Foreign Relations of the United States, 1964–1968, Volume IX, International Development and Economic Defense Policy; Commodities

115. Information Memorandum From the Associate Assistance Administrator for Multilateral Aid Programs, Agency for International Development (Saxe) to the Administrator of the Agency for International Development (Bell)¹

Washington, December 3, 1965.

SUBJECT

• The DAC—1965–1966

By and large we have done well in the DAC during the five years of its existence. The countries which are members of the Committee have agreed at least implicitly, that there should be a general framework of rules within which aid should be given and received. In the Committee and elsewhere, they have hammered out some of these rules, e.g., the 1963 and 1965 Recommendations on the terms of aid, the UNCTAD Recommendation entitled “Guidelines for International Financial Cooperation”.²

But in July 1965, some of the members were sharply critical of some aspects of the Committee’s program of work for 1965–66. This criticism led to a discussion of the work program late in October.³ This discussion was the first opportunity we have had for some time to re-examine and re-state the purposes which we are trying to serve in the DAC and the scope and direction of its work.

The re-statement is embodied in a paper prepared for the OECD Council (under Tab A).⁴ But this is necessarily a little too bland and detailed. The purpose of this paper is to elucidate and summarize it.

The euphoric atmosphere at the DAC meeting in July 1965 may have misled us a little about our relations with the DAC. Some of the other members disagree with what they believe that we believe to be the nature and purpose of the Committee. They believe that we continue to consider the DAC either as an operational institution or as a seminar in the economics of development (or both). They believe that we wish to examine the situation and policies of recipient countries in detail in order to reach explicit agreement on common policies. They argue that the IBRD is our instrument for doing this in important cases and there isn’t much to be gained from discussion in the DAC of others. They consider it primarily, if not exclusively, a place for consultation about development assistance policies, with very heavy emphasis on the policies of the member countries. These beliefs aren’t wholly unjustified. For a time we did try to make it into an operational institution (e.g., the DAC consideration of aid to East Africa in 1962 and 1963). And we have, from time to time, given somewhat theoretical lectures there. But our recent re-examination of the Committee’s work program has enabled us to set this record straight. Consequently, this disagreement isn’t as great as it seems and doesn’t detract from the real accomplishment in July: A terms of aid target which added to the framework of rules I’ve mentioned.

Over the years we have made progress in the DAC by consulting (and arguing) with other members about their policies. Occasional use of illustrations in the form of “country” studies of the use of analytical techniques, debt, etc., has been or will be useful. More extensive concern with individual recipient countries has not been useful in the past. It is a little unlikely that much will come of DAC meetings to discuss population, housing, etc., agriculture may be an exception. These negative conclusions lead me to approve of the work program described below. They also lead me to conclude that we should make an effort (which we have begun to make) to do more analysis here and in general, to prepare more carefully for discussions there. It follows that we must choose the subjects on which we work with care. Unless they are important enough to us here for us to go into them thoroughly, there isn’t much point in discussing them there.

All of this has had its effects on attitudes and was reflected in the discussion of the 1965–1966 work program. The work program, subject to some modification and additions, e.g. agriculture, is as follows:

a. Financial Aspects of Assistance

We have a fairly well-defined set of subjects to examine and discuss under the heading of the financial aspects of assistance, for which there is a DAC Working Party. We are proceeding to build up our capacity to analyze some of these questions here. The most important of these just now is how to deal with the consolidation, rescheduling and/or other means of alleviating unduly heavy burdens of servicing external debt and in particular with debt arising from suppliers’ credits. A previous question in this area is how to define a burden which is unduly heavy. These questions are complex and contentious. There is no agreement about the answers within the U.S. Government. Progress in dealing with it will be slow. Note that some consideration of the debt problems of individual countries will be necessary.

b. Requirements for Assistance

The work that falls under the heading of requirements for assistance is less well defined. The Expert Group which is a subsidiary body of the Working Party on the subject will be meeting to make “trial applications” of the analytical techniques developed by Messrs. Chenery, Strout and Timms, to the case of Pakistan. If the Export Group is to serve its purpose, it should probably consider and prepare a report not only on these, but on other ways of analyzing requirements for assistance, performance, etc., including the determination of absorptive capacity by aggregating projects as the IBRD seems to have done. This report might then go to the Working Party. It is essential to have, and we have taken steps to insure, IBRD (and IMF) participation in this as well as the other activities mentioned above.

More general work on the Requirements for Assistance will start with some ideas put forward by the French representative.⁵ He suggested that member countries should meet the UN and UNCTAD targets in such a way as to equalize the burden of giving aid. Members not now meeting these targets should increase their aid. Those whose aid exceeds the target amount should not reduce it.

He mentioned these problems involved in considering increases:

(1) How the targets should be calculated, i.e., what definition of aid would be appropriate, what definition of national income?

(2) What measures of ability to pay should be used? He suggested that ability to pay increases with per capita income.

(3) Within what period of time should the targets be reached?

He went on to speculate about the uses to which the increase might be put. These might be: (a) the consolidating or rescheduling of debt; (b) supporting the price of raw materials; (c) financing balance of payments deficits. This was a speculative statement, since made more formally by the Minister of Finance⁶ (at the recent meeting of the OECD Council at Ministerial level. Summary report under Tab B).⁷ Of course we might be embarrassed by being asked to explain when and how we propose to meet these aid targets, and I’m pretty sure we won’t like the French ideas about commodity stabilization. But we are going to be embarrassed by these questions elsewhere, e.g., at the UNCTAD. At least the examination of possible uses for more aid might be a useful adjunct to work on requirements.

c. Private Investment

At a recent meeting of an ad hoc group, we were able to work out a reasonably good preliminary program for inquiry into private investment.⁸ Progress may be a little slow because we don’t really know enough about the subject, but we are probably heading in the right direction by attempting to ascertain its economic effects on investing and host countries. (This work should be carried on in conjunction with the inquiry into the effects of private investment on the U.S. balance of payments.)

d. The Annual Aid Review

The Annual Aid Review will consist of the major questions appropriate to each major country and to important questions appropriate to other countries rather than a long list of questions addressed to every country. We hope country examinations scheduled for the spring and fall (instead of being done during a relatively short period during the late spring) in order to permit more thorough investigation by the Secretariat in advance of each.

There will be no change in the requirements for statistical reports and narrative statements. Consequently, the Chairman will be able to prepare and present his report in July as in the past. In general, the review will be used to reinforce other efforts to reach and implement agreements about aid policies.

We hope that studies in some depth of the aid policies and programs of each member country during the past few years will be made during the coming year in conjunction with the review. We plan to advocate their publication.

All this adds up to further, laborious examination of a small number of the problems we have been examining right along. I don’t expect startling progress this year.

But what we do, or attempt to do, in the DAC should be put into the context of the broader problem of the relations of the United States with the other principal aid-giving countries and of our relations, individually and collectively, with the developing countries. Gradually we should attempt to raise the level of attention paid to aid problems, here and abroad. The long-run objective is to make aid a major element in foreign economic policy. This is not to say that all of these problems should be dealt with simultaneously, nor that there is an ideal, unique solution to them.

We should adopt a less parochial attitude toward the DAC. It has some unique advantages. But it is only one of a number of arrangements for dealing with the economic relations between rich and poor countries. In the past we have, at least on occasion, mistaken the institution for the problem. Major problems about the volume and terms of aid, about debt, targets for aid, etc., will arise within national governments, in other committees of the OECD (see, for example, the summary report of the examination of the state of the German economy in the Economic Development and Review Committee of the OECD on November 23, 1965, under Tab C),⁹ and in other international institutions. These questions cannot be wholly separated from questions of commercial policy, monetary policy and so on. The gradual propagation of sensible ideas about the duration, costs, and difficulties of development; the undesirability of conventional terms of lending, the need for agreement among a few of the “great powers” on the importance of being in the aid business, the reconciliation of aid with other aspects of international economic policy are all objectives which we must pursue in the DAC, the OECD, other international institutions (the Executive Board of the IBRD, UNCTAD, GATT, etc.) and first of all, at home.

Jo W. Saxe

1. Source: Washington National Records Center, RG 286, DAC Material: FRC 70 A 5922, Program (DAC Work Program) 1965. No classification marking. The date is the drafting date. The memorandum was sent through Gustav Ranis (AA/PC) and the Executive Secretariat. Copies were sent to Gaud and seven other AID officers.
2. These guidelines have not been further identified. On December 20, however, the U.N. General Assembly adopted Resolution 2088(XX) by a vote of 83–0, with 15 abstentions, which among other things reiterated the General Assembly’s request to the developed countries “to accelerate and ensure the flow of international assistance and long-term capital to the developing countries” so as to attain the UNCTAD target of each developed country contributing to developing countries a minimum net amount of one percent of its national income. (Resolutions adopted by the General Assembly during its Twentieth Session, 21 September–22 December 1965, General Assembly, Official Records: Twentieth Session, Supplement No. 14 (A/6014) (New York: United Nations, 1966), pp. 27–28)
3. The work program was discussed at the DAC meeting, October 28–29. (“Summary Record of the 59th Session held at the Chateau de la Muette, on Thursday and Friday, 28th and 29th October, 1965,” DAC/M(65)24(Prov.), December 10; Washington National Records Center, RG 286, DAC Material: FRC 70 A 5922, Program (DAC Work Program) 1965)
4. Not attached. Reference is apparently to the paper prepared by the OECD Secretariat for the Council, “Note on the Work Programme of the Development Assistance Committee for 1965/66” (C(65)114), November 5. (Ibid.)
5. Reference presumably is to the position developed by French Delegate Pierre Brossolette at the October 28–29 DAC meeting, which is described in a November 4 paper drafted by Hal Reynolds (PC/FWA), “Summary of Opening Remarks by Other Delegations at the DAC Work Program Meeting, October 28–29, 1965.” (Ibid.)
6. Valery Giscard d’Estaing.
7. Not attached, but the reference may be to a summary of this meeting transmitted in CEDTO 417 from Paris, November 26. (Department of State, Central Files, AID 1)
8. See Document 112.
9. Not found.