109. Memorandum of a Conversation, Department of State, Washington, June 25, 19581
SUBJECT
- Economic Problems of Afghanistan
PARTICIPANTS
- Mr. C. Douglas Dillon, W
- Mr. James H. Smith, Jr., Director, ICA
- Mr. Sheldon T. Mills, Ambassador to Afghanistan
- Dr. D. A. FitzGerald, Deputy Director, ICA
- Mr. John O. Bell, Regional Director, ICA
- Mr. Frederic P. Bartlett, SOA
- Mr. Leon B. Poullada, SOA
- H. R. H. Sardar Mohammad Daud, Prime Minister, Afghanistan
- H. E. Mohammed Yusuf, Minister of Mines and Industry
- H. E. Mohammed Hashim Maiwandwal, Ambassador of Afghanistan
- H.E. Abdul Rahman Pazhwak, Permanent Representative to the UN
- Mr. G. M. Sarwar, Deputy Minister of Commerce
- Mr. Abdul Kayeum,
- Vice President, Helmand Valley Auth.
The Prime Minister stated that the economic needs of Afghanistan are very great. He would leave discussion of details to his colleagues, but in general, he wished to mention problems in connection with the following: (a) the Helmand Valley; (b) small scale industries; (c) education; (d) Five Year Plan; and (e) air project.
Mr. Dillon said that he wished to give the Prime Minister some background on the DLF2 since that related to the general problem of economic development raised by the Prime Minister. He then explained the rationale and the history of the DLF, emphasizing that the trend in U.S. assistance is toward loans rather than grants. He emphasized that DLF loans could be repaid in local currency and the repayments could in turn be re-lent for further economic development. Mr. Dillon then said that we fully understand and sympathize with the Afghan decision not to incur additional foreign debts, but this decision raises certain problems for the U.S. in view of the general policy to rely on loans rather than grants as a vehicle for aid.
In regard to the Helmand Valley, Mr. Dillon stated that we are as interested as the Afghans in making that project a success. We recognize that a problem exists with regard to the proper development of agriculture in the valley and would be happy to assist in arriving at a decision in this regard. The responsibility for the technical study of an agricultural program rests with ICA.
The Prime Minister expressed his thanks for Mr. Dillon’s explanation of the DLF, stating further that the Afghan decision not to incur further foreign debts is based upon an analysis of their financial position. The Afghan Government wishes to maintain its credit and to be fair with those friends who have assisted Afghanistan with loans. He emphasized that Afghanistan is suffering from a shortage both of foreign exchange and local currency.
With regard to the Helmand, the Prime Minister related the history of this project emphasizing that the decision to expand the project from operation of the single Boghra canal to its present dimensions was based upon advice given by American engineers (Henderson and Alexander) then employed by the Afghan Government. In spite of the unfortunate history of this project, the important consideration is its future. The Afghan Government wants to complete the project with U.S. assistance. The long-term nature of the project is fully realized, [Page 231] but it is hoped that certain things can be done now to make the project productive, at least in part. In order to do this, the Afghan Government is considering the possibility of mechanized agriculture, of developing the power potential of the Kajakai dam, and of establishing small scale industries. With regard to the last, the Afghan Government is willing to permit Afghan private industry to apply for DLF loans. The Prime Minister also mentioned the need for improved flood control in the Helmand.
Mr. Dillon explained that although the DLF is the major source of funds for U.S. assistance, he had not intended to imply that it is the only source. It is our intention to continue to support the project by using special assistance funds more or less on the present scale. It would be difficult, however, to obtain grant assistance for any substantial expansion in the Helmand project or for new projects. With regard to the specific suggestions made by the Prime Minister, we would be willing to study the feasibility and potential market for Kajakai power and to assist in devising a suitable agricultural development program. We are gratified that the Afghan Government is willing to consider the use of DLF for the development of small scale industries in the private sector.
Mr. Smith asked the Prime Minister for his views on the U.S.-supported education program in Afghanistan. The Prime Minister replied that he has a personal interest in this program, adding jocularly that the Afghans have sometimes been accused of letting the U.S. participate only in projects which are not of a “visible” nature. For this reason he wished to request U.S. assistance in the construction of buildings for Kabul University which would be a “visible” symbol of American aid for all Afghans. He would also like the U.S. to provide professors for that institution. He emphasized that he had mentioned the other economic problems only as suggestions and as illustrations of Afghanistan’s great need, but that in the field of education, he wished to make a specific request for assistance to Kabul University.
Ambassador Mills inquired whether the Prime Minister is aware that ICA has already made $1.5 million available for these buildings and that architects are already drawing plans. The Prime Minister confirmed that he knew this, but said he would like to see the construction program started and accelerated. Mr. Smith remarked that he greatly appreciated the Prime Minister’s personal interest in the education project.
The Prime Minister noted that it had not been possible to discuss the other topics which he had raised at the beginning of the conversation, but that his schedule required the meeting to close. He hoped that the discussion could be resumed later.