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

111. Telegram From the Department of State to the Mission to the European Regional Organizations¹

Washington, October 21, 1965, 9:26 a.m.

TOCED 242. Ref: CEDTO 245.² ADCOR. Subject: Meeting of WG on Private Investment. Carter, Mark Feer, Deputy Assistance Secretary of Commerce for Financial Policy, and Samuel Pizer, Assistance Chief, Balance of Payments Division, Department of Commerce, will attend. Arriving TWA 802 October 24. Confirm hotel reservations.

We agree that Watson Report³ provides excellent takeoff point for work of the WG. In view past reticence some DAC members on subject of private investment the Watson Report will be helpful in establishing the relevance and importance of WGs activities. The vast range of possible activities, well illustrated both by scope of Watson Report and variety of suggestions made at May meeting,⁴ create real danger of unfocused discussion at first meeting. At the same time, while recognizing that US should take strong lead, it is important we not give impression of dominating WG. We also believe it important that the work program have a good balance between research oriented activities and current programs.

Against this background, we wish give priority to following items.

(a) A program to improve the efforts of DAC members to collect comprehensive data on private capital flows and reinvested earnings. Present deficiencies well illustrated by grossly inadequate data on private capital flows in annual aid memoranda of most member countries. Ultimate objectives would be development of a model system which would provide comparable data from all major countries and commitment by members to do the job. You will recall this item was suggested at May meeting by the French.

(b) WG should design and monitor a research project to determine overall economic effects of private foreign investment in LDCs. Little systematic research has been carried on in this field. The Secretariat and the Development Center could probably carry out the program, with the first stage of project design to be followed by case studies of a representative group of LDCs.

(c) WG should examine in detail our suggestion that the DAC might design a series of investment symposia as a practical step to facilitate private capital flows to selected LDCs. Such symposia, which would be held in a host LDC at its invitation, would provide effective means to improve mutual understanding between LDCs and private investors on impediments, incentives, priorities, etc. Organized at the invitation of the LDC and with multilateral participation by donor countries representatives, both private and governmental, the relational problems which have nullified the usefulness of BIACs investment climate studies, would be avoided. If proposal does not generate enthusiasm in the WG, we would drop it but we do wish to explore it.

(d) WG could usefully explore ways of encouraging a more systematic use of foreign private firms established in LDCs for training purposes. Subject well covered in Watson Report, page 40.

(e) We would expect to emphasize and hopefully obtain agreement on the desirability as a development objective of strengthening LDC private sector institutions, and would like to exchange information on methods.

Other suggestions made at May meeting, including the desirability of evaluating the experience of government-sponsored equity institutions such as the German Development Corporation, study of appropriate forms of public-private partnership in the LDCs, and incentives offered by donor countries to their private firms, also have merit. Omission from above list does not mean we would object to their being included in the WG’s program. For obvious reasons discussion of draft convention for the protection of industrial property and fiscal incentives for foreign private investment is inadvisable.

Copies Watson Report airpouched 10/19.

Rusk

1. Source: Department of State, Central Files, AID 1. Limited Official Use; Priority. Drafted by William G. Carter (AA/DFPE) on October 20; cleared by Hal Reynolds (PC/FWA), Jo W. Saxe (AA/PC), Anthony C. Albrecht (EUR/RPE), Mark Feer (Commerce), and Samuel Pizer (Commerce); and approved by Gustav Ranis (AA/PC).
2. CEDTO 245 from Paris, October 14, reported that the first meeting of the DAC working party on private investment would occur on October 25 and set forth possible U.S. strategy for the session. (Ibid.)
3. Reference is to the AID Advisory Committee on Private Enterprise in Foreign Aid, which was mandated in the Foreign Assistance Act of 1963. The Committee was appointed on May 26, 1964, with Arthur K. Watson as chairman; held 11 meetings; and presented its report to President Johnson on August 25, 1965. The report has not been found. For AID’s detailed response to the 33 recommendations made in the report, see Foreign Assistance and Related Agencies Appropriations for 1967: Hearings Before a Subcommittee of the Committee on Appropriations, House of Representatives, Eighty-Ninth Congress, Second Session (Washington, 1966) Part 2, pp. 137–152.
4. An account of the May 12 DAC meeting was transmitted in CEDTO 1224 from Paris, May 19. (Department of State, Central Files, AID 1)