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

740.5 MSP/8–2053

Memorandum by Thomas C. Schelling to the Deputy Director for Operations, Foreign Operations Administration (FitzGerald)¹

confidential

[Washington,] August 20, 1953.

• Subject:
• FY 1954 Programming

This memorandum summarizes the programming guidelines for FY 1954 with respect to MSA programs, developed at the meeting conducted August 17, 1953 by the Director of Foreign Operations.

Europe: Economic Aid Programs

MSA² will develop, in coordination with the State Department, programs for mutual defense financing in Europe within the amounts appropriated for that purpose, plus carryover, plus additional funds to be administered under Section 550 as described below. These programs will be subject to the following guidelines:

1. The East German food program in the amount of $15 million will remain a charge against Title I economic aid funds. The General Counsel is, however, being simultaneously requested to consider urgently whether part of this program can be financed under the Famine Relief Act.

2. The Technical Assistance Program will amount to $15 million; an additional $3 million will be held in reserve for possible increase in this program to a total of $18 million.

3. An Information Program of approximately $7 million has been discussed. Dr. FitzGerald is to consider this program further and make a recommendation as to the exact amount.

4. Total assistance to the United Kingdom will be $200 million. Of this, $85 million is separately appropriated for the aircraft program. Of the remaining $115 million, an amount of from $40 to $65 million will take the form of defense support, and an amount of from $50 to $75 million will take the form of surplus agricultural commodities administered under Section 550.

5. The program for Germany/Berlin (exclusive of the East German food program) remains as originally programmed at $15 million. The specific objectives and composition of this program have not been determined. Recommendations for the use of these funds will be worked out jointly between the Deputy to the Director for Operations and the Assistant Director for Refugees, Migration and Travel in coordination with the State Department.

6. In the event the surplus agricultural commodities program for the United Kingdom does not reach the upper limit of $75 million mentioned above, the difference for the United Kingdom is to be made up with defense support; and surplus commodity programs for other European countries may be developed, to meet defense support and economic aid objectives, up to a total of $75 million of such programs inclusive of the program for the United Kingdom. It will be assumed that surplus agricultural commodity programs in Europe, other than non-UK programs within that $75 million, will be used to meet objectives of the Title I military assistance program, not economic aid and defense support objectives in Europe.

7. Assistance to France out of funds available for mutual defense financing in Europe will be limited to the specific amounts appropriated, namely $485 million of which $400 million is to support the campaign in Indochina and $85 million is to finance certain types of equipment for French NATO ground forces.

8. It should be assumed for planning purposes that the several Spanish agreements will be signed and become effective on or about October 1, 1953, and that any further obstacles in developing and implementing Spanish programs will be no different from those encountered in initiating programs in any new country.

9. The Defense Department has under review the question of devoting further funds (including the $37.5 million of unobligated MSA funds specifically carried over for this purpose) to the Italian aircraft program. MSA should simultaneously consider with the Defense Department the techniques by which the $37.5 million will be furnished if a decision to give such assistance is reached.

10. MSA may recommend holding in reserve at this time some portion of the funds available to it for European programming. It should be assumed that the total of funds available for this purpose will be neither augmented nor reduced by transfer.

MSA should review counterpart procedures in light of Congressional attitudes (particularly as expressed in the report of the Senate appropriations Committee) and make recommendations to the Director as to whether and how such procedures should be revised, with particular regard to the release of funds on a project by project basis.

MSA, in coordination with the Department of Defense, should develop and recommend procedures for administering the special defense financing for France/Indochina, for French ground force equipment, and for British aircraft. MSA should also, in consultation with the General Counsel, recommend procedures governing the use of local currencies in the United Kingdom arising from the surplus agricultural commodities program for that country.

A series of additional programming and administrative matters resulting from new legislation or expressions of Congressional intent are being either considered by the Director or studied by the General Counsel.

Far East: Economic and Technical Assistance

The General Counsel is being requested to give a legal opinion as to whether all or any part of the $6.8 million of surplus funds for Formosa and Indochina can be utilized to augment the $62.1 million specifically appropriated for the Title III area other than Formosa and Indochina.

On the assumption that these funds can be used in this manner, MSA Far East programs are to be developed, in coordination with the State Department, subject to the following guidelines:

1. Funds in the amount requested of Congress for defense support for Formosa and Indochina, namely $95 million (comprising $84 million in new funds and $11 million in carryover), should be programmed by MSA for this purpose, and MSA, in coordination with State, should make recommendations as to the distribution of the total. In making such distribution, account should be taken of the several suggestions in the reports of the two Appropriations Committees, but these suggestions should not be regarded as controlling.

2. It is the view of the Director that particular regard should be taken of the strong Congressional feeling regarding adequate aid for Formosa. In this connection, the possibility should be explored of using McClellan Amendment³ authority for furnishing commodities to Formosa, additional to the regular Formosa program, the local currency proceeds of which could be applied towards purchases in Japan of products produced there and needed by other countries in the Pacific area under Mutual Security programs.

3. Of the $6.8 million Formosa-Indochina surplus, $2 million will be applied against regular program requirements for other Title III countries. This will permit initial programming against a $17 million ceiling for the Philippines and $5 million for Thailand.

4. In the event that a decision is reached to move forward with a special additional program for Northeast Thailand, consideration will be given to the possible diversion of funds for that purpose from the remaining $4.8 million in the Formosa-Indochina surplus.

5. No funds are to be earmarked for DOT’s in the Title III area.

African DOT’s and Basic Materials

Of the special economic aid funds for the Near East and Africa, amounting to a total of $147 million, $12 million should be earmarked for African DOT’s, for initial programming purposes. MSA should proceed, in coordination with State, to develop a recommended program. If, as the year proceeds, it develops that the remainder of the $147 million fund cannot be effectively utilized for the purposes for which it is originally earmarked, consideration will be given to the possibility of transferring a small additional amount, perhaps $5 million to $10 million, for use in the African DOT’s. Against this possible contingency, MSA is authorized to over-program for this purpose to the extent of $10 million.

In programming for the African DOT’s, the Director emphasized that aid in this area should be furnished in such a way as to facilitate and encourage the expansion of private capital investment, and should also reflect a consideration of the long term needs of the United States in basic resources.

MSA should proceed, in coordination with TCA and the Department of State, to develop a recommended program for basic materials development within the figure of $19 million authorized and appropriated by the Congress.⁴

Thomas C. Schelling

1. Schelling was Officer in Charge of European Program Affairs in the Foreign Operations Administration.
2. This reference and all further references to MSA in this document should read FOA.
3. The amendment to the 1953 Mutual Security legislation introduced by Senator John D. McClellan (D.–Ark.) provided for additional U.S. financing of the program through a revolving currency plan which permitted recipient governments to exchange their currencies for U.S. dollars in order to purchase U.S. farm surpluses. The United States, in turn, would use the foreign currencies received to finance offshore procurement.
4. A similar memorandum on fiscal year 1954 programming was sent to Frank Nash, the Assistant Secretary of Defense for International Security Affairs, over the signature of John Ohly on Aug. 20, 1953. A copy is in file 740.5 MSP/8–2053.