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

700.5 MSP/12–653

The Acting Special Assistant to the Secretary of State for Mutual Security Affairs (Nolting) to the Director of the Bureau of the Budget (Dodge)¹

secret

[Washington,] December 6, 1953.

Dear Mr. Dodge: The Acting Secretary of State has approved the transmittal to you of the following views of the Department of State on the original FY 1955 estimates of requirements for the Mutual Security Program submitted by the Foreign Operations Administration to the Bureau of the Budget. It is our understanding that Mr. Stassen is submitting to you today revised estimates of requirements² which differ in some respects from the original FOA submissions. Since we have not had the opportunity, because of the accelerated schedule, to study these revisions, our comments are directed to the original submissions.

I should like to take this opportunity to compliment Mr. Macy and his staff on the manner in which they conducted their budget examination. Their searching analysis and cooperative attitude has contributed greatly towards the development of a sound, economical and effective Mutual Security Program for FY 1955.

In presenting the following views, the Department of State has evaluated the general magnitudes of grant assistance in terms of requirements which must be met for various activities and countries if we are to achieve our foreign policy objectives. However, in reviewing the submissions of the operating agencies we have not been in position accurately to evaluate the operational feasibility to utilize effectively the funds requested for particular activities. In addition, we have not taken into account at this time the modalities of our assistance and their effect upon the magnitudes of aid. As you are aware, the Department is studying the possible uses of surplus agricultural commodities in our Mutual Security programs and the possibilities for providing assistance through loans under a more liberal lending policy in lieu of grant economic assistance. Final positions of the Secretary of State on the foregoing questions are expected to be made within the next several weeks, and their effect upon the magnitude of Mutual Security funds evaluated. These results will be promptly forwarded to you.

Military Assistance

The Department of State supports the estimate of $2.4 billion for military assistance—i.e., for MDAP, including offshore procurement. I should like to stress, however, that it continues to be the position of the Department of State that “defense-support” requirements should be sought in the category of “military assistance”, and such requirements would thus be additive to the $2.4 billion figure. The Department supports the $2.4 billion estimate of requirements by the Department of Defense on grounds that it will be a step toward placing the financing of the MDAP program on a more current basis, and that the large undelivered parts of the program taken in combination with the plan to finance lead time with Department of Defense funds does not justify additional financing in FY 55 beyond that recommended by the Department of Defense.

The Department of State considers that the $2.4 billion figure is a minimal figure for the following reasons:

(a) There should, in the opinion of this Department, be a provision similar to Section 5136 of the present Mutual Security Act giving discretionary authority to the President to transfer funds from military assistance appropriations for unforeseen emergencies; the reduction of the $2,4 billion figure, as we see it, would leave little possibility of effecting such transfers without seriously delaying the accomplishment of military objectives.

(b) The Department believes that a program of the magnitude of $2.4 billion, which represents a substantial reduction below FY 1954, will provide continued support for commitments in NATO and other security arrangements, and that this can be adequately explained to our allies without adverse political effects. A further reduction of the figure, however, might well result in the elimination of any further contribution to the war reserve equipment for NATO forces, and thus provide evidence which might be interpreted as a change of our policy in Western Europe.

(c) The FY 1955 military aid program for NATO countries as submitted by the Department of Defense assumes a force basis which excludes from MDAP support all new military units unless individual countries are considered capable of fully supporting and maintaining existing units out of their own resources. It should be pointed out that this programming assumption is in accordance with a JCS criterion which has not been accepted as governmental policy. It is our understanding that time has not permitted the Department of Defense to compare the resulting force basis accepted for MDAP programming with the 1956 NATO force goals which the U.S. intends to approve in the 1953 NATO annual review. It appears almost certain, however, that a fairly large number of support units for ground forces will be included in the NATO force goals for 1956 for which no provision will have been made in the FY 1955 MDA program, although such units will be largely dependent on MDAP assistance for their equipment requirements. A reduction of MDAP funds below the $2.4 billion submitted by the Department of Defense would increase the difficulties of reprogramming to meet the higher priority requirements of such units as are not now covered in the FY 1955 program but which we are prepared to accept within the NATO force goals.

(d) While the program presented by the Department of Defense does not make special provision for certain contingent requirements for military assistance in FY 1955, the Department of State believes it may be necessary to reprogram, as a matter of priority, some part of the $2.4 billion for such requirements. Among the countries where we believe this may be the case is Germany, Japan, Iran, and Pakistan and possibly several other nations in the Middle East and the American Republics. Reduction below the $2.4 billion submission would impair the possibility of reprogramming without serious prejudice to the accomplishment of other objectives of this program.

(e) It should also be pointed out that the Executive Branch is actively considering a decision to provide non-nuclear new weapons for NATO forces. If this decision is made there is doubt that the figure of $2.4 billion will be sufficient to implement this plan.

An assumption which should be stressed in connection with the Department of State’s support of the $2.4 billion figure is that we will succeed in making substantial deliveries of equipment to our allies. The contemplated sharp reduction in new obligational authority in FY 1955, particularly in the NATO area, coupled with a failure to deliver past programs, would undoubtedly lead our allies to believe that we were reversing our policies towards Western Europe.

A major objective of the mutual security program is to support the continued development in Europe and the Far East of an adequate military production base. The offshore procurement portion of the Mutual Defense Assistance program has been and will continue to be a key element in achieving this objective. The assumption that a substantial volume of offshore procurement could and would be continued under the FY 1955 MDA program is a major factor in the Department’s support of the reduction in “defense support” programs for that year.

Europe—Economic Assistance

France (Indochina)

The Department strongly supports the estimate of $800 million for support of the military operation in Indochina to be included as a part of the “one line item”. In accordance with our discussion with Mr. Macy of your staff, a costing exercise for this program for calendar year 1954 is being undertaken and will be completed before the time for submission of legislation to Congress. Out of this costing study should come the basis for projecting 1955 costs and a firmer estimate of the amount of this important requirement.

Berlin

For West Berlin, the Department believes that an estimate of $30 million for grant assistance would be adequate to achieve our foreign policy objectives. The Department considers the attainment of our objectives in Berlin to be of a high priority. To this end we believe it essential to attain the goal of a further reduction of unemployment in Berlin by another 50,000 for the coming year. While it is our expectation that we will be successful in our negotiations to have the Federal Republic further increase its support to Berlin in 1956, we believe that U.S. aid of about the same level furnished in FY 1954 ($30 million) will be required. On the assumption of a greater share of the support of Berlin by the Federal Republic, we have in our estimate substantially reduced the pipeline beyond FY 1955.

Greece

The Department concurs in the original FOA estimate of $15 million for Greece.

Spain

The Department concurs in the estimate of $30 million for Spain and supports the views in the FOA memorandum on assistance to Spain being submitted to the Bureau of the Budget.

Turkey

The Department concurs in the estimate of $40 million for aid to Turkey. However, it should be pointed out that the Embassy at Ankara has reported that recent developments indicate that achievement of the force build-up desired in Turkey may not be possible on the basis of the amount of aid now programmed in FY 1954, or the $40 million requested for FY 1955.

United Kingdom

The Department concurs in the estimate of $75 million for the U.K. It is the Department’s view that there is a commitment to the U.K. to request Congress to appropriate this amount to support the U.K. defense effort. Although the military assistance program provides for complete financing of the U.S. contribution to Plan K,³ it is our understanding that the Secretary of Defense has not approved a policy to support Plan K. Accordingly, we believe that this estimate of $75 million required to enable the U.S. to fulfill its commitment should be included in the “one line item” until there is a U.S. position on financing Plan K for FY 1954 and FY 1955 and until negotiations are undertaken with the British as to the overall estimate of U.S. aid needed to support the desired level of U.K. defense build-up. Should these negotiations be successful, we would hope that a satisfactory U.K. effort in FY 1955 could be attained without requiring the full U.S. contribution to the cost of Plan K and the additional special $75 million program. In this case, the estimate to be justified before Congress should reflect any reduction under this amount that can be achieved.

Yugoslavia

The Department supports the revised estimate of $35 million for Yugoslavia. The provision of this amount of aid to Yugoslavia is a matter of importance to assure the continued development and maintenance of adequate defense forces.

Productivity and Technical Assistance

The Department in its informal comments did not support the FOA submission on this item as originally presented. However, it is now the plan that these programs should be phased out in a manner designed to preserve their past accomplishments. The Department concurs in the revised FOA planning, which takes this factor into account, and believes that these programs should be transferred to the local governments and OEEC during FY 1955.

Near East and Africa

Technical Assistance

This Department recommends $40 million for technical assistance for the Arab States, Iran, and Israel, and the independent states and D.O.T.’s in Africa. This amount would provide for continuation of going programs at present levels in most of the States, for an increase in the Egyptian program, and about $4 million for the D.O.T.’s.

Special Economic Assistance

The Department believes that in FY 1955 a program of $140 million, in addition to any FY 1954 unexpended balances, will effectively support our policies in the Near Eastern area. This estimate would provide $50 million for the Arab States, $40 million for Israel . . . .

The Department is of the opinion that in the case of Libya and the D.O.T.’s no special economic aid programs should be provided for those areas. Funds for Libya are directly related to our bases in that country and should be furnished from Department of Defense funds. In the D.O.T.’s, the requirements are for investment funds which should be provided by the metropoles or by private and public lending institutions.

South Asia—Economic and Technical Assistance

The Department recommends a total program of $152.8 million for economic and technical assistance in South Asia distributed as follows:

($ millions)

	Tech. Asst.	Spec. Eco.	Aid Total
India	40.0	80	120
Pakistan	0.0	20 0	30
Afghanistan	2.8	0	42.8
Nepal
Total	52.8	100.0	152.8

With respect to the programs for India and Pakistan the Department strongly believes that there must be maintained a 4 to 1 ratio in our aid to those countries both in the total and the technical assistance and economic aid components, and considers the ratio a major factor in dividing U.S. aid among those two countries.

Far East—Economic and Technical Assistance

The Department supports the estimate for aid to Korea ($200 million), Thailand ($5 million), and Indonesia ($5 million), and recommends a program of $65 million for Formosa.

With respect to Indochina and the Philippines, the Department supports the estimates of $30 million and $15 million respectively for the basic programs in those countries.

The Department does not support the supplemental request of $15 million for Indochina for an additional program of relief-rehabilitation. An initial start on this program is anticipated in the $30 million estimate and it is anticipated that legislative authority will be sought to permit using military funds for rehabilitation activities in the event hostilities are brought to a successful conclusion during FY 1955.

With regard to the supplemental program of $10 million for the Philippines, the Department recommends that $5 million be provided at this time. In the event that a sound program can be developed to utilize the additional $5 million before submission to Congress, the Department would wish to support an increase in this program. It is essential that we be prepared to do all we can to assist the newly-elected Magsaysay government by providing such aid as can be effectively used to that end.

Latin-America—Technical-Economic Assistance

Technical Assistance

The Department supports the original request for $25.5 million insofar as that request relates to the Latin American republics. With regard to the amount included in this request to finance a program for the dependent overseas territories in the Caribbean, the Department is of the opinion that there should be such a program but is not prepared to make a recommendation as to a specific amount for this purpose.

Bolivia

The Department recommends that the initial request of $15 million be approved to finance a combined economic development and emergency relief program in Bolivia. It is the conviction of the Department that this amount is fully justified in relation to the situation now obtaining in that country.

Multilateral Programs

The Department of State supports the request of $11.4 million for contribution to ICEM, $13.5 million for contribution to the Children’s Fund, and $18.8 million for contribution to multilateral Technical Assistance programs, and $71.0 million for contribution to UNKRA.

This Department recommends $30 million for contribution to UNRWA, to meet continuing relief needs and to provide additional funds required for the programming and negotiating of additional projects to carry on the reintegration of Arab refugees.

Other Programs

The Department recommends $6.5 million for the Escapee Program, to provide not only for care and maintenance but for assistance in resettlement in the U.S. under the Refugee Relief Act and in other countries.

The ocean freight subsidy program should, in our opinion, be confined to those states and areas (including Berlin) which will receive economic assistance in FY 1955.

Such mineral development projects that have merit should be financed from the country assistance programs and we therefore do not support the special Mineral Resources Program.

Officers of the Department are, of course, prepared to discuss the foregoing views should you feel this to be necessary.⁵

Sincerely yours,

Frederick E. Nolting, Jr.

1. Copies of this letter were sent to the Director of Foreign Operations and the Assistant Secretary of Defense for International Security Affairs.
2. A copy of a 35-page letter from Stassen to Dodge, dated Dec. 9, 1953, transmitting the views of the Director of Foreign Operations regarding the size and composition of the fiscal year 1955 Mutual Security program is not printed.
3. For documentation on Plan K production of jet fighter planes in the United Kingdom, see volume vi.
4. The source text indicates that these three figures were combined data for Afghanistan and Nepal.
5. In a brief supplementary letter of Dec. 9, 1953, Nolting informed Dodge of two amendments to this letter. They were as follows: “The amount which this Department supports for contribution to ICEM is $11,737,000, rather than the $11,400,000 mentioned in my letter of December 6. For contribution to multilateral technical assistance programs, this Department recommends $18,845,812 for the United Nations Expanded Technical Assistance Program and $1,500,000 for the technical assistance program of the Organization of American States. The total request for multilateral technical assistance is therefore $20,345,812.” (700.5 MSP/12–953)