414. Memorandum from Dillon to President Kennedy, July 171
SUBJECT
- Aid and the Balance of Payments
I wholeheartedly agree with the general approach outlined by Ken Galbraith in his recent telegram to you on aid and the balance of payments. Simply stated, our objective should be to assure as far as we can that our aid is matched by additional exports from the United States. To the extent that we are successful in this, the effect of aid on our balance of payments will be neutral. This idea of additionality is one that we should keep constantly in mind in administering the new segregated accounts to be set up under AID.
One of Galbraith’s specific suggestions—developed in the last paragraph of page 6 of his telegram—seems to me to go much too far. This is his idea that we should apply a simple formula designed to prevent other industrialized countries from earning dollars from any underdeveloped country to which the United States gives aid, whether those dollar earnings are attributable to the aid we give to the underdevel [Typeset Page 1683] oped country or to the exports of the underdeveloped country to the United States. In some cases this formula would go far beyond neutralizing the effect of our aid on the balance of payments, when what we should aim for is solely to make as certain as possible that all aid expenditures result in additional purchases from the U.S. To go further would run counter to our basic trade policies based on free multilateralism. This criticism does not in the least detract from the main thrust of Galbraith’s recommendations. Moreover, I am confident that he is entirely correct in saying that we need not fear retaliation from the other industrialized countries for action which we can defend as being necessary to prevent aid from hurting our balance of payments.
- Observations on Galbraith’s proposals on aid and the balance of payments. Confidential. 1 p. Kennedy Library, President’s Office Files, Treasury, 7/62, Box 94E.↩