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

18. Memorandum of Conversation⁰

February 6, 1959.

SUBJECT

• Underdeveloped Areas and the Sino-Soviet Economic Offensive

PARTICIPANTS

• The Acting Secretary Dr. J. H. van Roijen, Ambassador of the Netherlands
• Dr. J. C. Kruisheer, Economic Minister, Embassy of the Netherlands
• W-Mr. Terrill
• WE-Mr. Walsh

Ambassador van Roijen of the Netherlands called on Acting Secretary Dillon today to discuss with him the dual problems of providing assistance to the underdeveloped countries and counteracting the Sino-Soviet economic offensive. He said that his Government was devoting considerable attention to this subject and was anxious to obtain Mr. Dillon’s views in respect to it.

In response, Mr. Dillon stated that the need to assist the peoples of the newly emerging countries to achieve economic progress would exist irrespective of the problems raised by the Sino-Soviet bloc. The urgency of this requirement, however, had been increased by the Communist economic offensive. In aiding the underdeveloped countries we are not attempting to enlist them as allies but we are attempting to strengthen them sufficiently to permit them to resist the blandishments of the bloc countries. Although we do not engage in a competitive effort in each of the underdeveloped countries to match Soviet aid programs with programs of our own, we do point out to the governments of those countries the political motivation and dangers of the Soviet economic offers. The cases of Yugoslavia and Finland are examples of how the Russians can turn the spigot of economic aid on and off depending upon political decisions. Noting that Ambassador van Roijen had pointed out that the Soviet had aid programs in about seventeen countries with particular weight in five countries, Mr. Dillon said that it could be anticipated that the Russians would soon announce that a substantial aid program would begin in Iraq.

Mr. Dillon stated that it was clear that the countries of the West would have to accelerate their efforts to build an international framework within which the peoples of the underdeveloped countries could, in freedom, realize their potential for growth. There were various steps which would fit into a program of this type. Fundamental to it would be the maintenance of growing economies and expanding markets in the West in which the developing countries could place their goods. More emphasis would have to be given to increasing trade despite the political difficulties which always rise in the face of increased commercial competition. By various means it would be necessary to expand the flow of private capital into the underdeveloped areas. This would involve tax and other incentives on the part of the West to stimulate the capital movement and actions by the recipient countries to create a more favorable climate for foreign investment. One aspect of the latter is the development of technical and managerial skills which are vital to successful economic enterprise.

In addition to the flow of private capital, Mr. Dillon said, it is imperative to increase the supply of public capital to the new nations on both a multilateral and bilateral basis. This includes the provision of public loans on normal bankable terms through media such as the IMF and IBRD and development financing with flexible terms of payment through organizations such as the Development Loan Fund and the proposed International Development Association.

Ambassador van Roijen said that he fully concurred with the views expressed by the Acting Secretary. He said that his Government has felt that SUNFED¹ could play a useful role in the effort to provide financing assistance and he wondered if the US looked with greater favor on this organization than it did in the past. Mr. Dillon, in reply, said that US opposition to SUNFED was unchanged. He pointed out that Russian influence in the organization would far exceed the financial contributions which Russia would be prepared to make to it. The US inevitably would have to provide a relatively large proportion of the SUNFED funds and yet the Russians due to their fractional contributions would be in a position to derive substantial propaganda benefits from their association with the organization. Obtaining Congressional support under these circumstances for US participation would be virtually impossible. This did not mean, however, that the US opposed capital financing through multilateral organizations. This Government, for example, supported the proposals to create an International Development Association closely affiliated with the IBRD. Since Russia is not a member of the IMF, it would not participate in the new Association.

Referring to Mr. Dillon’s address in New Orleans on January 27,² Ambassador van Roijen said that he had been struck by the description of his discussion with Mikoyan³ about the possibility of increasing US-Russian trade. Mikoyan’s categoric insistence on long-term credits as a prior condition for expanded trade indicated that the Russians were prepared to see such an expansion only on their own politically motivated terms. Mikoyan’s complaint that the US would not extend MFN treatment to Russia had a particularly false ring when one reflected on the state trading monopoly which exists in that country.

The Ambassador stated that his Government had a natural concern about Sino-Soviet activities in the raw material markets. In certain cases these have been highly disruptive to commodity price structures. He wondered if the US contemplated a general program of combatting the bloc’s forays into these markets.

Mr. Dillon said that considerable attention was being devoted to commodity market questions. It did not seem feasible in view of the variety of problems involved, however, to attempt to develop an overall program to counteract the bloc. It seems more practical to approach this subject on an ad hoc basis. He said that he was not certain in his own mind that the Russians had entered individual commodity markets with the express purpose of wrecking the price structure by dumping operations. However, since prices do not play a controlling role in their export program, their movement into the international commodity markets have had the same effect as deliberate dumping. Their sales of tin and aluminum, for example, have been harmful to Bolivia, Malaya, Indonesia and Canada. When the reactions in those countries proved harmful to the Soviet propaganda position, the pressures on the commodity markets were eased. It is apparent, Mr. Dillon added, that the Russians have the capacity to disrupt the petroleum market. At least one restraint on a petroleum dumping operation, however, is that its effects would be particularly harmful to the Arab World which the Russians are making a major effort to influence.

Ambassador van Roijen said that in view of the continuing nature of the Sino-Soviet economic offensive he thought it would be desirable to consider the feasibility of coordinating the counteractive efforts of the West on a multilateral basis. Perhaps, he suggested, this might be done in NATO.

Mr. Dillon said that although he doubted the feasibility of utilizing NATO as an economic warfare unit he felt that it might be useful to disseminate in NATO information in respect to the Sino-Soviet economic threats. He believed that certain of the NATO countries might collaborate in blunting particular aspects of the bloc offensive. In view, however, of the potential sensitivities of the underdeveloped countries, it would not appear desirable for this collaboration to occur under the aegis of NATO.

In closing, the Acting Secretary told Ambassador van Roijen that he would welcome any suggestions or ideas which the Netherlands Government may have in respect to the serious problems involved in the Sino-Soviet efforts to subvert the underdeveloped areas. He said that he would be happy to discuss them with the Ambassador or to have the Ambassador’s staff raise them with Mr. Terrill who is coordinating the Department’s position on these matters.

0. Source: Department of State, Secretary’s Memoranda of Conversation: Lot 64 D 199. Confidential. Drafted by John P. Walsh of the Office of Western European Affairs.
1. Proposals for a Special United Nations Fund for Economic Development had been under study by the U.N. General Assembly and the Economic and Social Council for several years.
2. For text of Dillon’s address before the Mississippi Valley Trade Council in New Orleans on January 27, see Department of State Bulletin, February 16, 1959, pp. 237–243.
3. Anastas I. Mikoyan, First Deputy Chairman of the Soviet Council of Ministers, made an unofficial visit to the United States, January 4–20.