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

22. Memorandum From the Deputy Under Secretary of State for Economic Affairs (Prochnow) to the Secretary of State¹

Washington, July 27, 1956.

SUBJECT

• Summary Conclusions of the Interdepartmental Committee on Certain U.S. Aid Programs

The Committee has undertaken, in response to the NSC request,² to identify and state issues which emerged from the studies covering the first six countries.³ There are a number of significant conclusions which can be drawn and which are briefly set forth as follows:

1. The present U.S. military and economic programs for the six countries which are underway, but in most cases only partially completed will cost the U.S. close to $2 billion yearly through 1960 and perhaps $2.5 billion if we responded to requests for enough additional economic development aid to permit a modest strengthening of the economies. If we go ahead on this basis through 1960, the situation at that time would probably not be very much improved. To the extent that inflationary pressures are stimulated, the economic problems may increase. Nothing in the way of a substantial natural tapering off in these expenditures is visible in the foreseeable future.

2. It is clear that the military programs are beyond the capacity of the countries themselves to develop or, with the possible exception of Iran, to maintain. The U.S. has had to cover the build-up costs. In general, we are supporting the budgets and balance of payments of these countries.

3. In spite of the large U.S. assistance, the military establishments constitute a direct and indirect economic burden on the countries (e.g. inflationary pressures and competition for available resources and financing). There are, of course, some compensating economic advantages, e.g. improvement of roads, harbors, etc.

4. Since a considerable part of U.S. aid goes into budgetary support, rather than into projects to further economic development, the end results of our aid are difficult to control. Reduction of aid in this circumstance becomes extremely difficult and is more susceptible to adverse reactions. If the economic implications of the military build-up are fully realized by the governments concerned, they probably assume in going on with the programs that the U.S. will come to their assistance.

5. The studies do not indicate conclusively that the premises on which the programs in these countries were originally based have been modified as a result of changes in conditions (as, for instance, the development of new weapons or the possible modification of Soviet bloc policy). As indicated above, the budget support nature of much of our assistance tends to minimize our control over its use and to make difficult, for instance, a change in emphasis from military support to a relatively greater emphasis on economic development. The programs tend to become increasingly inflexible.

6. While the military build-up in the various countries may bring some improvements in line with U.S. security objectives, the real amount of security we are obtaining from the expenditures is difficult to measure precisely. For instance the determination of how many divisions are necessary for certain missions appears to depend largely on subjective judgments. The Committee is in no position to determine whether alternative security arrangements which might cost less are feasible. It is clear, however, that anything approaching major aggression against any of the countries would, now or after the build-up, require substantial and prompt outside assistance.

7. Having done what we have and made such commitments as we have, rightly or wrongly, any substantial cut-back on either the military or economic side would be politically very difficult. There is no particular reason to suspect that cut-backs will be less difficult in the future; in fact, the longer we support budgets and balance of payments the greater would seem to be the problem of reducing our aid, since our support will tend to be more and more built into the budgets of these countries as anticipated income.

8. Much of the advice and provision of information on which programs are determined and developed comes from field representatives. While they have a role to play in making decisions, the feeling sometimes emerges from the studies that perhaps they may lack the broad perspective needed to provide entirely objective advice.

The studies on this group of countries should provide a broader basis on which to make policy decisions than that on which earlier decisions were made and should underline the importance of a coordinated assessment of the implications of such decisions, whether for continuation of present programs or otherwise.

Recommendations:

The above observations, particularly the general one that it may be as difficult in 1960 as it is at present to reduce the degree of our involvement in these countries, point toward the desirability of

a) reassessing our basic objectives in respect to these countries, in the light of (1) present international circumstances, (2) the continuing large costs involved and (3) total U.S. responsibilities;

b) re-examining possible alternative means of achieving our security objectives, present or modified;

c) reassessing the proportion of our aid for military as compared to economic expenditures in the light of present circumstances.

It appears, generally speaking, that the U.S. may have participated in the expansion of military plant in these countries beyond a point justified in terms of economic and security considerations. The further we go in this direction the greater are our contingent responsibilities. In this situation, unless more real economic development assistance is forthcoming from somewhere, these economies may experience little or no increase in strength.

It appears, therefore, that U.S. policy should look toward a negotiated adjustment downward in military aid. It appears further desirable to accompany this course with greater emphasis on economic development projects. Transferring funds saved from a reduction in military outlays as practicable or politically necessary into well planned economic development would at least be a stimulant toward economic growth. This course, if accompanied by adequate security assurances, may not be entirely unwelcome to these countries. It may offer hope of eventual relief from the heavy burden we now carry, and may also offer the governments of these countries at least some slight hope of economic progress for their people.

1. Source: Department of State, S/S–NSC Files: Lot 63 D 351, NSC 5610 Series. Secret.
2. NSC Action No. 1486 was approved by the President, December 13, 1955. See footnote 14, Document 13.
3. Turkey, Iran, Pakistan, Vietnam, Formosa, and Korea. The full report containing the specific reports on each country is in Department of State, OFD Files: Lot 59 D 620, All Countries, U.S. Aid Programs, 1956.