380. Telegram 5184 to Paris, May 271
Verbatim text. For Ball from Martin. Terms of US Assistance.
1. Increasing concern in Department, which I share, over disparity between terms contemplated within USG for future US loans and what other governments willing offer. Indian Consortium April meeting illustrative: We had assumed India would qualify for softest terms feasible under new US aid program, (i.e., minimum interest, 50 year maturity 10 year grace). Other free world governments offered assistance to India at conventional interest rates (5½–6%) maximum maturities 25 years, except Canada which on grant basis. Soviet terms on aid to India at 2½% but maturities only 12 years.
2. Such marked differences between terms US and others, likely have following consequences:
a. US in effect would be financing repayments interest and principal to others countries, including Soviet Bloc,
b. Distorts value US long-term credits by comparison others. Country extending three 15-year credits of same amount considered to provide three times amount US 45-year credit,
c. Extremely difficult explain to Congress why US soft terms necessary [Facsimile Page 2] and how justifiable in face performance other countries,
d. Relieves pressure on other donors liberalize terms, even over time.
3. On other hand, also argued within Department that would be serious mistake to attempt establish US terms substantially harder than 50-year, zero or low interest.
a. Congress might regard harder terms as an upper limit and would therefore be unlikely to provide authority for the desired degree softness.
b. Having settled for less than the desirable upper limit, it might be difficult to move toward softer terms, if this proved feasible on basis performance by others. Experience in past has been that difficult within USG obtain agreement any softening of terms once hard loans accepted by borrower. Effect is to “lock” oneself in on harder terms.
c. The less-developed countries now expect us to seek and use authority for loans on very soft terms. In some cases, e.g., Pakistan, we plan use such loans as means moving away from grant aid. We [Typeset Page 1602] may already have at least implied to some countries at we would provide loans on IDA-type terms. At India meeting US indicated very large opposed commitment probably would be extended on terms comparable IDA. May also have even similar understanding to Brazilians.
d. Liberalization of the terms offered by other donors will at best be a slow success. If we do little more than match their terms, the LDC’s will be losers in the long interim period. Countries not now receiving assistance in significant amounts from others (e.g., Korea, Taiwan) would in particular be penalized by a general policy at limited softness of US terms because of terms of other free world donors relatively few countries.
[Facsimile Page 3]e. US use of relatively hard terms may result in reduction of IBRD participation in consortium.
4. I believe US posture should be willingness extend assistance on at least equivalent of, probably in most cases a little better than, best terms offered by important other sources assistance, but we should not be much more than step ahead of others. We can always review US terms in future and soften if warranted. Much more difficult to restrict after very soft terms in wide use. Softest terms referred to in President’s Aid Message could be considered as desirable objective for which we require authority, but not as starting norm. This language reads “The terms of repayment will vary from as long as 50 years for those countries just starting on the road to development, to much shorter period of time for those countries nearing stage of self-sufficient growth.”
Purpose this approach not to impose tougher conditions on recipients. On contrary, intended to exert pressure for general liberalization of terms. Balance payments burden on recipients can be minimized by appropriate means. In case India, for example, above approach would probably force periodic review terms by all donors and agreement on revisions necessary in terms in order avoid payments problem. It would help insure our participation in such reviews on more equal basis and thus with more influence on liberalization.
5. Recognized here that may not be possible resolve this issue quickly. Most immediate instances where question US terms may arise are reconvened India Consortium (May 31) and Pakistan Consortium (June 5). Plan leave matter at these meetings in general terms described para 4. This along [Facsimile Page 4] lines consistent with May 25 reply by President to May 13 Nehru letter: we working hard secure Congressional actions and cooperation other donors, both necessary if our aid to be forthcoming in amount and on terms which we have in mind.
Would indicate importance terms to other members Consortia but not repeat not bind US to fixed maturities or interest rates. In my [Typeset Page 1603] judgment not necessary for US to provide details on terms at India or Pakistan meetings.
Appreciate any guidance you wish to provide.
- Terms of U.S. assistance loans. Confidential. 4 pp. Department of State, Central Files, 700.5–MSP/5–2761.↩