7. National Security Council Report1

NSC 5506


Note by the Executive Secretary to the National Security Council


  • A. Paragraph 6, NSC 5429/5
  • B. NSC Action No. 1233–a2
  • C. Paragraphs 40, 42, 43, and 44 of NSC 55013

Enclosed herewith, for consideration by the National Security Council at its meeting on Thursday, February 3, 1955, is a proposed U.S. position on future U.S. economic assistance to Asia. This report was prepared by the NSC Ad Hoc Committee on Asian Economic Policy established by NSC Action No. 1233–a, and was referred to the Council on Foreign Economic Policy prior to its submission to the [Page 17] NSC. The Council on Foreign Economic Policy, at its meeting on January 21, 1955, noted the resolution of certain differences contained in the Ad Hoc Committee report, accepted certain clarifying changes in language, and approved the report as enclosed.

Attention is invited to the second paragraph of the enclosed transmittal memorandum from the Chairman, CFEP, which raises a question of the consistency of paragraphs 6, 15, 17, 18, 19, and 20 of the enclosed report with paragraph 6–c of NSC 5429/5, and states the view of CFEP that, if the enclosed report should be construed as inconsistent with paragraph 6–c of NSC 5429/5, the latter should be modified accordingly.

It is recommended that, if the Council adopts the enclosed policy, it be submitted to the President with the recommendation that he approve it, direct its implementation by all appropriate Executive departments and agencies of the U.S. government, and designate the Operations Coordinating Board as the coordinating agency.

James S. Lay, Jr.4

[Here follows a table of contents.]


Memorandum From the Chairman of the Council on Foreign Economic Policy (Dodge) to the Executive Secretary of the National Security Council (Lay)


  • NSC Action No. 1233–a, October 6, 1954

Enclosed herewith is a proposed U.S. position on future U.S. economic assistance to Asia. This report was prepared by the NSC Ad Hoc Committee on Asian Economic Policy and referred to the Council on Foreign Economic Policy prior to its submission to the National Security Council. The Council on Foreign Economic Policy at its meeting on January 21, 1955, noted the resolution of differences expressed in the draft and after accepting certain clarifying changes in language approved the report as enclosed.

The proposal is believed consistent with related NSC policies and actions. While paragraph 6–c of NSC 5429/5 calls for prompt organization of a maximum Asian economic grouping and indicates financing [Page 18] through such a grouping, a change in circumstances has resulted in a decision that the same objectives can be substantially accomplished through the Colombo Plan with an expanded membership, and with continued financing of assistance on a bilateral basis. If paragraph Nos. 6, 15, 17, 18, 19, 20 of the proposal should be construed as inconsistent with paragraph 6–c of NSC 5429/5, it is the view of the CFEP that the NSC policy statement should be modified accordingly.

Joseph M. Dodge5



I. The Problem

1. To provide basic principles and an official position to guide United States operations in carrying out United States economic policy for the free countries of Asia.

II. Objectives

2. To demonstrate through our actions the advantages of our free society and thereby to minimize the danger of increased Communist influence or domination of the free countries of Asia, including Japan, the United States security interests require the achievement of greater economic strength and growth in the region. This requires the reassessment of the size and character of the United States assistance programs in the area.

3. To convince the peoples of Asia that their economic aspirations can be more surely and rapidly achieved as members of the free world than by adherence to the Communist system.

III. Principles

The programs and actions adopted for the attainment of the above objectives should be governed by the following principles:

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General Principles

4. The primary purpose of the program is to achieve the objectives outlined above, and other considerations, where they arise, should be regarded as secondary.

5. Future United States economic assistance to Asia should be regarded as only one part of the development of an over-all world program to strengthen the forces of freedom against Communist advances. This program consists of five basic elements—political, economic, military, psychological and counter-subversive, all of which are interrelated.

6. Each Asian country in fact constitutes a separate and unique economic, political, and social problem. In view of the vast differences which exist, the economic policy of the United States will be directed on a bilateral or selective natural group basis in accordance with the circumstances, but subject to certain generalized principles which are set forth herein.

7. Individual countries should be assisted wherever possible with a view to achieving a maximum long-range effect on the area as a whole. Short-range local programs or specific projects should be minimized where they appear to run counter to the above stated objectives.

8. Special consideration should be given to the problem of Japan and the role its industrial and financial resources and knowhow enable it to play.

9. Efforts to retain the Asian countries as a part of the free world will be facilitated by the ability of their non-communist governments to sustain a hope on the part of their peoples that their economic and social condition will be progressively improved. In stimulating these hopes, it should be clearly demonstrated: (a) that the primary responsibility for success must continue to fall on the effective efforts of each country individually, and (b) that the United States cannot undertake primary responsibility for the economic development of the region. Appropriate assistance from other free world nations would, of course, be welcome. It should be further recognized that such a program will require considerable time, and that the building up of unattainable expectations could do more harm than good.

10. The activities of the private agencies which are consistent with U.S. objectives in the area should be encouraged.

11. Every reasonable effort should be made to encourage and support, more vigorously and effectively, policies which will (a) increase the utilization and application of domestic and external private capital to the development needs of free Asian countries, and (b) [Page 20] achieve the maximum cooperative effort and contributions on the part of the benefiting nations.

Principles with Respect to Magnitude7

12. United States assistance should be applied selectively in the countries and between the countries of the area and should not be based on the concept of spreading a predetermined amount of money on a prorata basis over the region as a whole.

13. In the development of policies and programs consideration should be given to what can and will be done over a sustained period of years rather than on a short range emergency basis. It is recognized that specific critical situations may arise that will require special treatment.

14. In determining the level of U.S. assistance, the magnitude and effectiveness of Communist Bloc economic programs in Asia must be considered.

Principles with Respect to Administration of Aid

15. The United States should determine the uses to which U.S. aid funds are put.

16. To the maximum extent feasible U.S. development aid should be made available on a repayment basis, part of which may be received in local currencies.

17. The United States shall retain title to any repayments in local currencies, shall negotiate with the country concerned the broad principles and framework of the uses thereof and shall consult with the country concerned with respect to the specific uses thereof.

IV. Courses of Action

The following courses of action are designed to implement the principles and objectives set forth above:

18. The Consultative Committee under the Colombo Plan should be strengthened. This might be done through the establishment of a permanent secretariat whose function would be to assist the Committee in the development of means for the expansion of healthy intraregional cooperation, trade, investment and development. The United States should contribute a reasonable amount to help defray the expenses of this organization if it should become appropriate to do so.

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19. The initiative for any fuller utilization of the Colombo Plan should come from the Asian countries which constitute the bulk of the membership in the organization.

20. The United States should not participate in the creation of any new multilateral banking or credit institution within this region without first clearance with the National Advisory Council on International Monetary and Financial Problems.

21. The United States should lend its support to the increase of opportunities of countries in this area to trade with each other and with other free world countries including (a) by appropriate measures for memberships in the GATT organization, and (b) by bilateral approaches to countries which maintain restrictions that hamper such trade.

22. The U.S. should encourage the countries in the area to adopt investment laws and policies which will invite the influx of private investment.

23. The United States markets for the products of these countries should be expanded and the existing restrictions reduced in accordance with the President’s Foreign Economic Program.

24. Japan. In order to obtain the maximum economic contribution from Japan and thus reduce the financial burden on the United States every effort should be made to increase the financial capabilities of that country and her trading capabilities with other free nations of Asia. To this end the United States should:

Proceed to consummate the contemplated trade agreement with Japan.
Consider the appropriate extension of public credit, the improvement of conditions within Japan for private capital, the use of technical assistance, the use of local currency proceeds of agricultural surpluses and the widening of opportunities for the investment of Japanese capital.
Continue to use its good offices to restore as rapidly as possible better relationships between Japan and the other non-Communist countries of the area.

25. The United States should extend the following types of assistance and should consider the interrelationship among these types:

Assistance for direct forces support, and in some instances for defense support and budgetary purposes will have to be extended on a grant basis to those countries which are maintaining armed forces, in cooperation with the United States, beyond their economic capabilities.
Assistance which is extended to such countries for developmental purposes should be clearly distinguished from the military assistance referred to above, and such assistance should, where practical, be placed on a repayable basis which in some cases must be in local currencies.
Technical assistance programs should be continued and expanded when appropriate after a review of their effectiveness in each instance [Page 22] , and wherever possible they should be placed on a matching funds basis.

26. With respect to those countries pursuing “neutral” policies the United States should review its developmental or technical assistance to such countries to the end that such assistance as may be extended shall support the objectives set forth in Section II above.

27. In formulating policies and programs hereunder the U.S. must give consideration to their effect on our domestic economic and financial strength as well as on our relations with the other less developed areas of the world.

28. Magnitude. United States overall assistance, with respect to both new obligational authority and expenditures, in the Asian area for the fiscal year 1956 shall be in accordance with the President’s budget message and as tentatively outlined in Table I.

V. Precautions

29. In undertaking discussions with respect to any new arrangements certain precautions should be observed.

Political and fiscal considerations which limit the dimensions of programs practical under present conditions and the limited capacity of the Asian states to utilize increased amounts of assistance make clear that U.S. financial contributions to Asian development should be in realistic and reasonable amounts.
The U.S. should not give the impression that its efforts are in substitution for what other countries are doing or should do to assist the economic development of the region.
Although our continuing interest in the economic development of the area should be made clear, the U.S. should make it equally clear that it can make no promises of continuing financial contributions, which must be dependent upon appropriations by the U.S. Congress.
Public pronouncements on the United States program should be consistent with anticipated results and should be carefully framed in order to avoid leading the free peoples of Asia to expect more than can be accomplished by a given program and to avoid stimulating adverse comparisons in other less developed areas of the world.

[Here follow Table I, “U.S. Aid to the Far East and South Asia;” Table I–A, “U.S. Programs of Aid to the Far East and South Asia;” Table II, “Surplus Agricultural Commodity Programs Under P.L. 480 Proposed for FY ’55 in South Asia and Far East;” and Table III, “Loans to the Far East and South Asia by Export-Import Bank and International Bank for Reconstruction and Development.”]

  1. Source: Department of State, S/S–NSC Files: Lot 63 D 351, NSC 5506 Series. Secret.
  2. For text, see Foreign Relations, 1952–1954, vol. XII, Part 1, p. 932.
  3. NSC 5501, “Basic National Security Policy”, dated January 6, is scheduled for publication in volume XIX.
  4. Printed from a copy that bears this typed signature.
  5. Printed from a copy that bears this typed signature.
  6. For the purposes of this paper, Asia consists of the following countries: Korea, Formosa, Indochina, Japan, the Philippines, Indonesia, Thailand, Malaya, Burma, Ceylon, Nepal, India, Pakistan and Afghanistan. [Footnote in the source text. In accordance with NSC Action No. 1318–c, February 3, “Nepal” was added to this footnote on February 5. See footnote 5, Document 10.]
  7. See Table I for overall new obligational authority and expenditures for fiscal years 1954–-56. [Footnote in the source text.]