Foreign Relations of the United States, 1955–1957, Foreign Aid and Economic Defense Policy, Volume X

10. Draft Memorandum Prepared for the National Security Council¹

Washington , November 28, 1955 .

SUBJECT

• Review of the Military Assistance Program

Pursuant to NSC 5434/1, the Planning Board has reviewed the status reports relating to the military assistance programs submitted by the Department of Defense and by the International Cooperation Administration for the period ending June 30, 1955.

The following characteristics of military assistance and supporting aid programs are noted:

(a) The rendering of military aid, based on a decision to build indigenous forces in a given country, generates in most cases further requirements in the form of Direct Forces Support and Defense Support aid.

(b) A large part of the military assistance provided by the United States has been in direct response to pressures exerted by the Soviet Bloc in particular areas. For example, whether it be in Berlin, Korea, the Formosa straits or Indochina, the furnishing of military aid by the United States has been in good part, our reaction to decisions which have been made by the Communist Bloc.

(c) Once we have begun to furnish grant aid to a particular country, there is a tendency for it to continue—sometimes despite changed circumstances. This has been true in the past and appears likely to continue into the foreseeable future. This seems due to the following: (1) the initial grant was required because the recipient country’s economy could not support the military capability we had planned for it; still these economic deficiencies are generally not likely to be overcome for many years to come, if ever; (2) once we start rendering aid to a country, it becomes accustomed to it and expects aid in equal, or perhaps greater, amounts; (3) the threat of local aggression or other pressures which caused us to begin an aid program never completely disappear.

(d) As a result, the required responses to Soviet bloc pressures in one area after another are cumulative; and attempts to achieve our objectives in all these areas would involve expending our resources in foreign aid programs at an ever increasing rate towards an ultimate total which would be without limit.

(e) It is basically more expensive for the United States to render foreign aid than for the Soviet Union. Because of the nature of our economy and the fact that we are a creditor nation we are compelled for the most part to render grant aid; the Soviets, on the other hand, are in a position to trade and to accept goods in return for armaments and other products furnished. They are also willing to make large, long-term loans at low interest rates and payable in local currencies with which we have hitherto not been willing to compete.

(f) As a result, Soviet aid is ostensibly presented as a commercial trading proposition without strings, whereas U.S. aid is for the most part grants with political commitments; the attitude of the recipients towards the U.S. and towards the Soviet varies accordingly.

(g) Foreign aid recipients expect more from the U.S. than from the Soviets. Thus Soviet aid, or even promises of aid, are heralded with far greater welcome than are U.S. grants many times the size. Moreover, in areas where the U.S. has granted less than was expected or has slowed down or stretched out deliveries, we are put in the position of qualifying our promises at the same time the Soviets are making new ones.

During FY 1955 we spent on the order of $43 billion for national security programs. These expenditures were divided into the following rough order of magnitude:

Military programs	$36	billion
Foreign aid	4
AEC	2
Civil defense, stockpiling and other programs	1
	$43

If it is assumed that so far expenditures in FY 1956 and future years will not substantially exceed the above total, and if it is also assumed that incursions are not to be made into the present level of expenditures for other national security programs, then foreign aid must be financed on an annual basis of somewhere in the neighborhood of $4 billion.

Recent Soviet moves and other developments suggest that the U.S. must consider embarking upon a substantially greater program of grant aid in the Middle East (military or economic), possibly amounting on an annual basis to some $.5 billion. This may mean that present programs in other areas should be carefully reexamined to see whether we are receiving a proper return on our investment and whether the present priorities continue to have validity.

At the present time, the principal recipients of our foreign aid funds and the order of magnitude of the grant aid they are receiving are as follows (in billions of dollars):

	FY 1957 Programs	FY 1955 Expenditures
NATO (ex Turkey)	1.3	1.7
Korea	1.0	.22
Indochina3	.4	.8
Turkey	.4	.2
Formosa	.3	.4
Pakistan	.3	4
Spain	.1	.1
Japan	.1	.12
Iran	.1	.1
Yugoslavia	.1	.2
India	.1	.1
All Other	1.0	.2
Total	5.2	4.12

Note on Sources: The FY 57 figures were obtained from the tentative ICA budgetary request figures, and from the latest tentative estimates developed by DoD in connection with their budget request. FY 55 figures are from Defense and ICA contributions to NSC 5525, Part 2.

With the exception of Yugoslavia, where the present program is currently under review, none of the country programs above listed is presently under NSC study. It therefore seems likely that expenditures of the order indicated above will continue at approximately the present rates and with approximately the above relationship of one country’s program to another’s over the foreseeable future. This means that to the extent the existing order of priority continues, foreign aid may not be available for for other areas, such as the Middle East, where it may be more urgently needed. It also means that under existing policies, dollar demands of these proportions will be a fixed charge over the years to come, comparable in its recurrence to the annual requirements for interest to service the national debt.

There are, obviously, very different military, political and economic factors which apply in NATO and each of the separate countries listed above which, together, are absorbing something on the order of 90% of our foreign aid dollars. In Iran, for example, the size of the planned armed forces is based in part upon the prestige factor and our policy of support to the present regime; the same is to some degree true in Pakistan; in Korea, the force levels have a more militarily immediate purpose by way of deterrence. However, there is one policy issue which is a common denominator applicable to each country:

To what extent should the United States continue to sustain force levels, over and above those necessary to preserve internal security, when (1) even present Planning Force Bases “do not represent total military requirements”;⁵ (2) when the forces are of such size as to constitute a drain on the local country’s resources which its economy cannot support now or in the foreseeable future; and (3) when such forces can only exist now and in the foreseeable future through subsidies by the United States at an annual cost of from $100 million to $800 million per country?

1. Source: Department of State, S/P–NSC Files: Lot 61 D 167, MSP Procedure for Periodic Review. Top Secret. Prepared by the NSC Staff for consideration by the NSC in conjunction with the Review of Military Assistance and Supporting Programs enclosed with Lay’s memorandum, infra .
2. Understatement of grant aid given, since Direct Forces Support program financed by non-Mutual Security appropriations of the Department of Defense is not included. [Footnote in the source text.]
3. Includes South Vietnam, Laos, and Cambodia. [Footnote in the source text.]
4. Less than $50 million. [Footnote in the source text.]
2. Understatement of grant aid given, since Direct Forces Support program financed by non-Mutual Security appropriations of the Department of Defense is not included. [Footnote in the source text.]
2. Understatement of grant aid given, since Direct Forces Support program financed by non-Mutual Security appropriations of the Department of Defense is not included. [Footnote in the source text.]
5. See NSC 5525, Part 2, Annex 2, Page 1. (Defense Status Report) [Footnote in the source text.]