About two weeks ago I mentioned to you the General Assembly resolution on an
international grant fund for economic development. [Page 230] You said at that time that you would be interested in
getting more information on this problem and that you felt it would be
particularly useful to have the matter brought to the attention of the
Secretary. The attached draft position paper, which will guide our
representative in the ECOSOC, outlines
the problem and suggests courses of action the United States should take to
meet it. This position paper as it now stands has the approval of the
interested offices, namely, UNA and E.
What I would like to suggest is that, after you and the Secretary have had a
chance to go over this paper, it be placed before the Secretary’s Tuesday or
Thursday 9:30 meeting for discussion. This is going to be a lively problem
for a number of years and it will certainly be useful if the principal
officers in the Department are informed regarding the line that will be
taken on the problem at ECOSOC and the
subsequent UN meetings.
[Attachment]
confidential
SM D–2
[
Washington
,]May 2, 1952.
Position Paper on General Assembly
Resolution to Establish Grant Fund for Economic
Development
2
Problem:
The General Assembly has asked ECOSOC
to prepare and report to the next General Assembly in September 1952 a
“detailed plan for establishing as soon as circumstances permit a
special fund for grants in aid and for low-interest, long-term loans to
underdeveloped countries—to finance non-self-liquidating projects” in
underdeveloped countries. See attached resolution.3 What position
should the United States representative take at ECOSOC on this matter?
Recommendations:
- (1)
- The United States delegate should state forcefully the United
States position on an international grant agency: (a) circumstances
do not permit the establishment of an international grant fund at
this time; (b) the United States has serious reservations about an
international grant fund for economic development; (c) however,
ECOSOC has a job to do and
should do it.
- (2)
- The United States representative should concur in the assignment
of the task of preparing the blueprint to the Economic Committee [Page 231] of the Economic and Social
Council or to a smaller ad hoc working party
which the Council might set up. In the latter case the United States
should be willing to serve on the working party if it is asked to do
so.
- (3)
- In the Economic Committee or the working party, the United States
representative should give his best technical advice, but should not
press his views, and should avoid as best he can the implication
that the United States would support the establishment of a grant
fund if his advice were followed.
Background:
Over the last five years, pressure has been building up in the UN for the creation of an international
agency to distribute grant aid for economic development. It was given
impetus by the Marshall Plan, by the low rate of IBRD lending, and the low level of private
foreign investment (except for petroleum); more recently it has been
given impetus by the Point IV program (“technical assistance and capital
must go hand in hand”); by the report of the Rockefeller Committee;4 by the report of the Group of Experts on “Measures for
the Economic Development of Underdeveloped Countries”;5 by the Colombo Plan;6 by the expressed sympathy of IBRD officials for international grant aid
to complement loan aid; and, in particular, by the United States
Government bilateral program of grant aid to accelerate economic
development in selected countries.
The United States Government tried to deflect the pressure as it came. It
differentiated reconstruction aid with its established time limit from
capital for long-run economic development. It pointed to [Page 232] the available unused resources of the
Eximbank and the IBRD, as well as the large volume of
development financing actually taking place. It urged the IBRD to take a more aggressive interest in
economic development and it offered technical assistance to help
countries plan projects suitable for bank lending. It undertook measures
to stimulate private capital flow and urged underdeveloped countries to
do likewise.
Over the last two years, however, the ground has shifted. In UN debates, it was agreed that loan funds
may be adequate for “bankable” projects but it was argued by proponents
of an international grant agency that there is need for external grant
aid to finance the ‘low-yielding, slow-yielding, social and economic
overhead projects” basic to economic development which cannot be
financed by bank loans in the volume needed because they are
“non-self-liquidating”. At the same time, given its own grant aid
programs, the United States Government acknowledged in public forums
that for certain countries and under certain circumstances, grant aid
may be necessary to give initial impetus to the development process. The
case for grant aid for economic development having been made in theory
by the representatives of the developed as well as the underdeveloped
countries, and being supported in fact by the action of the United
States Government itself, pressure to establish an international grant
agency as the more appropriate medium for making such aid available
became almost irresistible and culminated in the passage of the General
Assembly resolution, by a vote of 30–16, instructing ECOSOC to prepare a blueprint of an
international fund so that such a fund could come into being as soon as
circumstances permit.
The underdeveloped countries want an international grant agency for many
reasons. Not all who voted for the blueprint want it for the same
reasons. Some want easy money easily; some want it without offense to
their national sensibilities; and some are actually fearful of
entanglement through bilateral aid. In the main, the reasons are as
follows: (1) They believe the total volume of grant aid would be
substantially greater if there were an international grant agency and
the process of economic development accelerated thereby; (2) They want a
voice in setting the terms and conditions of aid and in the distribution
of the funds; (3) They want international recognition of the principle
that the developed countries have an obligation under the UN Charter to provide grant aid for economic
development, and they want to embody this principle in an institution;
(4) They want a “neutral” intermediary between the donors and themselves
so as to avoid political entanglements (This is particularly important
to those who fear that bilateral aid may diminish their sovereignty or
line them up in the cold war. The [Page 233] Battle Act,7 for example, has
embarrassed several recipients); (5) They want to strengthen the UN by giving it a more active and positive
role in promoting economic development.
The United States has resisted an international grant agency because: (1)
We doubt that there would be substantial and effective contributions
from other UN members with the result
that the United States would have to put up virtually all the funds; (2)
We believe an international grant agency would not be an effective
instrument to promote economic development. It could well turn into a
log-rolling operation with everyone sharing in the pie regardless of
need, domestic effort, or capacity to use aid effectively (These are not
necessary attributes of an international grant agency but they are the
probable outcome); (3) We do not want to provide grant aid as a matter
of obligation. We are prepared to do it as a matter of national
self-interest; (4) We want to use grant funds selectively. Some
countries are more important to us than others; (5) In the present
climate, the United States Congress would be unlikely to vote funds for
an internationally administered grant fund.
In public forums we have emphasized the first and last of these
arguments. We have stated that (a) no organization can be truly
international unless many countries make substantial and effective
contributions, and (b) given the defense effort, the United States is
not prepared to increase the scale of its aid at this time. Since all
major potential contributors have declared themselves unable or
unprepared to contribute at this time because of other commitments, we
have argued that this is not the time to set up a fund or the blueprint
of a fund. We have never stated that under no circumstances would we
support the establishment of an international grant agency.
The effect of our resistance has been to widen the rift in the UN between developed and underdeveloped
countries and further to solidify the so-called Asian-Arab bloc on an
issue in which there is growing popular interest. This rift exists even
though these same countries are receiving direct bilateral assistance
from us. We have, however, not regarded these political effects as
critical enough to warrant a reversal of our position. We are presumably
prepared to continue our opposition to the establishment of an
international [Page 234] grant agency,
and to seek by other means, including bilateral aid, to induce support
for United States objectives.
Discussion:
Our job at ECOSOC is:
- 1.
- To state as forcefully as we can our position on an
international grant agency for economic development, and
- 2.
- Notwithstanding our opposition to the establishment of an
international grant fund, to participate to the extent required
by our membership in ECOSOC
in carrying out the assignment from the General Assembly.
With regard to the United States position on an international grant
agency, the United States delegate should enlarge the range of arguments
he uses in opposition to such an agency to include valid arguments of
principle as well as the already stated arguments of timeliness, as
follows:
- (1)
- Not only is the time not propitious to establish a grant fund
because there is no evidence that capital-exporting countries
are prepared to contribute at this time, but
- (2)
- The United States has serious reservations about an
international grant agency at any time:
- (a)
- Grants are a form of extraordinary or emergency aid
while economic development is a long-run continuing
process. There is no terminal date at which the job will
be done and no ceiling on the amount that can be used.
An international agency to distribute grants for
economic development would normalize and
institutionalize such aid and tend to make it a
permanent feature of international cooperation. Grant
aid would be regarded as a continuing obligation on the
donors.
- (b)
- Grants are gifts and not a normal medium of commerce
among nations. Governments that dispose of public funds
in the form of gifts abroad should retain the right to
select the recipients, and control the distribution, of
these public funds. The United States Government, for
example, cannot be expected to ask its taxpayers to make
gifts to governments whose major preoccupation is to
undermine the United States.
- (c)
- There are very few satisfactory objective criteria for
allocating a limited volume of grant funds among
claimant countries. How determine that a hospital in
country X is more important than a road in country Y?
Because judgments in this field must, at certain
critical points, be fairly arbitrary, there is some
danger that an international grant agency would follow
the simple path of log-rolling.
With regard to the preparation of the blueprint, ECOSOC may assign the task to the
Economic Committee, which is a Committee of the Whole on which all
ECOSOC members are represented.
Such an assignment would avoid the necessity of the United States [Page 235] taking a position on
participation in the work of blueprinting. From this point of view this
solution would be preferable.
On the other hand, there is strong feeling among other delegations
(particularly the UK and Canada) that a working party would be better.
In such a smaller committee the discussion could be better kept under
control. Consequently, an effort will be made to promote a small working
party.
The United States should not take a stand on this issue. In the unlikely
event that ECOSOC assigns the task to
a working party of government representatives, the United States should
be prepared to serve if it is asked to do so.
Whatever happens, the United States representative will have the
difficult job of presenting our views on the structure and functions of
an international organization that we are not prepared to support.
Nevertheless, we do have views in this matter which should be stated
because they may mean the difference between a potentially effective and
responsible institution that is truly international (even without our
participation) and a wasteful operation. The United States
representative should give his best technical advice, therefore, but
should not press his views and should avoid as best he can the
implication that the United States would support the establishment of a
grant fund if his advice were followed.
A separate position paper will be needed to give more specific guide
lines to the United States representative on the Economic Committee or
working party on such matters as the nature of the contributions, the
relations of grants to loans, of management to members, the extent of
local participation, etc.
