Foreign Relations of the United States, 1950, National Security Affairs; Foreign Economic Policy, Volume I

700.5 MAP/11–1650

Memorandum Prepared in the Department of State¹

secret

[Washington, undated.]

Legislation for Foreign Aid Programs

the problem

It is assumed that the following programs of foreign grant aid will be recommended by the President to the next Congress: (a) continuation of military and economic aid to NAT countries and participating ERP countries, (b) a program for the Philippines in line with the Bell Report,² (c) continuation of the STEM programs in South East Asia,³ (d) continued aid to Formosa, (e) rehabilitation aid for Korea through the United Nations, (f) aid to Iran and other Middle Eastern States along the lines of the STEM programs, (g) special program of aid to India, Pakistan and Ceylon, (h) continuation of the IIAA and technical assistance in Latin America,⁴ (i) technical assistance in Africa either through ERP (in Dependent Overseas Territories) or through Point Four activities, (j) grants to the United Nations for technical assistance, and (k) aid to Palestine refugees through the United Nations. (Aid for Yugoslavia presumably will be authorized at the present session of Congress.)

In addition to the above there will be some military assistance programs outside Europe as well as possible loans or grants from funds available for the development of the production of critical defense materials.

The problem of developing a logical and comprehensive approach to all of these programs with regard to the type of legislation, the theory of justification and the responsibility for organizing their presentation to Congress, is the subject of this paper.

recommendations

1. That the Administration present its foreign grant aid requests as one total program for building a strong, free world and seek to have all such aid authorized in one bill; that we propose the bill contain the following titles:

Title I—Global aid in the form of end-use military items together with economic assistance for all European countries, Turkey and Formosa. (Alternatively, a portion of the economic aid for Europe, primarily for Austria, Greece, Italy and Germany, could be requested in a separate title to be made available under existing ERP legislation, or all economic aid for European countries, Turkey and Formosa could be placed in one title with a separate title for military end items.)

Title II—Aid for underdeveloped areas (including Point Four, the Philippine program, STEM programs in Southeast Asia, aid for India, Pakistan and Ceylon, STEM-type programs in the Middle East, European dependent overseas territories programs, and programs for the development of production of strategic materials).

Title III—Aid for Korea.

Title IV—Aid for Palestine refugees.

2. That the appropriations authorized under the bill set forth in Recommendation 1 be made to the President with the understanding that the allocations for specific programs would be made by the President upon the recommendation of the Secretary of State, who would consult with interested agencies.

3. That the responsibility for organizing the development and presentation of these programs to Congress be placed upon the State Department (with the full participation and support of ECA, Defense and other interested agencies).

4. That responsibility within the Department of State for carrying out the above recommendations be immediately assigned.

Now more than ever it is vital that in approaching Congress we give them a complete story of what we are trying to do on a global basis and why we are trying to do it. Each part of our legislative program must be related to our over-all objectives. All of the aid programs mentioned above fall under the objective of strengthening the free world. They make sense only when considered together. Each part can be more easily attacked than can the whole program. Not only in presentation but in the Congressional debates it is vital that the totality of our program be debated at one time. Therefore, it is highly desirable that all of the grant aid programs be put in one piece of legislation. Furthermore, separate pieces of legislation would lose the administrative flexibility and mobility of funds which should be achieved through legislation and appropriations covering as broad areas as possible.

It is unlikely, however, that Congress would enact one set of provisions or grant one lump sum appropriation for so broad a variety of activities. It seems necessary, therefore, to present the programs under several titles (as few as possible) in the bill.

The broad objective of strengthening the free world as approached with two related but separable types of program. Our emphasis in Europe and a few other countries is primarily to help build military strength. Our emphasis in most other areas is to help achieve economic progress as a basis for the maintenance of stable and friendly governments. It seems desirable, therefore, if it is feasible, to deal with the European problem in one title. We have been furnishing three kinds of assistance to these areas, (a) military end items, (b) economic aid in support of the military effort abroad, (c) aid to achieve European economic recovery. The advantages of combining all of these types of aid in one title are as follows. (1) Congress is more likely to be sympathetic toward a program based upon military security than one in which part of the justification is based on continued economic recovery. (2) The three types of assistance are in effect closely interrelated. Maximum flexibility is needed between funds available for procuring U.S. manufactured end-use items and for the production of such items abroad. The distinction between aid in support of foreign military effort abroad and aid for economic recovery is largely artificial. If part of the economic aid were put in a separate appropriation under the label “recovery” and used primarily for certain countries where the military effort was slight in relationship to the amount of aid required those countries might feel it reflected an attitude on our part that their military effort or strategic positions were relatively unimportant.

There are several reasons for requesting part of the funds needed under the old ERP legislation. It would be hard to justify to Congress the amount of aid needed for Austria, Germany, Greece and probably Italy on the basis of the military effort of those countries. Furthermore, the abandonment of the ERP at this stage might be interpreted abroad as indicating a lack of interest on our part in their welfare and internal stability and a resolve to sacrifice these objectives in order to build up a fighting force in our own defense. It might in fact be difficult to give sufficient weight to the purely economic objectives which we have heretofore been pursuing under legislation designed primarily to support a defense program. Probable additional support for the EPU and other important economic objectives might have to be sacrificed.

A third alternative might be the proposal of one title for military end items and another for all forms of economic assistance to the NATO and ERP countries. This would have the advantage of permitting one logical justification of the amounts requested without an artificial distinction between types of economic aid and would at least to some extent minimize the purely military character of the aid. It would, however, hamper transferability between economic aid for production of military end items abroad and for procurement of U.S. end items (unless broad transferability provisions could be inserted in the legislation). It might also cause confusion in Congress to establish a new category of aid when existing legislation and previous discussions have firmly implanted the two concepts of military support and economic recovery. It also presents the danger that many existing conditions and restrictions attached to the ERP legislation would be placed on the aid in support of the military effort abroad.

All of the other programs are for the purpose of aiding in the development of economically underdeveloped areas. With the exception of the two programs (Korea and Palestine refugees) which are to be conducted under U.N. auspices and which will need special legislative justifications and legislative provisions, it seems desirable to place these programs in one title of the bill. All of the programs have common political and economic objectives. In general they center around the development of agriculture, transportation and light industry and improvement in health and basic education. They all have a large element of technical assistance. They must be closely related to activities for the stimulation of international private investment and for public loans. Common legislative policies and provisions should be applicable to them all. It is difficult to discuss such a program in one country or area before Congressional committees without immediately being questioned about similar programs in other areas. The problem of the underdeveloped areas has already been considered as a whole in connection with public discussions on Point Four and it is treated as such in the report of Mr. Gordon Gray.⁵ Furthermore, maximum flexibility of funds between countries and areas is desirable. A strictly regional approach to these aid programs would have unfortunate political repercussions in countries or regions which felt that their programs were small in comparison with those in other regions. It would be difficult to justify continuation of a separate Point Four program in the vast area of the world between the Philippines and the shores of the Mediterranean for which other programs containing so many similar elements are proposed. Appropriations under the existing Point Four legislation in such a case would have to be justified as applying practically to Latin America alone. It, therefore, seems desirable to merge the existing Point Four program with those proposed for the Philippines, the continuation of STEM programs in South East Asia, the program for India, Pakistan and Ceylon and for STEM type programs in Iran and other areas of the Middle East. The programs now being conducted by the ECA in Dependent Overseas Territories of the ERP participating countries are of a similar nature with similar objectives. They, too, should be covered under the same title.

The merging of all programs for underdeveloped areas in one title should in no way restrict a full discussion before Congress of the problems in each country and region and any special strategic importance which they may have to us.

The proposed programs for the Philippines and for India and Pakistan (and perhaps Ceylon) contain a considerable amount of heavy capital investment items. It seems doubtful if Congress would accept programs of this magnitude on a grant basis as a general or continuing type of aid in support of economic development. The programs in these particular countries, therefore, should be justified as requiring, temporarily, additional capital items on a grant basis on the ground that in these particular countries rapid deterioration with consequent political repercussions will take place unless food production and certain other economic activities can be greatly expanded during the next few years. These countries are not in a position at this time to borrow the necessary funds and their strategic position makes it vital for us to go beyond the general type of program which is proposed for underdeveloped areas. The fact that these are specially justified would also tend to ease the political repercussions which might occur in other underdeveloped areas which were not recipients of grant funds for capital purposes. It may be desirable or necessary to have the programs for these countries put into a separate section of the “underdeveloped area title” or alternatively to have some limitation on the total amount available for underdeveloped areas which could be used for large capital items. The problem of definition is a serious one in this regard and further study would need to be given to it.

Because of the fact that the program for Korea and for Palestine refugees involve contributions to the United Nations and consequent special legislative provisions it seems doubtful if Congress would be willing to include funds for them in a general underdeveloped areas title. Each of these programs, therefore, should be included in a separate title.

The legislation should authorize appropriations to the President rather than to any particular agency or agencies of the Government. In the case of the first title of the bill the Department of Defense and ECA are both involved as “operating agencies”. Furthermore, the pattern of an appropriation to the President with responsibility for general direction and the allocation of funds by the Secretary of State has already been established under the MDAP. In the case of the underdeveloped areas programs funds would presumably be allocated to the ECA, the IIAA, the United Nations (for technical assistance) and possibly other agencies. Maximum flexibility is desirable. Although it is not assumed that the State Department will act as an operating agency in the conduct of these programs it is essential that it maintain effective control over the amount to be allocated and the general nature of the programs. These matters are a significant part of our foreign policy. In the case of programs for underdeveloped areas, as pointed out in the Gray Report technical assistance, public loans and efforts to stimulate private investment as well as grants for supplies must all be closely coordinated. No other agency is in a position to exercise such coordination.

It has been demonstrated that the State Department cannot fulfill these functions on a purely liaison basis. It must have control over the funds and approval of the specific programs to be undertaken. It should, of course, exercise this responsibility in full consultation with other interested agencies in the Government and it is assumed that inter-departmental machinery for discussing major problems would be established. The same type of relationships as have been proposed for the Director of Security and Assistance in connection with the Military Security Program⁶ might be applied in the case of the programs for underdeveloped areas.

Even though the State Department does not itself “operate” the foreign assistance programs it seems essential that it take the lead in organizing the presentation to Congress and justifying the programs. The programs will be approved by Congress only if it is convinced that they will help attain essential foreign policy objectives of this country. The basic responsibility for justifying the existence of the programs and their general character and scope must be carried by the State Department since they must be related to our broad security and political objectives. Furthermore no other single agency of the Government is in a position to speak in connection with all aspects of these programs. Although the full support and participation of ECA, Defense and the other agencies should be sought, the principal responsibility for organizing the presentation of the programs should be assumed by the State Department.

Action should be immediately taken to fix responsibility in the Department of State for the organization of the presentation to Congress. Time is exceedingly short. The functions involved are developing figures on the size of the programs, drafting legislation, developing justifications, presenting the programs to the Bureau of the Budget, conducting preliminary discussions with Congressional leaders and presenting testimony before Congressional committees.

A number of areas in the Department are concerns H, E, A and LE are involved in all the programs. In addition EUR and SDMA [S/MDA] are primarily Concerned in Title I. TCA, NEA, ARA, FE and UNA are concerned in the underdeveloped areas title. UNA and FE are concerned in the Korean title. UNA and NEA are concerned in the Palestine refugee title. It is suggested, therefore, that a task force be established under the leadership of a designated person or office for each title. These task forces would, of course, work in full cooperation with other interested agencies and solicit their help and support. It would seem desirable to place upon one official overall responsibility for coordinating the whole effort.

1. Transmitted by Carlisle H. Humelsine, Deputy Under Secretary of State for Administration, to Under Secretary of State Webb on November 16.
2. For documentation on the United States Economic Survey Mission to the Philippines, July-September 1950, headed by Daniel W. Bell, see vol. vi, pp. 1399 ff.
3. For documentation on assistance to Southeast Asia in connection with Special Technical and Economic Missions to various areas, see Vol. VI, pp. 1 ff.
4. For documentation on U.S. policy regarding economic and technical assistance to the other American republics, see vol. ii, pp. 672 ff.
5. For documentation on the report on foreign economic problems by Gordon Gray, Special Assistant to the President, see pp. 831 ff.
6. Regarding new interdepartmental organizational arrangements in the areas of international security affairs and foreign assistance, see memorandum of understanding, December 19, p. 484.