Foreign Relations of the United States, 1952–1954, General: Economic and Political Matters, Volume I, Part 1

Eisenhower Library, Eisenhower papers, Whitman file

Paper Prepared in the Office of the Director of Mutual Security¹

top secret

Washington, undated.

Summary of the Report of the Director for Mutual Security Pursuant to NSC Action 730–c

i. introduction

This is a summary of the statement^* submitted to the Council on March 18, 1953 by the Director for Mutual Security pursuant to NSC Action 730–c, which requested a report on: (1) the revisions in Mutual Security programs which would be necessary in order to reduce expenditures for such programs to an aggregate of $5.5 billion in FY 1954 and $4 billion in FY 1955; and (2) the effect of such revisions in relation to currently approved national security policies and objectives. The foregoing statement was in turn based upon separate reports from the Departments of State and Defense, and the Mutual Security Agency, copies of which were attached.

ii. assumptions

A. As to Expenditure Distribution

In view of the fact, illustrated in Table I, that the total resources available (expenditures allowable), within the foregoing expenditure limitations, would be grossly inadequate to carry out all current programs at the levels and rates heretofore contemplated, it was necessary to make assumptions with respect to the most balanced and effective distribution of those resources available (expenditures allowable) among the more than 100 separate components of the Mutual Security Program. Recognizing the variety of possible choices, and not wishing to prejudge the best, three alternative illustrative assumptions were made with respect to the allocation of the total expenditures allowed for each year between (a) military aid programs and (b) economic aid programs. Then, within the framework of each such illustrative allocation, further assumptions were made as to the distribution among individual programs. These three alternative expenditures assumptions are shown in Table I, which also shows planned expenditures for FY 1954 as reflected in the submissions of the several agencies in the Special FY 1954 Budget Review, (pp. 1–2)

While numerous minor variations in the foregoing illustrative expenditure patterns are possible, the extent of major choice is, as a practical matter, severely limited by the extent to which the conduct of past and present programs has already imposed relatively inflexible expenditure patterns for FY 1954 and, to a lesser degree, for FY 1955. Of the $12.5 billion of unexpended Mutual Security balances on February 28, 1953, all but $4.9 billion had been obligated as of January 31, 1953 and the balance mostly represented: (a) funds which, while not technically obligated, must, under the terms of international understandings and agreements, be obligated before the end of this fiscal year for specific purposes; and (b) the cost of procuring and shipping military equipment, and of providing training, which the U.S., through representations in NATO and directly to other countries, had strongly implied that it would furnish even if it had not technically committed itself to do so. Drastic changes in expenditure patterns would therefore require cancellation of contracts, the abrogation of international commitments, the extension of delivery dates under existing contracts, and the non-obligation of funds which, though programmed for known requirements, still remain unobligated, (pp. 3, 7)

B. As to Expenditures in FY 1956

It was also assumed that expenditures in FY 1956 would remain at approximately the same levels as in FY 1955 and, alternatively, that, in the case of non-military aid programs, expenditures would be reduced by $200,000,000. (p. 8)

iii. revisions required in the mutual security program

A comparison of column 1 with columns 2, 3 and 4 in Table I shows illustratively the cutbacks in planned expenditures for major foreign aid programs which the stipulated expenditure limitations would impose in FY 1954, and the further reduction which would be required in FY 1955. Charts I–A and I–B² bring out this comparison graphically and also relate expenditures under the ceiling to those for foreign aid during each year since 1946. Since (a) about 94% of the program represents payments for goods and services commercially procured and contributions to international organizations (See Chart II) and (b) approximately ⅘ of the remainder reflects the cost of technicians working overseas in the technical assistance program and of personnel in depots, arsenals, port facilities, rehabilitation centers, etc., who are engaged in producing, rehabilitating, packing, and shipping military equipment, these reductions in expenditures would represent nearly equivalent reductions in the real resources transferred to foreign aid recipients. In other words, the area in which dollar savings may be affected by administrative and operational economies is insignificant in relation to the program as a whole. The following paragraphs summarize some of the more specific program revisions which would be required under the three alternative assumptions, (pp. 9–12; Appendix E)

In Europe now obligational authority requested in FY 1954 would be reduced from $1.08 billion (Special Budget Review) to $366 million (Assumption A); $537 million (Assumption B); or $694 million (Assumption C); and, in FY 1955, respectively to $301, $373 and $502 million. (Charts III–A and III–B illustrate the major changes which would be involved in FY 1954 under the ceiling by showing past and proposed aid programs for Europe, and comparing them with the programs possible under Assumption B.) Under all assumptions, future aid to the United Kingdom would be eliminated, and under Assumption A, further assistance to Italy, Yugoslavia, Austria and Spain as well. Programs not eliminated would be reduced in FY 1954 below present estimated requirements by approximately 68% (Assumption A); 53% (Assumption B); and 40% (Assumption C); with additional sharp reductions necessary in FY 1955. (pp. 12–15; Appendix B)

In the Middle East, under all assumptions, technical assistance programs could be continued as planned and minimum direct relief furnished Arab refugees. However, under Assumption A, it would be only barely possible to meet minimum needs of any one of four other proposed programs (Israel; Arab refugee resettlement; economic aid for the Arab States; special assistance to Iran); and under Assumption B, the situation would be only slightly improved. Under Assumption C, and with the hypothesis of no emergency in Iran, other programs could be undertaken, but at levels substantially lower than presently anticipated. (pp. 16–17, Appendix D)

In South Asia, planned new obligational authority for the two years FY 1954 and FY 1955 of $495 million would be reduced to $300 million (Assumption A), $350 million (Assumption B), or $380 million (Assumption C). The least favorable assumption would curtail even present technical assistance programs and eliminate any possibility of new developmental activities in FY 1954; whereas the most favorable assumption would permit initiation of programs of the type proposed but at the expense of a substantial stretchout. (pp. 17–17a; Appendix D)

In the Far East, the basic character of the present programs would be materially altered under Assumption A; but under Assumption C, there would only be some deferral of presently planned expenditures. In Latin America, the least favorable expenditure allowance would require a severe reduction in the level of current programs, although not until FY 1955; whereas the most favorable would permit a small increase in the present level, but not to the extent recommended by the Department of State. (pp. 17a–20; Appendices C and D)

Other economic programs would be affected as follows: Under all assumptions, programs for the dependent overseas territories and materials development would be eliminated and, under Assumption A, also those for UNKRA, Spain, escapees and the Inter-governmental Committee for European Migration (also Assumption B). Even under the most favorable assumption, the amounts available for continued programs would, except for multilateral technical assistance, be slightly over one-half of estimated requirements. (pp. 21–24; Appendices B and D)

The effect on military aid programs is illustratively shown in Table I and is summarized by the following quotation from the report of the Department of Defense: “It is estimated [Assumption A]³ that deliveries through June 30, 1954 would be approximately 35% less than the delivery rate believed to be within the capabilities of the Department of Defense and that deliveries in FY 1955 and thereafter would be approximately 50% less than the rate believed possible by the Department of Defense.” (pp. 25–28; Appendix A)

iv. effects of required program revisions on currently approved national security policies and objectives

The program revisions indicated to be necessary under Section III would have the following effects:

A. Europe (including Greece and Turkey)

The reduction required in economic aid would, under Assumption A, completely change the relationship of the United States to the European defense effort and result in about $3 billion less in European defense expenditures in FY 1954 than presently estimated, with a further drop of perhaps $700 million in FY 1955. Serious resulting balance of payments difficulties would in turn cause deliberalization of trade, reduced economic activity, higher unemployment and pressures to expand Soviet bloc trade. Some or all of the following consequences might also ensue: abandonment of the French effort in Indochina; failure of the EDC, and thus no rearmament of Germany; the loss of Berlin; dissolution of NATO; abandonment of Spanish military bases; and political instability in many countries, with probable shifts toward neutralist or pro-Soviet governments. Under Assumption C, the prospects of EDC, and therefore of German, rearmament, would improve but still be poor; FY 1954 European defense expenditures would be $2.4 billion less than anticipated; and Assumption A economic effects would still occur, but would be less severe, (pp. 28–32; Appendices B and F)

The reductions required in military aid expenditures, using Assumption B, would, illustratively, be equivalent to: (a) complete elimination of the program for Germany, involving some 500 aircraft and up to twelve divisions of ground forces; plus (b) retardation by twelve months of the date by which the December 1953 NATO ground forces would receive their MDAP equipment, with no build-up beyond that level during the entire period under review; plus (c) reduction by 300 to 400 aircraft, with related equipment and ammunition, and by perhaps 100 vessels, below the forces to be on hand at the end of 1955. Alternatively: the reduction would be equivalent, in terms of the expenditures eliminated during the two years FY 1954 and FY 1955, to the complete elimination of about 2/5 of FY 1950–53 MDAP programs, or of the entire programs for the following countries: Belgium, Norway, Italy, Turkey, Portugal, United Kingdom, and Yugoslavia, (pp. 32–33; Appendix A)

The proposed ceilings would require an abrupt reversal of the course pursued by this country since the development of the NATO concept; would destroy the understandings on which European actions in NATO have been based; and would cause a loss of confidence in the continuity of U.S. policy which it might take decades to overcome. It would create political, military and economic situations in Europe which would necessitate a complete re-examination of U.S. security policies, (pp. 33–34; Appendices A, B, D, and F)

B. The Middle East and Africa (exclusive of Greece and Turkey)

In this area, assistance represents our primary tool for achieving our most vital objectives. Under all assumptions, the resources available would constitute an inadequate tool—insufficient to permit significant progress toward at least some of these U.S. objectives: (1) Partial solution to the refugee problem; (2) reduction in Arab-Israeli tensions; (3) the economic viability of Israel; (4) a Middle East defense organization; (5) a favorable solution of the Suez problem; (6) pro-Western orientation of the Arabs; (7) political stability in Iran; if dependent on budgetary or developmental aid. (pp. 35–38; Appendix D)

C. South Asia

Under Assumption C, programs of the type currently envisaged could be conducted, but under a stretchout which, in the case of India, would postpone its full impact beyond the crucial 1956 elections. Under the other assumptions, the 5-year plan could not succeed, and its failure might place India beyond the point where massive U.S. aid could be effective, (pp. 39–40; Appendix D)

D. The Far East

On the hypothesis of no significant increase in levels of indigenous military activity in Formosa and Indochina, Assumption C would require some postponement, but no alteration in the basic character, of measures now planned to create stability and to support presently planned military establishments. Under Assumption B, the attainment of military and economic strength would be further postponed, and under Assumption A, major projects would have to be abandoned, or fundamentally revised, and local expenditures required to sustain military efforts would be inadequate, (pp. 40–41; Appendix C)

Since total requirements for Indochina would be met as a first priority, the re-equipment of Formosan forces would be postponed well beyond FY 1955; the flow of equipment to Thailand and the Philippines would become a mere trickle; and prospects for further Japanese rearmament would be negligible. The possibility of larger and stronger indigenous forces in this area, capable of reducing requirements for U.S. units, would be largely removed. (pp. 41–43)

E. Latin America

Reduced expenditures for economic aid would, to a greater or lesser degree, depending on the assumption selected, have the following effects: Create the impression that the U.S. was defaulting on existing commitments; strengthen the position of anti-U.S. elements; weaken hemisphere solidarity and prejudice the cooperative role of the Latin American nations in hemisphere defense, their support of our policies in U.N. and their ability and willingness to make available strategic and critical materials needed by the United States. The virtual elimination of military aid would materially postpone the date when Latin American units might take over missions which, in the event of war, would otherwise require the deployment of substantial U.S. forces; and would seriously impair cooperative hemispheric defense measures. (pp. 43–44; Appendix D)

F. Other Programs

The elimination of UNKRA, certain under Assumption A and likely under Assumptions B and C, would probably (a) create a situation, even assuming no increase in ROK units, in which either the Battle for Korea would be lost behind the lines or the Department of Defense would be forced to expend vastly larger amounts than at present for relief and prevention of unrest; and (b) weaken the international character of the Korean effort. Elimination of materials development would remove an opportunity to develop new and economically sounder world trade patterns and thus tend to increase, rather than reduce, future U.S. foreign aid expenditures; lessen the possibility of finding a solution to Asia’s food problem; and increase Japanese dependence on Communist sources. The absence, or sharp reduction, of the Escapee and ICEM (PICMME) programs would, respectively, weaken our political, psychological and intelligence programs for the cold war, and destroy, or decrease the effectiveness of, efforts to remove Europe’s surplus populations. (pp. 45–47; Appendices B and D)

Table I

(All figures are in millions of dollars. Unbracketed figures relate to FY 1954; bracketed to FY 1955)

	Planned Expenditures (Special Budget Review)	Assumption A Expenditures		Assumption B Expenditures		Assumption C Expenditures
		1954	1955	1954	1955	1954	1955
Military Aid
End Items
Europe (exclusive of Greece & Turkey)	4388	2700	(1750)	2500	(1600)	2350	(1500)
Greece and Turkey		300	(200)	250	(190)	250	(160)
Iran	530	10	(10)	10	(10)	10	(10)
MEDO		25	(45)	15	(35)	—	(10)
Far East	836	650	(650)	630	(650)	630	(630)
Latin America	32	15	(15)	15	(15)	10	(10)
Total End Items‡	5786†	3700	(2670)	3420	(2500)	3250	(2320)
Infrastructure	200	200	(100)	200	(100)	200	(100)
Accessorial & Training	450	300	(230)	280	(200)	250	(180)
Other	100	100	(100)	100	(100)	100	(100)
Total Military Aid	6536†	4300	(3100)	4000	(2900)	3800	(2700)
Economic Aid
Europe (including Greece and Turkey)	1327	810	(460)	970	(515)	1085	(630)
Middle East and Africa	230	110	(137)	130	(160)	160	(185)
Far East	170	130	(116)	150	(130)	155	(145)
South Asia	168	107	(148)	130	(175)	160	(195)
Latin America	25	20	(16)	23	(20)	24	(24)
Other	144	23	(23)	97	(100)	116	(121)
Total Economic Aid	2064	1200	(900)	1500	(1100)	1700	(1300)
Total All Aid	8600†	5500	(4000)	5500	(4000)	5500	(4000)

1. Transmitted to the members of the NSC under cover of a memorandum by NSC Executive Secretary Lay, dated Mar. 30, 1953. Lay noted that the summary was transmitted for the information and use of the NSC in connection with its discussion with the Civilian Consultants on Mar. 31 regarding basic national security policies as well as the Council’s own review of basic national security policies at the Council meeting on Apr. 1. For documentation on the NSC discussion with its designated group of Civilian Consultants regarding basic national security policies, see volume ii. The full report of the Director of Mutual Security has not been found.
2. Page cross-references to the original statement are given in parentheses at the conclusion of each paragraph of this summary. [Footnote in the source text.]
2. None of the charts is printed.
3. Brackets in the source text.
4. It was further assumed that of total end-item expenditures, the following would represent those for offshore procurement (figures in millions): (1) Under Assumption A—$400 (1954) and $800 (1955); (2) Under Assumption B—$350 (1954) and $650 (1955); and (3) Under Assumption C—$350 (1954) and $525 (1955). [Footnote in the source text.]
5. Since this table is a consolidation of several tables in the main report and since figures in some of the latter were rounded, no exactly comparable figures will be found in any single table of the main report. [Footnote in the source text.]
6. Since this table is a consolidation of several tables in the main report and since figures in some of the latter were rounded, no exactly comparable figures will be found in any single table of the main report. [Footnote in the source text.]
7. Since this table is a consolidation of several tables in the main report and since figures in some of the latter were rounded, no exactly comparable figures will be found in any single table of the main report. [Footnote in the source text.]