Foreign Relations of the United States, 1958–1960, South and Southeast Asia, Volume XV

275. Memorandum of a Conversation, Seattle, November 10, 1958, 5:45 p.m.¹

Seattle , November 10, 1958, 5:45 p.m.

PARTICIPANTS

• United States
  • The Secretary
  • Mr. Dillon
  • Mr. Bartlett
• Nepal
  • Shri Sahebju Parandra Bikram Shah, Foreign Minister, Government of Nepal
  • Nara Pratap Thapa, Foreign Secretary, Government of Nepal

SUBJECT

• Nepal’s Economic Situation

This meeting was arranged at the request of Mr. Shah, who transmitted to the Secretary the attached letter of introduction, dated September 8, 1958, from Mr. Subarna Shamaher, J.B.R., Chairman, Council of Ministers.²

Mr. Shah initiated the discussion by expressing the gratitude of the Nepalese Government for the assistance which the United States had been extending to Nepal. The Secretary replied that he hoped the United States and Nepal would get even better acquainted with each other in the years to come.

The Nepalese Foreign Minister indicated that the single greatest problem facing Nepal was that of balancing its budget. Toward this end, [1½ lines of source text not declassified]. He expressed the hope that the US would be willing to help Nepal with its fiscal problems.

The Secretary agreed that it would be wise for Nepal not to become too dependent economically upon the USSR. He cited as an example of countries which had become disillusioned with Soviet economic assistance, both Yugoslavia and Finland. In the case of the latter, the USSR, because it had not approved of the government which the Finnish people had elected, had attempted to apply pressure upon Finland by cutting down on trade between the two countries. However, in some cases and if the amounts were not too large, some countries might be able to accept Soviet offers without too great harm.

The Secretary reverted to Mr. Shah’s request for budgetary assistance stating that although he did not wish to discourage the Nepalese representatives, the latter should note that the United States itself was faced with a current budgetary deficit of $12 billion.

The Secretary continued that the United States Government, however, was anxious to be helpful wherever appropriate and within its resources, noting that Nepal was a country with a great tradition and, he trusted, a hopeful future. In view of the close relations between Nepal and India, the Secretary wondered whether the latter country might not be in a position to contribute towards the solution of Nepal’s fiscal problems. Mr. Shah replied that Nepal had indeed received some help from India “under the Colombo Plan”, but that it had not been enough. He remarked that India itself had received a great deal of aid from the United States without which her economy would have been crippled long before now. He suggested that just as the United States had thus saved India from economic disaster, so should the United States help to save Nepal.

The Secretary said that he would be interested in knowing in more concrete terms just what the Government of Nepal might have in mind. Mr. Shah replied “cash aid”. It was just such aid, the Secretary replied, that was the hardest for the United States to handle since the United States Government did not have institutions designed to furnish this type of assistance, nor for that matter, were there international institutions equipped to handle such aid. The IBRD, the Secretary noted as an example, was concerned with strictly development projects, the Export-Import Bank was intended to finance trade in certain capital goods and raw materials, and the Development Loan Fund was designed to assist in basic projects looking toward development. At this point, Mr. Shah noted that the IBRD could be discounted as far as Nepal was concerned since Nepal was not a member of the Bank.

The Secretary inquired whether there wasn’t a hydroelectric project in which the Nepalese Government was interested. This was so, the Foreign Minister said. It was a project which India had started, but had not been able to finish. India’s shortage of foreign exchange was preventing it from getting the necessary machinery and other materials from Europe. If this were the case, Mr. Dillon inquired whether it might not be a project which would be appropriate for submission to the DLF. The Secretary suggested that in any event, it would be wise to put something in writing regarding it, so that it could be studied in more detailed terms. Mr. Dillon agreed with the Secretary and suggested to Mr. Shah that perhaps the best procedure to follow would be for the Nepalese Government to take up in detail this project and its general fiscal problems with the American Embassy in New Delhi and the United States Operations Mission in Kathmandu. The Secretary told Mr. Shah that we would ask these missions of the United States to get in touch with the Nepalese Government.

The Secretary stated that he had to reiterate, however, that it was difficult for us to handle strictly “budgetary aid”. There had been very few cases in the past where we had been able to do so and then, as in that of Jordan, it was only in order to relieve an acute international crisis. It was better, the Secretary continued, to think in terms of development projects. The Foreign Minister appreciated the Secretary’s remarks and stated that the Nepalese Government would try to approach this problem along project lines.

The Secretary asked what had caused Nepal’s present fiscal deficit. Was it the difficulty of collecting or of increasing taxes? Mr. Thapa replied it was indeed this difficulty and it was one which faced, in his opinion, all primitive agricultural communities. He also noted that another problem was the lack of Indian rupees. Most of Nepal’s imports, Mr. Thapa explained, came from India and to pay for these, Nepal needed Indian rupees which it did not have in sufficient amounts. This in turn had caused a depreciation of the Nepalese rupee in relation to the Indian rupee.

The Secretary asked Mr. Dillon whether the United States Government, under these circumstances, might not be able to use some of its Indian counterpart rupees. Mr. Dillon replied that it might be possible, but that the entire problem could be best studied “on the spot” in New Delhi since it involved to some extent the Government of India.³

1. Source: Department of State, Conference Files: Lot 63 D 123, CF 1145. Confidential. Drafted by Bartlett. The source text indicates this conversation took place at the Olympic Hotel.
2. Not printed.
3. The Department of State summarized this conversation in telegram 1178 to New Delhi, November 19. “Embassy should consider this telegram,” the cable reads in part, “as instruction to explore with GON possible solutions to Nepalese problems raised by Shah and Thapa.” (Department of State, Central Files, 890C.10/11–1958)