105. Memorandum From the Administrator of the Agency for International Development (Bell) to the Executive Staff of the Agency for International Development1
- Visit to Paris, Bonn and London, February 21–27, 1965
Several aspects of this trip impressed me and seem to me worthy of our joint attention. The major donor countries—France, Germany and Britain—are quite plainly committed to development aid over a period of years. In each the atmosphere was one of increasing, not decreasing, commitment. Each looks forward in varying degrees to future increases in amounts of aid. The U.K. and to a lesser extent Germany anticipate further liberalization of terms. There is agreement particularly in France and Germany on the need to emphasize better self-help performance.
Both Germany and the U.K. desire to move ahead with much closer bilateral coordination with us. In addition, France, Germany, and the [Page 297] U.K. agree on the desirability of strengthening multilateral coordination through support for 5 or 6 new IBRD consultative groups, and through more effective informal Big Four leadership in the DAC. Our proposals for improving DAC performance in (1) assembling and assessing data, (2) developing aid doctrine, and (3) monitoring its application to specific LDC’s were well received. There was support for a DAC ministerial meeting this July to agree on certain measures to help anticipate LDC debt crises, to discuss experience in debt consolidation and rescheduling, and to consider how to promote better self-help performance.
In sum, I had the impression that we have a number of opportunities to achieve closer partnership with the other major donors, who as a result of change of government and operating experience now increasingly share our views on the desirable aims, means, and policies of aid programs.
Officials of all three governments expect increases in aid over the next several years. In France, Andre DeLattre, Director of External Finance, Finance Ministry, was projecting a small increase up to $1.4 billion in public and private resource flows to LDC’s (a return to the 1961 level) as part of the balance of payments plan for 1966–1970.2 He foresaw a sizeable shift in aid toward non-franc zone countries. Minister of Cooperation Triboulet forecast a maintenance of present aid levels for French-speaking tropical Africa, with a continuing shift from budget support toward development aid.3
German officials, embarrassed by the low 1965 capital aid budget of DM 600 million, were generally confident that the Chancellor would increase aid levels after the fall elections. The Budget Director of the Finance Ministry suggested the possibility of at least DM 1,000 million next year (although he was unclear whether that amount included technical assistance—DM 204 million in 1965). Other FRG officials said the recent problems with aid to the UAR and Tanzania had resulted in some Cabinet members (including the Chancellor) placing an increased value on aid to LDC’s, and thought the aid budget next year might be doubled. FRG officials said that disbursements would rise in both 1965 and 1966, and after a dip reflecting the 1965 budget, continue upward thereafter. They hoped future aid authority would bring public and private resource flows to about the UNCTAD target of 1 percent of national income.[Page 298]
Mrs. Castle, Minister of Overseas Development in Britain, foresaw a small rise in aid within a new U.K. 5-year plan, with the ultimate aim to reach 1 percent of GNP excluding private capital. Apart from current balance of payments pressures and normal budgetary competition, the U.K. Treasury saw no obstacle in future increases in aid. ODM will discuss future aid levels in a White Paper to be published in June.
Concern was widespread that the U.S. was cutting back its aid effort. Officials expressed their relief when I explained the President’s A.I.D. legislative strategy and the fact that total U.S. assistance is not declining.
The Role of DAC
I found general acceptance, enthusiastic in Bonn, for the U.S. proposal for the longer term role of DAC (Attachment). The three main DAC tasks we proposed are these: (1) assemble more complete and accurate data on matters of importance to development and assess collectively the policy significance of these data, (2) develop a realistic body of principles and doctrine to guide aid efforts, (3) facilitate the application of such principles and doctrine in the conduct of aid programs for individual developing countries. German officials were particularly interested in U.S. experience in negotiating bilateral aid agreements providing for specific quantitative standards for self-help performance, and agreed this was an important area for DAC to work in. They had throught such self-help promotion possible only under multilateral sponsorship. All three governments strongly supported country meetings in DAC (supplementing IBRD consultative groups), which would examine LDC problems and aid requirements and attempt to work out common donor views on appropriate self-help performance measures and donor aid responses.
The French, Germans, and British as well as Chairman Thorp welcomed the idea of increased Big Four cooperation and leadership in DAC on an informal basis. It was agreed that this leadership should be flexible, and other countries could be included as appropriate on particular matters.
IBRD Consultative Groups
Before my arrival, World Bank officials had discussed with each government the Bank’s proposal to establish 5 or 6 new consultative groups over the next 18 months. I expressed U.S. support for such groups, noting our few differences in country priorities, and found support in principle in each capital. Consideration of particular countries was just getting underway. All three governments wanted Big Four consultation on countries before final agreement with the Bank. Germany strongly concurred that the Bank should be urged to improve its efforts at encouraging self-help performance. The British were anxious that the Bank present such groups in a way that would avoid giving LDC’s the [Page 299] impression they were being disciplined as “naughty boys.” The British also urged close IBRD and donor country consultation with the UN Special Fund and the EPTA regarding technical assistance to consultative group countries.
DAC Targets for the July High Level Meeting
The Germans were in full accord with all of the following proposals. The British and French were less explicit, but supported them too. (1) The DAC Working Party on Aid Requirements should prepare for discussion at the High Level Meeting a paper analyzing how the IBRD and A.I.D. have in practice related aid to self-help performance in individual countries and a proposed resolution on relating aid to self-help performance. (2) The Working Party on Financial Aspects of Development should prepare an analysis of experience to date with debt consolidation and rescheduling practices and how they might better be related to development aid programs and performance standards, (3) The DAC should reach agreement on an integrated DAC-IBRD reporting system on credits going to LDC’s. The OECD Secretariat and the Bank staff are well advanced on the specific details, (4) DAC should establish an “early warning system” to help anticipate LDC debt crises well before rescheduling becomes necessary.
German officials also agreed on the importance of more liberal aid terms although they were disinclined to establish quantitative DAC targets. They thought Germany could make wider use of official loans at 25 years, 3 percent, and 7 years’ grace after the election when the development lending budget would be increased. For this year supplementary aid funds would have to be raised on the capital market and lent to LDC’s at hard terms to maintain FRG aid levels. During the visit, however, the Cabinet approved the first interest rate subsidy on such a hard credit for Morocco, offering the prospect of greater flexibility this year.
In the U.K., Minister Castle was greatly concerned about future political problems that “aid” on commercial terms in generating. She placed high priority on liberalizing terms, advocated a spectrum from IDA terms on down, and promised a U.K. liberalization to be announced in the spring, if possible in time for the U.S. Senate aid hearings. She planned ODM consultations with Germany on this question with the implied hope of inducing changes there.
FRG Economic Cooperation Minister Scheel and I felt that the DAC High Level Meeting in July should be a Ministerial meeting and agreed to attend. U.K. Minister Castle said she would also try to attend.
Full agreement was reached in Bonn and London on closer bilateral aid cooperation. In each case it was seen in part as a means for improving multilateral coordination in DAC and elsewhere. The Germans in particular, [Page 300] who have regular bilateral consultation with the French, stressed the importance of not undermining DAC.
Scheel agreed on a second US–FRG ministerial meeting in Washington next fall after the German elections and regularly thereafter every 9–12 months, alternating capitals. Increased senior staff visits to Bonn and Washington on country and functional problems, continued close Embassy relations in Bonn, exchange of information including classified data, and better field coordination were agreed on. Embassy Bonn and the FRG will jointly prepare a proposed schedule on follow-up staff meetings and a draft instruction to the field on coordination.
The understanding with the U.K. on bilateral cooperation was less explicit, but implied the same degree of cooperation, visits, information exchange, and field coordination.
Other General and Country Problems
Following are a number of problems that were discussed, some of them in connection with bilateral cooperation or other topics above:
Turkey. Keiser of the FRG Economics Ministry requested a U.S. concession to agree to rolling over $2 million of Turkish debt in order to provide Turkey with cash on a comparable basis to U.K., FRG, and French action. He hoped for the U. S. decision in time for the March 3–4 meeting of the Consortium.
Afghanistan. Germany regards Afghanistan as an urgent matter for US–FRG discussion. Credit repayments in kind to Russia are now 60 percent of Afghan export earnings. GOA has required FRG B/P aid which FRG cannot provide. Germany regards the Afghan difficulty as temporary in view of prospective oil and gas earnings and considers the Government’s current performance responsible. Germany has told Russia it must participate in any debt relief provided Afghanistan. Germany agreed with the GOA to discuss the situation with the U.S. and in DAC.
Chile. FRG officials urged that Chile, together with possible other Latin American countries, be the subject for the first follow-up staff level bilateral US–FRG meeting. They said Chile, along with India, Pakistan, and Turkey, was one of Germany’s main countries of concentration. In 1965 DM 40 million in lending authority is planned for Chile. The Germans were particularly anxious to discuss our experience and join with us in detailed self-help performance negotiations.
India, Pakistan, Keban Dam. The Germans desire to hold consultations with the U. S. prior to the IBRD consortia meetings and the Bank meeting on the Keban Dam. They agree on the need to urge the Bank to press more effectively for Indian self-help performance.
UAR . The FRG asked for discussions in normal channels before the U.S. makes any decision on resuming deliveries of PL 480 commodities to the UAR.[Page 301]
Korea. German officials favored a consultative group for Korea following a Japan-Korea settlement if Japan joined the group.
High Commission Territories. The U.K. expressed hope that the U.S. would consider joining Britain in aiding these territories. Minister Castle felt that as in British Guinea economic improvements can help settle political problems. I agreed to examine the question.
East Africa. Minister Castle agreed on shifting the East Africa consultative group from DAC to IBRD auspices. The OECD Secretariat said that a June DAC meeting was necessary to keep faith with East Africa and agreed that meeting could provide a transition to IBRD sponsorship.
Malawi. The U.K. is sending an economic mission to Malawi in June. Sir Andrew Cohen favored bilateral talks on Malawi over a DAC discussion at this time.
U.S. Pledge to the UN Special Fund and EPTA . The British in noting their increase of 17–1/2 percent in this year’s pledge to the two UN programs said that a U.S. pledge is urgently needed.
Merger of UNSF and EPTA; Africa Development Bank. The FRG would like to discuss these questions bilaterally at a later date.
Population and Family Planning. Minister Castle places a high priority on this topic and would like to arrange discussions and exchange of information as soon as possible.
Public Affairs. I agreed with FRG officials on the desirability of a Washington meeting of U.S. and FRG public affairs experts on means for increasing public support for aid.
Aid Tying. German Economics Minister Schmucker reported growing pressure to increase the extent of aid tying. (Schmucker described himself as the “last bastion” fighting for untied aid in the FRG, saying even the Economic Cooperation Ministry favored tying. I encouraged him to fight on and, in view of the strong German balance of payments position, to provide leadership on this issue.
Two Topics Needing Further Study. Discussion in Bonn revealed agreement on the inadequacy of existing analysis and understanding of: (a) the use and control of local currency windfalls that accrue to host governments as a result of loans extended under the two-step procedure. I agreed to inquire about the Bank’s thinking on this matter. (b) The relationship of export credits to LDC indebtedness and the need for a framework of analysis for this problem.[Page 302]
- Source: Washington National Records Center, RG 286, DAC Material: FRC 70 A 5922, Trip—Administrator David Bell, Paris, Bonn, London, February 21–27, 1965. Confidential. Drafted by Richard Palmer (AID/PC). Both the memorandum and its attachment are attached to Document 106. Two other attachments, an undated paper prepared in EUR/GER, “U.S. Proposal for Closer Bilateral Aid Relationships with the Federal Republic,” and a February 25 U.S.-German joint press communique issued at Bonn, are not printed. Regarding Bell’s trip, see Document 104.↩
- A memorandum of Bell’s conversation with de Lattre, February 23, is in the Washington National Records Center, RG 286, DAC Material: FRC 70 A 5922, Trip—Administrator David Bell, Paris, Bonn, London, February 21–27, 1965.↩
- This February 23 conversation was summarized in A–1938 from Paris, March 3. (Department of State, Central Files, POL 3 CCAM)↩
- Limited Official Use. No drafting information appears on the source text.↩