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

700.5 MSP/11–3054

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

confidential

Washington, November 30, 1954.

• Subject:
• Mutual Security Program Proposed for Fiscal Year 1956.

Discussion

There are now available for your consideration, prior to a firm recommendation from Mr. Stassen to the Bureau of the Budget, estimates of requirements for the next fiscal year under the Mutual Security Program. These fall into two parts; the military end-item and training requirements and the non-military requirements. The latter are arranged under the categories of direct forces support, defense support, development assistance, technical cooperation, and multilaterial programs.

Representatives of the geographic bureaus and of my office have participated in the screening of submissions from the field in order to arrive at these recommendations to you. I have also had the opportunity to review at length with Governor Stassen and his assistants the non-military submissions, and as a result we have in most instances arrived at an agreed figure, ad referendum to you. In a few instances, the Assistant Secretaries concerned recommend upward adjustments in the figures discussed with Governor Stassen. I will bring their recommendations to your attention this afternoon.

It should be noted that, in arriving at the estimates which will be discussed with you today, it was assumed that (a) the organizational arrangements within the U.S. Government for carrying out aid programs would remain as at present, and (b) the Congressional limitation on the continuation of development assistance programs beyond June 30, 1955 was not taken into account.

I should like in this memorandum to comment on three aspects of the Mutual Security Program:

1. The amounts involved.

2. The balance between the military and the non-military programs.

3. The modalities of furnishing U.S. assistance.

The total amounts recommended for the Mutual Security Program in fiscal year 1956 is $3,226 billion. This is divided into $700 million for military assistance and $2,526 billion for economic programs ($200 million of the latter to be reimbursed to Defense for military funds used for economic purposes this year). After careful consideration, the Defense Department has decided that it does not need more than $700 million of now appropriations to enable it to continue the military assistance program at approximately the expenditure level of recent years, which in fiscal 1956 is estimated at $3.3 billion. I am satisfied that approximately $3.3 billion worth of equipment can be delivered in fiscal year 1956 under the Defense proposal. The question therefore hinges on whether or not, in your judgment, a delivery rate higher than $3.3 billion is necessary next fiscal year, in the light of the projected world situation, including the rearmament of Germany and the additional tensions this may generate.

On the economic side, the proposed figure of $2.526 billion compares with $1.898 billion requested of the Congress for these purposes last year. The increase is the result of the inclusion of a world-wide contingency fund of $150 million to meet unforeseen emergencies, the proposal to contribute $250 million to a regional economic organization in the Far East, and the $200 million for reimbursement to Defense. The levels of other programs, generally speaking, are approximately the same as this fiscal year.

One of the factors which is very important in considering these matters is whether or not, as a matter of policy, the United States should undertake to build up forces in friendly countries beyond the economic capacity of those countries to support such forces. Examples are Turkey, where this has already been done, Formosa, and Korea; and, either promised or under consideration, Pakistan, Iran, Thailand, and the Philippines. The submissions before you, generally speaking, do not envisage force levels beyond the economic capacity of the countries except in those cases (Korea, Formosa, Turkey, and Pakistan) where commitments have already been made. Indo-China, of course, is an exception.

Regarding the modalities of furnishing United States assistance, and with specific reference to your memorandum of conversation with Mr. Stassen of November 19,¹ these submissions do not envisage the creation of a U.S. “soft loan corporation”. They do, however, as noted above, anticipate the contribution by the U.S. of $250 million to an Asian economic organization, one of whose functions would be to lend on easy credit terms for development projects in the area. Furthermore, it is roughly estimated that $350–$400 million of the non-military funds can and should be extended in the form of loan assistance, following the pattern established this year under the $200 million Congressional requirement. As you know, I have personally held the view for over a year that the establishment of a liberal-term lending institution, with sufficient capitalization, would supply the missing ingredient in a number of our aid programs—namely, continuity and a sense on the part of the recipient of his ability to carry through to completion fundamental development projects. I think this sense of continuity cannot be achieved under our system of annual authorizations and appropriations. However, it is clear that the capitalization of such a lending institution in fiscal year 1956 would result in a net increase in the amount contained in the present submissions—perhaps $1.5 billion increase. By the same token, it would doubtless result in a reduced requirement for fiscal year 1957. You may wish to discuss this concept further with Mr. Stassen this afternoon.² If it is decided to seek the authority to establish such an institution, it is strongly recommended that it not be placed under the control of the Treasury Department, but rather that it have a five-man board of directors, three of whom should be appointed by the Secretary of State.

Recommendation

1. That at the meeting this afternoon you give your endorsement to the general order of magnitude of the present submissions, subject to minor variations (Iran, UNWRA) which I will raise pursuant to the views of the bureaus concerned.

2. That you endorse the balance between military and non-military programs contained in these submissions.

3. That you discuss further the concept of a lending institution with Mr. Stassen.

1. Supra.
2. Secretary Dulles met with Stassen, Ohly, Nolting, and others at 3:37 p.m. on Nov. 30. The record of this meeting is in Princeton University, Dulles papers, “Dulles’ Appointment Book”.