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

376. Memorandum of a Conversation, Karachi, December 8, 1959, 7:30 p.m.¹

US/MC/25

Karachi , December 8, 1959, 7:30 p.m.

PARTICIPANTS

• United States
  • The President
  • Mr. Murphy
  • General Goodpaster
  • Ambassador Rountree
• Pakistan
  • Minister of Finance Shoaib

SUBJECT

• Pakistani Financial and Economic Matters

In view of the fact that there had been inadequate time at meetings with President Ayub and his advisors to discuss financial and economic matters, arrangements were made for Minister of Finance Shoaib to call on President Eisenhower at 7:30 p.m. at the Embassy Residence, just prior to the dinner in honor of President Ayub.

Mr. Shoaib reviewed the state of Pakistani economy and finances at the time Field Marshal Ayub assumed power. He said that measures had been taken to cope with the problems and these measures had helped considerably. Revenues had been increased, prices were relatively stable and exports had risen. The first five-year plan had been designed to achieve a 15% increase in national consumption, and had actually achieved a 10% increase. However, 8% of this was required for increased population, leaving about 2% actual improvement. The next five-year program assumed an increase of 20%, of which 10% would be required to meet the growing population. This was not an overly ambitious program; nevertheless it would require an investment of four billion dollars. Perhaps 60% of this, or two and one-half billion dollars, could be provided by Pakistan, leaving a gap of 1.6 billion dollars. Pakistan expected that part of this would be provided by the International Bank, the Colombo Plan, non-U.S. Government contributions and private enterprise. It would be impossible to carry out the program, however, without generous assistance from the United States. Every effort was being made to improve the utilization of funds. Utilization was not yet perfect, but was much better and was improving. Pakistan earnestly hoped that it would continue to receive aid at least at the existing level, and perhaps at a higher level.

The President referred to assistance which the United States might provide in connection with settlement of the Canal Waters dispute with India. Mr. Shoaib commented that this was vital, but that it would be used for the most part for projects to replace existing waters, so as to maintain the status quo.

President Eisenhower said he had assumed that the various projects undertaken in connection with the scheme would provide more effective utilization of existing waters, and provide power and other assets which would enhance the Pakistani economy. At first Mr. Shoaib expressed the view that the scheme would be little more than one to maintain the status quo, but later when he understood the President’s point, agreed that there would be an improvement. President Eisenhower emphasized that effective use of existing waters by flood control, etc., represented a substantial improvement over the uncontrolled flow of water resulting in alternate flooding and draughts.

The President was glad to learn that Pakistan was emphasizing the role of private industry. This was, he thought, vital to sound development. Private capital would take all risks except political threats. He wondered if there might be some way by which Pakistan could assure potential investors that their assets would not be sequestered; perhaps some sort of pledge could be made, backed up by funds to pay for any departure from that pledge. Mr. Shoaib thought private industry was gaining confidence in Pakistan. A number of major companies were discussing possible investment programs. It was his Government’s intention to show that Pakistan welcomed such investments.

The President said it might be possible for him to assist by telling people in the United States of his confidence in the personalities in Pakistan. The attitude of investors was affected by their evaluation of the people upon whom they must depend.

The President inquired about the tax system wondering whether wealthy people were being taxed in proportion to their ability to pay. This, quite apart from the financial aspects, had an extremely good psychological effect, if the poor and less prosperous felt that the more prosperous were carrying their full burden. Mr. Shoaib said that there was no tax on income under $1200 per year. Under their graduated scale, the maximum rate was 75%. The President observed that in the United States single persons with substantially less than $1200 per year were taxed.

In reply to the President’s question, Mr. Shoaib said that excise tax revenue was nominal. They collected import revenue from such items as cigarettes, textiles, sugar and meals at restaurants.

In reply to the President’s question, Mr. Shoaib said the official Pakistani budget was in the neighborhood of $300,000,000. In addition, the two provincial governments’ budgets totalled about $250,000,000.

1. Source: Department of State, Conference Files: Lot 64 D 560, CF 1521. Confidential; Limit Distribution. No drafting officer is indicated on the source text. The source text indicates that this conversation took place at the Embassy Residence.