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

78. Memorandum Prepared in the Department of State¹

Washington, August 11, 1959.

SUBJECT

• Determination in Accordance with NSC Action 1550 Relating to a Commitment that the United States Will Contribute $517 Million Toward Settlement of the Indus Waters Question

It is determined that, in order to promote political and economic stability in South Asia, the United States should offer to contribute an amount not to exceed $517 million in grant and loan assistance toward construction of the system of works proposed by the International Bank for Reconstruction and Development in its plan for settlement of the Indus Waters question. This offer is contingent on similar offers by other friendly governments of amounts which in the Bank’s Financing Plan it is proposed that they contribute.

This plan for settlement of the Indus Waters question has been agreed to in principle by the Governments of India and Pakistan as a result of negotiations carried out during the last several years under the auspices of the IBRD. It has been elaborated by the Bank in a Memorandum, a copy of which is annexed.² The basis of the settlement would be the allocation of the waters of the three Western Rivers of the Indus system (Indus, Jhelum and Chenab) to irrigation uses in Pakistan, and the waters of the three Eastern Rivers (Ravi, Beas and Sutlej) to irrigation uses in India. The terms of settlement would be incorporated in an international water treaty to be concluded between India and Pakistan.

The total cost based on current prices of the system of works required to effect the proposed division of the Indus Waters has been estimated by the IBRD at $1,033 million, which would be financed over a period of ten years. Of this amount, $585 million would be required in local currency and $448 million in direct foreign exchange. In the belief that expenditures of this magnitude would be beyond the available resources of India and Pakistan, the Bank has prepared a Financing Plan, incorporated in the Memorandum, which envisages financial assistance from the Bank itself and from the Governments of friendly countries, including the United States, who have expressed an interest in the achievement of a negotiated settlement of the Indus Waters question.

The amount of financial assistance to be supplied by the U.S. as proposed by the Bank in paragraph 9(E) would total $517 million. Of this amount the Bank proposes that $102 million would be in dollar loans, $177 million in dollar grants, and $238 million in local currencies.

Justification

NSC Action 1550, as approved by the President on May 8, 1956, directs that no promises or commitments involving future performance or future expenditures of United States funds for foreign assistance should be made or implied except upon specific determination by the Executive Branch covering the following four points:

1. That the commitment is in accord with approved policy.

NSC 5701,³ approved by the President on January 10, 1959 [1957], lists among the objectives of United States policy in South Asia (a) a lessening of the tensions between the South Asian states in order to augment their resistance to Communist tactics and to strengthen their bonds with the free world, and (b) increasingly sound and developed economies in each of the South Asian states. An early resolution of outstanding differences between India and Pakistan is stated to be an important aim of United States policy; both governments are to be impressed with the United States view that the Kashmir and Indus Waters issues should be settled on the basis of a solution mutually acceptable to the two governments. It is also stated to be in the best interests of the United States to encourage closer economic cooperation among the South Asian countries, and between them and the other free world countries; and, therefore, that assistance should be extended when feasible to foster regional projects of economic importance to the area.

Settlement of the Indus Waters question would constitute achievement of one specific United States policy objective in South Asia. It would contribute importantly to the other objectives relating to the economies of India and Pakistan, to relations between the two countries and to the whole of South Asia. A commitment by the United States to provide in support of that settlement financial assistance of the order of magnitude and type suggested by the Bank would thus definitely accord with approved United States policy.

2. That funds have been approved by the Congress or that there is an Executive determination to request additional appropriations.

It is determined to request such authorization and appropriation of funds as may be necessary for the proposed program under the NSC or otherwise. Dollar loan funds would be sought through annual appropriations as needed. Dollar grant funds would be sought in annual appropriations over four years or more as required; and local currency funds would be obtained from such sources as available, including local currency loan repayments, sales of surplus commodities, or otherwise.

3. That the country is likely to utilize the assistance effectively.

The governments of both India and Pakistan are under strong compulsion to proceed expeditiously with construction of the System of Works proposed in the Plan of the IBRD. Completion of these Works would permit the two countries to proceed with the full development of required irrigation and so, of agricultural development. The President of the IBRD has proposed that an “Indus Basin Development Fund” be established, to be administered by the Bank, into which all funds required under the construction schedule would be disbursed. Both India and Pakistan would favor such an arrangement. It is believed that the adoption of this procedure would help ensure the efficient use of the funds involved.

4. Probable time span over which such assistance may have to be granted.

It is anticipated that the financial assistance involved would be extended over a ten-year period in accordance with a schedule to be proposed by the Bank.

• Douglas Dillon
  Department of State
• Robert B. Anderson
  Treasury
• Maurice Stans⁴
  Bureau of the Budget

1. Source: Department of State, S/S–NSC Files: Lot 63 D 351, NSC 5701. Secret. No drafting officer is indicated on the source text. Evidence in Department of State files suggests that this memorandum was prepared in the Department pursuant to President Eisenhower’s approval of the preparation of a “1550 determination” during his meeting with Acting Secretary Dillon; see supra. (Undated memorandum entitled “Prior Indus Determinations”; Department of State, Central Files, 690D.91322/6–2460)
2. Not printed. A copy is ibid., S/S–NSC Files: Lot 63 D 351, NSC 5909.
3. Entitled “U.S. Policy Toward South Asia,” dated January 10, 1957; Foreign Relations, 1955–1957, vol. VIII, pp. 29–43.
4. Printed from a copy that bears these typed signatures. Acting Secretary Dillon approved this memorandum on August 11, Robert B. Anderson approved it on the same day, and Maurice Stans approved it on August 12.