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

411.0031/8–2454

Memorandum of Conversation, by Francis F. Lincoln of the Bureau of Near Eastern, South Asian, and African Affairs

confidential

[ Washington ,] August 24, 1954.

• Subject:
• Proposal for a New U.S. Foreign Economic Policy. Meeting was held in Room 5159 New State.

• Participants:
• P—Robert R. Bowie
• ARA—Henry F. Holland
• NEA—John D. Jernegan
• EUR—Livingston Merchant
• E—Samuel Waugh
• R—Fisher Howe
• C—Douglas MacArthur II
• C—William J. Galloway
• FE—Charles F. Baldwin
• E—John Loftus
• S/P—Charles Stelle
• R—Philip Watts
• NEA—Francis F. Lincoln

The meeting was called to discuss the “Proposal for a New U.S. Foreign Economic Policy” prepared following a talk between C. D. Jackson and the Secretary. The report¹ was prepared at Jackson’s request by the Cenis Center at M.I.T. under the direction of Max Millikan and Walter Rostow.

After some general comment on the proposal it was stated that the study² being worked up by Charles F. Baldwin is similar, except that it is limited to South and Southeast Asia.

The meeting was told that the Secretary favored an economic plan with some such purposes (the scope was not stated), and that (a) our own interest could not let the peasant peoples stew along and (b) there should be no tie in the economic plan to military pacts.

Mr. Holland spoke concerning the position he believed we should take at the Rio meeting. We should urge accelerated economic development in Latin America, and should make a substantial contribution in capital and technical knowledge. Financing should be available through the IBRD and EXIM for all sound economic development projects within their borrowing capacity (where private capital is not available). We should urge foreign governments to set goals.

For Latin America he favored loans not grants.

He said that estimates, duly hedged, were that not over a billion dollars would be required for Latin America for the next five years.

He suggested that a group study the amount of public and private investment required for Latin America.

Mr. Baldwin said free Asia presented two categories of problems:

1. Those of Japan, which are similar to the problems of Post-War Europe.

2. There are a different set of problems in the primitive economies of the rest of the area.

He believes that if conditions in the primitive places can be dealt with, Japan will benefit.

If we could support a program providing $10 billion of external capital to the primitive economies over the next 10 years, the resulting increased development would let them go ahead on their own thereafter for the most part.

He has been working up a proposal for broad economic development in Southeastern Asia to offset aggressive Communism. He suggested a sort of Asian OEEC; while the U.S., the U.K., Australia, New Zealand and Canada would be identified with it, the operation would be mainly Asian.

The Colombo plan³ at first seemed undesirable as the mechanism; it is not an organization, and is closely identified with the British Commonwealth, however, on reflection it may be best to use it in expanded form. He suggested a Board of Governors, technical committees, and operation through loans, but loans repayable in local currency, rather than grants. He emphasized that the U.S. should not in any way dominate the scene, and it would be essential to success that no political strings such as military commitments be tied to participation.

He said that it had been estimated that $600 million a year of outside capital supplied to Southern and Southeast Asia would just about keep the living standards of the people from deteriorating. $1,000 million a year is required for standards to advance.

Mr. Merchant said he thought we were giving mistaken priorities. Congress would not go very high in its aid appropriations and other areas demanded prior consideration as we must not abandon our present friends. He then listed:

Special situations in Europe and the Near East such as West Berlin, Spain, Yugoslavia and Egypt.

Latin America

Eastern Asia, Indo China ($700 million for army and budget support)

Formosa and Japan (several hundred million each) and Korea perhaps $700 million and than the Philippines, Thailand and Pakistan.

He believed that this would exhaust funds likely to be voted by Congress.

This, it was agreed, raised fundamental issues. Mr. Bowie asked whether we should always favor the countries loudest in espousing our aims, and spend large sums in building armed forces that could not contain a Chinese attack, while leaving vast areas with huge populations to fall to the Communists as their desire for better living is not met? Is the risk of military aggression so serious that the inner sociological-political danger should be ignored?

The view was expressed that we should continue to support armed forces in Korea, Formosa and Japan, but that it was equally important to improve living conditions of the more primitive peoples. It was also pointed out that building up the economies of the primitive states would improve the position of the Japanese economy.

There was discussion of the unwillingness of Congress to appropriate money for foreign aid, of less unwillingness to appropriate money for loans than for grants, even loans repayable in the currency of the borrowers, and of the necessity to make clear the urgency and the risks in the situation in Southern Asia. Mr. Jernegan pointed out that the total foreign aid at present plus the amount mentioned as required to carry out this proposal was not as great as amounts voted a few years ago, and that if the issues were understood it did not seem impossible that means would be provided.

Mr. MacArthur commented on the difference between conditions in Europe in 1950 and in South Asia in 1954.

In 1950 Europe had a fear psychosis that Russian Armies would roll to the channel.

In 1954 Southern Asia is in real danger because of the deterioration in living conditions.

Before adjournment there was general agreement (Mr. Merchant had left, but had modified his initial position and seemed close to agreement on the three points).

1. On the desirability of some such operation as described in the Jackson report and that U.S. aid to improve living conditions in South and Southeast Asia should rank with expenditures to support and maintain the military forces of friendly nations.

2. That military conditions should not be tied to the aid.

3. That aid should be primarily in the form of loans repayable in local currency.

1. No copy of the report was found in Department of State files.
2. Not identified.
3. A 6-year program for cooperative economic development in South and Southeast Asia established by the British Commonwealth nations in 1950; for additional information, see Colombo Plan for the Co-operative Economic Development in South and Southeast Asia: Report by the Commonwealth Consultative Committee (London, 1950).