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

140. Memorandum From the Administrator of the Agency for International Development (Hamilton) to President Kennedy⁰

Washington, May 25, 1962.

SUBJECT

• Methods for Improving the Coordination of Economic and Military Aid Programs

In accordance with NSC action 2447 of January 18, 1962,¹ the Agency for International Development has studied ways in which improved planning and programming techniques might contribute to more effective coordination between economic and military aid programs. A report on the subject is attached to this memorandum.² The main conclusions and recommendations of this study, which I will summarize below, have been discussed with the agencies concerned³ and have been agreed to in principle. I propose to carry them out promptly.

1. Purpose, Character and Scope of Program Coordination

The aim of improved coordination between military and economic aid is to enable both programs to be used more effectively in the achievement of U.S. foreign policy objectives. Coordinated programming of military and economic aid requires (a) an assessment of the balance between the total amounts of each (the “mix” problem); and (b) an examination of ways in which each program can support the other, to the maximum advantage of overall U.S. interests (the “side-effects” problem).

While the instruments to be coordinated are the dollar aid programs, it is obvious that meaningful coordination requires examination of the effect of dollar aid on the allocation of the larger volume of non-aid resources available within recipient countries, and particularly on their allocation between military and development uses.

To improve coordination, it is necessary that there be greater concert in planning the separate programs both in the field and in Washington. Traditionally, the determination of how much should be allocated to each program has usually proceeded by separate consideration of the military and the economic results to be achieved. The combination of military and economic aid received by a country as a result of this procedure has not previously been subject to significant revision on the basis of an evaluation of total U.S. objectives in the country. Deliberate assessment of the proper balance between military and economic programs is intended to rectify this shortcoming.

Coordination between the programs is quantitatively a significant problem in only a small number of countries on the Sino-Soviet periphery (e.g., Korea, Taiwan, Vietnam, Thailand, Pakistan, Iran, Turkey, and Greece), although it is worth noting that these countries receive a relatively large share (about 40 percent) of total U.S. military and economic aid. The problem is quantitatively smaller, but not insignificant, in a number of other countries, (e.g., the Philippines, Morocco, Ethiopia, Indonesia and Burma). It is of negligible significance in the majority of aid-receiving countries in Latin America and Africa. However, even in these countries, there is a potentially important problem that requires serious attention in coordinated aid planning. This problem relates to military sales agreements, financed by official U.S. sources, with countries in which MAP grant-aid may be quite small, e.g., Brazil and Argentina. In some cases, the net effect of such agreements may simply be that “economic” aid funds help to finance purchases of military end-items. In any case, because of the impact which such sales may have on the use by recipient countries of their own resources, and hence on the effectiveness of economic aid programs, it is essential that such sales agreements be given coordinated consideration before they are formally discussed with potential buyers.

2. Getting the Best Mix Between Military and Economic Aid

As mentioned above, I regard the consideration of alternative ways of using various total amounts of U.S. resources in particular countries and regions as essential for comparing the costs and benefits of different courses of action, and thereby reaching better decisions concerning the use of aid and furtherance of U.S. foreign policy objectives.

Various techniques may be useful for conducting the mix studies as part of the regular process of planning programs in major recipient countries. One technique would require a determination in Washington of alternative “high-low” combinations of dollar guideline figures, for military and for economic programs, to guide the formulation and evaluation by the Country Team of different program mixes. This is the technique which is being used this year in Greece, Turkey and Korea in connection with the program planning for FY 1964-1968. Another technique would require formulation by the Country Team of a “minimum” and a “preferred” program for military and for economic aid, without specification of dollar guidelines from Washington. Essentially similar analysis and judgments are called for by both techniques.

It is also necessary, with both techniques, to examine the effects over time of the alternative aid combinations. In some cases, of which Turkey may be an example, greater aid allocation to productive investment over a five-year period may permit both more economic growth and a sufficient expansion of self-financed defense outlays to offset some reductions in MAP deliveries. Such an outcome would depend on measures to assure that a large part of the resulting increases in output is devoted to reinvestment and to defense financing by the recipient country.

Action Planned: I plan to make the “mix” exercise a regular part of coordinated planning in the key countries in which both programs are large, and to employ, in different countries, various techniques for assessing the aid balance. In other countries, formal exercises of this sort will not be necessary. However, in countries in which significant military sales are contemplated, a corresponding analysis will be required of the political, economic, and military consequences of differing amounts and kinds of sales transactions, before decisions are made.

3. Mutual Support Between Programs

In addition to the problem of the proper balance between programs, effective coordination requires that the planning of each program take full account of the opportunities that may exist for supporting the other program. Such complementarities may entail indirect benefits, such as the contribution of improved military security toward raising the productivity of civilian investment, or the contribution of economic and social development toward increasing the effectiveness of internal military security programs. They may also entail more direct benefits, such as the contribution of military infrastructures, technical training programs, and engineering and construction battalions toward raising civilian output; or the contribution of civilian transportation investment to improved military logistics.

The general implication of such complementarities is that the design of both military and economic programs should take into explicit account, as secondary criteria of choice, the sorts of side-effects that represent benefits of primary importance to the other program. The aim of this effort should be to find, on the military side, for example, a combination of forces, equipment, and infrastructures that is approximately as effective as other possible combinations, in military terms, and yet performs substantially better, in economic, social and political terms. The design of development programs should make a similar effort to take into account, as secondary criteria of choice, those side-effects that may contribute to advancing the military program.

These points are not new. The emphasis already placed on civic action in the MAP planning guidance, in the recent survey teams, and in the AID/DOD formula for funding civic action projects, represents the same approach. But in countries in which the U.S. programs and the domestic defense establishments are relatively large, much more can be done in this direction.

Action Planned: In revising programming methods, I intend to place greater stress on the role of non-military side-effects as an important element in the planning of military programs, and of military side-effects as an important element in planning economic programs. In all the relevant countries, the Country Team will be asked to indicate the specific meas-ures and projects by which the local military establishment can provide benefits to the civilian economy, and to estimate the value of such benefits that are being and can be provided. The Country Team will also be asked to identify specific ways in which the development program is providing benefits to the military effort. In one or two key countries, pilot studies may be undertaken to see the extent to which the military program and defense establishment can be appropriately used to obtain substantial non-military benefits.

4. Meshing the Planning and Programming Cycles

One obstacle to improving coordination between the programs arises from the fact that their planning cycles are usually out of phase with each other. The A.I.D. cycle starts about six months later than the MAP cycle. This gap gradually diminishes in the next few months, and disappears by March, when both programs are presented to Congress. A gap reappears in the fall when programs are finally approved for execution.

The fact that the two program cycles are usually out of phase is not the major obstacle to improved coordination, but it does create problems that interfere with coordination. Probably a greater obstacle has been that the economic programs are usually planned on an annual basis, while the military programs are formulated as part of a five-year plan. The program changes which coordination may require can be more effectively worked out over a five-year planning period than an annual period.

Action Planned: I am shifting the planning of economic programs to a five-year basis, comparable to the military programs, in countries where it is feasible and desirable to do so. In order to mesh the cycles, I also intend to take the following steps: (1) To consolidate the A.I.D. and MAP programming and policy guidances into a single document that would go to the field in February or March of 1963, to guide planning of the FY 1965-1969 programs; (2) To request submission by the Country Team of both military and economic plans, as parts of a single country assistance strategy, by early or mid-August of 1963. This joint country assistance plan would allow for prior consultation between the Ambassador and the Unified Commander concerning the proposed submission; (3) Beginning in the summer and fall of 1962, to make the inter-agency review of each program a more effective joint effort for identifying issues relating to program coordination, and, beginning in the fall of 1963, to hold these inter-agency hearings at about the same time in the cycle.

5. Personnel, Organization and Procedures for Coordination

Besides the foregoing suggestions concerning methods of coordinated programming, coordination can be furthered by various administrative and procedural measures. Some of these measures relate to exchanging A.I.D. and ISA personnel in Washington, as well as encouraging a few A.I.D. people periodically to attend key courses at the Military Assistance Institute, and a few ISA and prospective MAAG personnel to attend the Institute for International Development conducted by A.I.D.

A number of other suggestions have been advanced concerning arrangements that might be made in the field. One of these would establish an assistant director for economic-military planning in three or four of the relevant U.S. A.I.D. missions (e.g., Korea, Thailand, Vietnam and Turkey), and an assistant MAAG chief for economic-military planning in several other relevant countries (e.g., Greece, Iran and China). Another suggestion, advanced by the Budget Bureau, is to establish a central, coordinating staff attached directly to the Ambassador to perform essentially the same function. A third suggestion is to establish an A.I.D. advisor, attached to the Unified Command, whose aim would be to bring economic considerations into the process of reviewing MAAG plans at the Unified Command level.

Action Planned: Some of these suggestions are alternatives. Some are mutually supporting. I intend to test in various countries several, and maybe all, of the suggestions relating to organizational and personnel arrangements in the field.

In addition to arrangements of this sort in the field, improved coordination requires some modification of organization and procedures in Washington. Organizationally, it requires that A.I.D., besides administering the economic aid programs, strengthen its capacities and procedures for program coordination. For this purpose, the central A.I.D. coordinating staff must be intimately associated with both military and economic programs and must function as an impartial advisor to me to help in carrying out coordinated planning techniques, and to identify issues that require decision by me in my role as program Coordinator. In this connection, I envisage the following coordinating procedure in Washington: (1) In the light of a comparison between alternative aid mixes received from the field, the coordinating staff of A.I.D. would prepare a list of issues, together with its suggestions for resolving them; (2) After suitable inter-agency discussions, including appropriate consultation with the Advisory Group on military assistance, I would make decisions on these issues; (3) If any objections remained, the Department of Defense could, of course, appeal such decisions to the President.

Action Planned: I intend to put the above suggestions into effect, as far as possible, in connection with the current Washington review and evaluation of the “mix” exercises on Korea, Greece, and Turkey, and to develop and adapt them for future use, as appropriate. To encourage closer relations between the agencies concerned, I also plan to have periodic meetings of top policy-making officials to consider problems of mutual concern to both programs.

Fowler Hamilton

0. Source: Kennedy Library, National Security Files, Meetings and Memoranda Series, NSAM No. 159. Confidential.
1. Document 130.
2. The report, entitled “Methods for Improving the Coordination of Economic and Military Programs,” May 24, is not printed.
3. An example of the interagency process is the detailed review of an earlier draft of the report by Komer in a memorandum to Frank Coffin, May 2; see the Supplement.