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

250. Memorandum of Discussion at the 427th Meeting of the National Security Council⁰

December 3, 1959.

[Here follows a paragraph listing the participants at the meeting.]

1. Status of National Security Programs as of June 30, 1959: the Mutual Security Program (NSC 5912)¹

and

2. The Mutual Security Program for FY 1961 (NSC 5912, Part 2)

Mr. Gray said that two items listed separately on the Council agenda would be taken up together. Mr. Dillon would make a general presentation on the status of the mutual security programs as of June 30, 1959 and the outline of the mutual security program for the Fiscal Year 1961. Mr. Irwin would then make a separate presentation of the military assistance aspects of the mutual security program.

Mr. Dillon then made his presentation, a copy of which is filed in the Minutes of the Meeting.²

The President noted that Mr. Dillon had mentioned the Inter-American Bank in his presentation. The President understood that a certain percentage of the capital of the Bank must be paid in by the end of this year. He had heard that payments were slow in coming in.

Secretary Anderson said that 85% of the Bank’s capital must be paid in by December 31, 1959, but only 53% had been received. The Department of State had transmitted a notice to our Latin American embassies pointing out that unless there was an acceleration in Latin American accessions to the Bank we would have to request Congress to extend the December 31 deadline.³

The President said action should be taken to speed up the Latin American accessions. He then referred to a chart displayed by Mr. Dillon³ showing that the Sino-Soviet Bloc had committed $912 million in economic aid to Free World countries in the first eleven months of 1959 and had 4675 technicians stationed in these countries. The United States had 5700 technicians stationed in countries receiving assistance and U.S. appropriations for economic and technical assistance in FY 1960 were nearly two billion dollars. However, he did not feel that the figures showing the relative U.S. and Soviet efforts were strictly comparable. Our appropriations figure included both money for direct grants and money for the salaries of our officials.

Mr. Dillon agreed that exact comparisons between the U.S. and Soviet figures he had presented would be misleading. His purpose in mentioning Soviet assistance had been to show that this assistance was substantial and was increasing.

The President said he wished to ask an accounting question. Did Mr. Dillon have at hand any statistics which indicated how much of our assistance expenditure was attributable to overhead in Washington and in the field and how much went into actual equipment furnished other countries?

Mr. Dillon said that administrative costs on the economic side of ICA amounted to about $41 million a year, while the administrative cost for the Development Loan Fund was about $2 million a year.

The President, noting that Congress usually gets competitive when its attention is called to Soviet aid activities, expressed further interest in the figure of 4675 Soviet technicians. Apparently, the Soviets had 4675 propagandists for an expenditure of $912 million, whereas we spent more money and had fewer propagandists. He wondered how many of the Soviet technicians were actually technicians and how many were subversion experts. He thought some kind of comparison between U.S. and Soviet efforts might be useful.

Mr. Dillon agreed that some Soviet technicians in the underdeveloped countries were propagandists, but pointed out that many were “pure technicians” with no political assignment, as indicated by the fact that many Soviet technicians sent abroad did not speak the local language. For example, Iraq now has a large number of Soviet and no U.S. technicians; but the Soviet technicians find their situation difficult because they speak neither the local language nor English (which is a second language in Iraq). Mr. Dillon added that the Soviets had 1000 technicians in India while we had only 150, the reason for the difference being the Soviet construction of a steel mill.

The President said that any curve designed to show increased Soviet aid efforts would have to take into account Soviet long-term grants recently extended as well as current expenditures. Secretary Herter pointed out that the chart on Soviet aid did not include the military assistance.

Mr. Gates wondered whether it was not dangerous in presentations to Congress to separate economic and military assistance as completely as Mr. Dillon had separated them in his presentation. Such a separation opened the way for the tactic of driving a wedge between economic and military assistance. Mr. Dillon felt a separation between the two forms of assistance was necessary and noted that Congress was tentatively thinking of dealing with the two types of assistance separately. The President said the press had caught him on this question in a recent press conference.⁵

Secretary Anderson then called attention to a particular danger existing in connection with Soviet loans to India. Some Soviet aid has been provided to India in the form of rupee loans repayable at Soviet option in products, in rupees or in pounds sterling (the currency in which Indian monetary reserves are maintained). The Soviets have been drawing down the Indian pound sterling reserves. India is in a position where the USSR can determine its trade balance and its monetary reserves. There appeared to be no immediate danger in this situation, but he was nervous about the possibility of Soviet pressure on the Indian reserves. However, if Indian reserves fell to a sufficiently low point, India could draw against the International Monetary Fund, or might be faced with the necessity of imposing an embargo on sterling withdrawals.

Mr. Dillon said the situation described by Secretary Anderson stemmed from the original Soviet-Indian aid agreement. The Indians had not agreed to similar provisions in later agreements.

The President said wherever the Soviets made loans in rubles and did not permit repayment in rubles, the borrower was receiving less than he appeared to be receiving.

Mr. McCone referred again to the chart on Soviet economic aid and asked whether the figure given by Mr. Dillon for U. S. technicians abroad included personnel sent abroad by U.S. contractors and engineering firms. Mr. Dillon said the figures did not include personnel of private contractors unless under contract to the government. Mr. McCone said the comparison made between numbers of U.S. and Soviet technicians was not a good one; all Soviet technicians but not all U.S. technicians were included. The President remarked that this result stemmed from the fact that the Soviets had a system of state capitalism. Mr. McCone said Russian technicians were undoubtedly indoctrinated and ours should be. Mr. Dillon said a program was now under way in which businessmen going abroad studied foreign affairs at American University, while some Foreign Service Officers about to go to a new assignment abroad studied business. The business community was financing this arrangement. The Vice President felt the comparison made between U.S. and Soviet technicians abroad was not a valid one in the sense that all Russian technicians abroad were included in the figures, but only U.S. Government officials were included. Mr. McCone believed private businessmen going abroad could do much for U.S. foreign policy if they were properly indoctrinated. In response to a question from Mr. Dulles, Mr. Dillon said the figures on his chart for Sino-Soviet Bloc technicians included Chinese Communist technicians.

Mr. Stans said some of his studies indicated that the figure for total Free World assistance to underdeveloped countries was twice the U.S. figure. Responding to a question from the President, he said the U.S. was providing about 50 per cent of the assistance provided by the Free World. Mr. Stans also pointed out that there was a lag between Soviet commitments and Soviet expenditures. Soviet expenditures were less than one-fourth the Soviet commitments. Did this mean Soviet commitments were very long-range or did it mean that these commitments were not carried out completely? Mr. Stans said his studies showed that during the period 1954–1958 all Soviet expenditures for assistance totaled $375 million, while during the same period the Free World spent $17 billion on assistance. In India there were 2400 Free World technicians, counting both governmental and private contractor personnel. There were about 99,000 U.S. technicians overseas, most of whom were connected with private enterprise. Mr. Stans suggested that in future the Mutual Security Status Report should take account of all factors in making a comparison of U.S. and Soviet Bloc assistance to other countries.

The President agreed that studies of the kind suggested by Mr. Stans would be useful. However, he felt it was not correct to equate the activities of personnel overseas for private enterprise with the activities of government officials indoctrinated in the problems of the day, whether these officials were Soviet propagandists on the one side or our technicians on the other side. Statistics of the type mentioned by Mr. Stans could provide a good measure of normal business activity, but could not measure political effort. U.S. propaganda must be as effective as Soviet propaganda if we are to derive full advantage from our assistance programs.

Mr. Dillon thought that an improved statement of Soviet effort could be devised for future Status Reports. However, he did not want the Council to form the impression that the Soviets were not carrying out their aid commitments. The Soviets often make long-range development assistance commitments and later decide toward which specific projects the aid will be directed, a procedure which explains the lag in Soviet practice between commitment and expenditure.

The Vice President believed it would be useful to stimulate the preparation of some sound periodical articles on U.S. aid abroad. The President agreed, noting that Senator Johnson had recently told him that it was difficult for members of Congress to explain to the people why we cannot afford $800 million for public works while we are spending billions for foreign aid.

Mr. Stans pointed out that the Mutual Security Status Report on Page 8 stated that: “Our policy statements indicate that the unilateral contributions of European nations to less developed areas ... and their anticipated increased contributions to multilateral development organizations ...⁶ are not to substitute for U.S. assistance efforts but are to be essentially additive thereto.” Mr. Stans did not believe that any provision of this kind appeared in our policy statements. On the contrary, he felt it was consistent with our policy to expect that our contributions to assistance would decrease as the contributions of others increased.

The President said the underdeveloped world needs new capital faster than it can be obtained. We have recently been paying more attention to the serious problem of overpopulation and we know that the world has an awakening sense of justice and desire for better living conditions. He believed we could sustain peace more effectively by economic aid expenditures than by the provision of military equipment to other nations, even though military assistance may be more popular in Congress and perhaps among the people. The Free World was not providing enough assistance to underdeveloped countries. We needed a better-coordinated effort by international society to raise the living standards of countries with low standards. It might not be feasible for absolute amounts of U.S. aid to be reduced as other nations contribute more, even though relative U.S. aid falls.

Mr. Dulles returned once more to the chart on Soviet economic aid. He pointed out that the chart showed only Soviet Bloc aid to the Free World, not Soviet Bloc aid in other countries of the Soviet Bloc. The President said it was very difficult to get accurate comparisons of U.S. and Soviet aid.

Mr. Irwin then made a presentation on the military assistance aspects of the status of the mutual security program on June 30, 1959 and the mutual security program for FY 1961. A copy of Mr. Irwin’s presentation is filed in the Minutes of the Meeting.

At the conclusion of Mr. Irwin’s presentation, Mr. Gray said the Planning Board had been concerned about the statement in the Mutual Security Status Report (Page 2, Par. 3) that this year’s drop in military aid appropriations must be almost entirely absorbed in force modernization, resulting in progressive deterioration in the effectiveness of vitally needed Free World forces. Did this mean that we are only able to provide maintenance and unable to carry out modernization? Were we wasting our investment on outmoded forces and equipment?

Mr. Irwin replied that the $2 billion military assistance request would permit some modernization. About $1.4 billion of the $2 billion would be spent for maintenance of the status quo, as assistance for political reasons, and so on, leaving about $600 million that might be spent for modernization and improvement of forces.

The National Security Council:⁷

1. Noted and discussed an oral presentation of the overall status of the Mutual Security Program as of June 30, 1959, by the Coordinator for Mutual Security, and an oral presentation on the status of the Military Assistance Program as of June 30, 1959, by the Assistant Secretary of Defense (ISA); based upon Part 2 of NSC 5912.

2. a. Noted and discussed the Mutual Security Program for FY 1961, as presented at the meeting by the Coordinator for Mutual Security.

b. Agreed that, subject to the normal budgetary process, the overall scope and character of the Mutual Security Program for FY 1961, as presented at this meeting by the Coordinator for Mutual Security, are generally consistent with national security policy objectives.

Note: The action in b above, as approved by the President, subsequently transmitted to the Secretaries of State and Defense and the Director, Bureau of the Budget, for appropriate action.

3. Commitments for Grant Military Assistance to Certain Free World Nations With Well-Developed Economies (NSC 5906/1; NSC Action No. 2121; Memo for NSC from Executive Secretary, subject: “Nations Financially Able to Purchase Military Equipment and Training”, dated November 19, 1959; NSC 5916)⁸

Mr. Gray presented the subject to the Council. (A copy of Mr. Gray’s Briefing Note is filed in the Minutes of the Meeting and another is attached to this Memorandum.)⁹ Mr. Gray then asked whether Secretary Anderson wished to elaborate on the Treasury analysis of nations financially able to purchase military equipment and training, as circulated by the reference memorandum of November 19.

Secretary Anderson said the Treasury Department had attempted to determine the financial ability of countries to purchase military equipment by examining their resources positions. Except for the U.K., most of the countries scrutinized had a resources position superior to that of the U.S. inasmuch as the U.S. resources position had recently declined while that of other countries had been strengthened. Secretary Anderson thought the question was whether, after the financial ability of a country is determined, we should say to ourselves, “This country is financially able to pay, but will it?” In other words, if the government of a country in a good resources position is unable to induce its parliament to adopt measures providing for the purchase of its military requirements, should we regard that country as unable to pay, even though it has the ability from the strictly financial point of view? In Secretary Anderson’s view, we should not assure a nation that we will continue to provide it with military assistance because of its political difficulties, if it is financially able to pay for its military equipment. In purchasing their military requirements, other Free World countries would be safeguarding their own security. We must take the position that a country’s political problems are its own internal affair; we must call upon countries able to pay for their military equipment to do so. The U.S. could not continue to absorb the political difficulties of other countries. Secretary Anderson then reported that, together with the Vice President, he had recently talked to Mr. Spaak,¹⁰ who had been asked by the Vice President whether European countries able to pay would do their full share in mutual defense. Mr. Spaak had replied that if the U.S. would explain the problem fully and frankly to its European allies before it reduced its own forces, such of these others as were financially able would do their full share.

The President said Mr. Spaak had told him the same thing.¹¹

Continuing, Secretary Anderson expressed the view that financial ability to pay and political willingness to pay should not be confused. He would be willing to continue grants for military training, which was a good human relation. But in the future the greater part of expenditures for military equipment in any country would be in the field of advanced weapons. The majority language in NSC 5916 would in practice make no change in existing policy with respect to grant assistance for advanced weapons, since it provides that the Secretary of State and Defense may, in the case of selected advance weapons, make exceptions to the general principle of no new commitments for grant assistance.

The President said he objected to making the provisions of NSC 5916 firm policy before the Secretary of State had been given an opportunity to prepare the way in conversations with the governments affected. He felt we must bring foreign governments to understand the nature of their responsibilities for defense. Explaining the situation to these governments fully and frankly would be the safety valve of the policy proposed in NSC 5916. The President also wondered about the inclusion of Italy in the list of countries which were not to receive grant military assistance. He felt we must help Italy keep its Communist Party down.

The President then said that, in principle, he believed in the Treasury-Budget version of the split in NSC 5916. The policy proposed by Treasury and Budget was our objective; that is, new commitments for the provision of military equipment on a grant basis should not be offered to nations which are financially able to pay for such equipment. At some stage we would have to state this policy frankly, but now was not the time for such a frank statement; the way must be prepared first. The President said that when he went to Europe as NATO Commander, he agreed to go only as an emergency measure. However, no political authority had ever publicly indicated the emergency nature of our military program in Europe.

Secretary Anderson said he would be content with a statement of policy indicating that we should now inform appropriate countries diplomatically that we intended by mid-1960 to announce a policy of no new commitments for the provision of grant military equipment to nations financially able to pay for such equipment.

The President said such a policy would then be put into effect at some future time following its announcement.

Secretary Gates observed that this policy would involve a review of MC–70.

The President felt that compromise plans such as MC–70 had a tendency to become sacrosanct. General Ridgway had once told him that the Army must meet a commitment of deploying twelve divisions to Europe within six months of the outbreak of war. The President had told General Ridgway that this concept was as outmoded as the crossbow. The President thought our policy should be based on up-to-date estimates of the situation; we should not allow past plans to become as sacrosanct as the laws of the Medes and the Persians.

Secretary Herter said he had no quarrel with the objective of refraining from making new commitments for grant assistance for military equipment to nations financially able to pay. He was, however, worried about the method by which such an objective was to be achieved. The language in NSC 5916 proposed by Treasury and Budget would put the Department of State in a strait-jacket. Forthcoming NATO meetings would probably prove a mechanism for reassessment of European military requirements, but it would be unwise for the U.S. to begin these meetings with a threat to reduce its military assistance.

The President said it was not necessary to give definitive approval to the policy of no new commitments at this time. Approval of such a policy could come later. However, we ought to agree that our ultimate objective is the one stated in the Treasury-Budget language: no new commitments for grant military equipment to nations able to pay. Of course it might be necessary to make some exceptions to this general principle.

Secretary Herter pointed out that different considerations might apply with respect to each country concerned.

Secretary Anderson then quoted from a recent statement by the Belgian Defense Minister¹² which indicated that Belgium expected assistance in larger amounts than the U.S. had programmed for Belgium.

The President remarked that our allies often forget that we pay the full cost of the deterrent forces for the Free World, the world’s largest navy, and so forth. The U.S., as the “reserve position” of the Free World, ought to have mobile forces able to move rapidly to any threatened area; but our allies must have the strength to hold on until our forces arrive. In addition to our mobile forces, we should have small forces stationed in various threatened areas as a means of showing the flag and giving evidence of our intention to defend our allies. However, we should not permit commitments to become frozen like a river of ice.

Mr. Dillon said he shared the view that countries financially able to pay for their military equipment should do so. France was certainly in the category of countries able to pay. However, with respect to some other countries the question of financial ability to pay became a difficult one. Ultimately the question was a question of subjective judgment. He did not agree that some of the countries on the Treasury list of nations financially able to pay were in fact able to pay. The important thing was to induce our allies to carry their full share of the defense burden as rapidly as possible. Not simply political willingness, but political capability was involved in this matter. Moreover, mutual defense involves our national security as well as the security of our allies. This principle is especially relevant in the case of a country like Japan. Assistance to Japan is helping Japan substitute its strength for major U.S. naval bases which would otherwise be required in the Far East. Mr. Dillon then referred to the U.S.-Japanese negotiations for a new security treaty and pointed out that if Japan failed to maintain its present security position, grave damage to U.S. security in the Far East would result. Mr. Dillon felt there were other ways of collecting money from Japan. That country had, for example, just agreed to settle GARIOA up to $600 million at $30 million a year. We could press hard in this area and in connection with trade; but if we say we are not interested in cost-sharing for military equipment we would be doing grave damage to our own security. With respect to the financial capabilities of any given country, Mr. Dillon wished to point out that while a country could carry a greater load if it would reduce its non-defense expenditures, some of these expenditures were as deeply embedded in that country’s culture as our expenditures were embedded in ours.

Mr. Dillon said he wished to conclude his remarks by referring briefly to The Netherlands. This country had worked hard to be loyal to NATO. Its GNP was low, it had lost Indonesia, it had a refugee problem as a result of the loss of its colonies, its tax burden was the heaviest in the Free World and its financial resources were staying level, not increasing. The MC–70 goals accepted by The Netherlands were too high and must be revised. The Netherlands was not financially able to pay for its military equipment on the basis of the present goals.

The President felt it would be necessary to examine the situation in each country individually in an effort to determine exactly what the facts are with respect to that country. The policy embodied in NSC 5916 could not be adopted until more specific information on each country was available. However, he was weary of accepting our allies’ dependence on us forever. He suggested the possibility of submitting to each of our allies an Aide-Mémoire stating our long-term objectives in the matter of grant assistance for military equipment.

Mr. Gray then read a proposed Record of Action paragraph substantially along the lines of sub-paragraph b below. The President concurred in this proposal, adding that the Departments of State and Defense should consult with all interested agencies in taking steps to achieve our objective.

The National Security Council:¹³

a. Discussed the draft statement of policy on the subject contained in NSC 5916, prepared by the NSC Planning Board in accordance with NSC Action No. 2121–b and in the light of the memorandum from the Acting Secretary of the Treasury, submitted pursuant to NSC Action No. 2121–a and transmitted by the reference memorandum of November 19, 1959; in the light of the views of the Joint Chiefs of Staff summarized at the meeting.

b. Noted the directive by the President that the Secretaries of State and Defense, in consultation with other departments and agencies as appropriate, take steps that would achieve, at the earliest feasible time, the ultimate objective that new commitments for the provision of military equipment on a grant basis should not be offered to nations which are financially able to pay for such equipment.^* This effort should be conducted on the basis of a country-by-country analysis taking into account the differing problems and U.S. interests in each country, and that final decisions in each case should only be taken after full consultation with the country concerned and, where appropriate, in NATO. Periodic reports on the above-mentioned steps should be submitted to the National Security Council.

Note: The action in b above, as approved by the President, subsequently transmitted to the Secretaries of State and Defense for appropriate implementation.

Marion W. Boggs

0. Source: Eisenhower Library, Whitman File, NSC Records. Top Secret. Drafted by Boggs on March 23, 1960.
1. NSC 5912, “Status of National Security Programs on June 30, 1959,” comprised a series of papers on nine components of the national security program. Part 2, October 10, addressed the Mutual Security Program. (Department of State, S/P–NSC Files: Lot 62 D 1)
2. Not printed. (Eisenhower Library, Special Assistant for National Security Affairs Records, National Security Council Series, Administration Subseries)
3. Not found.
3. Not found.
5. Eisenhower presumably was referring to his press conference the previous day, when, in responding to a reporter’s question, he had been unsure if and when the foreign military assistance appropriation would be included in the defense budget. See Public Papers of the Presidents of the United States: Dwight D. Eisenhower, 1959, pp. 790–791.
6. Ellipses in the source text.
7. Paragraph 1 constitutes NSC Action No. 2156. Paragraph 2 and the note that follows constitute NSC Action No. 2157. (Department of State, S/S–NSC (Miscellaneous) Files: Lot 66 D 95, Records of Action by the National Security Council)
8. NSC 5906/1, “Basic National Security Policy,” August 5, is scheduled for publication in volume III. NSC Action No. 2121, taken August 18, “noted the President’s directive that the Secretary of the Treasury prepare an analysis indicating the Free World Nations which are financially able to purchase their requirements in military equipment and training” and instructed the NSC Planning Board to prepare a general policy on providing military equipment and training to such nations which reflected “the general provision that new commitments for grant assistance should not be offered to such nations.” (Department of State, S/S–NSC (Miscellaneous) Files: Lot 66 D 95) Lay’s November 19 memorandum transmitted the Treasury paper. (Ibid., S/S–NSC Files: Lot 63 D 351) A draft of NSC 5916 is printed as Document 248.
9. Not printed.
10. No record of this conversation has been found.
11. Regarding this conversation, see footnote 2, Document 249.
12. Not further identified.
13. Paragraphs a and b and the note that follows constitute NSC Action No. 2158. (Department of State, S/S–NSC (Miscellaneous) Files: Lot 66 D 95, Records of Action by the National Security Council)
14. “Financially able to pay” is determined on the basis of economic criteria, without regard to political ability or willingness.