Foreign Relations of the United States, 1958–1960, Foreign Economic Policy, Volume IV

158. Memorandum Prepared in the Department of State⁰

Undated.

FUTURE DEVELOPMENT FINANCING

Problem:

What steps should now be taken to promote effective US financing of economic growth in the less developed areas?

Discussion:

1. Present rates of growth in less developed countries are not proving adequate to convince influential urban middle class groups that their governments are making a success of independence. The results are seen in various adverse trends-which reflect the increasing dissatisfaction of these groups—in pressures for extremist policies, as in Indonesia; in rising resentment against non-Communist governments, as in Iran; in the overthrow of constitutional authority, as in Pakistan; in a gradual weakening of the political center, as in India.

2. While an increase in existing rates of growth would not soon bring a major change in living standards, it would have an immediate political impact in many of these countries, by creating new economic prospects and opportunities for these restless and politically volatile elements.

3. Such considerations lend particular urgency to the conclusion of Basic National Security Policy (NSC 5810/1)¹ that we should “place relatively more stress on promoting growth and development in the free world.” There is strong evidence that we should now move vigorously to implement this policy. There are two fields in which action is most urgently needed; in neither case would such action soon result in a large increase in Federal expenditures and thus have major fiscal implications:

(a) Promotion of private investment: Studies are now underway separately to determine how this might best be encouraged.

(b) Long-term DLF financing: There is now general agreement in the Department, ICA, and the DLF that $1 billion is about the level of annual DLF financing needed to meet major US policy requirements in the less developed areas during the next few years. This would be only a $325 million increase from our FY 1959 request. It is doubtful that we can secure Congressional approval of this level, however, except as part of a dramatic request for multi-year DLF financing, which would (i) capture the imagination of the public and the Congress (ii) provide a standard around which the Fund’s friends—in and out of Congress—could rally vigorously, and (iii) justify unusual steps to focus public and Congressional attention on the Fund. Such a multi-year request is also needed to secure the assurance of future resources required for effective operation of the Fund, and to make more clear the central role of the DLF in financing and tying together possible development initiatives (e.g., regional banks and IDA) about which some public and Congressional confusion has arisen. A request for multi-year financing would not project higher expenditure levels than would another annual request; it would not, therefore, affect the prospect of a budgetary deficit or surplus.

4. Therefore we should begin to think in terms of a two part package consisting of proposals for the promotion of private investment and long-term DLF financing, which could be submitted to the Congress reasonably early in the session. It would be separate from the Mutual Security presentation, so as not to be overshadowed by that presentation; the DLF, however, would not need to be removed from the Mutual Security Act. The present draft of the President’s Colombo Plan speech² foreshadows such an approach by singling out the promotion of private investment and DLF financing for special emphasis and future Congressional action.

5. Congressional Consultation. If we are to advance such a request, we should, after the Colombo Plan speech has unveiled our intended program in general terms, proceed to Congressional consultation. As a first step, members of the White House and the Department’s staffs could talk with key Congressional leaders to (i) advise them that the MSP discussion at the December budget meeting would place major emphasis on these proposals; (ii) indicate that the President would wish to secure their views as to the best means of securing such multi-year DLF financing at that meeting. (The possible means of multi-year financing include: borrowing authority, contract authority, multi-year appropriation, and permanent annual appropriation. Our choice among them should be based in considerable part on the views of the leadership.)

6. Executive Branch. This proposal has been discussed with the Bureau of the Budget and Treasury and, of course, final decisions would have to be reflected in the President’s Budget Message.

7. Public Relations. Following the President’s Colombo Plan speech, a further series of strong statements might be made on economic development, with special reference to the DLF, by the President and others. This could be accompanied by a stepped-up press campaign and a vigorous drive by the Eric Johnston organization. Only with this kind of support are we likely to accomplish our objective.

0. Source: Eisenhower Library, Harlow Records, Mutual Security, 1958–1959 (1). Official Use Only. The source text, which bears no drafting information, was sent to Harlow under cover of a November 6 memorandum from Barnes.
1. Dated May 5, it is scheduled for publication in volume III.
2. For text of Eisenhower’s November 10 address before the tenth meeting of the Consultative Committee of the Colombo Plan for Cooperative Economic Development in South and Southeast Asia, held in Seattle, see American Foreign Policy: Current Documents, 1958, pp. 1121–1125.