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

700.5 MSP/12–1553

Memorandum by the Acting Special Assistant to the Secretary of State for Mutual Security Affairs (Nolting) to the Secretary of State

secret

Washington, December 15, 1953.

• Subject:
• Discussions with Congressional Leaders Involving the Mutual Security Program for Fiscal Year 1955

It is understood that the discussions with Congressional leaders will involve the Mutual Security Program both on Thursday, December 17, and on Friday, December 18.¹ On the first day, I understand that there will be an overall discussion of the federal budget, of which the Mutual Security Program is a part, but that no detailed consideration of the Mutual Security Program is expected until the Friday session. It may be well, however, to be prepared on Thursday to make some general statements in connection with the need to continue the Mutual Security Program during Fiscal Year 1955, in order to carry forward our foreign policy objectives. At Friday’s meeting, it will be necessary to go into the program in more detail and, if possible, to outline the Executive Branch’s thinking with regard to (1) amounts of aid required, (2) method of financing, (3) the possible use of agricultural surpluses, (4) the possible use of loans, and (5) organization.

I do not believe it is necessary to do more than outline here the basic reasons for a continuation of the Mutual Security Program next year—a subject on which there is no disagreement within the Executive Branch. Those reasons are, in brief: (a) that the military strength of the coalition of free nations has not yet reached the point at which the United States can, in its own self-interest, cease to contribute toward strengthening the defensive capabilities of our essential allies; and further, that we have committed ourselves to do so by our acceptance of the NATO force goals in the 1953 Annual Review; (b) that there are certain areas of the world (for example, the Near East, Latin America, and South Asia) in which the United States, again in its own self-interest, should continue to help achieve political stability and a decent standard of living without which military strength and the capacity for local resistance against Communism are impossible; and (c) that this Administration has made the most exhaustive and searching analysis of the Mutual Security Program in all of its aspects in order to screen out and to reduce requirements to the minimum consistent with our vital interests, and through such analysis has managed to make substantial reductions in the amount of assistance which it considers necessary. This amount could have been further reduced had it not been for the urgent requirement to assist the French and the Associated States of Indo-China to mount and to continue the effort to win the war in Indo-China.

At the meeting on Friday, we expect the Mutual Security Program to be taken up in greater detail. As you are aware, there are certain problems and issues presently unresolved among the various interested agencies of the Government. While there is general agreement that the Mutual Security Program must be continued, the focus of disagreement is principally on the method of financing the programs and to a lesser extent on the level of certain programs. These differences should be considered under two categories—the military programs and the economic programs (including the technical assistance programs). The major issue involves the military programs.

In general, the Department of Defense, FOA, and the Department of State, with minor differences of view, agree both as to the level of worldwide requirements for next year and as to the method of financing such requirements. The Bureau of the Budget, on the other hand, while accepting in general the estimates of requirements submitted by the three agencies, take the position that (a) the level of expenditures projected by the operating agencies for Fiscal Year 1955 are higher than past experience justifies, and (b) the over-financing of the military programs in past years justifies a further sharp reduction in the amount which should be requested of the Congress for Fiscal Year 1955, over and above the substantial cutback already proposed by the Department of Defense. There is no question that there has been very considerable over-financing of the military assistance programs in the past—that is to say, that unexpended funds from previous appropriations are sufficient to continue the flow of military end-item assistance to our allies for the next two to three years at least. However, it must be emphasized that we are greatly in arrears on deliveries, and that the arms which will be paid for from the unexpended balances are already destined to fill past commitments, thus leaving present and future requirements to be filled from funds not yet appropriated. The Budget Bureau has reviewed the Fiscal Year 1955 programs and has prepared its recommendations for the President. A comparison of these recommendations with the agency requests is set forth in the attached tables.

The Budget Bureau’s recommendations raise the following issues with respect to obligational authority and levels of expenditures:

Military Aid

The Bureau generally accepts the figure of $2.1 billion as a reasonable statement of worldwide military requirements which should be programmed in Fiscal Year 1955 to meet our undertakings in NATO and other security arrangements, against which deliveries will be made over a period of several years. However, the Bureau has taken the position that the military end-item program needs new funds in the amount of only $1 billion in Fiscal Year 1955 for carrying out the program and that the remainder of the requirements should be initially financed by Department of Defense funds which would be reimbursed from subsequent military aid appropriations upon delivery of the materiel. This position obviously creates a domestic political hazard—the probable unwillingness of future Congresses to appropriate funds in greater amount than the request in Fiscal Year 1955—and a foreign policy hazard—namely, to convince our allies that we will in fact be able to honor present commitments by means of future requests for funds. Another point which is of particular significance foreign-policywise is that the Bureau, in its recommendation, allowed for an off-shore procurement program of only about $160 million compared to $600 to $700 million in the $2.1 billion program submitted by FOA. This proposed cutback in off-shore procurement will have severe repercussions in Europe, both in terms of the dollar positions of producing countries and their employment problems, and in terms of the maintenance of a war production base in Europe. It will also have an adverse effect in Japan in terms of the Japanese desire to earn dollars if they are to go into a rearmament program.

In general, State, Defense, and FOA do not quarrel with the objective of placing the Mutual Security Program on a more current financial basis. However, we feel that the Budget Bureau’s recommendation is too severe. It creates grave political hazards not only in regard to the matters mentioned above, but also in terms of the general political impact upon our allies of so severe a cutback in requested new funds. In our opinion, the placing of the military part of the Mutual Security Program upon a “COD basis” should be done gradually, not abruptly. Under the estimate of $2.1 billion, a long step would be taken in placing the program on a current basis. We have taken the position that this is manageable from a foreign policy point of view provided deliveries of equipment are accelerated. It is here that the Budget Bureau’s contemplated limitation on expenditures has its effect. If we are successful, by Presidential order or through some other means, of catching up on our deliveries of equipment (approximately $5 billion of items delivered in Fiscal Year 1955 is a reasonable target), this will automatically raise the Mutual Security Program expenditure figure above that contemplated by the Bureau of the Budget. Any attempt, therefore, to freeze on a limit of expenditures under the Mutual Security Program for Fiscal Year 1955 below the expenditure estimate contained in NSC 149/2² ($6.3 billion) might have a very definite adverse effect upon our alliances, particularly NATO.

Economic Assistance (including Technical Assistance)

With some relatively minor differences, FOA and State are in agreement on estimates of economic assistance worldwide. The Bureau of the Budget has reduced this estimate by approximately 25 percent. We have gone back at them with additional material and explanations and I understand that the Budget Bureau staff has revised upward some of its estimates, notably Indo-China and Turkey. A part of the difference results from different projections of funds which can be expended and from a difference in estimated carryovers. On the whole, I believe that we can successfully negotiate with the Bureau of the Budget on the economic aid requirements on an item-by-item basis and can probably accept the result without undue worry.

Two major factors affecting economic aid, however, have not yet been fully worked out or agreed in the Executive Branch. These are the possible use of surplus agricultural commodities in substitution for other forms of economic assistance and the possible use of loans in lieu of grants.

On the use of surplus agricultural commodities, there is unanimity of view among the interested agencies on the objective to be achieved, but as yet no firm basis for decision on the extent to which such surplus commodities can be used in substitution for economic assistance. The present thinking of the agencies concerned has produced a target figure of $1 billion in surplus commodities to be exported to friendly nations over a period of three years. This seems a feasible target and if achievable makes a considerable dent in the surplus agricultural commodities problem. However, the assumption that the sale of this amount of surplus commodities (approximately $300 million per year) for local currency, or alternatively the grant of such commodities, will reduce the need by equal amount of economic assistance is open to some doubt. No negotiations have been entered into with possible recipient countries to determine the kinds and amounts of surplus commodities which they in fact can absorb. Since the problem is largely one of the ability of recipient countries to sell the products on their local markets, negotiations of rather far-reaching character have to be undertaken before these estimates can become firm.

The question of the extent to which loans can be substituted for grant economic assistance is another point on which no firm conclusions have been reached. I believe some headway has been made in bringing about serious consideration of the proposal that a more liberal lending policy ought to be adopted by the U.S., probably through the Export-Import Bank. In the absence of any high level decision on this point, however, it is not possible at this stage to estimate the amount of grant assistance which could be taken up by loans.

On the question of organization within the U.S. Government to carry on a Mutual Security Program next year, the following outlines have emerged: (1) military assistance should include defense-support items such as Indo-China and other programs closely related to the maintenance of agreed force levels; (2) military funds should be appropriated to the Department of Defense; (3) in authorizing legislation or perhaps by Executive Order, the Department of State should have a strong voice in the programming of such funds and in the allocation of matériel; (4) beyond this, there is no unanimity of view with respect to organizational questions.

1. President Eisenhower opened a three-day meeting at the White House on Dec. 17, 1953 with the entire Cabinet, the legislative leaders, and numerous White House staff members present. The purpose of the meeting was to coordinate efforts and information concerning the President’s forthcoming State of the Union message. A copy of the “Notes on the Legislative Leadership Conference December 17 through 19, 1953” is in the Eisenhower Library, White House Staff Secretary records, 1952– 1961 along with “Supplementary Notes” of the Legislative Leadership Meeting(s) of Dec. 17 and 18, 1953. Mutual Security was discussed on Dec. 17 and more briefly on Dec. 18.
2. For documentation on NSC 149/2, “Basic National Security Policies and Programs in Relation to Their Costs,” Apr. 29, 1953, see volume ii.