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

39. Memorandum of Discussion at a Bipartisan Congressional Meeting, White House, Washington, May 9, 1957, 9–10:40 a.m.¹

Washington, May 9, 1957, 9–10:40 a.m.

The following were present:

• President Eisenhower
• Vice President Nixon
• Sen. Bridges
• Sen. Dirksen
• Sen. Fulbright
• Sen. Green
• Sen. Hayden
• Sen. Hennings
• Sen. Johnson
• Sen. Knowland
• Sen. Mansfield
• Sen. Russell
• Sen. Saltonstall
• Sen. Smith
• Sen. Wiley
• Rep. Albert
• Rep. Arends
• Rep. Cannon
• Rep. Chiperfield
• Rep. Gordon
• Rep. Halleck
• Rep. Martin
• Rep. McCormack
• Rep. Morgan
• Rep. Rayburn
• Rep. Taber
• Rep. Vinson
• Rep. Vorys
• Mr. John Foster Dulles, State
• Mr. Christian Herter
• Mr. Robert C. Hill
• Mr. Walter George, Spec. Assistant to the President
• Mr. James P. Richards, Spec. Asst. to the President
• Mr. Donald A. Quarles, Defense
  • Mr. Mansfield Sprague
  • Colonel Harry H. Critz
• Mr. John B. Hollister, ICA
  • Mr. Leonard Saccio
  • Mr. Robert Barnes
• Gov. Adams
• Gen. Persons
• Mr. Hagerty
• Mrs. Wheaton
• Gen. Goodpaster
• Dr. Hauge
• Mr. Martin
• Mr. Harlow
• Mr. Gruenther
• Mr. Shanley
• Mr. Minnich

MUTUAL SECURITY PROGRAM—BIPARTISAN MEETING

(The following is the gist of the President’s opening statement as reconstructed following the meeting. It is not to be regarded as verbatim text.)

It is clear that our budget is primarily a military matter, for almost $41 billion of it is devoted to defense items. And that figure is not one to be thought of as having been recklessly conceived. The Services gave their agreement to the level of $38.5 billion only after the most agonizing of studies and after planning for a good many months.

What do we get for that vast sum? Only the policeman on the corner to see that the robber doesn’t get into our house. There is even a question if it is enough. Of one thing you can be certain, military programs already began and approved by the Congress will have a greatly increased cost in the years ahead, there is no doubt of that.

We must do something to neutralize the threat which faces us. For two reasons, a democratic country like ours cannot depend solely on building a fortress and retiring within it—tiredness or weariness will eventually set in or we get controls that nobody wants; or we will be finally hemmed in by a ring of unfriendly countries that have been taken over by Communists or seduced to their side.

We cannot just sit and wait for something to happen to eliminate the threat. The best that we can hope to happen is the deterioration of the Communist system as a result of internal unrest or of revolts in the satellites. But those things won’t happen if we merely sit behind an array of planes and guns and tanks. This is not a static world. It is extremely dynamic, marked especially by the growing force of nationalism which I consider even stronger than Communism. We are all agreed, I am sure, though we may differ in regard to methods or details, that we must wage peace. We can’t wage peace just from the pulpit. Secretary Dulles and I are engaged constantly and earnestly in studying practical steps by which we can improve the international situation.

I would be the last to say that we have reached a final or complete answer on how to do this. However, all of the many groups who have studied the matter, and Congress has also made studies, have come to the conclusion that this so-called foreign aid is misnamed. It should be designated rather as an investment for peace—an investment that does, of course, require some amount of sacrifice. If mistakes have been made, as I am sure some must have been, in this effort, at least the mistakes are reckoned in dollars and not in lives.

The program that we’ve settled upon after intensive consideration is one providing both direct military programs and economic programs costing together less than $4 billion. Since my Budget Message, the Department of Defense has been able to find areas for savings of about $500 million that bring the total down to $3.(80) billion. Now this is just about 7% of the strictly military items in the budget, and it is only about 15% of what those countries which we assist will themselves be spending. It is the military assistance part of mutual security that I mean when I say 7% and 15%.

As for the economic part, one of the great difficulties we have had is that there is too much rigidity in the operation of it. We have to plan specific programs and projects before enactment of the bill, we have to justify them to the Congress, and during all this the countries concerned develop a feeling of having a vested right to the full amount that has been discussed. We need much greater flexibility as to the timing of these projects and as to deciding on them, so that they can be determined exactly at the moment developments occur that warrant them. For instance, I am certain the Secretary of State believes that the $10 million we were able to give Jordan was what kept that country in being, as it helped to enable that gallant young King to keep control.

Unless we succeed in finding a way to reduce the threat, we cannot reasonably expect to accomplish substantial reductions in the budget. Of course, if it were possible to eliminate our farm programs or stop the grants to the States or end the Federal assistance given for (disasters) or reduce the benefits authorized for veterans, some money could be saved. But I think all of us here are too realistic to think that great savings can be made in those programs. Otherwise, great savings will be made only in the defense area—and that can be done only at great risk to our security until the threat is reduced. Just last year Congress put more money into defense programs. I did not oppose that—the Congress has a responsibility and also experience, and we know that these are very “nice” judgments that are made in setting expenditures at any particular level.

This military assistance program, I repeat, is 7% of what we put into things that are negative and sterile in that they are not producing items for public consumption. Over and above that, there are economic programs amounting to $1 billion, eighty million. (The President then repeated the amounts in response to a question from Speaker Rayburn.)

I would rather see anything else in the budget cut than these programs for waging peace, including both the economic and the military parts of our Mutual Security program, our Information program, and our State Department programs. They are all parts of a parcel that we just must not neglect.

Now, I am asking the Secretary of State to set forth the details of this proposal.

Sec. Dulles said that it was very apparent, in the meetings he had attended in Asia and Europe, how important is the United States to the existence of the treaty organizations; indeed, these would fall apart if the U.S. effort appeared to be diminishing, and the Communists would be able to achieve their goal of encirclement of the U.S. Should that happen, the cost of our defense would increase greatly.

Mr. Dulles informed the Leaders that the Mutual Security Program would be presented to the Congress in a different way this year so as to segregate the defense items more from the economic. A total of $2.8 billion, to be appropriated to the President, would be requested for the defense items: $1.9 billion for “Hardware” and $.9 billion for Defense Support, to enable such countries as Viet Nam, Korea, Turkey, and others to maintain armed forces at a level their economies could not alone support. This does not cover any long term economic aid, merely short-term and immediate things. The hardware program will be administered by DoD, the other by ICA; and both will be under the broad policy guidance of the President and Secretary of State. This grouping permits a more effective presentation and justification.

In the economic part of the program, for which $1 billion would be asked, the most novel item is the creation of the Development Loan Fund to allow “soft” loans (repayable in local currencies and interest-free for necessary periods) designed to increase the economic potential of the countries involved. It is in our interest to do this by loans, even soft ones, rather than outright grant because the obligation to repay would encourage greater care by the recipient countries in the selection of projects. For the DLF, a request would be made for $500 million for appropriation this year, and for authority to borrow from Treasury up to $750 million in each of the coming two years.

Mr. Dulles stressed the ability for development that capitalist societies must have; if they are not dynamic, if they do not hold hope for development, these new nations will turn to the communist system.

The Secretary then outlined the remainder of the program: $155 million for the Technical Cooperation Program, $125 million for miscellaneous programs, and $300 million for the Emergency Grant Assistance fund. Of the $300 million item, $100 million was already programmed, and $200 million would be kept for emergencies yet to appear.

Concluding his statement, Sec. Dulles said that the Administration is aware of the fact that operation of the Mutual Security Program has not been perfect, and that an appearance of discrediting it could be given by seizing on little things here and there. His own feeling was that it is a wonder we do as well as we have—any organization of this sort is bound to have defects. But to try to discredit it is to take a very false view; this is needed critically for waging peace, and you don’t cut off the ammunition from a soldier in the field simply because some of his shots miss their target. He asked the Leaders to consider Iran: it was virtually under Communist control a few years ago but is now a strong ally. Our work there was not done in the most efficient way, but it was done. The Administration certainly doesn’t claim perfection in all this, but it does claim that the demonstrated results are worth so much more than the dollars put in that it would be folly, as the President pointed out before, to do away with the program. It constitutes 10% of our security budget, but to do away with it would decrease our security by a lot more than 10%.

Mr. Hollister then read a statement on the importance of Mutual Security, touching on Communist efforts, on the fact that 75% of the Program is military in nature, and on the need for putting more of our economic assistance on a loan basis. He noted how the needs of the world are limitless while our resources are limited; hence the need to set priorities. He voiced the opinion that through the military aspects of the program, Korea, Taiwan and Viet Nam had been saved from communism, as had also Thailand, Guatemala and perhaps Jordan through its economic aspects.

Mr. Hollister said the Administration would request that Military Assistance be a continuing authorization unless cancelled by Congressional action, and that appropriations be on a “no year” basis, and that similar provisions be made for Defense Support and for the Development Loan Fund. For Technical Cooperation, funds appropriated should remain available on a fifteen month basis. He pointed out that the Special (Emergency) Assistance funds were intended to be used in countries where we do not have a military alliance and where a Development grant or loan would not be appropriate. These would be mostly grants, but loans would not be precluded. He then compared the FY ’57 and FY ’58 programs—of approximately equal size—noting that the defense items dropped from 82% to 72% of the total, resulting from experience this year and from the intent to handle some things through the Development Loan Fund that are being done in FY ’57 through Defense Support.

Sen. Johnson inquired why it was necessary to increase the contingency fund. Mr. Hollister replied that the increase was not large, and would have to cover some items that no longer would fall in the loan category or military programs. Sen. Knowland ascertained that P.L. 480 funds were not included in this presentation.

Mr. Hollister explained the difficulty ICA had in getting projects planned and funds allocated within a short span of time or having those funds lapse. They had the dilemma, he said, of being criticized either for long delays in approvals or for committing projects without a sound basis. He said the agency hopes to make loans in a way that would also encourage a greater flow of private capital to desirable projects. He noted that the International Bank and the Ex-Im Bank make only “hard” loans, and that it would be necessary to coordinate closely the DLF with those so it doesn’t infringe on the “hard” loan area. He pointed out ICA’s hope to get away from “country” programs since these are less flexible and are difficult to reduce after a country comes to think it has a vested right to a certain program level.

Regarding Military Assistance, Mr. Sprague said our programs have been adequate, that the need for them continues, that our allies have increased their forces and effectiveness, and that DoD is convinced our assistance programs must be kept up-to-date and improved. With the aid of some charts, he showed the areas of communist activity since 1946, military and economic, and how our assistance program and overseas base activities are geographically related to the threat. He confirmed Sec. Dulles’ earlier statement that withdrawal of our assistance would cause the breakdown of our treaty arrangements—NATO, SEATO, ANZUS,² etc. He stressed that our national security is strengthened at relatively low cost by these arrangements. At the request of Senators Wiley and Knowland, he gave some statistics on the low cost of equipping and paying a Turkish soldier in contrast with that for a U.S. soldier. He also compared the security expenditures and accomplishments of the U.S. and of our NATO allies between 1950 and 1956, concluding that it is impossible to estimate what it would have cost the U.S. to accomplish what the Allies have done, indeed it would be almost inconceivable that the U.S. could have done it at any cost.

Mr. Sprague then noted how our assistance program has shifted from Europe (now only 25% of the total) towards the Far East. He also stated that the carryover for FY ’58, as figured in January, would be $4.4 billion, NOA would be $2.4 billion, expenditures $2.2 billion, leaving a carryover of $4.6 billion for ’59. However, Defense has been working to reduce the carryover and it now appears, he said, that NOA need be only $1.9 billion. The $500 million reduction would be accomplished through improved planning, screening, funding, better administration generally, and—in terms of matériel—savings in ammunition, spare parts, and consumables.

85% of the military assistance money is spent within the United States, Mr. Sprague said.

Rep. Cannon noted that the Russians are said to have the second-largest Navy; he wondered if that meant in numbers or in effectiveness. Mr. Sprague said it pertained to numbers, and he deferred to any JCS view there might be about effectiveness.

Sen. Russell said he was impressed by the $500 million saving accomplished, and he asked whether comparable savings might be made in the whole $38.5 billion Defense budget, thus solving most of the present fiscal problem. Mr. Quarles replied that the Mutual Security savings stemmed mostly from the time period involved, and that this program was finally being brought into the same better management program that had already been in effect for some time in the DoD budget effort. It had lagged, as regards Mutual Security, primarily because of the difficulty of the spare parts problem. The President explained further that as the U.S. adopts new equipment, the need for spare parts decreases, whereas the older equipment then gets used in other areas and spare parts are needed there. Sen. Russell commented that that aspect of the program had always been primarily a bookkeeping transaction, so that really it was just a matter of marking down those items. The President replied that he had not regarded it that way. Mr. Sprague said that most of the $500 million was made up of “one-shot” savings. Sen. Russell rejoined that he hoped the “better management” of which Sprague spoke would not be a “one-shot” item.

Sen. Knowland ascertained from Mr. Hollister that the unexpended balances on the economic side of the program had been running at about the same level for the past three years. Mr. Taber referred to an unexpended balance of $500 million this year and asked why it had not been obligated—wasn’t it really needed? Mr. Sprague stated it resulted from the various savings that had been developed without harm to the program. He said also that the carryover as a whole was now reduced just about to a minimum, and that it couldn’t go down more because modern weapons have a long leadtime.

Sen. Saltonstall inquired about the effect the “soft” loans of the DLF would have on the International Bank and the Ex-Im Bank, both of which had to require repayment in hard currencies. Sec. Dulles said that would necessitate great care in coordinating the two types of loans, but that it was not difficult to distinguish which type of loan should be used for a particular project. The real problem, Sec. Dulles felt, would be whether to make an outright grant or a loan. He thought it better generally to make loans, but in either event there would be problems. The President cited the merits of “soft” loans when used in ways to build up a country’s economy, thus leading to the time when “hard” loans would be feasible. Sec. Dulles felt some projects might be financed partly by “soft” loans and partly by “hard”, with the latter representing the equity in the project. Mr. Hollister said some of this splitting had already been done by ICA.

Mr. Mansfield stated the interest of many in Congress with improving efficiency and ending overlapping. He asked why funds might not be appropriated direct to Defense and to State, putting an end to ICA.

The President replied on how the Administration had been worrying this subject since 1953, carrying out two complete reorganizations thus far. The essential thing, he said, was to keep it under the general policy guidance of State; other than that, he was ready to confer with the Leaders at any time on this particular, for he was heartily in favor of any method that would bring greater economy and an improved working together.

Rep. Vorys expressed his opinion that the way things stood now pretty much completed the reorganization work needed in this area.

The President inquired as to the best time for transmitting the Special Message on this. Mr. Rayburn thought either of the next two days, when the House would be in session, would be satisfactory. Sen. Johnson had no particular time to recommend.

Sen. Dirksen recalled that in connection with the Mid-East Resolution³ specific proposals were to be brought to the attention of Congress; he wondered if this would be true of the DLF. Mr. Hollister said they had not done any planning for such a procedure, that he doubted that Congress would want to go into every project under the DLF, and that it would cause undesirable delay in deferring action on projects until after Congress could study them. He thought further light on this question could be had later, after the first year of experience.

The meeting then concluded with Speaker Rayburn’s jest that he could not see any preparations being made for lunch, so they would go on back to the Hill!

LAM

1. Source: Eisenhower Library, Whitman File, Eisenhower Diaries. Confidential. Prepared by Minnich.
2. The ANZUS Council was established under the 1951 Security Treaty signed by Australia, New Zealand, and the United States. For text of the defense agreement, see Department of State Bulletin, July 23, 1951, p. 148.
3. Presumably the U.S.-sponsored resolution on the Palestine refugee question adopted unanimously by the General Assembly, February 28, 1957; for text, see ibid., April 8, 1957, p. 589.