S/S-NSC Files, Lot 63 D 351, NSC 114 Series1

Paper Prepared by the International Security Affairs Committee2

top secret

NSC 114/1, Annex No. 2

Foreign Military and Economic Assistance

i. summary

1. No development in the world situation is considered by ISAC to have diminished the importance or urgency of completing the foreign economic and military assistance programs by the target dates outlined in Annex 2 of NSC 68/3.3

a. With respect to the European NAT countries, the Medium Term Defense Plan (MTDP) continues to be the basis for programming military and related economic assistance.

b. Prompt and adequate measures need to be taken to arrest the general deterioration of the situation in the Near East, particularly in Iran, the Arab States and Israel.

c. In the Far East the United States aid programs together with the struggle against aggression in Korea have played an important part in stemming the tide of Russian-inspired subversion and conquest; but much remains to be done and it is too early to predict that the favorable developments will continue.

2. United States end-item assistance already programmed through Fiscal Year 1952 to meet requirements of the MTDP totals about $10 billion and is related primarily to the unit equipment requirements for forces to be available by July 1, 1952.

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a. Deliveries of equipment, for many reasons, have been slow but are now accelerating; and deliveries of Army equipment financed with Fiscal Years 1950 and 1951 appropriations, are expected to be completed by June 1952.

b. The Fiscal Year 1952 program includes about $1.0 billion to meet the military equipment requirements of the non-NATO countries. Deliveries to these countries, with the exception of Indochina, are slow due to the shortage of matériel in relation to global commitments.

c. In Fiscal Year 1951, $1.23 billion of direct economic aid was allotted to the European NATO countries, while their military efforts totaled $6.0 billion dollars; and for Fiscal Year 1952, $.86 billion of direct economic aid has been requested to be used primarily to support a $9.0 billion military effort by the European NATO countries. About $712 million is proposed to be furnished in Fiscal Year 1952 to other European countries, including Yugoslavia, which are not members of NATO.

d. Other economic aid programs for the non-European countries total about $600 million in Fiscal Year 1952; and the major portion of these funds will be directly applied to strengthening the capabilities of these countries to resist internal and external aggression.

3. The primary difficulties being encountered in completing programs include the following:

a.
Insufficient political cohesion and of resoluteness on the part of many governments to take the necessary measures constitutes a serious barrier to realizing in full the objectives of our economic and military assistance programs. In Europe, these factors are reflected more in the caution with which defense expenditures are being undertaken; while in many non-European countries, they enfeeble efforts to improve the internal security situation and to execute programs of economic improvement.
b.
In continental Europe, a significant difficulty in completing the MTDP in successive annual installments arises from the inadequacy of the efforts of these countries to increase their military equipment production. Munitions production capacity is available; but financing is not available in sufficient amounts. The ISAC considers this problem one of the most urgent facing it.
c.
The volume and rate of military equipment deliveries from the United States have been below expectations and still further below the level of essential requirements. As a result, the incentives to raise the forces on schedule are being weakened. Recently established targets, however, call for deliveries of the Fiscal Year 1952 program by December 31, 1952, with the exception of certain aircraft and other items requiring long periods of production. The ability to hold these delivery schedules depends greatly on the trend of defense production in the United States.
d.
In the non-European areas, shortages of United States trained personnel, as well as export goods, are becoming acute and are inhibiting the rate of program accomplishment.

4. As to adequacy and timing of our foreign military and economic assistance programs, the judgments which emerge from a preliminary reexamination of present objectives and programs of United States [Page 362]foreign economic and military assistance, initially outlined in NSC 68/4 and Annex 2 of NSC 68/3, indicate that:

a.
The central issue concerns the position which the United States should take toward the accomplishment by the target date of the North Atlantic Treaty Medium Term Defense Plan.
(1)
Recent study by the United States of the cost of the MTDP indicates that the plan, if carried out as scheduled, together with non-NATO military costs of the European NATO countries, would involve a total cost over the four years from mid-1950 to mid-1954 of approximately $72 billion, divided into $40 billion of major materiel requirements and $32 billion of other costs. These estimates include costs of German participation; and exclude costs of United States and Canadian troops that would be included in the MTDP forces under JCS plans. These recent estimates show a significantly higher cost than did the study contained in NSC 68/3.
(2)
Total United States assistance for Fiscal Years 1953 and 1954, even if provided at the annual rate requested of the Congress for Fiscal Year 1952, would, together with any present reasonable expectation of European defense efforts, leave a substantial deficiency in the completion of the MTDP requirements.
(3)
If the over-riding objective is the military build-up of the size and by the dates contained in the MTDP, the United States should be prepared to furnish assistance after Fiscal Year 1952 in an amount whose outside limit can now be estimated at about $25 billion. Until the re-examination of the MTDP, now under way, has proceeded further; no estimate can be given of the extent to which adjustments and economies in that plan may reduce the size of the deficiency. To the extent that adjustments in the military plan permit cost reductions or extended target periods, this amount can be less; to the extent that European morale and political cohesion improve, it may also be less. Nevertheless, it is probable that United States assistance will be required during Fiscal Years 1953 and 1954 at an average annual rate greater than that requested of the Congress for Fiscal Year 1952 if the program is to be substantially accomplished on schedule. Moreover, the bulk of the funds should be obligated during Fiscal Year 1953 in order to permit the necessary flow of deliveries in 1953 and 1954. Therefore, the funds required to be obligated by the end of Fiscal Year 1953 would be substantially larger than the appropriations requested for Fiscal Year 1952.
b.
Little scope is available either for significant reductions in the magnitude or for postponing the target dates of our aid programs to the non-European countries. Economic and military assistance requirements for the non-European countries, while substantial in the aggregrate, approach the minimums in terms of both magnitude and timing which are needed to arrest deterioration in the situation, particularly in the Near East, and, in the cases of Asia and the Pacific, and Latin America, to lay a firm base on which more far reaching development and increased military strength can be built in the near future. Particularly for the Near East and Asia regions, United States assistance requirements should not be delayed as to timing.

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ii. western europe

A. objectives and Status of Assistance Programs

5. The basic United States objective in NATO Europe is the accomplishment of the Medium Term Defense Plan (MTDP) which has a target date for completion by July 1, 1954. The MTDP is the basis for programming military and related economic assistance to the other NATO countries.

6. The salient features and implications of the MTDP which are relevant to the discussion are as follows:

a. The MTDP for ground, naval, and air forces in being by mid-1954 represents the agreed aggregate defense force objective of the 12 NATO countries. Individual nations have accepted certain commitments toward the meeting of the aggregate force objectives. The commitments are not firm, but were undertaken subject to financial and economic feasibility, and in the expectation of receiving large but yet unknown amounts of external assistance. The following are the main points about the commitments:

(1)
In the aggregate they are substantially less than the totals indicated in MTDP.
(2)
The commitments taken together do not represent balanced forces within the total represented by the commitments, the shortfall beneath MTDP being proportionately much greater for air than for ground, with naval force commitments intermediate in shortfall.
(3)
It is estimated that present military budgets and U.S. end-item deliveries taken together will provide for less than the total cost of the fiscal year 1952 installment under the commitments.
(4)
Although a major aspect of the MTDP is the force levels to be in being upon completion of the build-up scheduled for mid-1954 the force levels in being at intermediate times during the build-up period are of obvious importance.

Although military discussions have been undertaken on closing the gap in the air forces, conclusive action on the governmental level has not yet been reached toward enlarging the national commitments to fill out the MTDP. The U.S. is initiating multilateral negotiations in the Standing Group on additional force commitments by introducing a specific U.S. proposal for additional national commitments broken down by country and by type of force. The U.S. position was derived from ISAC agency studies in conjunction with JCS proposals.

b. The MTDP represents a basic strategic requirement, rather than a rigid plan or a detailed plan. It is subject to re-examination and adjustment; and its details remain to be further developed by the Supreme Commands of NATO. General Eisenhower and his staff are undertaking, during the current summer, the first major reexamination of the ground and air plan and are expected to complete this phase of their work during September of this year. It is to be expected that SHAPE and the other NATO Supreme Commands will continue to treat the Plan as flexible and subject to modification in the light of experience and changing circumstances or opportunities.

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c. The MTDP is a military plan; but its effective accomplishment requires economic strength and resolute political action.

The demands on European economic resources arising out of the MTDP are creating serious economic pressures in Europe, and those pressures will increase. Moreover, after the initial four-year military build-up embodied in the plan has been completed, the maintenance of force levels reached under that plan will continue to exert substantial pressure on European economic resources over an indefinite period.

Resolute political action is not assured. In at least two major European NATO countries there is serious internal danger from strong Communist parties; in several other countries political cohesion is threatened by economic factors. The dangers of severe price inflation and reduced or unimproved living standards consequently threaten the political framework within which the MTDP must be accomplished in many countries. U.S. assistance must have as one of its objectives the maintenance or improvement of political stability.

d. The United States is a participant in the NATO Medium Term Defense Plan and shares in both the advantages and the responsibilities of accomplishing the Plan. Since the United States is within the joint enterprise and committed to work for the achievement of a commonly agreed plan, we cannot neglect our responsibilities nor ignore the consequences of our actions on the other members of the North Atlantic community. The magnitude of the problem of achieving the MTDP, as will be indicated in Section D, concerns both the efforts which our Treaty partners make and those which we undertake. Consequently the discussion in this paper is concerned primarily with the Medium Term Defense Plan and our economic and military aid programs are considered within that broader context.

e. The estimated cost of accomplishing the MTDP is significantly greater than that given in Annex 2, NSC 68/3. As indicated in Section D, below, the United States must decide the course of action which we should take to achieve our basic objectives in the NATO.

7. The status of current economic and military aid programs for Fiscal Years 1951 and 1952 follows. During this period, as well as in Fiscal Year 1953 and 1954, economic aid will be used to support increasing defense efforts by European countries. Economic aid has, in Fiscal Year 1951, been devoted also to recovery purposes under the Marshall Plan initiated in 1948. Since the Marshall Plan goals have now been substantially reached in all except a few European countries, it is contemplated that economic aid will be used for the purpose of building economic strength, primarily to support a long-term military effort in Europe.

8. In Fiscal Year 1951, about $930 million of direct economic aid was allotted to the continental European NATO countries (excludes Western Germany, Greece and Turkey), while their military efforts totalled $3.5 billion. For Fiscal Year 1952, about $860 million of direct economic aid has been requested of the Congress to be used primarily [Page 365]to support a $5.2 billion military effort by these countries. For the United Kingdom about $300 million of economic aid was allotted in Fiscal Year 1951, while its military effort amounted to $2.5 billion; no economic aid has been specifically requested for Fiscal Year 1952; although the UK military effort is expected to rise to $3.8 billion. Economic aid to Western Germany is expected to drop from $385 million in Fiscal Year 1951 to $175 million in Fiscal Year 1952; while Germany’s military effort (in the form of occupation costs in Fiscal Year 1951) is expected to rise from $1.2 billion in Fiscal Year 1951 to $2.1 billion in Fiscal Year 1952.

9. For the European NATO countries (including Western Germany), taken as a group, Gross National Product (GNP) is expected to rise by 5.5 percent; from $126 billion in Fiscal Year 1951 to $133 billion in Fiscal Year 1952. Per capita consumption, which had on average reached prewar levels by Fiscal Year 1951, is expected to rise further by an average of 1.6 percent in Fiscal Year 1952. These averages, of course, do not bring out substantial differences between countries or social groups within the various countries. In the UK, the lower wage earning groups are estimated to be consuming as much as 10 percent more than before World War II. In the major continental countries, France, Germany, and Italy, the lower wage earning groups are still earning substantially less than prewar and have not made gains proportionate to national averages.

10. The military assistance programs for the European countries, including relatively small stockpiles in Fiscal Years 1950 and 1951 for Austria and Yugoslavia and a $782.4 million equipment stockpile (primarily for Western Germany, Spain and Yugoslavia) for Fiscal Year 1952, are summarized in Table 1. United States end-item assistance already programmed through Fiscal Year 1952 to meet requirements of the MTDP totals about $10 billion and is related primarily to the unit equipment requirements for forces to be available by July 1, 1952.

11. The combined Fiscal Years 1950 and 1951 Army programs provide the major items of equipment for 28 divisions. Upon the completion of the Fiscal Year 1952 Army program, together with the Fiscal Years 1950 and 1951 Army program, the United States will have helped to complete the full equipment of 21 divisions, furnished major items of equipment to 24 additional divisions, and will have provided the essential training equipment for 10 more divisions.

12. Owing to the outbreak of hostilities in Korea and the substantial consumption of equipment in consequence, deliveries of military equipment have been below expectations and still further below the level of essential requirements. As a result, the problem of meeting the force requirements of the NATO countries is becoming one of equipment rather than one of manpower. There is a growing reluctance throughout [Page 366]Europe to call up men for military service without definite assurance that equipment will be available with which to equip and train them.

13. Deliveries of equipment, however, are accelerating; and deliveries of Army equipment, financed with Fiscal Years 1950 and 1951 appropriations, are expected to be completed by June 1952. Recently established targets call for deliveries of the Fiscal Year 1952 program (provided funds are appropriated soon) by December 31, 1952, with the exception of certain aircraft and other items requiring long periods of production. It must be emphasized, however, that the ability to hold these delivery schedules depends greatly on the trend of defense production in the United States.

Table 1

Title I—MDAP

Status of Military Assistance Programs

Fiscal Year Approved Materiel Program Estimated* Obligations as of 6–30–51 Shipments to Port
Charged to Appropriation Acquisition Cost of Excess Total
1950 856,141,560 915,224,696 459,405,641 237,940,957 697,346,598
93,845,413
1951 3,778,883,456 3,569,877,248 82,360,022 40,463,237 122,823,259
1952 4,829,915, 902
Total 9,464,940,918 4,578,947,357 541,765,663 278,404,194 820,169,857.

B. Extent of Accomplishment

14. In the last analysis, the preponderance of the world’s economic strength is presently available to Western Europe and to North America; and this strength, if properly mobilized, can swing the balance of military power in favor of the free nations. The machinery for effecting this mobilization, and its conversion into combat-ready forces, has been created and is in operation. As this process gains momentum and as new nations are associated in the undertaking; real military strength will grow and, in growing, should remove the factors which have underlain defeatism and neutralism in some European countries.

15. Viewed from the vantage point of total estimated costs of mounting the required defense effort, however, only the lesser part of the total job has been done. On the basis of optimistic assumptions concerning [Page 367]economic aid in Fiscal Year 1952 and defense efforts by the European countries, it is estimated that the European military efforts in Fiscal Year 1951 and Fiscal Year 1952, combined with expected MDAP deliveries (not obligations) of military equipment in the same two years, will accomplish roughly 30 percent of the estimated total four-year military cost, excluding United States and Canadian force contributions to the MTDP. Under less optimistic assumptions concerning economic aid and European defense efforts, the progress over the first two years toward the MTDP goals may be slightly over 25 percent. Owing both to the slowness of MDAP equipment deliveries and to the failure sufficiently to activate European armament production; less than 24 percent in financial terms, of the MTDP equipment requirements will become available by the end of Fiscal Year 1952. The implications of these developments are discussed in Section D, below.

C. Difficulties Being Encountered

16. Considerable and encouraging progress has been made in building economic and military strength in Western Europe, but more can and must be done by the European countries, particularly the current and prospective members of NATO. The means for surmounting these difficulties are under study in the ISAC.

17. As a preface to the specific difficulties which are indicated below, it is important to observe that serious economic difficulties are inherent in a program of the magnitude undertaken by the adoption of MTDP. This does not imply that all the difficulties are economic, either immediately or ultimately; the effectiveness of NATO and the Supreme Commands would present serious difficulties, German participation would remain a problem, the implications of large Communist votes would still be cause for worry, adherence of new members would be a thorny problem, and the problems of coordinating and regularizing the activities of sovereign states joined together in an alliance would remain, even if the cost of MTDP were much smaller. But a large portion of the difficulties with which the U.S. Government must preoccupy itself, and, in fact the principal difficulties relating to the successful accomplishment of the assistance program, result from the fact that the minimum security goals are of a size to tax the capacity of European Governments to mobilize economic resources and the willingness of populations to accept heavy economic sacrifices.

18. Major difficulties are set forth below in summary form:

a.
Lack of a sufficient sense of urgency among some of the peoples and governments of the continental European countries has discouraged their parliaments from financing adequate defense efforts.
b.
The existence of national barriers has resulted in a lack of sufficient economic and military cooperation which, if remedied, might well provide more effective defense efforts over the long-term.
c.
Inadequate administrative strength in the NATO, including” weaknesses inherent in 12-power committee action with the rule of unanimity.
d.
The generally poor economic efficiency of continental Europe characterized by low productivity, mal-distribution of income and inability of governments to mobilize resources for defense purposes reduces the European capability to mount a larger defense effort.
e.
The present threat of inflation and the historic incapacity of certain European countries to suppress it constitute both a psychological and economic handicap.
f.
Increasing shortages of raw materials and their efficient allocation to most essential purposes are beginning to handicap industrial mobilization.
g.
All of the foregoing factors tend to inhibit essential increases in (1) the production of military end-items despite the availability of unutilized physical capacity, and (2) the construction and modernization of infra-structure facilities.
h.
The volume and rate of military equipment deliveries by the United States have been below expectations and still further below the level of essential requirements. As a result the incentive to raise the forces on schedule is being weakened.

D. Adequacy and Timing

19. The Medium Term Defense Plan is the standard for evaluating the adequacy and timing of the defense efforts of the NATO countries and the United States economic and military aid programs related thereto. The standard, itself, requires comment:

a. Estimated Cost of the MTDP and Its Implications.

(1)
Estimated Cost. Recent study by the U.S. of the cost of MTDP indicates that the plan, if carried out as scheduled, together with non-NATO military costs of European NATO countries, would involve a total cost over the four years from mid-1950 to mid-1954 of approximately $72 billion, divided into $40 billion of major material requirements and $32 billion of other costs (troop pay and maintenance, training, construction, soft goods and consumable supplies other than ammunition); of the major materiel cost about $9 billion represents war-reserve stocks. These cost figures include costs of German participation and exclude costs of U.S. and Canadian troops that would be included in the MTDP forces under JCS plans.
(2)
Present cost estimates higher than those given in Annex 2, NSC 68/3. The NSC 68/3 estimates were derived, in the absence of direct data on country requirements, from the application of certain general cost factors to the total military program; the recent estimates have been based on data submitted by countries to the Military Standing Group. No detailed comparison of results can therefore be made but the principal elements of difference that can be separately identified are the following:
(a)
Germany, though included in both estimates, was included within the NATO requirements, shown in NSC 68/3 and is presently considered additional to the total forces contemplated at the time of NSC 68/3;
(b)
Present study includes an explicit allowance for war reserve, the NSC 68/3 study was done on the basis of peace-time maintenance in the absence of country data on war reserve requirements;
(c)
Non-NATO costs, principally in major materiel, for France and UK have been revised upward on the basis of data submitted by those countries.

Other elements in the difference, such as changes in price assumptions, etc., cannot readily be identified separately. Present estimates are based on U.S.-screened cost estimates submitted to the Standing Group by the individual countries. It should be observed that elements (a) and (b) in the change of cost estimate really represent modifications in the definition of MTDP and its initial armament objectives, rather than revisions in cost calculations.

(3) Estimated Remaining European Deficiency. Recent study of the “Scope, Duration and Feasibility of the NAT–MTDP and Related U.S. Assistance” (ISAC D–4/7a),4 indicates that over the 4-year period of MTDP the European NATO countries might devote something of the order of $40 billion of resources to defense, assuming U.S. economic aid of $5 billion over the four-year period (i.e., approximately $1.2 billion for each of FY 1953 and 1954). U.S. end-item assistance already programmed through FY 1952, i.e., for which appropriations have been received or requested of the Congress to date, total about $10 billion. Thus the remaining estimated European deficiency, which U.S. end-item assistance in FY 1953 and 1954 will assist in overcoming, is between $20 and $25 billion; minimum economic assistance of some $2.5 billion for the last two years of MTDP makes the general order of magnitude of the total remaining European resources deficiency about $25 billion. It may be noted that end-item and economic aid in FY 1953 and 1954 at the same annual rate as requested for 1952 would amount to half the estimated deficiency, leaving uncovered an amount equal to approximately one-sixth of the total 4 year cost of European defense.

It is fair to state that the magnitude of the problem of meeting the MTDP according to the above estimate, is greater than had been anticipated by ISAC and greater than the other members of NATO are probably aware.

(4) Multilateral Consideration of the Problem. The U.S. evaluation of the problem summarized above, although based largely on the separate cost estimates of the individual NATO countries, has not been made known to the other members of NATO. It is unlikely that adequate progress toward NATO goals can be made without multilateral consideration of the problem sometime during the present calendar year, such multilateral consideration being guided largely by U.S. leadership. It is unlikely that progress can be made toward additional force commitments under MTDP in the absence of realistic consideration of the total cost of MTDP and the distribution of that cost among members. Plans are well advanced in ISAC and the related regional organization [Page 370](ECC) to place this problem before NATO for multilateral consideration.

(5) Consequences of a failure to meet adequately the MTDP . Regarding the possibility of failure to meet substantially the MTDP two points should be recognized. (a) In the event that MTDP as a strategic concept were adhered to, while accomplishment under the Plan were to fall significantly short of goals, proper force balance would probably require some measure of deliberate planning for such a shortfall in order to make most effective use of the resources contributed. (b) Abandonment of MTDP as the basic strategic concept and its replacement by a less adequate military plan would, aside from its military significance, be a severe shock to European morale and the North Atlantic Treaty organization.

b. Possible Ways of Meeting the Deficiency in the MTDP .

The following are the various conceivable ways in which the deficiency could be met:

(1)
U.S. end-item and economic aid in FY 1953 and 1954.
(2)
European economic efforts greater than those estimated above.
(3)
Reduction of Cost of MTDP by modification of forces and equipment.
(4)
Postponement of target dates for MTDP.
(5)
Larger U.S. force contributions than currently proposed by JCS.
(6)
Revisions in cost estimates.

(1) U.S. Assistance. As indicated above, U.S. end-item and economic assistance for FY 1958 and 1954 at the annual rate requested for 1952 would supply approximately half the estimated deficiency. In this connection, it should be noted that the President has authorized public statements before the Congress to the effect that at least the amounts of funds requested for the European NATO countries in the proposed Fiscal Year 1952 program will be required in Fiscal Years 1953 and 1954.

If U.S. assistance were to provide for the entire deficiency, substantial modifications in the techniques and principles that govern U.S. assistance would probably prove necessary. A major difficulty would arise from the conflict between the provisions of such large-scale aid in the form of military equipment and the strategic and economic importance of developing European production of such equipment. It should be noted that meeting the entire deficiency by provision of end-items would lead to U.S. provision of about 80% of European major material requirements. The strategic and economic importance of the implied dependence on U.S. supply are great, and would probably make advisable the provision of substantially larger amounts of economic aid in place of end-item assistance. Such “economic” aid might take the form of “soft” end-items provided to military establishments, of U.S. end-item procurement from European production and associated European imports financed with the dollar proceeds of such procurement, or economic aid of the kind currently being programmed. It seems clear that no form of purely “financial” assistance, unassociated with a transfer of real resources, could be undertaken in amounts of several billion dollars without inflationary effects too serious to be [Page 371]allowed. In practice, putting into Europe a very large increase in current amounts of economic aid would probably involve both sizeable increases in total imports of real goods and sizeable increases in European dollar reserves. Even though a program of U.S. assistance comparable to the entire estimated deficiency would perhaps entail some modifications in aid techniques, the larger part of U.S. assistance would still necessarily be in the form of military equipment, and the problems of U.S. supply must be considered.

Problems of supply are likely to prove serious in any case. Raw material availabilities, and in some cases Technical Assistance, patent assistance, etc., will be important in permitting Europe’s accomplishment of its part; the major problem for the U.S., however, will be in the assignment of U.S. munitions production to NATO. The magnitude of the European deficiency indicated in the figures given above points to the demands that will be made on U.S. munitions output if the NATO build-up is to be accomplished on schedule.

In considering the problem of supply it is important to take account of the close relation between equipment deliveries during the MTDP period and the effectiveness of, and incentive for, the training of European troops. This relationship is an aspect of the fact, referred to above, that MTDP timing is not solely a question of terminal date but involves important intra-period schedules.

It is clear that U.S. assistance of an amount sufficient to meet all or nearly all of the 25 billion dollar deficiency would involve serious difficulties with the Congress.

(2) European Defense Expenditures. The estimate of European military expenditure over the four year period, given above as a round number $40 billion (for which about $5.0 billion of economic aid will be needed), represents the assumption that U.S. negotiating targets for European defense budgets are met in 1952 and significantly increased in each of the succeeding years. They are consequently on the high side of “probable” and permit no easy solution to the deficiency problem by the assumption of greater European efforts. Indeed, in the absence of a major change in the character of European moral and political cohesion, it is doubtful whether U.S. persuasion and negotiation can lead to anything in excess of the $40 billion neighborhood, although this figure is in no sense suggested here as a negotiating target.

Defense expenditures of that magnitude would average without regard to the peaking of defense efforts in Fiscal Years 1953 and 1954, 9 or 10 percent of GNP for the group of countries; 8 or 9 percent if the assumed U.S. economic aid of slightly over a billion dollars per year is deducted from the defense outlays of European governments.

This effort, if actually realized, must be judged a creditable effort. It will imply for most of the countries serious inflationary problems, tax levels equal to or greater than that of the U.S. in proportion to GNP, the unlikelihood of such improvement in consumption standards for an indefinite period, and a good deal of resolution on the part of governments. It is not by any standards, however, an “all-out” mobilization effort comparable to the military outlays of Britain and Germany or the U.S. during the war, or comparable to the effort of the Soviet Union now.

Even if United States negotiating efforts might be successful vis-à-vis European governments, it is doubtful whether the U.S. would be wise in attempting to induce the Europeans to fill the deficiency out [Page 372]of their own resources sufficiently to permit U.S. aid to be less in FY 1953 and 1954 than the amount requested for FY 1952.

Of great significance in obtaining from the Europeans the efforts of which they are capable is the manner in which U.S. assistance is related to and conditioned on European performance. Two major and difficult problems whose solutions are urgently needed are the manner in which end-item assistance is related to a country’s capacity to finance and carry out procurement of end-items in Europe, and the extent to which the U.S. may engage in direct procurement in Europe of end items whose production there is economically and strategically sound. Both of these are part of a more general problem, which is that of bringing all elements of U.S. assistance programs into a general understanding on total U.S. assistance in relation to total country performance, in order to maximize the utilization of European manpower and economic sources for defense, promote the independence of Europe from external aid for the maintenance and support of their forces after completion of MTDP, and minimize the impact of U.S. assistance on the U.S. economy. As long as this problem is unsolved U.S. negotiating strength will not be most effectively utilized. It is fair to state that the size of the effort required itself makes such clear-cut negotiation difficult.

In conclusion, the possibility of greatly expanded European defense expenditures over those already assumed in the estimates cannot be excluded; but it would be unwise to make security plans that are contingent on figures more optimistic than those contained in the above estimates.

(3) Modifications in MTDP . During the course of this summer, SHAPE and the other NATO Supreme Commands are reviewing the military requirements under MTDP. General Eisenhower is aware of the increased necessity, in the light of the above estimates, of examining carefully all requirements with a view to effecting such economies in cost as can safely be accepted. It may be hoped that such a reexamination will lead to reductions in some requirements and hence in the total cost.

Aside from the elimination of superfluous costs, however, it must be recognized that economy will generally mean reduced effectiveness of available forces on target dates. In general, the possible ways of effecting economies would be: reduction of quantity or quality of equipment of forces, reduction of war reserves, reduction of training, reduction of troop levels, or deferment of target dates. It cannot be stated at the present time to what extent some of these ways may be taken to reduce the total cost without grave damage to the basic Plan and the objectives it is to serve.

(4) Postponement of Target Dates. In the event of deferment of certain target dates, the above estimates would be revised somewhat. Spreading the build-up over a longer period would increase the total expenditure that might be expected from the Europeans, since part or all of an additional fiscal year would be available in which to meet some of the costs. The net gain, however, in financing would be less than the additional total expenditures that could be expected, inasmuch as the recurring costs of maintaining forces would be involved in the extension period in excess of any prior savings through slippage. Spreading U.S. aid over a longer period would similarly reduce the annual cost of the build-up). Thus, technically, the assistance programs [Page 373]for NATO Europe are principally of the capital investment type and susceptible of postponement. On the military merits of such deferment, however, there has been no occurrence within the purview of ISAC that reduces the urgency of the original target dates.

It seems clear from the foregoing discussion of this paper that no significant acceleration of the MTDP build-up can reasonably be expected to be accomplished.

(5) U.S. Force Contributions. The considerations surrounding the question of a larger U.S. force contribution to NATO go beyond the scope of this paper. Suffice it here to point out that any change in U.S. force contribution affects the size of the European deficiency, although, in terms of cost, probably by much less than the cost of additional U.S. troops in NATO. Since it is unlikely that the relative costs would be a major factor in a decision on U.S. forces for NATO, the above is stated only as an implication of such a decision.

(6) Revision of Cost Estimates. The range of error in the cost estimates given earlier can be of significant magnitude. Prices are uncertain, scales of production will change, and decisions on troop pay, etc., remain to be taken in several countries. The total cost could vary by perhaps $5 billion with no change in programs, i.e., through cost-price factors alone. This change could be in either direction.

c. Preliminary Conclusions.

If the overriding objective is the military build-up of the size and by the dates contained in the MTDP, the U.S. must be prepared to provide assistance after FY 1952 in an amount whose outside limit can now be set only at about $25 billion. To the extent that adjustments in the military plan permit cost reductions or extended target periods this amount can be less; to the extent that European morale and political cohesion improve it may be less. Nevertheless, it is probable that U.S. assistance may be required during FY 1953 and 1954 at an average annual rate greater than that requested of the Congress for FY 1952 if the program is to be substantially accomplished on schedule. The bulk of the funds would have to be obligated during FY 1953 in order to permit the necessary flow of deliveries in 1953 and 1954, and the funds required to be obligated by the end of FY 1953 would be substantially larger than the appropriations requested for FY 1952.

Studies are now under way to re-examine the MTDP requirements and to refine the basic elements of the plan. Until these studies are completed and reviewed, the United States does not have a firm basis for considering modifications in the plan or determining the feasibility of accomplishing the MTDP in full by the target date. However, no development in the world situation is considered by ISAC to have diminished the importance or urgency of completing the MTDP by the target date.

20. Note on the MTDP in FY 1955. As originally formulated, and as it stands today, the MTDP is a program of military build-up to be completed in the middle of 1954. It is to be followed by a period of maintenance of force levels. The annual recurring costs of the program after completion of the initial training and equipment, i.e., after 1954, are estimated at an amount that could approximately be borne by the European members; although U.S. aid may be required in [Page 374]small amounts after 1954, since the burden of supporting forces will fall disproportionately heavily on certain countries, notably France. Certain types of equipment would have to be supplied physically from the U.S. Completion of MTDP should consequently be expected to produce a sharp drop in U.S. assistance during FY 1955.

21. In the event of modification of some of the target dates, U.S. assistance could to some extent be spread over the longer period.

22. Note on Yugoslavia. The continued independence of Yugoslavia from Soviet control has meant the subtraction of the Yugoslav armed forces (about 30 divisions) from the military power of the Soviet bloc and their addition to the forces opposed to Soviet aggression; relief from great pressure on Greece and Italy; and the strengthening of our whole position in the Mediterranean and the Near East. The break with Russia in 1948 also provided us with the important political benefit of a breach in the solid front of Communist nations and thereby challenging the Soviet grip on world Communism.

23. Programs of action have changed in response to developments. Substantial economic aid was furnished to Yugoslavia in Fiscal Year 1951. Economic aid requirements for Fiscal Year 1952 were studied by the United States, United Kingdom and France. The program for Fiscal Year 1952 involves U.S. assistance in the amount of $60 to $80 million; and the U.K. and France are also contributing aid on an agreed sharing arrangement.

24. In NSC 18/65 the United States envisaged the possibility of furnishing military aid to Yugoslavia in the event of Soviet or satellite attack; and $77.5 million in Fiscal Year 1951 was set aside for stockpiling equipment. Military aid for Fiscal Year 1952 is being programmed on the basis of consultations with the British and French; and in the near future, with Yugoslavia. A specific amount of funds has not yet been determined, the legislative proposals, however, include a request for funds to stockpile equipment for countries, including Yugoslavia, not presently eligible to receive military assistance.

25. Note on Spain. Decisions have yet to be made regarding the exact form, amount and timing of our assistance programs to Spain. Much will depend on Spain’s performance as a result of the recent talks in Madrid. Moreover, the political reactions of our NATO partners have to be evaluated closely; since the initial reactions from abroad were severe and these governments must be convinced that we are not pre-occupied with the concept of retreating behind the Pyrenees in the event of hostilities. The magnitude and character of the problem of meeting MTDP requirements, outlined above, suggests that strict limits should be set to the amount of military assistance which we should undertake to furnish in Fiscal Year 1953.

[Page 375]

iii. the near east and africa

A. Status of Assistance Programs

26.In Fiscal Year 1951, the assistance programs for the Near East and Africa, including Greece and Turkey, were similar in magnitude and form to those given in NSC 68/3. Both the proposed Fiscal Year 1952 military and economic aid programs, however, are larger than estimated in NSC 68/3. Assistance programs were increased in Fiscal Year 1952 to meet the objectives set forth in NSC 47/5.6 The proposed Fiscal Year 1952 program contemplates grant military assistance up to 10 percent of such funds available in Title II of the draft Mutual Security Act to the Arab States and Israel. In addition, on the military side, the Executive Branch decided that the Fiscal Year 1952 programs should provide for the acceleration of the re-equipment and modernization schedules for Greece and Turkey and for augmenting the supply of military equipment to Iran in Fiscal Year 1952. Economic aid programs for Greece and Turkey have also been adjusted in order to take account of their defense requirements.

27 Fiscal Year 1952 economic programs for the Near East were expanded to meet three emerging situations: (a) improved possibilities for a solution of the Arab refugee problem, (b) deterioration in the economic capabilities of Israel during a period of rapid economic development and heavy absorption of immigrants, and, most significantly, (c) the greater currency being given in the Arab world to the defeatist policy of neutralism in international relations. It is emphasized, however, that there is a mounting political crisis in Iran which, if not resolved, could adversely affect the whole structure of relationships between the Near East and the West.

B. Extent of Accomplishments

28. Our assistance programs for the Near East and Africa have achieved impressive results; even though they have not been entirely successful in preventing or arresting a general deterioration in the Near Eastern political and economic situation. Greece and Turkey are solid bastions of strength in the Eastern Mediterranean; and Turkey, in particular, is a model to the Arab World of the benefits to be derived from close cooperation with the United States. Far from sliding into a policy of neutralism, Turkey is insisting upon entering into fully developed mutual security arrangements with the North Atlantic Treaty powers. The economic situation in both Greece and Turkey is slowly improving in spite of heavy defense burdens and, in the case of Greece, the devastation of foreign and civil wars.

29. During the past fiscal year, important progress has been made in laying the foundation for an ultimate solution of the Arab refugee [Page 376]problem with the assistance of UN agencies. This development, if carried to completion, will assist in removing a significant cause of tensions in the area.

30. The Dhahran Air Base agreement was renewed and the Saudi Arabian Government is going forward with its plans to increase its defensive strength. A joint United States military mission is currently discussing the matter in Saudi Arabia. Arrangements are also being completed for the acquisition of facilities in Libya.

31. Both the economic and military assistance programs have played an important part in keeping the Iranian situation from getting out of hand. Projects, such as locust control, financed with Point IV funds have demonstrated to the Iranian people the benefits of United States aid. Prompt deliveries of military equipment to Iran have bolstered the confidence of the Army and helped to ensure its loyalty to the Shah.

C. Difficulties Being Encountered

32. The basic difficulties which hamper the attainment of our program objectives in the area are political in character. The distressing poverty endured by the majority of the people in an area rich in oil resources provides an excellent opportunity for agitation by extremists; and paves the way for violent political action. The growing acceptance of neutralism on the part of the Arab States reflects the confusions and tensions which prevail among their peoples and governments. Our ability to overcome these difficulties is limited by acts of obstruction on the part of certain European nationals to the conduct of United States activities in the area and by the caution the United States should exercise in dealing impartially with the Arab States and with Israel.

33. Our relations with Iran and Syria have weakened and special measures will probably be required to improve them. The friction between the British and Egyptian Governments may involve the United States.

34. As a result of these political developments and as a general consequence of the low level of administrative competency of many governments in the area, it is extremely difficult to get assistance programs properly formulated and executed. This is particularly true of economic and technical assistance programs. In addition to procrastination and delay in the development of programs, it is proving difficult to overcome the reservations on the part of the Arab States to undertake the minimum commitments required to initiate assistance programs.

35. It is anticipated that the proposed Fiscal Year 1952 program of military aid for the Arab States and Israel will be extremely difficult to administer, since it will raise in acute form the distribution of aid as between the Arab States and Israel and will require adequate [Page 377]assurances regarding military roles and missions and the use to which such equipment should be put. The political advantages which will accrue from the successful accomplishment of this task, however, justify the risks involved in furnishing military equipment to the Arab States and Israel.

D. Adequacy and Timing

36. The proposed Fiscal Year 1952 military aid program is believed to be adequate; but it should be noted that, as the attached table indicates, this program is substantially larger than the one given in NSC 68/3 and the military aid program contemplated for Fiscal Year 1953 is twice the size of the one given in NSC 68/3. Thereafter the presently proposed programs are of the general order of magnitude as those given in NSC 68/3. As indicated in Section A, above, the revised military aid programs are designed to accelerate the modernization and replacement of the equipment of Greek, Turkish and Iranian forces and to provide for grant military assistance to the Arab States and to Israel.

37. In view of the adverse trend of developments in the Near East and Africa (excluding Greece and Turkey), serious questions arise as to the adequacy of the proposed economic aid programs. Israel’s foreign exchange position has dropped more than expected. Israel is floating a $500,000,000 bond issue which, if it progresses successfully, will relieve the need for large amounts [of] grant assistance this year. Borrowing in that magnitude will, however, impair Israel’s capacity to service additional loans. The main problem, however, concerns Iran and the possibility that the course of events taking place there will spread to other countries in the area. The present program was based on the assumption that Iran would continue to obtain substantial foreign exchange revenues in connection with oil production and export. The outcome of the oil controversy is still uncertain.

38. The timing of our assistance programs to countries in this area presents special problems. When new or revised programs are established, lasting political advantages are more likely to be obtained if performance becomes evident soon after announcement is made. Economic and military aid programs for the Near East, particularly for Iran, the Arab States, and Israel, should be executed promptly.

39. Moreover, if Greece and Turkey become full members of the NATO, priorities on deliveries of military equipment to NATO countries will apply to Greece and Turkey. This change in political status will probably not affect the volume of deliveries appreciably.

40. In addition to the proposed assistance programs for Turkey, a suggestion has been made that further aid be furnished to Turkey to enable that country to raise an additional six divisions at an initial cost of about $110 million for equipment and an annual cost of about $50 million for maintenance and support. This suggestion has not been [Page 378]recommended by any government agency and it has not yet come before ISAC for consideration.

41. Apart from the continuing assistance programs for Greece, Turkey and Iran, most of the programs for other countries in the area have only recently been proposed or initiated; and therefore there is little scope for postponing or delaying the rate of implementation. On the contrary, it is important, in light of the deteriorating situation in the area, to augment and accelerate our assistance programs.

Table 2

(Preliminary)

Near East and Africa: Military Assistance Programs

Note: Figures for future periods represent purely preliminary and tentative estimates, not yet reviewed by ISAC.

Fiscal Year NSC 68/3 Estimate§ Present Estimate
1951 325. 9 309. 5
1952 271. 3 415. 0
1953 287. 4 596. 8
1954 262. 4 292. 0
1955 242. 2 236. 4

Table 3

(Preliminary)

Near East and Africa: Economic Assistance Programs

Note: Figures for future periods represent purely preliminary and tentative estimates, not yet reviewed by ISAC.

Fiscal Year 1951 Fiscal Year 1952 Fiscal Year 1952
NSC 68/3 Estimate Present Estimate NSC 68/3 Estimate Present Estimate NSC 68/3 Estimate Present Estimate
Near East (Other than Greece and Turkey)
Grant 30 32. 9 65 125 80 NA
Loan 75 76. 5 90 NA 60 NA
Other (55)**
Total 105 109. 4 155 140 NA
Africa
Grant 38 NA 38 25 NA
Loan 29 41. 3 30 45 NA
Other (55)‡‡
Total 67 68 70 NA
Greece and Turkey†† 320 NA

[Page 379]

iv. the far east and the pacific area

A. Status of Assistance Programs

42. In the area which comprehends the extended land mass on the southern flank of the USSR and Communist China, stretching from Afghanistan to Indochina, augmented by the off-shore island chain running from Indonesia to Japan, and also including the Korean peninsula, the United States is striving to turn back the forces of Communist expansion; to attach and retain the peoples and governments of this territory within the free world; to encourage nationalistic aspirations for independence; and to promote internal security and the development of economic well-being. Progress is being made toward these objectives. Assistance programs (other than United States participation in UN military activities in Korea) designed to achieve these objectives amount to about $700 million in Fiscal Year 1951 and $930 million in Fiscal Year 1952.

43. The aggregate costs of assistance programs for countries in this area in Fiscal Year 1951 and 1952 will be slightly larger than estimated in NSC 68/3, Annex 2, if the emergency food loan to India and the partial payment (about $160 million or about 50 percent of the total of such expenses) of U.S. troop expenses in Japan are included. (See Tables 4 and 5). Estimated requirements have risen slightly because (a) objectives have been revised upward (NSC 48/5),7 (b) an emergency food scarcity appeared in India, (c) active military operations in Indochina in the Fall of 1950 required immediate replacement of equipment and supplies (much of which the United States furnished) which was expended in repulsing the Soviet-supported Viet Minh and (d) larger amounts of military equipment and funds than originally scheduled were furnished to the Philippine Army to increase its effectiveness against the Huks.

44. Overall grant economic assistance programs will be less in Fiscal Year 1951 and 1952 than estimated in NSC 68/3. The chief reasons for the decline in the aggregate amount of economic grant aid programs are (a) the switch from grant aid to partial payment for U.S. troop support in Japan and (b) the reduction in grant aid programs to South Asian countries arising both from delays in initiating those programs and administrative difficulties in carrying out economic development programs.

B. Extent of Accomplishments

45. Real progress is being made in achieving our program objectives. It should be recognized, however, that the hostile forces at work in the area remain strong; and they threaten external aggression and make for internal instability. At the moment these hostile forces have [Page 380]lost some of their preponderance of strength, but much remains to be done and it is too early to predict that a definite trend has been established. The timely arrival of military assistance enabled the French and native forces in Indochina to repulse the Viet Minh and to save the Red River delta area of Tonkin. There is now hope that mass starvation can be averted in India, and the basis appears to be emerging for a firmer orientation of India to the West. Japan is being strengthened and encouraged to become a participant on the side of the free world in the struggle against aggression. The internal security situation in the Philippines is improving. In many countries in this area, economic and technical assistance programs are touching the lives of individual citizens and demonstrating in tangible ways the interest of the United States in improving their standard of living. On another plane, the efforts and sacrifices of United States forces in Korea demonstrate to the peoples of Asia that the United States is determined to preserve the independence of nations and to halt the process of Soviet inspired aggression. As a result of these developments, countries which have aligned themselves with the West are more confident and stronger; and those countries which adopted a neutral position are seeking, without explicitly abandoning their official position, to concert their policies more closely with those of the free world.

46. As indicated in Section D, below, our programs of assistance in Asia and the Pacific are primarily designed to arrest deterioration and to establish a firm base on which more far reaching development programs and increased military strength can be built in the near future. Accomplishments cannot be related quantitatively at this time to precisely defined goals as in the case of the NATO countries.

C. Difficulties Being Encountered

47. Significant difficulties are being encountered in gaining our program objectives in Asia and the Pacific. Many of them are inherent in any positive action program for Asian countries. The fundamental problems are political and psychological and concern Asia’s estimates of the long-term correctness, resoluteness and constancy of United States policy on the one hand, and on the other hand, the intentions and capabilities of the U.S.S.R. and Communist China. Many of the peoples and governments of Asia are not yet fully convinced that the interests of the United States coincide with theirs; and that our policies will continue to work for their benefit. As raw-material producers, for example, they are unclear about our intentions toward their schemes for industrialization which they associate with their advancement from a colonial status. There are also enough diversities among the interests of countries in the area so that a major United States policy, regardless of the care with which it is formulated, is likely to bring adverse reactions from particular countries; e.g., the response of [Page 381]the Philippines to the proposed Japanese Peace Treaty or the querulous concern of the French authorities in Indochina about the impact of our economic assistance to the native governments on French relations with those governments. Moreover, almost every government in the area fears invasion by U.S.S.R.-directed forces and therefore is careful to avoid taking many actions which are urged by the United States to make our aid programs fully effective. This caution on the part of Asian governments is too often accompanied by administrative inexperience and, in some instances, by incompetency in government. Our economic assistance programs, in particular, are hampered by ineffective administration in the recipient governments.

48. Closely allied to the difficulties of a political and psychological character are those inherent in the immediacy of armed conflict and the proximity of the aggressor, with the consequent lack of physical security in many countries in this area. Military operations continue in Korea and Indochina. Insurgency and armed political activity are serious problems in Burma, Indonesia and the Philippines. Deterioration of internal stability is an ever-present threat in many countries in the area. As a result, security problems require so much of the governments’ attention that they are hampered in making the best use of economic assistance.

49. Furthermore, the impact of U.S. military aid programs on economic requirements is not subject to accurate prediction; for example, the training and build up of forces to maintain security bring increases in defense costs and complicate the fiscal problem. Moreover, as additional territory is rendered secure, the task of economic rehabilitation is increased.

50. Real difficulties have arisen because of material and personnel scarcities and shortages in the United States, and the priorities assigned to exports of materials. Serious delays have been encountered in securing adequately trained personnel, who are adaptable to work in Asian countries, especially for technical assistance assignments. In South Asian countries, in particular, the Fiscal Year 1951 economic and technical assistance programs got off to a late and relatively small start and lowered the base upon which developmental activities in Fiscal Year 1952 could be eradicated [predicated]. If, as now seems probable, the Fiscal Year 1952 economic program for South Asia does not get under way until well along in the fiscal year and there is a resultant delay in the organization of the larger project contemplated, it will probably be necessary to intensify the United States assistance effort in Fiscal Year 1953. Material shortages, both for economic and military uses, are hampering the fulfillment of program objectives for almost all countries in the area, with the possible exceptions of military equipment to Indochina and Formosa which were assigned high priorities. The problem is acute for Asian countries because supply [Page 382]lines are long, transportation problems are serious, and accomplishments, in the eyes of Asian governments, are measured in terms of supply deliveries.

D. Adequacy and Timing

51. Putting to one side (a) future aid requirements for Korea and Japan, (b) possible increased requirements for Formosa, and (c) unanticipated operational requirements in Indochina, the military aid programs for Fiscal Years 1951 and 1952 and those set forth in NSC 68/3 for Fiscal Years 1953–55 inclusive, appear to be adequate. If political conditions improve in Burma and Indonesia, however, we may recommend relatively small military aid programs for those countries.

52. Although substantial military aid requirements for Korea and Japan in Fiscal Year 1953 and subsequently are anticipated, they cannot be estimated at this time. Estimates of these requirements were not included in NSC 68/3.

53. After considering loan possibilities, the Fiscal Year 1951 and proposed Fiscal Year 1952 aid programs are believed to be adequate with respect to the availability of funds. Shifts have been made in country distributions and greater reliance is being placed on increased loan possibilities with the proposal of loans not only to Indonesia, the Philippines and Thailand as originally contemplated, but also to Burma a year earlier than projected in NSC 68/3.

54. For Fiscal Year 1953, economic aid programs should be increased in magnitude and tempo. Since Fiscal Year 1952 economic aid programs for South Asia will probably get off to a late start, careful consideration should be given to accelerating them in Fiscal Year 1953. The economic aid requirements of Formosa are estimated at $90 million for Fiscal Year 1953 compared to $30 million given in NSC 68/3.

The outlook for Fiscal Year 1953 for economic aid requirement is summarized below:

Fiscal Year 1953 (in million dollars)
NSC 68/3 Annex 2 Present Estimates (Including Loans & Grants)
South Asia $150.0 Probably more than $78 million requested for FY 1952
Southeast Asia
Philippines 60.0 75.0
Other countries 90.0 77.0
North Asia
Japan and Ryukyus 26.0 13. 0 (for Ryukyu Islands only)
Korea 159.0 about 159.0
Formosa 30.0 90.0

[Page 383]

55. The fulfillment of program objectives for all countries in Asia and the Pacific should be accelerated both in this Fiscal Year and in Fiscal Year 1953. Our economic and military aid programs are small relative to the magnitude and complexity of the requirements of the area. Continued accomplishments depend upon tangible improvements in the security situation and in economic well-being, both of which require prompt application of our aid. The favorable political effects of our aid programs, now that their announcement has inspired growing confidence in U.S. policies in the area, will be more closely related to concrete progress in fulfillment.

56. Our aid programs for Asia and the Pacific are essentially ameliorative in character, designed in the first instance to arrest the progressive deterioration in conditions and thereafter to establish a solid base for sustained and prolonged improvement. The tasks ahead are neither postponable nor susceptible to quick solutions. The amount, form and timing of our aid programs approach the minimums needed to maintain the situation in our favor and to ensure pronounced improvement in future years. We are not now in real command of the situation in this area and we should not revise downward the courses of action we have adopted to achieve our immediate objectives in this area. With great effort and at real sacrifice we have won a breathing spell which will be useful only if we continue to carry out our action programs in Asia and the Pacific. It is therefore believed that we should not slacken our efforts or postpone the targets of our aid programs in Asia and the Pacific.

Table 4

Asia and the Pacific: Military Assistance Programs

Note: Figures projected for future periods represent purely preliminary and tentative estimates not yet considered by ISAC.

Fiscal Year Annex 2 NSC 68/31‡‡ Present Program‡‡
1951 375.0 463.0
1952 560.0 555.0
1953 467.4 §§467. 4
1954 383.6 383.6
1955 358.7 358.7

[Page 384]

Table 5

Asia and the Pacific: Economic Aid Programs║║

Note: Figures projected for future periods represent purely preliminary and tentative estimates not yet considered by ISAC.

Fiscal Year 1951 Fiscal Year 1952 Fiscal Year 1953
NSC 68/3 Estimate Present Estimate NSC 68/3 Estimate Present Estimate NSC 68/3 Estimate Present Estimate
A. South Asia:
Grant 3 8 150 150
Loan 190
Total 3 198 150 78. 2 150 More than 78
B. Southeast Asia (Incl. Formosa):
Grant 146 157 187 180
Loan 30 90
Total 146 157 217 214 270 272
C. North Asia:
Japan and Ryukyus 231 234 174 27¶¶ 26 13¶¶
Korea 185 152 152 212. 5 159 About 159
D. Total for the area 565 741 693 531. 5 605

v. american republics

A. Present and Proposed Programs

57. Political and Economic. The actual economic program of technical cooperation completed during FY 1951 was in size and type very close to that given in NSC 68/3. However, only $4 million was appropriated for the Inter-American Highway in FY 1951. Furthermore, because it was necessary to conclude project agreements, only a very small portion of the funds for the Highway was expended.

The revised program, both the technical cooperation program and the Highway, for FY 1952 is substantially smaller than estimated in NSC 68/3. This does not reflect a change in political or economic objectives, which remain unchanged, but results from the following factors:

a.
An administrative decision that a satisfactory rate of progress toward the stated political and economic objectives could be obtained with a smaller U.S. contribution to technical cooperation. This decision was made in recognition of the pressing needs for U.S. assistance to other regions and in relation to the overall size of the economic grant aid and technical cooperation program considered feasible to underdeveloped regions in FY 1952.
b.
Increased foreign exchange availability and particularly the dollar earnings of countries in the region as a result of export commodity [Page 385]price increases. This development enables Latin American governments to do more with their own resources.

58. The NSC 68/3 estimates provided for a substantial build-up in technical cooperation programs in FY 1952 to an annual rate of $28 million, continued through 1955. The smaller build-up in the revised program now proposed for FY 1952 ($22 million) leaves a choice as to whether or not the program should be increased in FY 1953 to reach the proposed peak level, or more gradually raised over FY 1954 and FY 1955. In view of the demonstrated ability of the Latin American governments to absorb and effectively utilize technical cooperation programs, and in view of the factors discussed in Section C, below, the more rapid build-up appears desirable.

59. For example, it was contemplated that the Inter-American Highway should be completed by the end of FY 1954. As noted above, however, only $4 million was appropriated in FY 1951 and $4 million more is requested for FY 1952. At this rate, it will take some 16 years to complete the Highway.

60. Against the projection of a potential scale of Latin American lending operations of $350 million during FY 1951 on the part of Eximbank and IBRD ($225 million by the former and $125 million by the latter) the new credits authorized during FY 1951 by Eximbank amounted to $263.6 millions and by IBRD to $85.3 millions, totalling $348.9 millions.

61. Military. The FY 1951 MDAP contained no provision for grant military assistance to Latin American nations; provision was made for military assistance on a reimbursable basis. NSC 68/3 indicated that “nominal amounts” might be made available for grant military assistance to the American Republics.

62. The proposed FY 1952 program, however may provide $40 million in grant military assistance to selected Latin American nations. The funds are designed to assist these countries to raise and equip military forces which can effectively perform certain agreed hemispheric defense tasks as part of a multi-lateral defense plan under development by the Inter-American Defense Board. U.S. forces, which would otherwise have the responsibility of undertaking such tasks, will thus be released for deployment to other more critical areas. Utilization of the proposed authority and funds will depend upon the satisfactory negotiation and implementation of bilateral agreements between the U.S. and selected Latin American countries. Final determination of amounts and recipients of grants must await the outcome of such negotiations.

63. The proposed FY 1952 military grant aid program for Title IV countries was developed in the light of evidence that Latin American countries are now prepared to cooperate in developing a collective program for hemispheric defense; and because they are not militarily [Page 386]capable of effectively performing the required hemispheric defense task without U.S. military aid in support of the military effort necessary to raise, equip and maintain the forces required.

64. The $40 million included in the proposed FY 1952 legislation is short of the amount estimated as being necessary for providing minimum forces required for the performance, in the event of war, of defense tasks outside the borders of Latin American countries but within the general Latin American area. A very preliminary estimate of military assistance requirements for Latin America, not yet reviewed by ISAC, indicates that the following amounts will be needed as grant military assistance to meet the present objective of preparing effective forces for war deployment outside of the recipient countries’ borders but within the general Latin American area, and to provide minimum effective forces for defense of vital installations and resources within the respective borders of recipient countries:

  • FY 1953 = $300 million
  • FY 1954 = $85.4 million
  • FY 1955 = $67.8 million

These estimates must be considered extremely tentative and therefore subject to substantial revision as result of detailed surveys of military capabilities and requirements on a country basis.

B. Extent of Accomplishments

65. Political and Economic. The political and economic accomplishments under the FY 1951 program were important and demonstrated the continuing interest of the United States in inter-American affairs.

66. The technical cooperation program proposed for Latin America is designed to improve the basic governmental services, and is an important factor in creating the conditions needed for economic development. It offers only a partial, though important, contribution to the attainment of U.S. political and economic objectives for the region. This is especially true of countries such as Haiti, Bolivia and Ecuador where the economic problems are too great in magnitude to be solved by technical assistance only.

67. Military. With regard to the military program, it is expected that the following will be accomplished: Negotiation and conclusion of necessary agreements, and supplementary arrangements with other governments; delivery of U.S. equipment and other material required for the build-up of units to a state of readiness to carry out the defense tasks which are considered to have the highest priority.

C. Adequacy and Timing of Proposed Programs

68. Political and Economic. The revised economic aid programs, outlined in Section A, above, are minimal from the viewpoint of adequacy. [Page 387]Measured against development efforts through private and public investment in the 20 countries in the region, it can only be considered a significant catalytic agent to stimulate efforts by the local governments to help themselves. The long-range nature of the program requires a steady and continuing cooperative effort with the governments in the region. This is the important element of timing.

69. Military. The objective of creating an effective system of collective hemispheric defense would be rendered impossible if the program of U.S. military grant assistance, already publicly announced, were not initiated and if provision were not made for its continuation over the next two or three years.

vi. u.s. contributions to multilateral programs of technical assistance, fy 1951–55 inclusive

Introduction

70. The desirable US contribution to expanded programs of technical assistance conducted by the United Nations and its specialized agencies and by the Organization of American States, represents a more difficult estimate than those for the bilateral aid programs proposed for any region or country. Such an estimate of the US contribution incorporates judgments on (a) the portion of the total program of technical assistance that can best be carried out by multilateral agencies, (b) the size of the international program that the capacity of these agencies permit them to carry effectively and (c) the contributions that can be counted on from other governments, so that the truly international character of these organizations can be preserved and so that an undue share of the cost of supporting such international activities does not fall upon this country.

A. Status of Present Programs

71. The US contribution to the expanded programs of technical assistance by international organizations in FY 1951 will be used through December 31, 1951, which ends the fiscal year for these organizations.

72. It is presently estimated that, given the scope of its program as it is being developed this calendar year and the interest of other governments, the total expanded program to be carried on in calendar year 1952 by the United Nations will amount to approximately $25 million. Pledges in support of the 1952 program will be made this next fall. With some carry-over of uncommitted funds from 1951, it is proposed that a United States contribution of $13 million in FY 1952 will enable the United Nations and other supplementary international agency programs, such as that of the Organization of American States, to continue in calendar 1952 at an accelerated rate, without [Page 388]a change in the percentage of US contribution. However, this figure of $13 million which represents a reduction from the NSC program, cannot be considered firm until the actual carry-over of uncommitted funds from the 1950–51 program is determined at the end of the calendar year.

B. Difficulties Being Encountered

73. A considerable measure of coordination between the United States and United Nations programs of technical assistance has already been achieved by an exchange of information and consultation. There is still a good deal that needs to be done to improve the joint programming and advance consultation at the country level to maximize the effectiveness of both programs as an aid to balanced and integrated economic development. There also needs to be a strengthening of the United Nations program at the center, to ensure that the operating capabilities of the UN and the specialized agencies are effectively applied to supplement each other in meeting high priority needs within a country.

C. Adequacy and Timing

74. The revised program of technical assistance through the international agencies is adequate to provide member Governments with (a) the major and urgent technical assistance which they may request of the United Nations, its specialized agencies and the Organization of American States, and (b) the choice of a wider variety of services than could be provided by the US alone. The timing needs, as reflected in the revised program, are for a gradual build-up to permit continuing and increasing cooperation between member governments and the international organizations.

75. For the period FY 1953–55, it is considered desirable to provide US contributions at a gradually increasing rate until FY 1954, as provided for in the NSC estimates. However, due to difficulties anticipated in securing larger contributions from other governments, particularly from Latin American countries toward the program of the Organization of American States, the US contributions in these three years may not need to be quite as large as indicated in the NSC 68/3 program. If the necessary contributions from other governments are forthcoming, on the other hand, it is desirable that the international programs of technical assistance be expanded to the levels indicated in the NSC 68/3 program. This last year’s experience has clearly demonstrated the value of such action programs under international auspices as an effective means of carrying out our policy of strengthening the United Nations; and supplementing and complementing US bilateral programs toward similar objectives.

  1. Serial master file of National Security Council documents and correspondence and related Department of State memoranda for the years 1947–1961, as maintained by the Executive Secretariat of the Department of State.
  2. This report was prepared as part of the response to a directive by President Truman circulated through the National Security Council on July 12 (for text, see p. 102) calling for a report on the status of United States programs for national security. The report was to be completed by August 1 for purposes of Fiscal Year 1953 budget planning. The present paper was drafted by a working group of the Foreign Aid Committee (FAC), a subcommittee of the International Security Affairs Committee (ISAC). It was approved by ISAC on July 30 as document ISAC D—20b and transmitted to the NSC Senior Staff on the following day with the notation that it was only a preliminary study and would be the object of continuing review by ISAC.

    On August 8, the NSC approved Report NSC 114/1, “Status and Timing of Current U.S. Programs for National Security.” The annexes accompanying NSC 114/1, consisting of detailed studies of programs, were circulated for information. The present report was circulated as NSC 114/1, Annex 2. For the text of NSC 114/1 (p. 127) and additional documentation on its preparation, see pp. 1 Additional documentation on FAC and ISAC development of this annex on foreign assistance is in Lot 53 D 443, ISAC Files.

  3. NSC 68/3, Annex 2, “The Foreign Military and Economic Assistance Programs,” December 8, 1950, is printed in Foreign Relations, 1950, vol. i, p. 433. Substantial material on the NSC 68 series (“United States Objectives and Programs for National Security”), including the texts of NSC 68, April 14, 1950, and NSC 68/4, December 14, 1950; and extracts from NSC 68/7, September 30, 1950, and NSC 68/3, December 8, 1950, is printed ibid., pp. 126 ff.
  4. Includes materiel, training and administrative expenses. [Footnote in the source text.]
  5. No-year ship construction account; not possible from information available to break out to fiscal year. [Footnote in the source text.]
  6. Proposed materiel program. These data do not include costs of training, transportation, or administration. The data understate the amount of materiel procured; since equipment in excess of U.S. requirements is acquired by the MDAP at rehabilitation cost. The Fiscal Year 1952 program also includes materiel for stockpiling needs (Western Germany, Spain, and Yugoslavia). [Footnote in the source text.]
  7. For an extract from document ISAC D–4/7a, “Scope, Duration and Feasibility of the NATO Medium Term Defense Plan,” June 20, 1951, see vol. iii, p. 193.
  8. For NSC 18/6, “The Position of the U.S. With Respect to Yugoslavia,” March 7, 1951 (approved by the President on March 12), see volume iv .
  9. For NSC 47/5, “U.S. Policy Toward the Arab States and Israel,” March 14, 1951 (approved by the President on March 17), see volume v .
  10. Includes only Greece, Turkey and Iran. [Footnote in the source text.]
  11. Beginning in Fiscal Year 1952 it is proposed that up to 10 percent of the funds made available for military assistance in Title II of the Act may be used to furnish military equipment to Israel and the Arab States, [Footnote in the source text.]
  12. Includes $25 million for Iran which has not been ratified by the Iranian Parliament. [Footnote in the source text.]
  13. ECA estimate of funds requested for development of strategic materials in Fiscal Year 1952, a large portion of which will be spent in dependent overseas territories in Africa. [Footnote in the source text.]
  14. Economic aid for Greece and Turkey is included in Title I of the proposed Mutual Security Act. [Footnote in the source text.]
  15. For text of report NSC 48/5, “U.S. Objectives, Policies, and Courses of Action in Asia,” approved by the President on May 17, 1951, see vol. vi, Part 1, p. 33.
  16. Does not include Korea, Japan, Indonesia or countries in South Asia, Military aid programs are not presently contemplated for South Asian countries, except possibly for Burma. [Footnote in the source text.]
  17. Does not include Korea, Japan, Indonesia or countries in South Asia, Military aid programs are not presently contemplated for South Asian countries, except possibly for Burma. [Footnote in the source text.]
  18. This estimate will be increased if requirements are met for (a) Korean forces, (b) enabling Formosa to participate in offensive operations, (c) arming Japanese forces, and (d) operational needs of troops in Indochina. [Footnote in the source text.]
  19. Does not include Point IV assistance or UN assistance. [Footnote in the source text.]
  20. It is assumed that the partial payment in dollars for U.S. troop support in Japan supplemented by dollar procurement of military supports will enable Japan to meet its dollar foreign exchange requirements. [Footnote in the source text.]
  21. It is assumed that the partial payment in dollars for U.S. troop support in Japan supplemented by dollar procurement of military supports will enable Japan to meet its dollar foreign exchange requirements. [Footnote in the source text.]