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

MSA–FOA Director’s files, FRC 56 A 632, “Technical Cooperation”

Memorandum by the Legal Counsel for the Technical Cooperation Administration (Glick) ¹ to the Deputy Legal Adviser (Tate)

[ Washington ,]January 28, 1953.

• Subject:
• Some Major Policy Issues Now Under Discussion In The Point 4 Program.

I said to you the other day that several major policy problems in the Point 4 Program are likely to come to a head within the next few months, and that some of these will certainly reach your desk and Mr. Phleger’s. You suggested that I give you a memorandum listing these problems and discussing each briefly. I shall be glad to discuss any of these in greater detail with you and Mr. Phleger whenever you wish.

1. Size of Grant Component in Point 4 Programs.

Ever since enactment of the Act for International Development in June 1950, there has been a controversy, within the Executive Branch, in Congress and among the public, over the size of the grants (in the form of machinery, equipment and supplies) that should be included in Point 4 programs. As you know, for a while the controversy included the legal question as to whether the Act itself authorized substantial grants and the nature of the limitations imposed by the Act on the use of such grants. That legal question has been answered in the memorandum you sent to Dr. Bennett on December 19, 1951² and in the supplemental memorandum that I gave to Mr. Andrews after the development of further legislative history on this point, on July 25, 1952.² (All of this material is collected in Legal Counsel’s Opinion No. 2 and its attachments, which include a copy of your memorandum and a summary-digest of the Congressional materials on this question developed during 1951.) The answer we have given on the legal question is that grants of machinery, equipment and supplies may be included in Point 4 programs, within the limits of available appropriations, in order to provide demonstration materials for use by the technicians sent by the United States to underdeveloped countries, and in order to enable the host countries to make a good start in doing the things that the technicians are teaching and demonstrating.

This answer to the legal question has, of course, left largely unresolved the policy issue as to how large Point 4 grants should be. Three points of view have been urged:

(a) The Point 4 Program should consist principally of making available the services of technicians, and grants of supplies and equipment should be kept to the absolute minimum necessary for demonstration purposes. For the 35 countries in which TCA is now operating, annual appropriations of approximately $50,000,000 should be sufficient.

(b) The Point 4 Program should make available not only the services of technicians but also such grants of machinery, equipment and supplies as may be needed to enable the underdeveloped countries to make very substantial progress in developing their economies within the next two decades. Some private groups have spoken of “a TVA on the Nile” and “a TVA on the Ganges”, of steel plants and of considerable industrialization, to be financed in large part through the Point 4 Program, supplemented, of course, by the expenditures of the host governments themselves and by private investment. People outside the Department have sometimes urged appropriations as high as one billion dollars a year for ten years. Some people inside the Department have urged appropriations of $500,000,000 to $700,000,000 per year.

(c) The position originally urged by Dr. Henry G. Bennett, the first Administrator of TCA, by Mr. Andrews, the present Administrator, and that has become the official view of TCA and the Department, is that the grants should be sufficient to make possible a dynamic program that can show significant results year by year but should not attempt to provide any important part of the investment capital that will be needed. The Department asked and received for the fiscal year 1952 $127,000,000 on a global basis and for the fiscal year 1953 $140,000,000. For the fiscal year 1954 it has requested an appropriation of $142,000,000, and it is estimated that $150,000,000 per year will be sufficient for the 35 countries in which the program is now operating for a number of years to come.

This issue became acute within the Department a few weeks ago when we had to decide what appropriation the Department should request for 1954. TCA recommended a budget request of $142,000,000. The Offices of the Assistant Secretary for Economic Affairs, the Assistant Secretary for Near Eastern, South Asian and African Affairs and the Assistant Secretary for Far Eastern Affairs urged that substantial economic assistance would be required for India, Pakistan, Iran, Israel and some of the Arab countries and therefore felt that the Point 4 Program should request an appropriation in excess of $600,000,000. The decision went in favor of TCA’s recommendation (largely because of the legislative history developed during 1951—see Legal Counsel’s Opinion No. 2 mentioned above), but with an important compromise: The Department also decided to ask for new legislation that would authorize additional grants as special economic aid to certain countries, these special grants to be also administered by TCA but to be regarded as short term in character and not a part of the Point 4 Program. These issues are certain to be reopened.

2. Should Special Economic Aid, If Given, Be In The Form Of Grants Or Loans.

Although the Department has already recommended that the special economic aid referred to above should be given as grants (and the budget submitted to the Congress by President Truman provides for such grants in the sum of $409,000,000 for the fiscal year 1954), TCA is now formulating recommendations to the Secretary that if such special aid is needed it should not be given as grants but, wholly or partly, in the form of “specially favorable long term development loans”. The quoted phrase refers to loans that would have amortization periods up to 35 years, very low interest rates (as low as zero per cent for non-income producing projects such as schools and health centers), deferred payment dates for the initial installment of principal and interest and, possibly, provision for repayment in non-dollar currencies or in commodities.

TCA’s recommendation will argue that large scale grants to underdeveloped countries are not effective means for realizing the ends sought, aside from being increasingly unpopular with Congress and the public. The economists for the Export-Import Bank (which probably would be the lending agency for such specially favorable loans) are likely to object to making such loans on the ground that they are “fuzzy” loans which blur the distinction between loans and grants and weaken the ability of the recipient country to qualify for “hard” loans.

When this issue arises, it is likely to raise a whole series of questions that will require answers: Does the United States really need to give “special economic aid” to any of these countries, in addition to (a) the Point 4 Program, (b) the loans that now can be secured from the Export-Import Bank and the International Bank for Reconstruction and Development, and (c) the efforts of the United States to stimulate and increase private investment in underdeveloped countries? If a case can be made for such special aid to India, Pakistan, Iran, Israel and three or four of the Arab countries, what amounts of aid are needed, and should that aid be given as grants or as such specially favorable long term loans?

3. Need For Authority To Give Emergency Assistance For Crop Failures Or Other Crises.

Every now and then the Department receives urgent cables from its Embassy in one of the underdeveloped countries reporting that a drought or some other calamity has caused a wheat shortage that threatens famine and serious internal unrest. The cable usually urges that the Department protect its foreign policy objectives in the country and in the area by making an immediate grant of wheat or other assistance to prevent riots or even internal collapse. Such a situation developed in Jordan in 1951 and was met by a special grant of wheat to the value of $1,250,000. Authority for this was found in the provisions of the Economic Cooperation Act of 1948,³ as supplemented by the Mutual Security Act of 1951.⁴ During 1952 similar crises developed in Pakistan, Afghanistan and Egypt. Wheat was supplied to Pakistan and Afghanistan under a somewhat obscure provision that was found in the China Area Aid Act, and approximately $10,000,000 worth of wheat will soon be made available to Egypt under Section 503 of the Mutual Security Act of 1952. There are now developing rumblings that indicate that similar assistance will be requested for Libya and possibly a second time for Pakistan.

The difficulty in all of these cases is that these requests necessitate some stretching of statutory provisions which were intended for other purposes and something of a diversion of funds from the purposes for which they were directly appropriated to meet these urgent needs.

TCA is particularly concerned over this series of crises because it is the only operating agency in the Department that administers economic aid programs. It is, therefore, constantly under pressure to find authority and funds to meet these crises.

The straightforward solution to this problem would seem to be for the Department to submit proposed legislation to the Congress under which the President would be authorized, when he found that such an emergency in a foreign country endangered the security interests of the United States, to allocate money to the Secretary of State or to any other suitable agency of the Government, from an emergency fund to be made available for that purpose, to give aid, in the form of either a loan or a grant, or both, for a long enough period to enable him to report the situation to Congress with recommendation for such further action as may be needed. TCA has urged the Department to recommend such legislation, but the difficulty is that it seems unlikely that the Congress would approve such a proposal. The question should be re-examined because the new Congress may be willing to give the new President what the previous Congress would definitely refuse to give to the former Administration.

4. Transfer of TCA Outside State Department.

Some of the President’s advisers are known to favor the establishment of a new agency outside the State Department to administer all foreign economic assistance programs. This proposal has a long history; in its latest version it is said to propose that the Mutual Security Agency, the Export-Import Bank, TCA and the Office of the Assistant Secretary of State for Economic Affairs be consolidated into an independent agency reporting to the President.

The principal argument in favor of this proposal has been that it would facilitate coordination among the foreign economic assistance programs, and should be able to promote administrative efficiency and economy.

The Department and TCA have objected to this proposal on the following grounds:

(a) The administration of foreign economic assistance is a very important part of the administration of the foreign policy of the United States. To remove the Point 4 Program from the State Department would be to remove from the Department one of its most effective arms for realizing foreign policy objectives in the underdeveloped countries. Coordination in Washington between policy and operations would become more difficult, and, in the host countries themselves, the American head of the economic assistance operation would become a competitor of the American Ambassador. The working relations between TCA Country Directors and the American Ambassadors are today much more friendly and effective than those between the Country Directors of the Mutual Security Agency (which is outside the Department) and the American Ambassadors in those countries where MSA operates.

(b) MSA is authorized to conduct what are called “defense support operations”—that is, MSA gives such economic assistance as will support and strengthen the military defense effort of the recipient country. To consolidate TCA and MSA in a single agency would tend to create a strong impression, both in the United States and abroad, that the Point 4 Program is a part of the “cold war” and is closely associated with military and defense support operations. Such an impression would greatly weaken the effectiveness of Point 4 and would jeopardize the acceptability of the program in a number of important countries, among them India, Indonesia, Burma, Iran, several of the Arab countries and others.

The Export-Import Bank would undoubtedly also oppose the proposal on the ground that it is unwise to combine lending programs with grant programs in a single agency. There is probably much merit to this objection.

Another form of this proposal has advocated that MSA be transferred to the State Department so that it and TCA could be consolidated within the Department. While this variation of the proposal would meet the first of the two objections stated above, it would not meet the second. TCA would still strongly urge that it be kept organizationally separate from agencies administering defense support operations.

The basic idea of the Point 4 Program has developed tremendous appeal for the governments and peoples of the underdeveloped countries—more than half the population of the world. The idea was launched only four years ago, and became law only two and a half years ago but already it is one of the most potent ideas in our foreign policy. We should be very careful not to dilute the appeal of this program by the way we organize and administer it.⁵

1. Philip Glick.
2. Not found in Department of State files.
2. Not found in Department of State files.
3. Title I of the Foreign Assistance Act of 1948 (Public Law 472), enacted Apr. 3, 1948; for text, see 62 Stat. 137.
4. Public Law 165, enacted Oct. 10, 1951; for text, see 65 Stat. 373.
5. In accordance with President Eisenhower’s Reorganization Plan No. 7, submitted to Congress on June 1, 1953, the functions of the Technical Cooperation Administration, the Institute of Inter-American Affairs, and the Mutual Security Agency were transferred to a new Foreign Operations Administration, effective Aug. 1, 1953.