Foreign Relations of the United States, 1964–1968, Volume IX, International Development and Economic Defense Policy; Commodities

110. Airgram From the Mission to the Organization for Economic Cooperation and Development to the Department of State¹

CEDTO A–88

Paris, August 3, 1965.

SUBJECT

• DAC High Level Meeting

REF

• CEDTO 91²

ADCOR. See Attached Table of Contents for Country References.³

I. Summary

1. The fourth annual High Level Meeting of the DAC was held in Paris on July 22–23. The meeting was a significant improvement over past years, as judged by the level of representation, the quality of the discussion, the specific actions taken, the concern voiced on the need for additional efforts and the focus on DAC’s future work. The U.S. Delegation was headed by AID Administrator Bell. Other delegates included five Ministers from important DAC countries (U.K., Germany, France, Japan and the Netherlands) and the President of the IBRD.

2. Most speakers stressed the usefulness of DAC’s work, and, perhaps more significantly, several emphasized with deep conviction that the current aggregate aid level to LDCs is inadequate and that urgent action to provide more assistance on easier terms is required. President Woods of the IBRD stressed this theme pointedly in reporting that Bank studies had revealed that LDCs can usefully absorb annually, between now and 1970, $3 to $4 billion of external resources beyond what they are presently receiving.

3. The meeting’s major concrete achievements were to approve two important policy documents drawn up by the DAC in its working party sessions: 1) terms of aid recommendations providing specific numerical targets for softening aid terms over the next three years;⁴ and 2) supply and performance recommendations reaffirming member countries’ intentions to attain and, if possible, exceed the UNCTAD target of one per cent of national income; and, for the first time, accepting principles aimed at relating assistance to LDCs’ performance.⁵

4. The future work program of the DAC was also discussed, with the U.S. and U.K. taking the lead in offering suggestions for new initiatives. U.S. items included proposed studies of absorptive capacity, under-utilized capacity, and relations between aid programs and economic development in selected aid-receiving countries, as well as the examination of new areas such as agricultural development, private investment and population growth. The U.K. recommended a study of the impact on debt burden of commercial credits, and a search for means of improving public understanding and support of aid. It was agreed that a detailed work program would be formulated by the DAC in the early fall, and that this program should reflect a careful selection of priorities.

II. Chairman’s Report and General Policy Discussion

1. Thorp opened the meeting with a balance sheet of comments relating to the Chairman’s Report.⁶ He noted that the 1965 economic outlook for LDCs was less favorable than for 1964 and the possibility of further decline in the growth rate; he stressed the need to continue the activities of the DAC working parties which are considering problems of requirements, performance, debt, terms, export credits and the avoidance of debt crises. He noted the heavy workload of the Secretariat and Delegations in recent months and the need for reviewing activities and setting priorities at the fall meeting on the work program. He noted that DAC had done more on policy than on specific country applications, and suggested more experimentation on a systematic schedule of country meetings. He noted the establishment of a working party on private investment, the need for a recommendation on this subject for UNCTAD, and the need for better knowledge about private flows.

2. Secretary General Kristensen repeated his 1962 statement that development aid should be a regular and permanent activity of members and not be victim of balance of payments or other economic fluctuations. He noted some improvement in this regard, but some failures also, pointing out there had been no aid increase in four years, even in money terms. Expressing OECD interest in DAC’s work, he invited Thorp to make a presentation on DAC’s work to the OECD Council next week and next fall.

3. All Heads of Delegations except the Portuguese followed with policy statements which included a number of positive, forthright and important remarks which in the opinion of many observers who have followed the operation of the DAC over a period of years constituted a high point in awareness of member governments of the need for further action in the aid field. Aside from several constructive interventions by Mr. Bell, the most noteworthy of these statements were made by President Woods of the World Bank, Overseas Development Minister Castle of the U.K., Aid Minister Bot of the Netherlands, and Finance Minister Giscard d’Estaing of France. German Economic Cooperation Minister Scheel made a relatively cautious and less positive statement. Other representatives offered routine comments, praising the Chairman’s report and endorsing the work of the DAC in general terms.

4. FRG’s Scheel was somewhat ambivalent, offsetting praise of DAC’s work with criticism that political objectives of coordination did not always receive adequate attention. He stressed that aid is limited and should go mainly to LDCs which are mobilizing their own resources and are prepared to take appropriate political measures. He felt that it was possible to overemphasize financial assistance, noting that there was also acute need for expert personnel. Noting debt as a shadow over development, he said that soft terms are only a partial solution; members should support projects that produce quick increases in GNP and exports. Recognizing the continuing major role of official aid, he urged DAC consideration of more incentives to private enterprise. Scheel cited two important fields: 1) agriculture in the light of rising populations; he warned against identifying development with industrialization and advised balanced development to avoid abrupt changes in social structure; 2) research and evaluation of the effectiveness of aid; here he urged close DAC cooperation with the Development Centre.

5. Japanese Foreign Minister Shiina was quite defensive, saying Japan would improve its aid effort as capabilities permit, and continue aid in collaboration with other DAC members. He said further discussion was needed on a standard target for terms. He referred to the U.S.-Japan understanding of the need for aid to Asia, and pleaded for participation of other DAC members in the Asian Development Bank and in Southeast Asian proposals of the United States.

6. Netherlands Aid Minister Bot mentioned as indicators of serious intent of the Dutch Government in the aid field his own recently established Cabinet post, rising 1965 and 1966 GON aid budgets, and the decision to lower interest rates through subsidies. Noting that Stevenson, Castle, and Thant didn’t mince words on the plight of the LDCs, Bot suggested that the tone of the Chairman’s Report was overly detached and philosophical, insufficiently inspired by the urgency of the problem. He praised the Report’s emphasis on the need for better relations between members and LDCs, proposed education and science as new areas for DAC attention, and suggested that use be made of OECD experience in channeling technology. He advocated better use of existing international aid machinery, including the UN Industrial Center, the Special Fund, and UN Regional Representatives; suggested that in the OECD the Secretary General, Chairman and Delegations consider how to break down “watertight compartments” and interrelate aid, trade and economic policy efforts bearing on development.

7. IBRD President Woods warned that “unless bold decisions on the volume of aid are taken soon, the climate of development will worsen rapidly.” Citing the gap between what DAC says and what it does, he predicted “a heartbreaking slowdown of development, and even trade, if the gap is not closed.”⁷ He noted the plateau of DAC net official aid since 1961, in spite of an annual rise of $40 billion in GNP; asserted that the capacity of LDCs to absorb aid is steadily rising as skills and experience increase and that it will continue to rise. In his judgment, current net aid and private resource flow are wholly inadequate in terms of what the LDCs have demonstrated they can use and what the donors can give. To facilitate long-term planning, he urged donors to give individual LDCs advance indications on a multi-year basis of target levels of aid which would be reviewed annually against performance of the LDC. He announced plans to establish the first new consultative groups at the time of the Bank-Fund Annual Meetings and to improve consultative group operations. He commended the new U.K. zero interest rate policy. He closed his statement with a plea for greatly increased contributions to IDA replenishment, citing advantages he saw in multilateral aid (development orientation, good projects, soft terms, untied procurement, political acceptability).

8. U.K. Minister of Overseas Development Barbara Castle agreed with the theme stated in the Chairman’s Report that DAC “had reached a crucial point in the role of aid in development—a plateau in volume as though rich, developed countries had exhausted their political will and institutional capacity to mobilize resources.”⁸ She said that despite economic difficulties HMG had rejected pressures to reduce aid as “immoral and short-sighted.” She noted the importance of the centralized Ministry of Overseas Development, e.g., in developing data and spreading information to Parliament, press and the people. She was convinced of the usefulness of the DAC Annual Aid Review (“cross-examination should induce self-examination”) and urged strengthening it to compare donors’ aid practice to an international standard, to get off the plateau. She was concerned that a “go ahead” aid policy by one donor, if not followed by others, would produce trade disadvantages and domestic political problems for that country. Pointing out that the U.K. and some others in the past had given soft terms to LDCs with which they had special relations, she said that the U.K. acknowledged the need for a new start, and would offer interest-free loans to a substantial number of LDCs, using the same criteria as IDA. She warned of the political problem which would arise if comparability of terms was not achieved in general, and in individual LDCs, with U.K. interest-free loans in effect servicing hard loans of others. She pointed to the need for an agreed on and equitable policy for rescheduling debt and regulating the flow of export credit. She supported IBRD consultative groups while noting the need for improvements, and proposed that DAC examine the whole international machinery of coordination. She urged that donors establish three to five-year advance projections of aid targets, at least for major recipients, and noted that the U.K. national economic plan for the period through 1969–70, to be ready in the fall, would contain overall U.K. aid projections, and thus permit the ODM to project figures of individual LDCs.

9. AID Administrator Bell offered U.S. agreement with the Thorp-Woods analysis of the status of LDC development, noting transitional countries like Taiwan were exceptional, and that for most LDCs the prospects now are less attractive than several years ago. He agreed that as LDC absorptive capacity improves and more projects are prepared, the need for aid will rise, not fall. He said that if this assessment is correct, then DAC members’ responsibility is to give more aid on better terms with corollary LDC responsibility for better performance and mobilization of resources. Referring to members’ responsibility for advocacy of aid at home, he said it will help the U.S. to be able to report comments of the U.K., Netherlands and other Delegations. He noted that now for the first time the U.S. is able to report that there are other lenders offering terms as soft or softer. He stated the view that DAC’s work had become increasingly important and suggested that in considering the future work of the Committee, attention be given to three main fields of activity: 1) fact-finding and analysis in support of maximizing benefits, minimizing costs and fitting aid into broader economic and political context; 2) seeking to achieve common policies on both giving and receiving of aid; 3) application of policies to specific LDCs and regions, without duplication of IBRD or CIAP efforts. He suggested DAC regional reviews, different from those of the past, designed to provide an overview of development problems, flows of aid, trade patterns, with participation of the IBRD and the IMF.

10. Mr. Giscard d’Estaing, the French Minister of Finance, observed that the High Level Meeting offered an opportunity to discuss aid policy and future means of coordination among DAC donors. He emphasized that coordination is the basic objective of the DAC—coordination both of aid policies at the national level and day-to-day coordination of actual aid programs. However, consistent with the line France has always taken against DAC involvement in operational activities, he warned against confusing coordination with action.

The Finance Minister pointed out that French aid already exceeds the one per cent target set forth in the Recommendation on Supply and Performance. He noted that France is providing more than her share of the DAC’s total foreign assistance and that France’s 1964 total net flow of resources of $1,236 million is second only to the United States. He stressed that for France, an increase in the volume of aid is not an immediate objective, but that the Government is concerned with increasing the quality and efficiency of French aid. He stated that since 1964 public sector grants have stabilized at approximately $700 million, while loans are increasing, especially in the franc zone. A shift from grants to long-term loans, however, will demand more responsible action on the part of the recipient, and thus must be undertaken gradually.

He noted that although a big percentage of French aid will continue to go to Africa, the percentage of total French assistance being provided to the franc zone countries is steadily decreasing (83 per cent in 1963 to 77 per cent in 1964).

Commenting on the debt burden in LDCs which has increased threefold in less than a decade, the Finance Minister noted that this problem could be alleviated either by the softening of aid terms or by efforts by the LDCs themselves to mobilize their own resources more effectively so as to rely less on foreign borrowing. While in his view the second alternative was preferable, he conceded that a combination of both solutions would have to be employed.

Giscard d’Estaing pointed out that development assistance is only one form of aid and that the LDCs required technical assistance and the reorganization of trade, favoring the primary producing countries. This is especially important this year because of changes in world commodity prices.

Finally, he warned against dispersion of effort in too many directions, indicating that France hopes the DAC will concentrate in the future on coordination and country annual aid reviews and will leave research studies to the Development Centre and other research institutions with which the DAC has connections. He also suggested that the DAC consider undertaking a “study of studies” which would relate the activities of the various working parties and expert groups to the work of the DAC as a whole.

11. The Norwegian representative, Mr. Cappelen, emphasized the desirability of channeling aid through multilateral institutions, and suggested that future aid increases of members be provided through these channels.

12. The Italian representative, Mr. Zagari, stressed Italy’s structural economic problems, especially low per capita income, internal developing areas, status as capital importer, and inflexible budget requirements. He said harmonization of donor aid policies would be more effective if adequate account is taken of the differences among donors. He hoped that in anticipation of future UNCTAD discussions, the Working Party on Supply and Performance would consider donors’ capacity to provide aid and would propose equitable burden-sharing criteria. In his view, soft aid should be given multilaterally to avoid distortion of trade patterns. Citing the need for a planned national aid policy, he said that aid was now included in Italy’s Five-Year Plan for the first time. He regretted DAC inaction on the coordination of technical assistance.

13. The Austrian representative, Mr. Halusa, stressed the coordination aspects of the DAC and welcomed the guidelines for the coordination of technical assistance. He hoped that the guidelines will be improved and implemented in the near future. He noted that a small donor like Austria is limited in the scope of aid it can provide and therefore looks to DAC to provide basic data on opportunities for aid based on feasibility studies undertaken by larger donors or international organizations. He noted that in Austria’s view, performance is the key to development assistance effort and that more cooperation from LDCs is required. A mere increase in the volume and liberalization of terms of foreign assistance is not enough unless matched by effective measures within the LDCs themselves.

14. The Danish representative, Mr. Kastoft, expressed gratification at Sweden’s entrance into the DAC, noting that it will permit a closer cooperation in aid matters among the Scandinavian countries. In stressing the value of the Annual Aid Reviews as a self-analysis and stocktaking exercise, he noted that Denmark had been rather self-satisfied with its aid program until such terms as “distressingly low” were applied to it at the Annual Aid Review. He said that this constructive criticism has been taken seriously in Copenhagen and had focused attention on the need to improve the Danish aid effort. He predicted that by next year’s AAR, Danish aid will have increased significantly, but warned that such increases could not be expected year after year, due to limitations imposed by Danish balance of payments and other economic difficulties. He also noted the need to improve publicity and public opinion of aid, adding that he hoped to circulate the Chairman’s Report widely inside Denmark.

15. The EEC representative, Mr. van der Lee, spoke briefly, making two points: first, that the increasing debt burden is the most serious problem facing the development of most LDCs. (He noted, however, that the EEC aid program is mostly on a grant basis and thus does not aggravate the debt problem.) Secondly, he suggested that multilateral organizations should not depend only on subscriptions of member governments but should borrow more from world capital markets.

16. Speaking as an observer, the representative of the Inter-American Development Bank, Mr. Copete, noted that by 1970 Latin America will have a population of about 200 million people and therefore will require a significantly increased flow of resources from the industrialized nations.⁹ He endorsed Mr. Woods’ thesis that more assistance was needed, and on softer terms, while at the same time agreeing with Mrs. Castle’s observation that liberal use of commercial credits can dangerously increase the debt burden of LDCs.

17. The Swedish representative, Mr. Lundstrom, also expressed his Government’s concern about the growing debt burden and the leveling off of official aid. Without being specific, he indicated that the Swedish Government is prepared to contribute to the improvement, both of the quality and the quantity of its assistance, adding that the GOS prefers multilateral to bilateral channels.

18. The Belgian representative, Mr. Ockrent, indicated that the views expressed by the Netherlands, U.K. and IBRD, accurately reflected the position of the Belgian Government. With respect to the Chairman’s Report, he expressed the hope that a little more urgency would be introduced into the final version to take account of the concern expressed by many of the delegates at the High Level Meeting.

19. The Chairman, in summing up the discussion of aid policy and the Chairman’s Report, noted that the consensus called for additional aid on softer terms, increased attention to the growing debt burden of LDCs, closer working relations between donor and LDCs and constructive discussions among donors. He asked for, and received, the approval of the High Level Meeting for the publication of the Chairman’s Report.

III. Improvement of the Common Aid Effort

A. Financial Terms and Indebtedness

1. Mr. Everts, Chairman of the Working Party on Financial Aspects, reviewed the activities of the Working Party over the past year, referring to specific DAC studies (DAC 65 (15)¹⁰ and (17)).¹¹ With respect to the debt problem, he said there was a lack of detailed information on the subject, and the Working Party welcomed the cooperation between DAC and the IBRD. He said that he recognized that some members might resent the burden of providing additional information; nevertheless, questionnaires would soon be sent to the DAC members for the purpose of acquiring additional information on debt. He said it would also be necessary to do more with respect to individual countries in considering the debt problem. He looked forward to a common effort to establish criteria for terms, and felt that country studies would contribute to greater harmonization of terms. Finally, he suggested that the IBRD might be in the best position to undertake some of the necessary country studies.

Addressing himself to the future work of the Working Party, Mr. Everts said that there would be a continuation of debt analysis in cooperation with the IBRD. He said we would try to develop means of diagnosing debt service criteria and the Working Party would pursue work on debt resettlement problems. He stressed the important relationship between export credits and development loans and the need to understand more of this relationship. Also, he hoped that the Working Party could consider criteria for the most appropriate terms of development assistance for specific countries.

Mr. Everts, turning next to the recommendations on terms of aid (DAC 65 (14)),¹² said it was necessary to keep three basic points in mind: 1) The importance of harmonizing terms in individual countries. He said that the terms proposed could be supported by every country regardless of its internal economic position. If a choice had to be made between volume of aid and softer terms, the latter should be chosen in view of the over-all debt problem. 2) The general targets for lending prescribed in the Recommendation reflect several basic facts: (a) they are designed so that the bulk (80%) of all DAC lending is covered; (b) they should be at the average level of terms of all members; a procedure is prescribed in the Recommendation for yearly scrutiny or review of progress made in achieving targets. 3) The Recommendation contained language in favor of reducing and ultimately eliminating tied aid.

2. The Belgian representative, Mr. Ockrent, while supporting the Recommendation, called it “a meager instrument” to deal with the enormous problems raised in earlier discussion.

3. Mr. Bell strongly supported the Recommendation and urged its adoption. He thought that in the drafting of the several provisions of the Recommendation a fair balance had been struck and that no one could reasonably argue that the terms proposed would work a hardship on his country. He said that we intended to review our own terms again in the light of the Recommendation, and commended the British for their action in establishing a category of interest-free loans. He noted that U.S. loans had been made harder by the Congress over the opposition of the President in 1963 and 1964 and pointed out that U.S. action is limited by Congress. This action was taken primarily because of Congressional impatience with the situation in which U.S. loan terms had been so much easier than those of other donors for a long period of time. He referred to the very careful debt study which was prepared by the U.S. Government and which, he said, was useful in contributing to a better understanding of the problem. He felt confident that we could avoid any further hardening of terms and stated that our efforts on this front would be greatly assisted by our ability to point to Canadian and U.K. terms more generous than our own. Positive action by DAC assists each member in defending a policy of easier terms.

4. Minister Scheel noted that the German Government finances loans by the private sector and that very low interest required the provision of subsidies. He said that Germany is now providing project assistance to a number of LDCs. He rejected Mrs. Castle’s suggestion that other countries consider the interest-free loan policy. It was important that donors stay in line with local capital markets; otherwise, LDCs would have no understanding of the importance of loans and of the fact that it was necessary to pay for capital. Interest-free loans, he said, convey a false impression of the world capital markets. (These comments suggested that he did not fully understand the two-step procedure which he referred to later.) He said that Germany would stay within the recommended terms, giving loans at approximately 3%, but might extend maturity dates or grace periods, and would in some cases utilize divided rates (two-step loan procedure). He suggested that for harder loans, interest in excess of 3% could be paid in local currency. He reminded members that some assistance is offered on the basis of very special favored relationships with receiving countries, but that these same donors are not too generous in helping other LDCs. Germany, on the other hand, is distributing its assistance more widely. Mr. Scheel said that Germany could accept the Recommendation on terms of aid.

5. In stating the Japanese Government’s attitude toward the draft Recommendation, Foreign Minister Shiina said that while Japan recognized the requirements for aid, it feels that: 1) terms can be different because of the differing economic conditions within each donor country, and 2) the Recommendation may lead to a reduction in the volume of aid available. He said that Japan could not achieve the objectives of the Recommendation within a three-year period and added that the per capita income of the donor should be taken into account. In this connection, he noted that per capita income in Japan is $638, only about 22% of that of the U.S. and about 46% of the DAC average. He said that Japan will not stand in the way of the Recommendation and will do the best it can in adhering to the spirit of the Recommendation, but nonetheless requested that his views be duly recorded. Despite the Japanese statement, which was intentionally presented in a somewhat vague manner and did not take the form of an outright rejection, the Chairman later considered the Recommendation as having been adopted by all member countries, and the Japanese Delegation did not object.

6. The Italian spokesman agreed with the objectives of the Recommendation and said that Italy would be able to accept it. However, he echoed the Japanese view regarding the need to consider donor per capita income as well as capital availability and requested inclusion of his views in the record.

7. The Canadian representative, Mr. Towe, said that Canada could accept the Recommendation which it viewed as a careful compromise with a very clear meaning for all members present. He said there might be some danger that the LDCs would feel that the statement of targets implied a DAC view that there was no need for softer terms than those specified. Canada feels that even more generous terms are needed and that the proposed targets are indeed “cautious” steps in the light of the seriousness of the debt problem.

8. The Netherlands representative, Mr. Bot, fully endorsed the view that the Working Party should continue to explore the issues before it, and expressed particular satisfaction regarding the cooperation between the DAC and IBRD. He said he looked forward to studies of individual countries. He added the following three points:

1) He felt that the Netherlands proposal for a “neutral zone” (i.e., an area between strictly commercial credits and clearly concessionary terms in which no government loans or guaranteed credits are provided) offered a way of dealing with the problem of export credits and development aid. He requested that additional study be given to this proposal, or any other with the same objective.

2) The Netherlands Government has requested the Parliament to subsidize interest on Government loans so that receiving countries will not have to pay more than 3% interest. He said his Government accepted the Recommendation and would be able to achieve the targets.

3) He regretted that the language in the Recommendation on aid-tying (paras 15 and 16) was weak. In 1963 about 70% of aid was tied and he expects that this will be the case in 1964. He stressed the serious disadvantages of aid-tying, and expressed regret that there was a deadlock on this issue which could not be dealt with at this time.

9. The Portuguese representative said he shared the reservations expressed by Italy, but said he could approve the Recommendation.

10. The Swedish delegate said that his government would work hard with others in coping with the debt problem. He said that 75–80% of Sweden’s assistance is in grant form, and that loan policies provide for 20 years, a grace period is five years, and interest is as low as 2%. He advocated more multilateral assistance as the best solution of the problem of softer and comparable terms, and endorsed the views of the Netherlands representative on the disadvantages of aid-tying. More concrete action is needed on this problem, he said, but no country can untie aid alone; action must be taken by all.

11. The French Finance Minister, Mr. Giscard d’Estaing, said that France was able to endorse the Recommendation because, in his view, it helped to meet the serious debt problem. He made two points:

1) The softening of credit terms is a palliative and not a cure for the growing debt burden. He said that the third world must better mobilize its own resources by internal measures such as tax reform, etc., to slow down the flight of capital to advanced countries.

2) He said that France viewed aid-tying as “perfectly acceptable” and that it should not be condemned. By this means, aid is made more palatable to public opinion and its volume increased. In the French view, the basic aid problem at present is not one of finance but rather of technical assistance. When a project has been adequately studied, there is no great problem in finding lenders to support it. As a matter of fact, he said, often there is severe competition among lenders, providing LDCs with a choice.

On aid-tying, he said the French system appropriately reflected the long cultural and other connections which France has with a number of LDCs, and they had no intention of abandoning it.

12. The Chairman, in summing up this item of the Agenda, said that the meeting accepted the report of the Working Party, and the draft recommendations. The report provides guidelines for future work of the Working Party. The recommendations will go to governments which, he hoped, would take concrete actions to put them into effect; it was important that the gap between words and action be narrowed.

B. Assistance Requirements and Development Performance

1. Mr. Thorp, as Acting Chairman of the Working Party on Requirements and Performance, reported on its general conclusions: that LDCs can effectively use more assistance and that requirements for foreign assistance are directly related to LDC performance. He described the study undertaken by an expert group on the uses of analytical tools in evaluating development and the examination of bottlenecks in the supply of aid.

2. The Canadian delegate, Mr. Towe, offered Canada’s support for the Recommendation on requirements and performance, although he observed that the language on requirements and volume was weaker than Canada would have liked. He noted, moreover, that in reaffirming the commitment to attain the UNCTAD target of 1% of national income, no mention was made of the special position of countries which are still net importers of capital, and asked that the Recommendation be amended to take account of this provision of the UNCTAD Resolution.

3. Speaking for the United States, Mr. Bell accepted the Recommendation, noting the importance of the relationship between performance and requirements. First, donors cannot justify to their own people or parliaments aid to countries which are not making effective use of their own resources and which are not taking reasonable self-help measures. Secondly, aid, in order to be effective, must be a partnership involving effort on the part of the recipient as well as the donor. The U.S. makes close studies of performance and gives aid to some countries only after a quarterly review of the performance of those countries. In this instance, performance is a key factor in determining aid level. With reference to Mr. Woods’ statement that LDCs require massive additional aid, Mr. Bell agreed that the target of 1% called for in the Recommendation is certainly far short of what is ultimately needed. He suggested that the Working Party undertake further studies in this area, drawing upon work being done by the World Bank, the Development Centre, and by member governments.

Specifically, Mr. Bell suggested four topics for study: 1) the relationship between aid programs and economic development in selected countries receiving aid over a period of ten years; (the U.S. has undertaken such a study in Taiwan); 2) continuation of the work already begun by the Working Party, using particular LDCs as care studies to determine aid requirements by employing modern analytical techniques currently used by some member governments; 3) an examination of absorptive capacity in specific LDCs, including a study of action which can be taken to increase the number of well-prepared projects; 4) a study of unused or underutilized economic capacity, e.g., India and Pakistan, and its implication on the kinds and amounts of aid needed.

In developing point (2) above, Mr. Bell said that he preferred the expression “modern analytical techniques” to “econometrics” to describe the techniques which had been studied by the Experts Group. He felt that those who referred to “econometrics” were possibly implying that there was something recondite about the procedures. As a matter of fact, all that was involved was an effort to apply to the developing countries techniques which were employed as a matter of course by Ministries of Finance or bodies engaged in economic forecasting in any of the developed countries—an attempt, in short, to apply the most efficient tools available to the task at hand.

4. Mrs. Castle expressed agreement with an earlier French statement that research is not basically a DAC function. However, she agreed that the work outlined by Mr. Bell would be most useful and should be undertaken—though not necessarily by the DAC itself. She favored placing additional emphasis on performance and indicated plans to expand U.K. technical assistance to help LDCs raise their level of performance.

With respect to the treatment of specific LDCs, Mrs. Castle observed that the DAC should not consider itself a perpetual consultative group on all LDCs not covered by other organizations.

She offered U.K. support for the Recommendation, while acknowledging that the 1% target should not be considered a final goal, and urging that members do their best to exceed it.

5. The German representative expressed agreement with the U.S. point about linking requirements and performance closely together. He also accepted Mr. Bell’s four proposals for action in this area. In this connection he said that DAC’s mandate should not be too restrictive, but, on the other hand, he had no objection to the suggestions made earlier by France and the U.K. that research projects should be undertaken outside the DAC.

He also expressed the view that multilateral organizations, especially the IBRD, because of their objectivity and relative freedom from political considerations, could be more effective than bilateral programs in stimulating improved performance in LDCs.

He stated German endorsement of the Recommendation, but suggested that in order to strengthen it, paragraphs 4 to 20 of the Annex to the Working Party’s Report (DAC 65 (20)),¹³ the illustrative list of development criteria developed by the Working Party, might be attached.

6. The Austrian representative enthusiastically supported the Recommendation on requirements and performance, adding that he considered it a vital element of DAC’s work. He suggested that the experience and evaluation undertaken by big donors be made available to small donors through the DAC, if this could be done in such a way as to avoid the notion among LDCs of a “blacklist” kept by the DAC.

7. Speaking for the IBRD, Mr. Woods expressed agreement with Austria’s suggestion, adding that the sharing of experiences is an important characteristic of consortia and consultative groups. In this connection, he indicated that the IBRD is generally satisfied with existing consortia, but has no plan to add to their number. However, the Bank is not satisfied with current arrangements for consultative groups, and hopes continuously to improve them; he said plans are now under way to create consultative groups for a number of additional countries. Mr. Woods offered the Bank’s full cooperation with DAC in the matter of country studies, and indicated that further questionnaires are needed to obtain adequate data on debt burdens of the LDCs.

The Chairman noted the proposals for amendments to the Recommendation offered by the Canadian and German delegates: first, Canada’s request that qualifying provisions of the UNCTAD Resolution, specifically that relating to the special position of net importers of capital, be included in the quoted excerpts from the Resolution in paragraph 3. After brief discussion, it was agreed to resolve this point by deleting the specific quotation from the UNCTAD Resolution and substituting instead a brief reference to “the UNCTAD Resolution referred to above”. Second, the German delegate’s request that paragraphs 14 to 20 of the Annex to DAC (65)20 be incorporated in the Recommendation. The Chairman felt that the checklist provided in these paragraphs was too general to be incorporated in the Recommendation, and noted that the German delegate’s point would perhaps be met in any event if the Report of the Working Party were published. A special group will look into the feasibility of publishing certain important DAC documents, including the WP report, next fall.

C. Coordination

1. Working Party on UNCTAD Issues

The Chairman of the Working Party, Mr. Elson, gave a relatively brief, low-keyed oral statement which in effect was a commentary in supplement of his written summary report circulated as a part of the documents of the meeting (DAC 65 (23)).¹⁴ Mr. Elson noted that, whereas coordination among the Western Group on UNCTAD issues is and will continue to be required, effort of the DAC Working Group to this end encounter certain difficulties because membership of the Western Group in UNCTAD bodies differs from that of the Working Group, and it is not yet clear how or to what extent effective coordination can be achieved in Paris to best support coordinative efforts in Geneva. He noted also that the Working Party on UNCTAD differs markedly from the other DAC Working Parties in that, on the one hand, its scope of concern derives almost entirely from activities of another international organization, and on the other hand, the substance of the issues with which it is concerned is frequently within the province of other bodies within the OECD. He said the future of the Working Party and its relationship to the Western Group in Geneva is not yet clearly defined, but that the work program for the coming year would focus primarily on preparations for the first meeting of the Committee on Invisibles and Financing Related to Trade and for the third session of the Trade and Development Board.

2. Technical Assistance Coordination

The Chairman mentioned that this topic had already been discussed at two DAC meetings and that a document attempting to formulate guidelines has been prepared and revised. Although all member governments have not yet indicated their final approval, the Chairman expressed the hope that agreement could be reached quickly, without another meeting, and that implementation could begin as soon as possible thereafter. Although there was no formal discussion on this point, three delegates referred to the guidelines in a positive tone during the course of the meeting.

IV. Future Direction of DAC’s Work

1. Mr. Bell opened the discussion on this point, stressing the need to concentrate on priority matters. He suggested that in the future the DAC should draft a proposed work program for the following year in advance of the High Level Meeting, so that Ministers could arrive at the meeting prepared to consider specific proposals. Drawing on the suggestions he had made earlier in the meeting, Mr. Bell proposed several items for possible DAC study next year. He suggested that the Working Party on Financial Aspects should pay particular attention to the improvement of data relating to the debt burden on the LDCs (in order to meet Mr. Woods’ point on the deficiency of these data). He suggested that the Working Party on Supply and Performance might consider action on the four proposals he had made during the discussion of this item (see paragraph III B, 3), namely, 1) the relationship between aid programs and economic development in selected aid-receiving LDCs, 2) application of analytical techniques to selected LDCs with a view to determining guidelines for programming aid, 3) study of LDCs’ absorptive capacity, 4) study of possible underutilized capacity in LDCs.

Mr. Bell further suggested that the DAC itself conduct additional carefully planned regional or country meetings along the lines of that held on Liberia and Sierra Leone last month. Regarding new horizons which DAC might explore, Mr. Bell proposed: 1) agricultural productions; 2) methods to stimulate the flow of private investment; and 3) the problem of population. Finally, he suggested that the DAC might address itself to the question of establishing criteria to identify “a less developed country.” This would include a review of the current list which is now some five years old and which contains a number of transitional countries such as Taiwan, Venezuela, Mexico, Spain, Greece, Israel, etc., which have graduated from the LDC class and no longer require aid on concessional terms.

2. Mrs. Castle agreed with Mr. Bell that the DAC work program should be planned in advance of the High Level Meeting. She said also that she generally agreed with Mr. Bell’s suggestions for a work program and added a few items of her own, including: 1) study of the effect of commercial credits on the debt burden of LDCs; 2) examination of the international administration of assistance, including consortia and consultative groups and their relationship to UN agencies; 3) study of meas-ures to be taken to improve public understanding and support of foreign assistance. In this connection, she proposed “public discussions” in member countries in which the DAC could participate. As a start, she invited DAC members to take part in a public discussion on foreign assistance in the U.K., adding that the invitation was being offered seriously and that she hoped member governments would consider it carefully.

3. The German representative indicated his general agreement with the U.S. and U.K. suggestions for the DAC’s future work, adding, however, that he agreed with the French delegation that the DAC should assess its priorities with care and not attempt too many projects.

4. Mr. Ockrent of Belgium observed that if all the suggestions made were followed, the DAC would be overburdened with work. He suggested that much of the research could be undertaken by the Development Centre and recommended the DAC improve its coordination with the Centre.

Referring to Mr. Bell’s point about transitional countries which are now emerging from the LDC category, Mr. Ockrent suggested that a systematic study of their special needs would be useful and might be considered by the DAC.

Mr. Ockrent also made a plea for a joint DAC effort to improve public opinion of aid, which he described as “refrigerated” in Belgium. He said that if the present trends for public criticism of aid continue, we will soon reach the point when governments’ ability to act positively in this field will be seriously limited. He suggested that part of the problem rests with educating members of the press who, so far, have not shown that they are well informed about the facts or the objectives of foreign assistance.

V. Press Communiqué

1. The fourth draft of the press communique, which had been prepared by a special group working concurrently with the High Level Meeting, was approved with a number of minor changes. The most serious objection was raised by the French representative, who objected strongly to the inclusion of Mr. Woods’ statement that LDCs could effectively use an additional $3 to $4 billion annually over the next five years. It was agreed to delete mention of the figure of additional requirements but after several delegates stressed the importance of taking note of Mr. Woods’ speech, an innocuous formula was agreed. Copies of the Press Communique in final form are attached.¹⁵

Brown

1. Source: Department of State, Central Files, AID 1. Limited Official Use; Priority. Drafted by E. M. Gilbert, Richard Palmer, and Arvin Kramish; cleared by Frank M. Coffin (in draft), A. B. Daspit, and W. M. Brown (Secretary of the Delegation); and contents approved by Alice May. Repeated to all DAC capitals. Another summary and evaluation of this meeting is in Current Economic Developments, Issue No. 733, August 3, 1965, pp. 5–8. (Washington National Records Center, RG 59, E/CBA/REP Files: FRC 72 A 6248, Current Economic Developments)
2. Dated July 24. (Department of State, Central Files, AID 1)
3. Not printed.
4. “Recommendation on Financial Terms and Conditions Adopted by the Development Assistance Committee at its 58th Session on 23rd July 1965” (DAC(65)14(Final)), July 27. (Washington National Records Center, RG 286, DAC Material: FRC 70 A 5922, DAC—Ministerial Meeting—Paris, July, 1965)
5. “Recommendation on Assistance and Development Efforts” (DAC(65)22(Final)), July 26, adopted by DAC on July 23. (Ibid.)
6. Thorp’s draft report (DAC(65)18), June 24, is ibid. No final version has been found.
7. Woods’ statement, July 22, is attached to Kramish’s notes of the meeting, cited in Document 109.
8. Castle’s July 22 statement (DAC(65)31), July 29, is attached to Kramish’s notes of the meeting, cited in Document 109. Her remarks as quoted here, are close to those in her written statement.
9. Ignacio Copete’s July 22 statement (DAC(65)34), July 23, is attached to Kramish’s notes of the meeting, cited in Document 109.
10. “Summary Report to the D.A.C. on the Work Undertaken by the Working Party on Financial Aspects of Development Assistance” (DAC(65)15(1st Revision)), July 7. (Washington National Records Center, RG 286, DAC Material: FRC 70 A 5922, DAC—Ministerial Meeting—Paris, July, 1965)
11. “The Growth of External Debt Service Liabilities of Less Developed Countries” (DAC(65)17), June 28. (Ibid.)
12. “Draft Policy Recommendations on Financial Terms and Conditions” (DAC(65)14), June 18, and “Draft Recommendations on Financial Terms and Conditions” (Correigendum to DAC(65)14), July 6. (Ibid.)
13. “Summary Report to the Development Assistance Committee on the Work Undertaken by the Working Party on Assistance Requirements” (DAC(65)20), June 30. (Ibid.)
14. “Summary Report by the Chairman of the Working Party on UNCTAD Issues to the DAC on the Activities of the Working Party” (DAC(65)23), July 6. (Ibid.)
15. Not found.