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

34. Letter From the Acting Secretary of State to the Chairman of the Council on Foreign Economic Policy (Randall)¹

Washington , March 16, 1957 .

Dear Mr. Randall : The Department of State has carefully considered the report of the International Development Advisory Board.² We are in agreement with its more important conclusions. We believe that it complements the Fairless report in two major and useful respects:

(a) It sets forth a fuller statement of the United States national interest in economic growth in less-developed areas. We believe that this statement is sound and should help to resolve public and Congressional uncertainty as to the purposes of our economic development assistance.

(b) It proposes a specific organizational structure for giving economic development assistance the increased continuity and flexibility recommended in the Fairless report and in studies made for the Special Senate Committee. We think that such a structure is needed, and that the IDAB’s broad proposals in this regard point the way to a more effective program.

Specific comments on the eight points listed in the enclosure to your letter of March 7³ are enclosed. Our differences with the Board’s recommendations are, as you will see, ones of detail and implementation. The Board’s analysis and central findings are, we believe, thoughtful and forward looking. The Department of State finds the Board’s report, as a whole, a most useful example of public participation in the process of policy formulation.

I am again asking Mr. Dillon to represent the Department at the meeting which you have called for 4:00 p.m. on March 19th. Sincerely yours,

Christian A. Herter ⁵

[Enclosure]

COMMENTS ON THE REPORT OF THE INTERNATIONAL DEVELOPMENT ADVISORY BOARD⁴

The report by the International Development Advisory Board is not a report on the Mutual Security Program as a whole. As its title indicates the report is concerned only with economic development. It calls for a new emphasis on long-term economic development as a major objective of our foreign policy. To make this emphasis effective, it recommends among other things a long-term program of economic development assistance, administered with flexibility, and separated clearly from military aid. We fully endorse these elements of the IDAB report. Our comments on the specific changes recommended in the Mutual Security Program follow:

1. The IDAB proposes the establishment of an International Development Fund to operate through the International Cooperation Administration of the Department of State. The Fund would provide for technical assistance and capital for economic development in underdeveloped areas.

We concur in the desirability of establishing a mechanism which would put the U.S. program for foreign economic development on a flexible and long-term basis. We agree that this can best be accomplished through the establishment of an International Development Fund which, at least initially, should be operated through ICA. It should operate in close coordination with other lending institutions such as the Export-Import Bank and the IBRD, and should control the local currency proceeds of PL 480, Title I sales which are used for development purposes.

We do not agree that this Fund should provide both technical assistance and capital for economic development. Funds for these purposes should be separately identified but administered in such a way as to reinforce each other. In our view technical assistance should continue to be administered on a grant basis, and funds should therefore be sought separately through an annual appropriation.

2. Congress should appropriate funds to permit the Fund to operate for a minimum of three years without requiring additional financing. Congress would replenish working capital as the Fund’s needs are demonstrated.

As indicated in the comment on (1) above, we agree that funds for development assistance should be sought on terms which would ensure continuity and flexibility. To achieve this result and to increase the effectiveness of our economic development program so as to obtain the maximum results from the available funds, it is important that we break away from the annual cycle of illustrative programs, appropriations and pressure for rapid obligation of funds. It is also important that we be able to make effective and reasonably long-term advance commitments for sound development projects.

It is not clear, however, that a three-year appropriation is the only or the best method of achieving this result. The Department of State would favor the establishment for this purpose of an International Development Fund to be administered on a loan basis as described in the comment on (6) below, the resources for this fund to remain available until expended.

3. The initial Congressional appropriation should be sufficient for a substantial increase in capital investment and technical assistance programs.

We do not agree that a substantially increased appropriation in the first year is either feasible or realistic, but as indicated in our comment on recommendation 23 of the Fairless report we consider that over a period of time some increase in the amount of funds available for capital development and technical assistance may well be necessary. Availability of personnel is and will continue to be an important limiting factor in our bilateral technical assistance program.

4. The technical assistance program should be expanded as rapidly as more skilled people can be brought into the program. Measures to attract, to train and to keep qualified personnel, including the development of a career service, should be vigorously pursued.

We agree with this recommendation but the development of a career service should be the subject of further study with a view to achieving continuity without sacrificing the benefits derived from utilizing technical experts from private life.

5. Separate the military and economic aspects of our foreign aid program. That portion of “defense support” which contributes to long-range economic development should be included in the appropriation for the Fund.

We concur in the desirability of separating the economic and military aspects of our foreign assistance program, as we pointed out in our comment on recommendation 14 of the Fairless report. In our opinion, foreign assistance should then be classified into several distinct categories:

1. Military assistance, which would include the provision of military equipment and supplies and of economic support required to permit maintainance of a given approved level of foreign military forces. This assistance would be largely on a grant basis with funds sought through annual appropriations. Funds should be on a “no-year” basis and might be appropriated under continuing authorization.

2. An International Development Fund, which would make long-term loans for development purposes in the less developed areas of the world.

3. Technical assistance, which would be provided on a grant basis from annual appropriations.

4. Economic assistance on a grant basis to achieve objectives in the U.S. national interest which would not meet the criteria of the Development Fund. For this purpose, a Presidential Grant and Contingency Fund should be provided on the basis of annual appropriations.

5. Miscellaneous funds, to cover contributions to special international activities and funds for administrative expenses, to be sought on the basis of annual appropriations.

The administration of all these forms of assistance should be supervised or coordinated by a single administrator for foreign assistance.

6. The Administrator of the Fund should be given powers broad enough to permit flexibility in setting interest rates, periods of maturity, periods of grace before repayment of interest and principal is required, repayment of local currencies, and the waiver and renegotiation of repayment requirements. He should not be limited by prior Congressional allocations of portions of the Fund to any particular countries or areas.

We agree that the Administrator should have the power to set loan terms appropriate to the economic circumstances and that this should include authority to make all kinds of loans, including loans repayable in local currency. We agree that he should be empowered to renegotiate or extend repayment requirements where necessary but we consider that he should not be permitted to waive such requirements. In order to maintain the operation of the fund in close coordination with the Export-Import Bank and the IBRD, the repayment terms should not be such as would preclude the recipient from securing or servicing private investment or hard dollar loans from other lending institutions.

We also concur that the authority of the Administrator should not be limited by prior allocation of funds to specific projects, countries or regions. In this connection, we consider that the area of the fund should be broader than proposed in the IDAB Report and that its resources should be available to all less-developed countries throughout the world which are not under the control of international communism.

7. The Administrator should have the authority to contribute to international agencies devoted to economic development in underdeveloped areas.

We do not agree. We believe that U.S. contributions to international economic development agencies should be specifically appropriated by the Congress each year and should not be considered a part of a development fund. Our policy recommendations with respect to this type of assistance were set forth in the second paragraph of our comment on recommendation 10 of the Fairless report.

8. The Fund should participate in the joint financing with private investors, the IBRD, and other financial institutions in making foreign loans. One vehicle for this which should be encouraged would be wisely-conceived regional development banks or operating corporations.

We agree. We believe that if the Fund had broad powers to participate in joint financing with private investors, the IBRD and Eximbank, this would assist its mission of stimulating economic growth abroad. Participation in “wisely-conceived” regional banks, corporations, or projects could, in appropriate circumstances, help to mobilize resources for economic development from private investors, other financial institutions, and other governments.

1. Source: Eisenhower Library, Herter Papers, Chronological File. Official Use Only. Drafted by Barnes.
2. Entitled “A New Emphasis on Economic Development Abroad,” submitted to President Eisenhower on March 4.
3. Not printed.
5. Printed from a copy that bears this stamped signature.
4. Drafted by Barnes.