Foreign Relations of the United States, 1961–1963, Volume IX, Foreign Economic Policy

159. Memorandum From the Under Secretary of State for Political Affairs (McGhee) to Secretary of State Rusk⁰

Washington, March 15, 1963.

SUBJECTS

• Economic Aid: Diffusion vs Concentration of AID Programs

At your Staff Meeting of January 21,¹ you expressed concern with the diffusion of our aid potential and asked that I study possibilities of further concentrating available resources on key countries or regions in concert with other DAC donor countries.

The regional bureaus, INR and AID have participated with me in this study. Because of difficulties in obtaining statistics, the inquiry was restricted to economic aid (normally defined as excluding 1-5 year commercial credits) and broken into two parts: 1) Motivations of the DAC countries (excluding US) in extending aid, together with patterns thereof and possibilities of augmentation and greater concentration; and 2) attitudes of the recipient countries toward bilateral and multilateral aid, together with possibilities of developing a greater accent on “spheres of primary aid responsibility”.

The attached memorandum (Tab A) summarizes the available data and the responses of the bureaus and AID and draws conclusions and certain operational implications.

The summary of conclusions reached are that the present pattern of diffusion and bilateralism generally serves US (DAC) interests, although strict US interests might in some countries (particularly the emergent African states) be served adequately by smaller US aid programs and decreased administrative costs; that although there is a tendency toward diffusion on the part of the new aid donor countries with the most rapid rate of aid expansion (Germany and Japan), possibilities of increasing and concentrating aid outlays by these and other DAC countries (excluding US) exist within available mechanisms and can be exploited where a strong case of advancing national interests is established; that the coordinating group and consortia approaches of the DAC-OECD-IBRD are the preferred ones to critical key countries; and that there are no new or promising “spheres of dominant aid responsibility” other than those which now exist (e.g., the dominant roles of the present and former metropoles in Africa and the remaining colonial areas, and of the United States in Latin America and certain of the peripheral states of the Far East, Middle East and South Asia).

Recommendations:

1. That no drastic change be made in present aid policy affecting the diffusion of aid among recipient countries.

2. That a more effective concentration of aid should be sought through a continuing and closer analysis of US security and developmental priorities among countries and projects, and the correlation between AID programs and these priorities, rather than through eliminating programs in certain countries to augment programs in others.

3. That in countries where no high priority interests exist, AID programs be carefully screened toward possible reduction but not necessarily elimination.

4. That increased administrative savings be sought in the administration of minor aid programs through the consolidation of aid missions in delegated posts, as is now done with 10 countries in Africa.

5. That we continue to urge other members of DAC to adopt policies consistent with ours and respect to diffusion, insofar as this is practical in the light of their national interests and capabilities.

6. That the attached memorandum be discussed, against the backdrop of these recommendations, at an early meeting chaired by you or the Under Secretary.²

Attachment

THE DISTRIBUTION OF DAC AID:DIFFUSION versus CONCENTRATION

Overall Conclusions

1. The principal considerations bearing on the US (DAC) distribution pattern of economic assistance are:

a) Effect on maximization of aid extended by others;

b) Effectiveness of aid extended in achieving high priority US security and developmental objectives;

c) Impact on such contributory factors as more efficient planning, use and decreased administrative costs;

d) Immediate and longer-range political effects including encouragement of regionalism, improved relations between developed and undeveloped countries, and the non-Communist “community of free nations” (the North-South axis).

The overriding consideration is to assure allocation of scarce aid resources, both by ourselves and others, in a pattern designed to maximize returns through greatest possible concentration on high priority countries and projects.

2. Aid on an extensive scale ($200 million annually or more) is restricted to five Free World countries: The US, France, Germany, the UK and Japan (in that order of magnitude). Although the US aid effort is tending to level out, the Western European and Japanese efforts are increasing and now constitute almost half of total DAC aid.

We should continue to encourage further increases and reduce our aid correspondingly where this is possible. We must exert what influence we can on the distribution of aid extended by others so as to relieve or complement ours and assure maximum returns. We will be limited, however, in our ability to so influence others and must not press so far as to discourage their efforts or disrupt the existing generally satisfactory DAC procedures. Germany and Japan, which are increasing their aid on the largest scale, are trending toward distributing their aid widely for commercial reasons, just as our aid has in the past been widely distributed for a variety of reasons deemed to be in the national interest.

3. Except in Africa, the trend of aid in recipient countries is away from predominance by one donor country or metropole. Even if we wished to, we are doubtless powerless to reverse this trend. The remaining dominant “spheres of foreign aid responsibilities” among the donor nations appear to be relatively fixed for the foreseeable future. No donor nation is seeking or would appear willing to accept new “spheres of responsibility” or to relieve others of dominant aid responsibilities. It is therefore difficult to foresee how major aid responsibilities which the US now carries can be shifted to other donor countries or groupings in any significant magnitude, although this conclusion may be subject to reexamination as the EEC prospers and Continental Europe integrates politically.

4. Bilateral aid has proven to be a valuable instrumentality of US diplomacy and a primary leverage in influencing countries toward cooperative activities and sound development programs. Although we must encourage others to share our burden, we must take care to assure that this does not result in undue sacrifice in effectiveness or dilute the advantages of our bilateral approaches. There are also advantages to our continuing small US aid presences and programs in areas, such as the former colonial areas, since modest diffusions of aid in these areas make it easier politically for the recipient country to continue to accept aid under self-help criteria from a dominant donor. Similarly, multinational mechanisms may for the same reason assist us in pressing our objectives in areas of primary US aid responsibility, i.e., Latin America.

5. Regionalism among recipient countries can probably be accelerated more by diffusion of aid than by its concentration, whether from one or multiple sources, on an individual country. The position of a dominant donor in a particular country tends to isolate it from others in the region which receive less aid from the dominant donor.

6. Only the US is adversely affected through probable increased administrative costs involved in aid proliferation, although even in our case this can be minimized through regional missions, as is now done in Africa. Aid given by other donor countries normally does not entail costly aid missions.

7. A widely diffused US aid pattern probably serves broad US long range objectives of creating a “community of free nations” more effectively than would concentration on key countries. A persuasive case can be made for broader proliferation by other donor nations and an aid presence by donors in any country where there is a natural or potential basis for ties of an enduring and beneficial character, the sum total of which build toward greater interdependence among a community of free nations. The search for new markets and sources of raw materials, as well as political and strategic considerations, lead naturally to diffusion rather than concentration of aid.

8. The trend and emphasis of DAC aid will in the future undoubtedly be in the direction of wider distribution rather than concentration on exclusive or dominant spheres of influence. The consortium is a useful way of promoting such diffusion. Insofar as the consortium results in a group of donors’ exerting leverages for better planning and developmental continuity, this mechanism provides some of the advantages of a dominant donor and none of the disadvantages. Further, through the consortium approach, small nations with specializations (i.e., Norway, fishing; Netherlands, flood control) can weld what might otherwise be scattered bilateral approaches into the continuum of a coordinated development program.

9. In future US studies of diffusion vs. concentration or “spheres of aid influence”, it is believed the point of departure should be to preserve the advantages of a wide distribution of aid through smaller and more efficient programs and missions (or regional missions) rather than to proceed on an assumption that US interests will be served by sharply curtailing existing US aid presences, thereby leaving vacuums for others (including the Bloc) to fill.

10. In actuality, there exists a purposeful concentration of DAC (including US) aid in that somewhat more than 70 percent of the total is disbursed to some 20 countries and areas (see pp. 7-8). The problem of aid diffusion is therefore narrowed to somewhat less than 30 percent of all DAC contributions and the problem of its effectiveness revolves not on the question of the desirability of aid proliferation but on whether the pattern of aid diffusion effected by donor countries advances national interests sought to be advanced through aid programs, large or small.

[Here follows extensive analysis of two major subjects: I. The Aid Effort of DAC Countries, and II. The Recipient Countries (Areas).]

0. Source: Department of State, Central Files,AID 1. Confidential. The source text, which was also addressed to Under Secretary Ball, was transmitted through S/S. A handwritten notation reads: “Secretary saw.”
1. No record of this staff meeting has been found.
2. Secretary Rusk initialed on the “Approve” line and drew an arrow to recommendation 6. Attached to the source text is a March 24 note from P.W. Kriebel (S/S-S) to U. Alexis Johnson, indicating that McGhee had asked the Secretary to call a meeting of “interested Department officers” on March 25 at 5 p.m. to discuss the question of diffusion vs. concentration of AID programs. The meeting, which took place in the Department of State on March 25 beginning at 5:13 p.m., was attended by McGhee, Johnson, and officers from INR, AF, and AID. Although not included on the attendance list, Secretary Rusk presumably also attended. (Johnson Library, Rusk Appointment Books) No further record of this meeting has been found.