Foreign Relations of the United States, 1958–1960, Western Europe, Volume VII, Part 2

248. Memorandum of Conversation⁰

PSV/MC/8

October 1, 1959.

SEGNI VISIT

SUBJECT

• Aid to Underdeveloped Countries

PARTICIPANTS

• (See attached list)¹
• The Secretary
• The Under Secretary
• The Under Secretary for Political Affairs
• Et al.

After the usual exchange of greetings, the Secretary suggested that we begin with economic matters since Mr. Dillon was present and was obliged to leave for the International Monetary Fund and IBRD meeting. Prime Minister Segni said that Foreign Minister Pella would present the Italian position on these subjects. Pella said that first he would like to ask for two clarifications with regard to the UN Special Fund and the International Development Agency (IDA) and ask what the current status of these two matters was in order that we might discuss them.

Mr. Dillon said that with regard to IDA the U.S. had submitted a resolution to the IBRD meeting, and we expected action thereon today.² He said that he believed our resolution had found general support and that there was agreement both on the principle of the IDA and on having it as an affiliate of the IBRD. The resolution would call for the preparation of a definitive plan to be submitted next year to the governors of the bank for their approval. Mr. Dillon said we appreciated the Italian support which we had received for our resolution.

With regard to the other matter Mr. Dillon wished to be sure that the Italians were referring to the UN Special Fund. Pella confirmed that this was what he was referring to. Mr. Dillon then said we supported Mr. Hoffman’s efforts to obtain increases in contributions to the UN Special Fund³ up to the amount originally foreseen of $100 million, one-half for technical assistance and one-half for a special fund. Mr. Dillon continued that the U.S. has authority to pledge up to $40 million depending upon other contributions. He noted that the U.S. could not make a contribution of more than 40 per cent of the total.

Mr. Pella then reverted to IDA again and asked what we had in mind as an amount of capital to be made available and also what types of programs and what types of assistance would be given.

Mr. Dillon said that the U.S. thought that we might start with a capital of $1 billion, the contributions being made roughly to be in proportion with contributions to the IBRD. He said contributions would be in gold and in local currency and we hoped, in the case of industrial nations, on a basis of free convertibility, though this convertibility basis would not be possible for the underdeveloped countries.

With reference to the types of projects involved, Mr. Dillon said that he thought these would be more flexible than in the case of IBRD projects. There could be pilot programs in the social field and for health and education projects which the Bank was not empowered to undertake, although there existed great interest therein. He said the Executive Directors must discuss these matters as there are many views. In fact Mr. Dillon thought there probably would be some delay in getting agreement among industrial and the underdeveloped countries on exactly which projects might be undertaken. However, he noted that all of them supported the principle of the IDA.

Mr. Pella said that this was indeed a vast undertaking which he knew that not only Italy but also France and the United Kingdom supported since they all wished to contribute to underdeveloped countries. He thought that some political problems would be reflected as the projects are undertaken and he also expressed the hope that IDA projects would not overlap with other broad programs now underway.

Mr. Dillon said that this was one of the reasons why we had wished IDA tied to the Bank since it meant there would automatically be close coordination of IDA programs with those of the Bank. He said we were also concerned with coordination of IDA with bilateral programs now being undertaken. He noted this concern was shared with other Governments such as the U.K., Germany and France. He said that the industrial countries, including Italy, had held a discussion with Mr. Black on this subject and all agreed that coordination was vital. All had likewise agreed that the Bank was the best forum for undertaking this coordination. He said we must be most careful that the IDA should not appear to be a creditors’ club and impose conditions on the underdeveloped countries. He concluded on this point that it was left that Mr. Black would work out over the next two months the specific procedures to be followed.

Mr. Pella said that he agreed entirely with the need for coordination including the coordination of the actual investment of funds.

Mr. Dillon then said he wished to refer to the points made by Secretary Anderson to the IMF⁴ regarding the need for the European countries to supply credit to the underdeveloped countries for equipment on a longer-term basis for such projects as dams, etc. Mr. Dillon noted that the U.S. had made substantial amounts of credit available on a long-term basis as had the Bank. However, most of the European credits had been on a shorter medium-term basis and imposed burdens on the underdeveloped countries. He noted that this had been unavoidable up until the present; now that the European economies were so much stronger, however, it was possible and indeed important for the European countries to make long-term credit available. He referred to recent credit extended by West Germany to Greece as an example. He said that otherwise we were in the paradoxical position whereby the U.S. was making longer-term loans to finance in many cases purchases by the underdeveloped countries of equipment in Europe.

Mr. Pella said he entirely agreed with Mr. Dillon’s analysis, and believed that we had gone into sufficient detail on the question of aid to underdeveloped countries and that at an appropriate moment we might wish to discuss this further.

0. Source: Department of State, Conference Files: Lot 64 D 560, CF 1490. Secret. Drafted by McBride and approved in S on October 14. Four separate memoranda of this conversation were prepared; see Documents 249–251.
1. Not printed
2. The International Development Agency, charged with aiding the less-developed nations of the world, formally began operations in September 1960. Italy was a charter member of the IDA.
3. The U.N. Special Fund was established by the U.N. General Assembly on October 14, 1958, to promote the development of natural resources in underdeveloped nations. Paul G. Hoffman was appointed Managing Director. The Fund began operations on January 1, 1959.
4. Secretary of the Treasury Robert B. Anderson addressed the IMF on September 28 and 30 during its September 28–October 2 meeting in Washington. For texts of Anderson’s comments, see Department of State Bulletin, October 19, 1959, pp. 532–537.