Foreign Relations of the United States, 1955–1957, East Asian Security; Cambodia; Laos, Volume XXI

162. Memorandum From the Japanese Government to the United States Government¹

Washington, June 20, 1957.

ASIAN ECONOMIC DEVELOPMENT FUND AND THE UNITED STATES ECONOMIC DEVELOPMENT ASSISTANCE

1. The newly proposed United States Development Fund² contemplates package financing to the development banks of the recipient countries as an exceptional measure, but as a basic rule, it still seems to find it necessary that the United States will undertake bilateral negotiations directly with the recipient country on each project before approving financing. If the Fund is administered based on this broad principle:

(1) Seeing that the ICA will be responsible for each decision to finance, it will of necessity have to undertake adequate investigation in each instance and to place various conditions on the financing, and cannot be indifferent to the actual execution of the economic development project carried out by means of such financing.

(2) It will therefore become difficult to attain one of the main objectives of the newly proposed United States Development Fund; that is, the simplification and increased efficiency of the assistance administration both in the States and in the field.

(3) Although, in making decisions for each loan, emphasis seems to be placed on its long-range economic effect and its contribution to the improvement of the international political situation rather than on its normal profitability. The more strictly such policy is adhered to, the more will the judgment of the United States, instead of the judgment of the recipient country; be the deciding factor, with the result that friction between the thinking of the United States and the recipient country cannot by avoided.

2. In order to solve the problems mentioned above, and to administer the United States Economic Development Fund in the most effective manner, it is suggested that the United States, concurrently with the usual bilateral formula of negotiating with the recipient country, adopt a formula as is outlined below:

(1) An overall revolving Fund for the Asian countries should be established with certain portion of the main global fund which is in itself revolving, the Asian countries should be actively encouraged to cooperate in its operation, and the other free nations of the world should be invited to contribute to the Fund. Based on the above basic propositions, as given in greater detail in Attachment 1,³ such an Asian Economic Development Fund should confine itself to giving financial facilities to (a) public works which would not pay at usual interest rates, and (b) development and productive enterprises which are still in their initial stage, and which have not yet reached the stage where they can be put on a commercial paying basis; both of which categories would fall somewhere between those enterprises which are already on a commercial basis and therefore can be financed by existing international financing institutions and private banks, on the one hand, and welfare and social works on the other which by their nature have to be carried out on an entirely non-profitable basis.

Certain Asian countries have in the past assumed a critical attitude towards the establishment of a regional organization, owing to various conflicting interests among them. It is considered, however, that this difficulty can be solved by taking special care in the composition and administration of the proposed Fund.

(2) The idea of re-discount institution for long- and medium-term export credit bills, presented in further detail in Attachment 2,⁴ is also based on the same trend of thought. At present there do not exist re-discount facilities for five to ten year bills such as existed in London before the war and therefore long and medium-term deferred payments exports of capital goods tend to be priced far above the amount represented by the interest for the period. This tendency becomes more marked as the period lengthens. The establishment of such financial institution which will specialize in re-discounting deferred payments export credit bills for exports to Asia would help improve the above situation and facilitate the import of capital goods by the Asian countries.

(3) The above suggestions are made to accommodate the most pressing need in the Asian countries for long-term economic development. However, when economic development is pushed ahead rapidly in Asian countries domestic inflation is almost inevitable. In order to solve the problem it would be desirable not only to provide these countries with long-term and medium-term financing but also to extend assistance in the short-term foreign exchange credit for import of consumer goods. It is felt that this objective could be partially attained by enabling the proceeds of the seasonal sale of agricultural products of the Asian countries to spread evenly over the year. Further details of this concept are given in Attachment 3.⁵

(4) The newly conceived United States Development Fund, with due respect to the initiative of the recipient countries in planning and putting into practice their own economic development projects, is making it possible to finance directly in a package deal the domestic development financing institutions of recipient countries. It is considered that this formula would admirably meet the national feeling of the Asian countries and greatly promote their initiative and leadership in formulating their own development programs.

It seems most desirable to encourage the establishment of domestic development financing institutions in each country to correspond to the regional development fund.

1. Source: Department of State, Central Files, 890.00/6–2057. Confidential. In a covering memorandum, dated June 20, MacArthur stated this paper was handed to him on June 20 by Koh Chiba, Director of the American Affairs Bureau in the Japanese Foreign Office, immediately following the economic talk among Dulles, Prime Minister Nobusuke Kishi, and other officials of the two countries. (Memorandum of conversation by Clifford C. Matlock, Officer in Charge of Economic Affairs in the Office of Northeast Asian Affairs; Ibid., Conference Files: Lot 62 D 181, CF 889B)

   Kishi was in Washington June 19–22. For documentation concerning his visit, see volume XXIII.

2. For documentation on the Development Loan Fund, see vol. IX, pp. 329 ff.
3. Not printed. The section concerning capitalization reads: “The Fund will start operations with capital of about five hundred million dollars, in gold, United States dollars, pounds sterling, or other convertible currencies into the above (in the case of Asian countries, it will be permitted to make half of the contribution of that country in the currency of that country). The countries contributing to the Fund shall be any free countries that may wish to contribute, and in addition, if any of the Asian countries desire to make contributions, they will be encouraged to do so.”
4. Not printed. The section on capitalization reads: “The capital necessary for the initial year of operation of this Institution shall be one hundred million dollars.”
5. Not printed. In it, the Japanese Government recommended establishment of an Asian Trade Fund to be capitalized at $100 million.