Foreign Relations of the United States, 1952–1954, Africa and South Asia, Volume XI, Part 2

790D.5 MSP/10–2254: Telegram

The Acting Secretary of State to the Embassy in Pakistan¹

secret

Washington, October 22, 1954.

519. Following is substance secret aide-mémoire given Pakistanis on conclusion talks here which included meetings with President, Secretaries Defense, State, FOA Director and other officials their agencies:²

A. Military Aid. First objective U.S. effort will be strengthen existing forces required Pakistan’s own security. U.S. will make every effort expedite military aid in order attain $171 million program in less than 3½ years originally contemplated. In FY 55 U.S. will program assistance for Pakistan about $50 million in contrast $29 million proposed initially. Monetary evaluation of program to remain classified. Portion of increase may take form defense support in addition economic assistance for similar purpose described below.

U.S. recognizes matériel deliveries may result increased Pakistan defense costs including possible additional personnel for army. U.S. will investigate possibility achieving military assistance goals through programs which will recognize Pakistan’s added defense budget requirements both rupee and foreign exchange.

B. Economic Aid. Total in excess of $105 million includes $5.5 million flood relief, $5.3 million technical assistance, $20 million defense support funds for economic development, $75.6 million consumer goods and industrial raw materials. U.S. recognizes essentiality continuance and acceleration Pakistan’s economic development effort. About $20 million of aid furnished as Defense support will be loaned on liberal terms. Further consultation interested agencies U.S. government required for precise determination loan component under other legislation. U.S. will consider Heinz Mission recommendation that additional commodity aid needed following two years. With regard local currency resulting these programs U.S. and Pakistan will conclude necessary agreements and procedures its use consistent with laws and with particular regard to use to defray additional rupee costs connected military assistance program and accelerated economic development.

Discussions will commence immediately Washington looking [toward] establishment procurement arrangements and prompt shipment commodities. Procedures for U.S. observation and end use checks will be worked out by two governments in Karachi. Such arrangements to include agreed provisions for distribution through most effective channels. It is expected substantial amount commodities and other economic assistance will go East Pakistan with maximum possible direct deliveries.

U.S. assumes GOP cognizant U.S. responsibilities best use funds pursuant legislative requirements, and assumes GOP will welcome appropriate suggestions connected use such funds. Present discussions have taken note desirability feasibility steps improve Pakistan’s mechanism for control foreign exchange, for scheduling implementing economic development, for continued improvement private investment climate, looking to stimulation small business and conclusion double taxation and FCN treaties. Agreements will be concluded covering economic development and commodity aid from Defense support funds, technical assistance (additional project agreements) and P.L. 480 program. End aide-mémoire. Text pouched Karachi, London.

In last meeting Finance Minister noted he had not had time peruse or suggest detailed rewording memoire so as reflect full Pakistan thinking and reactions in every respect, although he in accord with general line. Since number points (such as total loan component) require further negotiations and discussion as stated memoire, he preferred cover detailed Pakistan reaction as each point arises subsequently. He agreed this document statement of U.S. position at this time.

Finance Minister indicated commodity assistance below amount Pakistanis feel needed. He repeatedly stressed desirability smallest possible loan component which they continued believe would impair their credit other international lenders in spite our assurances easy terms.

Keen disappointment expressed to President and Secretary characterized Prime Minister’s initial reaction military program. This abated with U.S. promise recast FY 55 program for $50 million instead $30 million deliveries and expedite remainder of $171 million total to less than three and half years as possible.

On departure Prime Minister Finance Minister expressed deepest appreciation our help and general satisfaction results meetings.³

Hoover

1. Drafted by Thacher; approved by Jernegan; repeated for information to London.
2. The full text of the aide-mémoire, which totaled 11 pages, is in Department of State file 756D.5/10–2154.
3. On Oct. 21, at the conclusion of Mohammed Ali’s visit to Washington, a joint U.S.-Pakistani communiqué was issued summarizing the results of his trip; for the text, see Department of State Bulletin, Nov. 1, 1954, pp. 630–640.