6. Progress Report by the Operations Coordinating Board1
PROGRESS REPORT ON SOUTH ASIA (NSC 5701, Approved Jan. 10, 1957)
(Period Covered: From Jan. 10, 1957 through July 24, 1957)
A. Summary of Operating Progress in Relation to Major NSC Objectives
- Summary Evaluation. U.S. objectives in NSC 5701 fall into three principal categories: (a) political orientation; (b) increasingly sound and developed economies; and (c) posture of military strength. The [Page 44] following evaluations by country reflect the achievement, or lack thereof, in accomplishing U.S. objectives.
Political Orientation. At the close of the period, Prime Minister Suhrawardy was completing a seventeen-day visit to the United States in response to an invitation by the President. While it is too early to evaluate the results of the visit, the Prime Minister was impressed by U.S. economic and cultural achievements. Moreover, Pakistani sources indicate that the Prime Minister considers the visit to be a success. It is hoped that the conversations which he had with the President, the Secretary of State and other U.S. leaders will result in a greater appreciation by him of U.S. objectives in world affairs.
The Government strongly endorsed the American Doctrine2 and indicated its will to resist communism and to continue to identify itself with the Free World. The Government is not broadly based and political instability continues to be a major problem. Tensions between Pakistan and Afghanistan were diminished as a result of efforts by both governments. The two countries agreed to reestablish diplomatic relations at the ambassadorial level and to arrange for the resumption of normal transit of Afghan trade through Pakistan. The Pushtunistan issue was a lessened but continuing source of friction and tension. Pakistan’s relations with India continued tense, primarily because of the unsettled Kashmir and Indus Waters issues and because India distrusted Pakistan’s role in the Baghdad Pact and SEATO and its acceptance of U.S. military assistance.
- Economic Stability. Pakistan maintained a fair degree of economic stability during the period, primarily because of U.S. aid programs. Government execution of economic development programs has been inadequate, partly because of uncertainty regarding the scale and nature of future U.S. assistance, but more importantly because of the inadequacy of the Pakistan Government.
- Military Strength. During the Suhrawardy visit Pakistan requested consideration for continuation and expansion of military aid beyond that envisaged in the 1954 agreement. During the period Pakistan increased its military strength through utilization of U.S. military assistance. Such increased military strength enables Pakistan forces to maintain internal security, to offer limited resistance to external aggression, and to contribute to collective security.
- Political Orientation. The government publicly reaffirmed its policy of neutrality in the joint communiqué with the Richards Mission.3 It continued privately to indicate its keen interest in establishing stronger ties with the U.S. Government. As indicated above, Afghanistan’s general relations with Pakistan have improved, even though no substantive progress toward a solution of the Pushtunistan question has been made.
- Economic Stability. Afghanistan’s financial instability and administrative and technical deficiencies continued to hamper economic development. Its economic involvement with the Communist bloc continued to be a major deterrent to relating its economy closely with that of the Free World.
- Military Strength. Afghanistan is not militarily strong and is vulnerable to Soviet pressures primarily because of its juxtaposition with the USSR and its remoteness from sources of Free World strength.
- Political Orientation. In the general elections of 1957, the Congress Party maintained its control of the Government of India and of all but one of the state legislatures. The Government of India continues to be popularly-based and stable. The communists made significant gains, however, and were voted into power in Kerala State. Under the leadership of Prime Minister Nehru, Indian foreign policy continued to be independently oriented. Tension continued with Pakistan, India alleging that the United States was biased in favor of Pakistan with regard to the Kashmir issue because of Pakistan’s membership in the Baghdad Pact and SEATO.
- Economic Stability. India’s economy continued to expand although the five-year development program was encountering considerable difficulty. Foreign exchange reserves continued to decline and inflationary pressures increased. The government attempted to retard the loss in reserves by restricting non-essential imports and raising tax revenues. It is seeking additional external sources of foreign exchange needed for the development program.
- Military Strength. India’s military strength is adequate for internal security, and security against Pakistan, but the Indian Government has begun to feel increasingly uneasy over what it conceives to be the abnormal expansion of Pakistan’s military strength due to U.S. assistance.
Political Orientation. India maintained its dominant political and economic relationship with Nepal. The latter, seeking greater independence and more financial assistance, continued to enlarge its contacts with communist bloc countries. During March 1957 Nepal received its first Soviet Ambassador who, being accredited also to India, is resident in New Delhi. Nepal also welcomed increased United States economic assistance, which included an agreement for construction of a ropeway to increase the flow of essential goods from India to central Nepal.
- Political Orientation. While continuing its policy of neutralism in the field of foreign affairs, Ceylon developed closer diplomatic, economic and cultural relations with the communist bloc. There has, however, been no marked deterioration in U.S.-Ceylon relations. The internal political situation there was marked by increasing communal tension between the Sinhalese and the Tamils, by a sense of political insecurity on the part of the Prime Minister, and by a lack of cooperation and coordination within the coalition cabinet. At the same time Buddhist elements, both Lay and clerical, continued to exert pressure on the government for even greater concessions to their religion. There were also indications of growing public dissatisfaction because of the government’s failure to implement economic development programs vital for Ceylon’s future. There were occasional, irresponsible charges in high quarters against the Voice of America relay base and against the Asia Foundation, as well as occasional allegations of “espionage” by American professors on exchange grants with the University of Ceylon. Increased pressure against U.S. operations in Ceylon may be expected if the extreme leftist and ultra-nationalist elements within the government become stronger.
- Economic Stability. Ceylon’s economy in general has made no outstanding improvements nor has it deteriorated noticeably. U.S. aid programs have proceeded smoothly and the Government of Ceylon has in general been cooperative, especially showing appreciation for the CARE school lunch program.
- Need for Policy Review. In view of the above, review of U.S. Policy Toward South Asia (NSC 5701) is not recommended at this time, pending further consideration of India’s economic requirements and availability of U.S. resources to assist India. However, because of the impracticality of persuading Ceylon to discontinue rubber exports to Communist China, concerning which a new rubber-rice agreement is expected to be negotiated shortly, a revision of paragraph 80 is being submitted to the NSC Planning Board.
B. Major Operating Problems or Difficulties Facing the United States
- Opposition to Western Collective Security Arrangements. The Indian Government has continued to oppose SEATO and the Baghdad Pact on the grounds that they add to existing tensions and have brought the “cold war” to South Asia. Ceylon and Nepal are likely to continue to follow India’s lead in opposing our efforts to strengthen Free World collective security arrangements. The U.S. continues to assure the uncommitted countries of the area at every appropriate opportunity that such collective security arrangements pose no threat to such countries but rather contribute significantly to their own, and the area’s security against aggression.
- Apprehension over Nuclear Weapons Tests. India and Ceylon are the principal objectors in South Asia to the continuance of nuclear weapons tests. Continued attempts are being made to explain, through all appropriate information media, the U.S. position on nuclear weapons and disarmament.
Communist Bloc Inroads into the Area. The Free World continues to be faced with concerted communist bloc efforts to increase its influence in South Asia. On the diplomatic front, the communist bloc continued to gain prestige in the area through their continued identification with, and support of, Asian nationalism and peaceful co-existence. The Soviet Union and Communist China have established diplomatic relations with Ceylon and Nepal. The communist bloc’s policy of promoting cultural, educational, labor, student, professional and other exchange visits is being implemented effectively. The communist bloc’s economic offensive in the sub-continent continues to pose a serious problem for the Free World. Soviet economic influence in India is indicated by the construction of the Bhilai steel plant, arrangements to train large numbers of technicians in the USSR, discussion on the uses of long-term loans previously offered, technical assistance, and expanded trade. The foreign exchange gap faced by India in implementing its Second Five-Year Plan could be effectively exploited by the communists if they were to increase their aid significantly over current levels. There is, however, no present indication of such a contemplated move on their part. The credits made available to Afghanistan by the Soviets amount to $100 million in economic credits and an additional $30—35 million for arms. These extraordinarily large credits threaten (1) to impose a heavy burden on the Afghan economy in terms of loan repayment and (2) to strengthen trade ties with the USSR for an indefinite period. Nepal had previously accepted a large economic aid grant from Communist China and might accept Soviet economic assistance, which has reportedly been offered. Although Ceylon, like the [Page 48] other South Asian countries, continues to trade largely with the Free World, its efforts to expand markets have resulted in increased trade with the communist bloc and may lead to closer economic ties between Ceylon and communist countries. Pakistan, too, has trade agreements with the communist bloc, primarily intended to provide additional outlets for its two major exports, jute and cotton.
The U.S. is keeping under review the developmental problems of the countries of the area to determine in what ways U.S. assistance can best contribute to their stability, attempting to foster conditions more favorable to participation by private enterprise in their development, and encouraging each country to expand its trade and other ties with the Free World.
- Rapid Population Growth in the Area. Population trends in South Asia are causing increasing concern with respect to the potential success of the development programs of the South Asian countries, as well as to the adequacy of their food production. Even if these countries successfully meet their current economic development goals, their planned increases in per capita income and standard of living may be nullified by their rising rates of population growth. In Ceylon, for example, public health measures already have reduced mortality in the past ten years to the extent that the rate of population growth has doubled. Equally serious are the increases in population taking place in India and Pakistan. It is evident that these countries have, in their developmental planning, substantially underestimated their rate of growth, which threatens a doubling of their population each generation. One immediate problem facing these countries as a result of population growth is the fact that their imports of food are already exceeding planned levels.
- Vulnerability to Soviet Pressures. Although there is no Communist Party active in Afghanistan, the country’s 1,400-mile border with the Soviet Union and its near isolation from sources of Free World strength are basic factors affecting Afghanistan’s international position. The Afghans profess to understand Soviet motives and to desire closer association with the Free World. However, geographic realities have forced them to maintain a neutral posture between East and West. These realities also limit the capability of Afghanistan to achieve what it regards as its minimum economic and security needs through association with the Free World alone. In particular, the substantial Soviet assistance to the Afghan military establishment and the presence of Soviet military advisers may be an inhibiting factor in Afghanistan’s future relations with the West.
- Afghanistan—Pakistan Relations. The “Pushtunistan” issue between Afghanistan and Pakistan arises out of the Afghan’s interest in securing special status for their racial kin, the Pushtuns, residing [Page 49] in northwestern Pakistan. Pakistan naturally regards the status of its Pushtuns as a purely internal matter. Afghanistan’s principal routes of communications with the Free World lie through Pakistan (via the port of Karachi). Therefore, the Pushtun question has been a major impediment to closer Afghan-Free World relations. Both Pakistan and Afghanistan have in recent months shown a more cooperative attitude in their mutual dealings, though no substantive progress toward a solution of the “Pushtunistan” issue has been made. The U.S. continues to urge both countries to resolve their differences.
U.S. Aid Program Implementation
Development Assistance. The lack of trained technicians and administrative personnel in the Afghanistan Government along with a paucity of engineering and economic data have increased the difficulty of organizing Development Assistance projects. Contracts for capital projects must be preceded by realistic engineering and economic surveys to determine project context, scope and organization. Afghanistan’s inability to understand the need for this preliminary work makes its officials impatient and critical and increases the difficulties of economic development activities. The U.S. Operations Mission, matched by parallel undertakings by technicians from other countries, is gradually educating the different levels of Afghan officials on the need for sound planning, however, and an Afghanistan Planning Ministry has just been organized.
Technical Assistance. Technical Assistance is gradually concentrating in fewer fields of activities with major emphasis on secondary and higher education. A review of the projects shows a trend away from projects which might have a direct impact on the village people, such as Public Health and Community Development. A part of these activities is carried out by the United Nations but these avenues as a means of reaching U.S. objectives seem to be closing. U.S. difficulty in recruiting technicians in these fields is a major reason.
- Political Instability. The present unstable political situation presents difficulties in various fields for U.S. operations in Ceylon. The U.S. continues to attempt to bring about greater political stability by supporting Prime Minister Bandaranaike, while refraining from action that might weaken the United National Party or other similar moderate groups.
- U.K. Naval and Air Bases. Negotiations between Ceylon and U.K. for the naval base at Trincomalee and the air base at Negombo to be returned to Ceylon were concluded on June 7, 1957. The takeover will occur in October and November 1957 with the British being given a three-year period to complete their withdrawal. This situation poses a problem not only for the British but for the U.S. [Page 50] Government in connection with contingent defense plans for the area and the need to plan for alternative bases.
- Rubber—Rice Agreement with Communist China. Ceylon intends to negotiate a new Rubber—Rice Agreement with Communist China before the end of this year. The question of U.S. economic assistance to Ceylon must be kept under continuous review in the light of any developments in Ceylon’s trading relations with Communist China.
Five-Year Plan Difficulties. The strains of the accelerated development program which were noted in the period ending in November, 1956, continued and in some respects have been accentuated. Foreign exchange reserves continued to decline almost every week, and this, together with internal inflationary pressures, posed a serious threat to meeting the targets of the plan. Severe import restrictions were imposed by the government. Some rephasing and slowing down in development expenditures is being undertaken. The 1957—58 budget proposed some increased taxes and revenues. In May 1957, the Indian Government through its Ambassador in Washington4 and a special representative (B.K. Nehru), undertook informally to sound out the U.S. Government as to the possibility of increased aid in support of the plan. The U.S. Government, through a special interdepartmental working group, has made a survey of the situation, and possible measures by which the U.S. could, within present budgetary limitations, assist India toward the realization of its economic development objectives. This survey and recommended measures have been transmitted to the OCB. The measures so suggested are: (1) Consider supplementing the existing P.L. 480 agreement with India to prevent further inflation of food prices in the event that subsequent information demonstrates a pressing need; (2) extend loans from the new Development Fund for sound projects which can not otherwise be financed; (3) extend loans from the Export—Import Bank, especially to strengthen selected private enterprise in India; and (4) support generally Government of India applications for loans–both in the public and private sectors–from the International Bank for Reconstruction and Development.
In order to provide the basis for a request of Congress, at its next session, for special legislation to provide additional resources in the form of a long-term loan to the Government of India, should it be decided to make such a request, the Department of State intends to undertake necessary preparatory studies.
- Military Aid to Pakistan. During the past few months there was a revival of Indian allegations that U.S. military assistance to Pakistan is reducing India’s military superiority over Pakistan and therefore [Page 51] contributing to the danger of Pakistan aggression against India. The U.S. has repeatedly assured the Indians that their estimates of the extent of our military aid to Pakistan are greatly exaggerated and that the U.S. will help India to resist aggression, should it occur.
- Kashmir. In January, the Security Council resumed discussion of the Kashmir dispute at the request of the Pakistan Government, and adopted a resolution on January 245 reaffirming previous U.N. resolutions calling for a settlement by a plebiscite. Another resolution suggesting the possible use of a U.N. military force in Kashmir to assist in the preparation of a plebiscite, as had been suggested by Pakistan, was vetoed on February 20 by the Soviet Union.6 On February 21 the Council authorized the Jarring Mission7 which was unable to contribute towards a solution. In general, the Pakistanis were pleased by the support given them in the Council by the U.S. and the U.K. and by the favorable public support, particularly in the U.S., of their position. In India it was widely believed that the Security Council continued to evade what Indians regarded as the fundamental issue (i.e., “aggression” by Pakistan because of its continued occupation of half of Kashmir), and also that the U.S. and U.K. supported Pakistan in the Council solely because of the latter’s membership in SEATO and the Baghdad Pact.
- Indus River Problem. For the past three years Pakistan and India, utilizing the good offices of the IBRD, have been engaged in an attempt to solve their dispute over the distribution of the Indus Basin waters. It has been increasingly apparent that the existing basis of negotiations does not provide an acceptable solution. In March 1957, the interim agreement on the use of these waters ended. The IBRD proposed a further 6-months’ extension, which was accepted by both parties. During this period the IBRD is exploring a new proposal in Karachi and New Delhi, which it believes may provide a more hopeful avenue for the settlement of this issue. As a minimum, it is necessary to keep these negotiations going so as to prevent a further deterioration in Indo-Pakistan relations, already aggravated because of the Kashmir dispute, with which the Indus waters problem is intimately related.
- Trade. The Government of India is seeking longer term credit arrangements, and the extent to which U.S. companies can enter into such arrangements will influence the volume of U.S. exports to India. Very few U.S. firms, if any, are willing and able to grant long-term credit (over three years) to Indian buyers. The Export—Import [Page 52] Bank for many years has had facilities to finance capital equipment exports and is studying the current problem of financing such exports to India.
- Investment. Some flexibility in attitude toward foreign capital participation has been recently indicated by the Indian Government officials, especially as regards royalty payments, majority control and credit for imported capital goods. Although these pronouncements plus some recent tax changes may encourage some U.S. companies to consider investment in India, there are still a number of rules or laws affecting corporation activities which counterbalance these more favorable developments. The question of reactivating negotiations for a Friendship and Establishment Treaty or other treaties or agreements between the United States and India, has been raised with the Government of India. Such agreements, if concluded, would tend to improve the investment climate in India.
- Relations with Communist Bloc. Nepal has continued to enlarge its contacts with the communist bloc countries. Seeking to assert its independence from India and to gain additional foreign assistance for economic development, Nepal received its first Soviet Ambassador (resident in New Delhi, India) and played host to Communist Premier Chou En-Lai. If the Communists establish a resident diplomatic mission in Nepal (although it is presently believed that only the Communist Chinese might do so), the United States is prepared to open a corresponding post. The United States seeks to strengthen Nepal against the encroachment of international communism, while avoiding conflict with Indian interests in the Himalayan buffer area.
- Political Instability. Political instability continued to be a major problem in Pakistan. In March, parliamentary government was suspended by President Mirza; it was reinstated in July. In East Pakistan political conditions deteriorated because of a food crisis. Although some progress on domestic problems was made by the Mirza—Suhrawardy Government, the above cited adverse developments matched the gains.
- U.S. Aid Programs in Pakistan. U.S. assistance has helped Pakistan maintain reasonable economic stability through this period. However, U.S. inability to comply with the government’s request in September 1956 for a 3-year P.L. 480 program or to give assurances regarding the size and composition of any program it might eventually propose to Pakistan has been a factor in the development of the food crisis which now faces the country. After the 3-year program for India became known in the summer of 1956, Pakistan counted heavily upon a similar large-scale agreement and practically no alternative plans were laid for the future without such support. [Page 53] Recent large-scale purchases of rice, plus a one-year P.L. 480 program which will soon be available, should have a stabilizing influence on the situation. The rice purchases, however, have made a considerable dent in Pakistan’s foreign exchange reserves. During the Suhrawardy visit the Pakistanis were told that contingent upon passage of P.L. 480 legislation the United States hopes to offer to sell Pakistan 600,000 tons of wheat and approximately 125,000 tons of rice for shipment during FY 1958.
U.S. Military Aid to Pakistan. The U.S. recently obtained agreement from Pakistan that henceforth all Government of Pakistan needs for support of its military establishment will be considered together. This method of considering assistance will give the U.S. the opportunity to discuss with Pakistan the level of assistance that may be provided in the light of the total of Pakistan’s resources budgeted for support of its military forces. Initiation of this revised method will permit progress toward the objectives of NSC 5701 pursuant to the note by the Executive Secretary of the NSC reporting approval of NSC 5701: “The Council also noted the request of the President that the Department of State, in carrying out paragraph 69 of NSC 5617, as amended and adopted, and in consultation with the Department of Defense, should seek suitable opportunities, compatible with the political situation, of inducing Pakistan, in pursuant of its own interests, to propose revisions of the planned military programs to reduce the future burden on its economy.”
During the Suhrawardy visit the Prime Minister made requests for certain military items not envisaged in the secret military aid agreement of 1954. His government’s requests were detailed by his military advisers; they added up to an extension of large-scale military aid beyond the period already foreseen, an acceleration and expansion in aircraft deliveries and expanded training facilities in the United States. Although the Departments of State and Defense agreed to consider these requests, they made no commitments.
- Economic Stability. Pakistan’s economic stability continues to be threatened by the perennially critical food supply situation which, until recently, the government has not taken sufficiently stringent measures to correct. A fresh crisis appears to be brewing in East Pakistan, where the price of rice (the staple food) has risen inordinately.
The offer by Ambassador Richards of a $10 million loan towards the establishment of fertilizer factories in Pakistan appears to have raised questions concerning the Pakistan Government’s planning of these high-priority projects, for which the government has long been seeking foreign investment. Whether the government plans to use this money to finance (1) a state-owned plant, (2) to supplement a combination of public and private investment or (3) to [Page 54] lend the Richards Mission funds to private enterprise with a view to establishment of one or both of the fertilizer plants entirely by private enterprise, depends upon the outcome of current negotiations.8
Note: The following NIE’s are applicable to South Asia:
NIE 51—56, India over the Next Five Years, May 8, 1956.
NIE 53—56, Probable Developments in Afghanistan’s Internal Position, January 10, 1956.
NIE 52—56, National Intelligence Estimate on Pakistan, November 13, 1956.9
- Source: Department of State, S/S—NSC Files: Lot 63 D 351, NSC 5701—Memoranda. Secret. Forwarded to the NSC on July 26 under cover of a note from Staats to Lay.↩
- Reference is to the American Doctrine for the Middle East (or “Eisenhower Doctrine”), the program of economic and military assistance authorized by House Joint Resolution 117, as amended, approved by the President on March 9, 1957 (P.L. 7, 85th Congress).↩
- Reference is to the mission to 15 countries of the Middle East, South Asia, and Africa, by James P. Richards between March and May 1957. Regarding his visit to Afghanistan, see Documents 126 and 128.↩
- G.L. Mehta.↩
- U.N. doc. S/3779.↩
- U.N. doc. S/3792.↩
- U.N. doc. S/3793. For documentation on the Jarring Mission, see Documents 51 and 53 and footnote 2, Document 55.↩
- Regarding Richards’ visit to Pakistan, see Documents 126 and 128.↩
- Three annexes, none printed, were attached to the source text: Annex A, “Additional Major Developments not Covered in the Report;” a Financial Annex; and Annex B, “Foreign Trade Data on South Asia.”↩