196. Letter From the Managing Director of the U.N. Special Fund (Hoffman) to Secretary of State Rusk 0
Dear Mr. Secretary, Since President Kennedy, in his eloquent address at the United Nations, proclaimed the decade of the 1960s as “The United Nations Development Decade”, an effort has been underway at the United Nations to intensify substantially and speedily its activities in the economic and social fields. Acting Secretary-General U Thant has assumed personal leadership. He has strengthened the Economic Policy Board to assure effective coordination of development activities within the Secretariat. He has sought and obtained assurances of full cooperation from the Specialized Agencies.
The Secretary-General has placed on me primary responsibility for obtaining the necessary financial support for an expanded pre-investment programme. The needs for 1963 can be stated very simply. For 1962 we have contributions and pledges for the Special Fund and the Expanded Programme of Technical Assistance of approximately $100 million. For 1963 we must have $150 million. The minimum requirement of the Expanded Programme is $50 million; of the Special Fund $100 million. This I am prepared to document if desired.
I am reasonably confident that the target figure of $150 million can be reached provided the United States contributes the $60 million it has conditionally pledged. The condition is, of course, that $90 million be obtained from other sources. There is no question in my mind that $90 million can be obtained from other sources—that is not the problem. The [Page 437] problem is securing from the United States Government a sensible administrative decision as to which contributions from other sources, particularly recipient Governments, can be counted for matching purposes.
Five types of contributions are made by the recipient Governments. Each of these is a crucial contribution to development, representing the mobilization of scarce material resources by the low-income countries themselves for the success of vital projects. Here are the five types of contributions:
a) Voluntary contributions to Special Fund gross resources, centrally collected and audited.
(matched by the US Government)
b) Local operating costs, amounting to 15% of expert costs—centrally collected and audited and merged with gross resources to form an unidentified part of Governing Council allocations, which are administered by the Executing Agency.
(matched by the US Government)
c) Cash counterpart contributions, centrally collected and audited and merged with gross resources to form an unidentified part of Governing Council allocations, which are administered by the Executing Agency.
(not matched by the US Government)
d) Cash counterpart contributions which are administered by the Government or jointly with the Executing Agency but are not processed through the Special Fund accounts and are not merged with gross Special Fund resources.
(not matched by the US Government)
e) Counterpart contributions in kind, consisting of services, facilities and plant provided by the recipient Government as an integral part of the project, appraised and evaluated by the Special Fund.
(not matched by the US Government)
The question as to which of the three forms—((c) through (e) above)—the counterpart financial contribution will take is decided by the Special Fund entirely on the basis of operational considerations. So far as the Governments are concerned the costs are the same, whether the contribution is in cash paid over to the Fund, in cash controlled by the Government, or in the form of services or physical facilities, and the cost is in all cases determined and specified in the contract (plan of operations) with the Government.
[Page 438]The distinction presently made by the US Government in determining which type of contribution it will consider in making its matching voluntary payments to the Special Fund, based on the form in which the contribution is made, is arbitrary and appears to be illogical. The legislation authorizes matching of local costs payments, and all counterpart provisions are of course made in respect of local currency costs. A question might arise concerning the evaluation or appraisal of counterpart turned over in kind to the project, though, if desired a detailed and impartial appraisal of the value of such contributions could easily be arranged. There can be no question concerning the amounts of cash which have been made available by the Government, as these are a matter of accounting record.
It is especially difficult to follow the distinction made by the United States Government between local operating costs (15% of experts’ costs) paid by the recipient Government, which are matched, and other counterpart cash paid over to and administered by the Special Fund. Both are paid in respect of local costs; both are centrally collected and audited, and thus meet the requirement in the fine print of the legislation; both are taken into the gross resources of the Fund, form part of the earmarking from the Governing Council and their disbursement is completely controlled by the Fund. There is, in short, no distinction between the way in which these two forms of counterpart cash are handled by the Fund.
Acceptance by the United States Government of one form of counterpart cash payment for matching at the exclusion of other forms gives rise to a number of anomalies, some of which are listed below:
- —Governments are required to make two cash counterpart payments instead of one: the first amounting to 15% of expert programme costs (in order to obtain US matching); the second to cover the balance of counterpart obligation as determined by the Fund. This requirement is not understood by the Government, and makes for double bookkeeping locally and at headquarters. Cash payments, when received, have to be identified as to category, which further complicates the matter.
- —Certain projects do not have an expert component per se, or the expert component is in the form of consulting contractors, so that the expert component can only with difficulty be identified. Nevertheless, in order to obtain US matching, the Fund has attempted to make these determinations.
- —Projects executed by the IBRD normally and for good reason involve contracts between the Government and the consulting firm direct, under which the IBRD uses Special Fund financing to reimburse the Government (as a maximum) for that portion of the total contract cost which was in foreign exchange. All local currency costs are paid to the firm by the Government from its own resources. In order to obtain the US [Page 439] matching payments the Special Fund was for a time attempting to identify expert programme costs, assess the government 15% for local costs, receive the money from the Government, pay it to the IBRD, which would then use it to reimburse the Government for a portion of the local costs it was paying the firm. This is the reductio ad absurdum of the whole arrangement, and the Fund has given it up, and foregone the US matching payments in such cases.
Governments cannot understand why their counterpart payments must be subdivided; there is no difference in treatment of the two payments by the Fund; there is no difference in their value either to the Government or to the Fund, except that the United States Government had decided to match one and not the other.
In your consideration of how these contributions by recipient Governments should be classified for matching purposes may I suggest that there are two additional and very important issues involved in your decision—first, obtaining the maximum amount of development possible from the dollars invested by the United States and second, strengthening the United Nations. Proof that more development can be obtained per dollar by channelling, as far as possible, aid through the United Nations rests in a very simple set of figures. The Governing Council of the United Nations Special Fund to date has approved 205 projects calling for total expenditures of $415 million. The United States contribution to these projects is approximately $70 million, or less than 17 per cent. The fact that the United Nations will be strengthened by increasing its capacity to assist the less-developed countries in speeding their development is obvious. It has shown up in votes in the United Nations time and again when efforts have been made either to weaken or destroy the United Nations.
In closing may I say that we at the United Nations are eager to make a reality of the United Nations Development Decade, further that we want to get started now, and finally, that we are very much in need of your help.
Sincerely yours,
- Source: Department of State, Central Files, 398.051/3-162. No classification marking. Attached to the source text is a March 2 note from Swank to Cleveland, indicating that this letter was left with the Secretary by Hoffman during the latter’s call on March 2. Secretary Rusk met with Hoffman and Deputy Assistant Secretary of State for International Organization Affairs Gardner on March 2 from 2:56 to 3:28 p.m., but no record of their conversation has been found. (Johnson Library, Rusk Appointment Books)↩