The Assistant Secretary of State for Far Eastern Affairs ( Rusk ) to the Director, Far East Program Division, Economic Cooperation Administration ( Griffin )

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Dear Allen: We have been giving some thought to the policy framework within which this Government should approach the interrelated problems of ECA and MDAP economic and military assistance to Formosa. I am putting in this letter a statement of the policy guide lines which we think should govern ECA planning and operations during the remainder of Fiscal 1951 and during 1952. The principle contained in paragraph 5 is one which will, of course, require study and comment by Defense, but before that is done State and ECA should, I believe, arrange to have a full exchange of views on the whole range of problems arising from our aid programs for Formosa which we are apt to be facing in the coming period.

The economic stability of Formosa is a prerequisite for the preservation of morale and will to resist of the government and people of Formosa.
Economic stability is the product of psychological as well as strictly economic factors. In consequence, ECA should attempt to engender on Formosa confidence in the long term viability of the Island, a will to assume true responsibility for the operation of the economy, a desire to engage in modest, medium term, balanced development of its resources and productive facilities, as well as to provide assurance that the deficit in its legitimate requirements for consumable commodities will be met by United States assistance.
The scope and character of ECA economic assistance to Formosa should be made known to the Chinese in advance and the best use [Page 1597] of that assistance should be understood to depend upon the maximum self-help efforts of the Chinese within that framework.
The Seventh Fleet mission in the Formosa Straits should be considered as continuing for an indefinite period of time and United States military assistance to Formosa considered to be for defense purposes only. The possibility that changes in the general international situation will bring about modification of these two assumptions in our military policy towards Formosa should not cause ECA to proceed with its economic assistance on a tentative or timid basis.
We believe that escalator arrangements should be worked out with Defense which would make available for Formosa ad hoc assistance to meet costs arising out of that increased military assistance which obviously impinge or encroach upon the civilian sector of the economy. The Chinese should have it made clear to them that reckless diversion of Formosa’s resources for unjustified military expenditures which will result in unplanned balance of payments deficits will be paid for by increased austerity in the Formosa standard of living and not by the United States.
The local relationship between the ECA Mission on Formosa and the Chinese should be governed by the following principles:

ECA should not present itself to the Chinese as assuming responsibility for the economic viability of Formosa, but rather should present itself as undertaking to assist in making the most effective use of the previously and publicly proclaimed United States resources known to be available to help in achieving that end.

The ECA Mission should advise but should not give direction to the Chinese, overtly or tacitly, in the conduct of the economic administration of the Island.

The political purpose of the economic program should be to create on the Island of Formosa a society which has prospect for enduring as a balanced and productive economic system designed to serve the welfare needs and aspirations of the people of Formosa. The economic objective should not be to erect a structure primarily designed to provide Mainland elements with a short term springboard for realization of their future ambitions since this is clearly beyond the economic capabilities of the Island of Formosa.

When you have had time to form your views on this series of propositions and operating principles, would you call me so that we can arrange a time to meet and discuss them together.1

Sincerely yours,

Dean Rusk
  1. The six numbered paragraphs of the letter were incorporated in an ECA telegram sent jointly to Rankin and Raymond T Moyer, Chief of the ECA Mission in Taipei, Ecato 319 to Taipei, March 31, 1951; the telegram noted ECA’s agreement with the policy outlined and stated that paragraph 5 was being discussed in detail by ECA and the State and Defense Departments (ISA/MDAP Files: Lot 52–51).