Foreign Relations of the United States, 1951, European Security and the German Question, Volume III, Part 1

ECA message files, FRC 53 A 278: ECA circular telegram

The Administrator for Economic Cooperation (Foster) to all ECA European Missions ¹

secret

Washington, May 28, 1951—9 p. m.

Ecato circular E–52. Purpose this circ to seek ur comments on certain assumptions as to manner administering ECA aid in fiscal 1952.

We are faced with situation in which foreign exchange shortage is less and less major limiting factor in ability Eur govts accomplish their economic objectives. Amount of dol aid consequently getting smaller. At same time, importance exercising US leadership and influence in connection economic policies of Eur govts greatly increased by need assure significant contribution from each country toward fulfillment NATO rearmament plans, while maintaining behind growing military shield a cohesive and workable society with highest possible morale.

Full success this undertaking depends upon fundamental decisions which Eur countries have made, and are still making. These decisions so basic that they cannot be “bought” with US aid, but must depend on deep realization self-interest, combined with hope, among Eur people. Thus, in determining whether extend US aid to a country, we do not base our decision on expectation such aid will of itself determine or even profoundly affect these basic decisions. Nevertheless, once it has been determined on economic grounds that economic aid in support of country’s defense program is justified, administration US aid shld be such as maximize its effectiveness in strengthening those elements in country which contribute most to attainment our common objectives.

Basic objective our aid continues be proper direction of total resources available each of Eur countries and to all of them collectively.

To accomplish specific objectives in particular Eur countries, it is proposed adopt (and so inform Congress), fol modifications in procedures administering aid:

1. As a general rule a country’s anticipated B/Ps deficit shld set upper limit to total amount aid a country will receive in any period. We will not, however, fix and agree to this total amount aid for long periods in advance.

2. Within this limit, amounts aid to be considered firm commitments will be agreed from time to time between recipient govt and US, tied to more specific conditions. Agreement on firm commitments aid shld not be confused with formal allotment process; allotments will continue be timed (within agreed aid amounts) to fit in with timing of procurement of commodities involved.

3. Main condition for which we will be bargaining will, of course, be adequate rearmament effort on part aid recipient. Specific objectives in support this main purpose include fiscal measures, materials control arrangements, adequate financing and procurement military end-items in other Eur countries, measures to accomplish redistribution income within country in interest of internal stability, programs for increasing productivity, etc.

4. We generally plan make agreement with govt on use 95% counterpart funds prior to making dol aid available. In past we have often permitted counterpart to accumulate and then have negotiated with govts about its distribution and use. In some countries this has made it impossible use counterpart funds for special incentive purposes or even to direct these funds into meeting most important portions of govt budget. In future it intended that US influence inherent in joint control of portion of recipient govt’s revenues will be formalized, and appropriate bargain struck, prior to final decision make dol aid available. This shld increase degree to which counterpart can be used as effective bargaining counter in connection specific objectives in each country.

It is intended in this way to use US participation in decisions about disposition local currency counterpart to achieve better direction of total resources in countries receiving aid. This will not in all cases mean use of counterpart for extra-budgetary purposes. Even where our efforts merely mean use of counterpart for items already budgeted, it may be important identify our assistance with these purposes.

5. In order clarify use of counterpart funds for direct military aid purposes, when this seems advisable, changes will be sought in preamble to Mutual Security Act and in counterpart provisions of Economic Cooperation Act, and corresponding changes will be made in bilateral agreements.

Except for item 5, these changes in emphasis can be put into effect without legislative change or negotiations to amend bilateral agreements. It therefore intended that above points, with exception of item 5, become standard practice in the case of all countries as soon as possible with, of course, appropriate variations to fit our objectives and methods of operation in each country. This procedure for administering aid and use of counterpart will have to be directly related to total action program, so that all forces available to US in its negotiations (e.g. allocation scarce materials, technical assistance, end-item assistance, public information, persuasion, leadership, etc., as well as direct country aid) can be focused simultaneously on attainment of major objectives in each country.

To assist in Congressional presentation, request views each mission on implications above principles for its method of doing business with govt to which it accredited, with special reference to method of establishing agreed amounts aid and for administration 95% counterpart funds.

Assumptions in this circular, which represent thinking of ECA/W and OSR, are under discussion with other agencies here. Would appreciate prompt reply as a contribution to finalizing policy on this subject.

Foster

1. Authorized by Porter, drafted by Harlan Cleveland and cleared by Bissell. Repeated for information to the Embassy in France for OSR and to the Embassies in Yugoslavia and Switzerland.