect to resources that they had to ask the rest of the world to bail them out, as had India.

Mr. Shoaib then went on to contrast results of the two Consortia meetings. With respect to commitments for the first year, he noted, Germany had agreed to commit $225 million for India compared to $25 million for Pakistan. Comparable figures for the United Kingdom were $182 million for India, $19.6 million for Pakistan; for the United States, $545 million for India and $150 million for Pakistan. With respect to the United States, he noted that in FY 1959 we had extended aid in the amount of $164 million, and only slightly less in the two succeeding years.

Mr. Ball commented that it was important for the Pakistanis to remember that these figures for Pakistan were not for a full year, and it was therefore a mistake to make the comparisons which Mr. Shoaib had just offered. So far as the United States was concerned, he reiterated, we were prepared to commit substantially more than the amount of $150 million. However, when the other participants had not been sufficiently forthcoming, we had felt it necessary to limit our commitment to $150 million (1) in order to preserve the integrity before the Congress of the principles of our new aid program which stress a sharing of development assistance by the capital exporting countries and (2) as the best strategy to maintain pressure on others to make more generous contributions in the future.

Mr. Shoaib said he recognized the force of these arguments. Nonetheless, his President would be disappointed with the results in view of President Kennedy’s message¹ which led him to believe that a substantial increase in U.S. commitments would be forthcoming.

Mr. Ball remarked that the problem for the Pakistanis was one of explanation, reiterating the point that the commitments at the Consortium meeting represented only an initial action, and that a further meeting was contemplated this year to consider possible further commitments. Mr. Martin said that in his press conference yesterday regarding the Consortium meeting he had stressed this point. Mr. Cottam noted that great care had been taken in the press release on the meeting to make clear that at the resumed meeting consideration would be given to Pakistan’s requirements for both the second and third year of the Second Plan.

G. Ahmed said that since a further meeting was also contemplated in the case of India no particular point could be made of the fact that there was to be a subsequent meeting of Pakistan. Mr. Martin commented that so far as the United States was concerned we had made our full commitment in the case of India. Mr. Ball observed that the meeting on Pakistan was comparable to the first meeting on India which had been adjourned, the difference being that in the case of Pakistan we had made public the preliminary results. G. Ahmed suggested that it might have been better to have delayed announcing the results pending the second meeting. Mr. Ball replied that since there would necessarily be a considerable time before the second meeting, it was better, on balance, to announce the results.

With regard to the matching concept, Mr. Shoaib pointed out that the United States had traditionally supplied 80-85 per cent of foreign aid received by Pakistan. In the case of India the ratio between U.S. and other assistance was more nearly 4:4 or 4:3. He thought it not realistic to expect that the ratio in the case of Pakistan could be reduced at any early date to a 50:50 figure. Mr. Martin agreed, commenting that we were prepared for some years to see a gap in this respect.

Mr. Ball then urged that the Pakistan Government itself get in touch with the Germans to urge a larger contribution by that country. The U.S. Government, he said, was reaching a state of diminishing returns in its efforts to extract aid money from the Germans. He thought it would be better psychologically for the Pakistanis to make their own case with that government. Mr. Martin expressed his wholehearted concurrence, adding that this was not to say we had not made every effort to obtain a substantial German commitment to Pakistan. We had, but had not been particularly successful.

Mr. Shoaib agreed with Mr. Ball’s suggestion, remarking that his government was sending M. Ayub as its Ambassador to Bonn specifically for this purpose. This, he said, was the “one and only reason for my letting him go from my Ministry.” To the same end, his Government was also strengthening its staff in London.

Mr. Shoaib next remarked that he would have some difficulty stretching the immediate U.S. commitment of $150 million to cover current requirements. Pakistan, he said, needed to place immediate orders for commodity imports to a total of perhaps $120 million. This would leave only about $30 million to apply against development projects, whereas their requests of the Development Loan Fund greatly exceeded that figure. He wondered if perhaps they could proceed to place orders in excess of whatever might be allocated to DLF out of the $150 million on the understanding that they could be reimbursed by the DLF when additional money became available. Mr. Martin said this involved a legal problem for the DLF which would have to be explored. He also cautioned that an indicated willingness by the United States to exceed its commitment at the Consortium meeting might have an unfavorable influence on further European contributions. Mr. Ball said that subsequent reimbursement by the DLF of orders placed now was at least an idea which we could entertain in principle and which we would explore.

Mr. Shoaib next inquired as to the grant component of the U.S. commitment of $150 million. Mr. Martin said that we would not have the answer on this until the legislation had been passed. He would observe, however, that the Administration was under a mandate to reduce grant aid and that it was his guess that such aid, which in the case of Pakistan was described as Defense Support, would be less this next year than before.

Mr. Shoaib further remarked that commodity grant aid had in the past been an important source of local currency for financing plan projects. Mr. Cottam inquired if these could not now be replaced from the proceeds from the expanded PL-480 program now in prospect. G. Ahmed replied that they had hoped not to use the PL-480 proceeds for the Plan, but to conserve them for supplies and programs which would reach the common man and have a more immediate public impact than the larger Plan projects.

Finally, Mr. Shoaib inquired if it might not be possible to decide on a date for the resumed meeting. He remarked that it would not be desirable to have such a meeting coincide with a visit of President Ayub to Washington in early November, and it was accordingly agreed to try to arrange a meeting for late October.

0. Source: Department of State, Central Files, 398.14/6-861. Limited Official Use. Drafted by Adams on June 12 and approved in B on June 21.
1. See footnote 2, Document 22.