The Ambassador in Pakistan (Warren) to the Department of State

No. 525

Ref: Department’s Instruction No. 43, May 3, 1950.1

Subject: Policy Statements—Pakistan

As requested in the referenced instruction I have reviewed the excellent policy statement on Pakistan and forward herewith the following comments:

The statement that “Pakistan has demonstrated a high degree of internal stability and vitality “must be accepted with certain reservations. In view of the short period of time, the demonstration has indeed been remarkable, but the fact remains that there is still considerable power in the Provincial Governments, and the Central Government is not yet firmly established.
With respect to Point IV, all the evidence to date indicates Pakistan’s desire to receive technical aid and assistance through the United Nations and not directly from the United States.
Although the statement that the Treaty of Friendship, Commerce and Navigation is now being considered by Pakistan is correct, it should be pointed out that the treaty is not yet under negotiation, nor have exploratory conversations at a technical level yet been authorized.
A policy of encouraging Pakistan to increase production may be sound only if appropriate consideration is given to the problem of distribution. Pakistan has learned during the past six months what it is to have large exportable surpluses which can only be disposed of at prices which reflect an overvalued medium of exchange—the inelastic demand theory has not worked out very well in practice.
That “the reduction of military expenditures would be helpful in economic development” is undoubtedly correct, but such an understatement suggests a lack of awareness of the true situation regarding Pakistan’s burden of debt caused by continuing deficits of relatively large proportions. Pakistan, although less than three years old, now has an internal debt of 1300 millions of rupees and will soon have a foreign debt of 3,000 millions of rupees. The ability to finance additional debt with the present system of taxation is doubtful.
Our policy of favoring a reduction in export taxes is sound, provided we suggest an alternative means of raising revenues. Eight now the Central Government receives approximately forty percent of current revenues from customs, a large part of which is derived from export tariffs on jute and cotton.
While there is a welcome realism in the statement that “Pakistan is a viable state which could continue to develop independently if not interfered with”, the need for avoiding a conflict in policy is thereby emphasized. For example, the statement is made: “We will in general avoid assisting any project undertaken by either Pakistan or India to develop within their respective territories productive facilities for commodities or manufactures procurable more economically from the other country.” But Pakistan is determined to use its raw jute and cotton and manufacture textiles now made in the mills of Calcutta and Bombay. If the “development of a Pakistan-India entente cordiale appears remote”, how is the United States to help Pakistan in its industrial development without considering Pakistan’s basic raw materials?

Avra M. Warren
  1. Not printed.