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

FE files, lot 55 D 480

Memorandum by the Deputy Under Secretary of State (Murphy) to the Secretary of State

secret

[Washington, undated.]

Subject:

• Interim Report¹ of the Working Group to the NSC Ad Hoc Committee on an Asian Economic Grouping

At the first meeting² of the NSC Ad Hoc Committee on an Asian Economic Grouping,³ chaired by Mr. Hoover, it was decided to constitute a Working Group comprising a representative from each agency represented on the Ad Hoc Committee. The Working Group has just submitted an interim report. There will not be time to call a meeting of the Ad Hoc Committee to consider the report before the NSC meeting on Friday, December 3, but each member of the Ad Hoc Committee has been asked to bring the interim report to the attention of his NSC member before that meeting. The report has received no official agency clearances.

A very brief summary of the Working Group’s interim report follows for your information:

1. Present economic conditions in the Far East and South Asia present opportunities which can be exploited to Communist advantage. Improvement of these conditions would constitute one means of opposing Communist efforts to extend their influence by means short of war. U.S. support of efforts to achieve such improvement should not be regarded as a substitute either for needed internal efforts or for measures to achieve adequate military strength but as a part of the total anti-Communist defense in Asia.

Lasting improvement of economic conditions in these countries requires a program of basic economic development. U.S. assistance to such a program at levels above aid presently provided would accelerate economic growth sufficiently to make the additional assistance justified by U.S. security interests. (Certain Working Group members did not believe that sufficient evidence had yet been offered to support the need for increased aid to achieve the objective stated.)

2. The basic objective in furtherance of the policy expressed in paragraph 3 of NSC 5429/2 and paragraph 23 of NSC 5422/2 (attached)⁴ should be to create in the Far East and South Asia a material and psychological condition which will progressively increase public confidence in the ability of non-Communist governments there to bring about perceptible economic development and increasing political stability. This will necessitate elimination of elements of economic weakness which are presently hampering efforts to develop political stability, and increasing vulnerability to Communist pressures and Communist propaganda claims of more rapid economic development under Communist regimes. A U.S. economic program which will contribute most effectively to the attainment of these objectives should aim to:

a Encourage increased economic cooperation among these countries through the activities of an Asian economic organization which will promote improved techniques of economic analysis and the adoption of sound and constructive fiscal and economic policies;

b Provide needed resources, in addition to contributions from other non-Communist countries, for the financing of projects which will accelerate general economic growth;

c Give financial support, if necessary, to other types of projects which, for political or other reasons, will strengthen resistance to Communism; and

d Produce the maximum favorable impact upon Asian public opinion concerning the U.S. and U.S. motives.

3. Because of the nature of its membership and objectives, the Consultative Committee for Economic Development in South and Southeast Asia (Colombo Plan) should be developed into the kind of regional organization which will accomplish the desired objectives. In addition to performing other functions, the organization could, if desired, also actively participate in the distribution of economic assistance provided by the U.S. and other non-Asian countries. This could be done by either of the following methods:

a Through a fund established as a part of a regional organization and comprising currencies contributed by the member countries on a loan and share subscription basis, to be used to finance development projects susceptible of loan financing but for which loans repayable in dollars under standard IBRD or Export-Import Bank periods of repayment are neither appropriate nor available. These loans would be long term, and terms of payment would be adjusted to the currency availabilities of the borrowing country. The U.S. and other member countries would be able to disapprove loans which involved the use of their currencies.

b The regional organization would screen and make recommendations with respect to developmental loan applications but the actual loans would be made under present bilateral methods.

U.S. military end-item assistance, other aid related directly to military programs, and technical assistance would continue, as a general rule, to be furnished on a bilateral grant basis.

4. There should be sufficient flexibility to enable U.S. economic aid, where necessary, to assist in meeting deficiencies in local funds, shortages of which constitute a major deterrent to certain types of economic development projects in Asia.

5. Aid extended to Asia should be considered in conjunction with aid to other areas and be in line with over-all demands for U.S. financial resources.

6. If possible, U.S. aid should be made available, or at least authorized, on a longer run basis which would permit a higher degree of foreign development planning than is permitted by year-to-year authorizations.

7. Total U.S. aid expenditures to the Far East and South Asia^* since July 1, 1950 were more than $5.5 billion. Deducting the share extended to Japan, Korea, Formosa, and Indochina, total expenditures for all other countries were only $350 million. Economic aid only during fiscal years 1951–54 (Formosa and Korea excluded) amounted to $269.2 million and will reach about $271 million in FY 1955. Expenditures of Export-Import Bank and IBRD funds during the entire period totalled $130 million. Total non-U.S. aid (excluding IBRD) amounted to about $378 million.

Despite this volume of external assistance, productivity in most of the area has failed to keep pace with population growth and in some countries real living standards are below those of 1939. In general, a shortage of resources largely because of the low rate of internal capital accumulation is retarding economic growth.

Regional and country experts from various U.S. agencies who consulted with the Working Group expressed the opinion that, assuming that economic assistance from other than U.S. sources would continue at approximately the present level, a total of U.S. economic assistance in the amount of approximately $2.3 billion^† over the three years, FY 1956–58, extended to the countries of the Far East and South Asia (excluding a possible need for $935 million for Japan, Formosa, and South Korea) if utilized for economic developmental purposes would set in motion a process which, if continued, would appreciably stimulate economic growth in the area. Of this estimated total more than $1 billion would be earmarked for India, $220 million for Pakistan. Over the three year period Southeast Asia would receive $805 million and South Asia $1470 million. The U.S. share of this total would, of course, depend upon the volume of contributions by other countries but the largest share would undoubtedly have to be borne by the U.S. The Working Group did not accept or reject these figures but offered them for illustrative purposes.

1. Dated Nov. 30, not printed. (FE files, lot 55 D 480)
2. Held Nov. 16.
3. Chaired by Hoover, the Committee had members from the Departments of the Treasury, Defense, and Commerce; the Foreign Operations Administration; the Office of Defense Mobilization; and the Bureau of the Budget. Amory served as its Intelligence Adviser and Staats sat as Observer.
4. A report entitled “Guidelines Under NSC 162/2 for FY 1956”, Aug. 7, 1954; not found attached. Regarding this subject, see volume ii.
5. Statistical break-down at Tab A. [Footnote in the source text. Tab A is not attached.]
6. Country break-down at Tab B. [Footnote in the source text. Tab B is not attached.]