Foreign Relations of the United States, 1952–1954, East Asia and the Pacific, Volume XII, Part 1

890.00/8–453

Memorandum by the Economic Adviser in the Bureau of Far Eastern Affairs (Gay) to the Assistant Director for Resources and Requirements, Mutual Security Agency (Johnson)¹

top secret

[Washington,] July 30, 1953.

Subject:

• Joint Fund Institution for Asian Development.

1. The essential proposal in the Plan, that is, some kind of a regional financial organization to stimulate economic development and trade in the Far East, is challenging and deserving of full consideration in the Government. There can be no disagreement with the central objectives. Certain aspects of the structure of the Plan as presently set forth do, however, raise problems.

2. The idea of a regional development bank should, I think, be fully looked into at this time; it should be studied in relation to the operations and potentialities of the IBRD and also perhaps in relation to a possible SUNFED. If production and trade within the Far East and between that region and the rest of the world are held back by financial limitations, institutional changes should be made to rectify the situation. The possibility of a new central financial organization more fully coordinating the use of funds already available to the region is in itself challenging and deserving of study.

3. I have difficulty with the part of the plan having to do with the use of reparations as a source of funds. I doubt that the recipient countries would look with favor upon exchanging what they consider a firm claim for Japanese goods or services for credits in the bank. In any event, negotiation between Japan and recipient countries re the amount of the claims due would have to precede any such step as envisaged. I am afraid also that the U.S. under the plan proposed would find itself out in the middle between Japan and the claimants, a position we have tried to sidestep. From Japan’s point of view, the proposal would require transfer of currency and a consequent pressure on the balance of payments which the Peace Treaty tried to avoid. The proposal would completely reverse the principle of avoiding a transfer problem.

4. If the U.S. could simply transfer its GARIOA claim on Japan to the Far East as a whole, it would be making a major contribution which would doubtless bring favorable political reactions. This, I assume, is out of the question. Simply to postpone collection and let these funds be used temporarily would, I believe, largely invalidate the possible political advantage from the outright grant. I am afraid as it stands in the proposal it would appear to Asians that our willingness or ability to contribute to the economic needs of the area was solely dependent upon how much we could collect from Japan. This, in fact, might be unfavorably received. It is true, of course, that GARIOA might provide a means of getting funds for use now which we could not otherwise obtain. The cost to the U.S. economy would simply be transferred in time. However, as far as present taxpayers are concerned, shutting off the inflow of GARIOA dollars to the U.S. Treasury would theoretically require an increase in taxes or a postponement of reduction in taxes.² If there is a real present need for lendable funds not available in the IBRD or otherwise, then the transferring of GARIOA funds as suggested might be of some significance. In any event, I should think Congressional approval must be obtained and a Congress unwilling to appropriate for a direct contribution or loan to such a plan might be equally reluctant to do it through a diversion of GARIOA obligations.

5. I find it difficult to accept your assumption that other so-called metropolitan powers would be willing to contribute to the plan under the same motives behind the Colombo Plan. Incidentally, France was not a contributor and the other countries have contributed on a bilateral basis. I strongly doubt that there will be much new funds from these sources.

6. Japan’s interest in this proposal would presumably be dependent upon how extensively and rapidly the operation of the new bank would stimulate production and trade in the area. Quite aside from the question as to whether trade production in the area is currently held back from lack of international lending facilities, I doubt that Japan would anticipate sufficient gain from it to offset the burden on its balance of payments of transferring reparations in funds rather than services and in stepping up its GARIOA payments sufficiently to have them liquidated in ten years.

7. I fear some of the foregoing comments sound quite negative and I regret very much finding myself beset by these doubts and questions. As I mentioned at the outset, we are in fullest agreement in regard to the objective and your central proposal deserves the very fullest consideration. It is hoped that machinery can be set up which on the financial side of things will stimulate trade and production in the Far East and to that extent relieve in particular Japan’s requirements. It is only the structural aspects which cause the trouble.

1. This memorandum is another attachment to the memorandum cited in footnote 1, p. 331.
2. A handwritten interpolation reads: “or a reduction in other forms of aid”.