Foreign Relations of the United States, 1961–1963, Volumes VII, VIII, IX, Arms Control; National Security Policy; Foreign Economic Policy, Microfiche Supplement

424. Memorandum from Kaplan to McGhee, February 11¹

February 11, 1963

SUBJECT

• Geographic Distribution of Bilateral Economic Assistance by DAC Countries Other Than the United States

I. Status and Trends.

A. Germany—Apart from reparations the German aid program began on a significant scale in 1960. By the end of 1961 Germany had foreign aid commitments to 38 countries. By the end of 1962 the list had grown to 61 countries. The list covers all continents and countries ranging from Iceland to Liberia, Israel and Turkey to Afghanistan and Korea and Argentina. There is no particular pattern of concentration. German aid officials have stated that they prefer not to accept primary responsibility for any developing country, but would rather play a secondary role to U.S. (or France). Their motives in extending aid are partly political—discourage recognition of the East German government—respond to U.S. and French pressures as well as those of developing countries to share the burden of foreign economic assistance, help countries where German influence has been traditional (Turkey, Iran, Togo, Tanganyika) or where there are significant German populations (the Latin American countries). In part their program was stimulated by the U.S. decision to tie its project lending and the subsequent pressure from German firms which had previously obtained attractive contracts under the U.S. aid program. In part, their purpose is to strengthen ties with countries in which Germany is interested in expanding its trade, investment and economic relations generally.

B. France—The very large French foreign aid program is concentrated almost entirely on countries in the franc zone. Only 2% or some $23 million of disbursements in 1961 went to other countries. When the French government decided to grant independence to its African colonies a few years ago, it stepped up its aid programs to these countries. Ninety percent of such aid is in the form of grants. In 1961 40% of French aid went to Algeria, 9% to Sahara, 3% to Morocco and Tunisia and 40% to other African states and Madagascar. France has participated in various collective arrangements such as the rescheduling of the commercial indebtedness of Argentina, Turkey and Brazil and in the India consortium. It prefers, however, to confine its effort for non-franc zone countries to export credits up to 10 years in duration at commercial rates of interest but guaranteed by the government. In brief, the French have accepted and seem prepared to continue to carry primary responsibility and to provide assistance in generous amounts to former dependent territories in order to retain French political, military, cultural and economic influence. Aid to Algeria and Sahara is in part related to French oil interests. France is concerned lest it be frozen out of attractive markets in other developing countries, particularly Latin America and India; it hopes for the present to evidence its political interest and maintain its market position in such countries by means of credits on commercial terms.

C. United Kingdom—The U.K. is providing assistance to approximately 30 countries and dependent territories. Ninety percent of the money goes to colonies and less developed independent countries within the British Commonwealth. The remainder helps NATO partners, such as Turkey, and countries where the U.K. has strong commercial interests, such as Brazil and Chile. In the aftermath of Mr. Hamilton’s visit to the U.K. last fall, the Foreign Office pressed within the U.K. government for a larger sum with which to serve the U.K.’s political interests outside the British Commonwealth. Thus far only Laos has been added to the list for a small sum. The Chancellor of the Exchequer is showing an increasing interest in using the foreign aid program for economic purposes. Thus he has spoken recently about an increase in the British foreign aid program on a tied basis in order to provide orders to underutilized industrial capacity in particularly depressed areas in Britain and to help U.K. commercial interests. Nevertheless, as of the moment the U.K. program is heavily concentrated in the Commonwealth and within the Commonwealth is heavily concentrated on dependent and very recently independent territories. Thus about a quarter of the 1961 program was directed to East Africa and almost as much to other African dependencies.

D. Japan—Japanese aid in 1960 went to more than 15 countries, mostly in Asia and the larger countries of Latin America. Reparations and indemnification payments still loom large in Japanese aid though loans have become about 2/3 of the total. Small amounts of aid have been made available to Turkey, Yugoslavia and Sudan, and Japan is interested in helping Nigeria, largely in view of a very large trade surplus. Japan is reluctant to accept a primary responsibility for helping individual countries and prefers to cooperate in areas where the U.S. in particular is active. While Japan tends to concentrate on Asian countries for political as well as economic reasons, Japan’s acute awareness of its dependence on trade is perhaps the principal motivating factor in a trend toward aiding non-Asiatic countries that show promise of becoming attractive markets for Japanese exports.

E. Italy—Italy’s modest aid program is heavily concentrated in countries in the Mediterranean basin and East Africa. It also has provided some assistance to 8 countries in Latin America and 5 Asiatic countries. Motivating factors seem to be some feeling of responsibility for areas previously occupied by or dependent on Italy and its strong commercial and cultural interests in Latin America. The emigrant Italian population in such countries as Argentina, Brazil and Tunisia accounts in part for Italian interest in those countries.

F. Canada—The even more modest Canadian aid program has been extended to 19 countries, mostly members of the British Commonwealth or the Colombo Plan. It recently established a bank similar to our Export-Import Bank, which made loans in 1961 to the four largest Latin American countries. The new bank is clearly oriented toward promoting Canadian exports; it seems likely that the number of countries receiving loans will increase as the bank comes into full operation.

G. Netherlands, Belgium, Portugal—Bilateral assistance from the Netherlands, Belgium and Portugal is essentially confined to dependent territories or former dependent territories. Netherlands and Belgium, however, are increasingly conscious of the need to participate in development assistance, partly for burden-sharing reasons but more to protect their traditional worldwide exporting interests.

II. Policy Issues.

Presumably the major U.S. interest in the degree of proliferation or concentration of the aid programs of other donor governments is in inducing an expansion of their aid levels and thus a better sharing of the burden. The recent history suggests that as a country’s aid program expands, it proliferates to an increasing number of countries, largely to promote commercial interests in developing countries whose imports seem likely to increase.

This U.S. interest in expanding other donor programs raises a series of policy issues which are being discussed with the Clay Committee. The choices are not always apparent and clear-cut. A.I.D. is still in the process of reaching its own conclusions. Among the issues to be resolved are the following:

Would a reduction in U.S. assistance to former dependencies of European metropoles induce a commensurate increase in their assistance to these countries? Would this increase be likely to occur with sufficient promptness to avoid major political risks in such countries or would the increased assistance be likely to take place only after the critical effect of the reduction in U.S. aid has become apparent?

Should we urge countries to which we are giving substantial aid to refuse commercial export credits or other assistance on hard terms of repayment in the hope that commercial pressures would force the other donors to provide aid on terms consistent with the debt service capacity of the recipient country?

Should we urge countries whose import requirements from the U.S. are largely financed by our aid programs to limit their imports from other DAC members unless such potential donors are prepared to finance a significant part of such exports?

In the case of those African countries where U.S. aid performs essentially a presence function, should we eliminate such programs? Would our own security interests be damaged if these countries had no alternative source of assistance other than the former metropoles and the Communist bloc?

Should we ask former metropoles to diversify their aid programs so as to lessen the dependence of the former colonies on them and to permit a more varied pattern of relations with the free world to develop?

Should we encourage a multiplicity of aid donors to each recipient country in order to promote a healthier pattern of multilateral trade and avoid and consolidation of trading blocs?

Jacob J. Kaplan

Director
International Development Organizations Staff

1. “Geographic Distribution of Bilateral Economic Assistance by DAC Countries Other than the United States.” Official Use Only. 4 pp. Department of State, Central Files, AID 1.