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

347. Memorandum of a Conversation, Department of State, Washington, March 12, 1959¹

Washington, March 12, 1959

SUBJECT

• Discussion of Possible Aid Assistance to Pakistan

PARTICIPANTS

• Mr. Mohamed Shoaib, Finance Minister of Pakistan
• Mr. Zahiruddin Ahmed, Economic and Financial Counselor, Government of
• Pakistan
• Mr. Donald D. Kennedy, NEA
• Mr. Clarence Gulick, O/NESA–ICA
• Mr. William Turnage, OFD
• Mr. Frederic P. Bartlett, SOA
• Mr. Henry W. Spielman, SOA

Mr. Kennedy expressed appreciation on behalf of the United States Government for the efforts made by the new administration in Pakistan toward coping with the economic problems facing that country. He was sure that because of Mr. Shoaib’s explanations, Washington officials are now much better informed about Pakistan’s economic as well as foreign exchange problems.

Mr. Kennedy then pointed out that unfortunately the United States had, at this time, no available funds. The Mutual Security legislation would not be passed by Congress before July and perhaps not until fall, and the House action on the supplemental appropriation requested for DLF was discouraging, he pointed out. Mr. Kennedy was hopeful, however, that the final figure provided by the supplemental appropriation for DLF would be somewhat larger than the $100 million presently indicated by the House subcommittee, but, of course, no one could predict what would happen until after both Houses of Congress had acted. Mr. Kennedy added that speculation as to the probable size of the FY 1960 Mutual Security appropriation could only lead to trouble. However, Mr. Kennedy assured Mr. Shoaib that the Department was giving serious thought to the problems of Pakistan.

Mr. Shoaib said that he appreciated the legislative problem facing the United States, but was hopeful that some slack funds would be available to help Pakistan at this time. He mentioned that Pakistan’s deficits were in three categories: (1) previous commitments amounting to 50 crores; (2) priming industry, 50 crores; and (3) the development program, 59 crores of rupees.

Mr. Shoaib said the previous commitments represented raw materials, consumer goods, spare parts and miscellaneous items, some of which are already on the high seas. He promised to furnish the Department a list, by broad categories and country of commitment, of these items. Mr. Tumage suggested that perhaps Pakistan might look to the supplier countries to help finance these commitments. Mr. Shoaib replied that his government is undertaking discussions with the United Kingdom, Germany and Japan regarding means of meeting this problem. Part of Pakistan’s recently concluded UK loan of 10 million pounds sterling and perhaps some of the first tranche from the IMF would be used for this purpose, he said. One of the difficulties concerned Japan, whose supplier credit was of short-term duration and, therefore, would fall due at a critical period in Pakistan’s balance of payments situation.

Mr. Kennedy said that the priming of industries appeared to involve commodity support which would fall within the area of our Defense Support assistance. During FY 1959, the United States was providing $80 million, primarily for import commodities. Mr. Shoaib said he was aware of the size of this figure and that by arrangements with USOM, Karachi, $5 million had been diverted to refugee rehabilitation. His government has set a terminal date on refugee assistance and hopes that all claims will be settled by March 31, 1960. Mr. Shoaib stated that refugee rehabiliation is a priority project in that many of the refugees around Karachi were educated people from cities in India and who were accustomed to higher standards of living than they now enjoy. Mr. Kennedy assured Mr. Shoaib of our interest in the settlement of this problem and hoped that it would be accomplished by that date.

Mr. Shoaib mentioned that the Development Commission has recommended a minimum development program of 255 crores. The Finance Minister believed that this figure might be reduced, but he needed justification before approaching the Commission. For this reason, he wished to obtain a figure from the United States as to the amount of aid which might be available. Aside from the fact that no funds are now available, Mr. Turnage pointed out that it was difficult to determine from the data now available in Washington how the development figure mentioned by Mr. Shoaib was obtained. Apparently, funds were available to the Government of Pakistan which had not been mentioned in this presentation. Mr. Shoaib said that the remaining $6 million of the Richards’ commitment for fertilizer factories was not included, as well as the recently signed DLF commitments.

Mr. Shoaib said that he was attempting to maintain the Defense budget at present levels and to reduce expenses of other Departments of the Government of Pakistan.

When Mr. Shoaib called upon the World Bank officials, he received the encouraging news that the Bank was prepared to supply an additional $8 million credit equally divided between Karachi Electric Supply Company and PICIC and would consider an additional loan for the railways.

Mr. Kennedy inquired as to which projects the Government of Pakistan wished considered by DLF when supplementary funds became available. Mr. Shoaib replied, without hesitation, the Ganges–Kobadak, secondary transmission lines and PICIC. The other high priority projects could await the regular appropriation, he said.

Mr. Bartlett said that looking at the longer-range picture, it became apparent that Pakistan would need to develop new markets for its export commodities. Mr. Shoaib replied that he had discussed this possibility with Ludlow (large jute merchants) in New York, who is working on new uses for jute. In addition, the Government of Pakistan was planning to attempt an expansion of fish, fruits and tea exports.

Mr. Turnage asked if Pakistan would need PL 480 assistance this year. Mr. Shoaib said that both the wheat and rice crops were expected to be good and, therefore, no decision could be made until later in the year. Mr. Shoaib asked if it would be possible to arrange triangular trade. Mr. Turnage replied that such operations had been of very limited success and required much greater effort than the results justified.

Mr. Kennedy inquired whether Pakistan is organizing new agencies to meet the agricultural problem. Mr. Shoaib said that a land management group had been set up for developing the new lands in the recently completed irrigation areas. An agricultural credit organization was being established to provide supplier credit to small farmers. It might be possible, he said, that his government would ask the United States for local currency releases for this purpose.

1. Source: Department of State, Central Files, 790D.5–MSP/3–1259. Drafted by Spielman on March 17. Bartlett briefed Kennedy for this meeting with Shoaib in a memorandum of March 12. (Ibid., 890D.131/3–1259)