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

135. Briefing Memorandum From the Assistant Secretary of State for Economic Affairs (Solomon) to Secretary of State Rusk¹

Washington, February 3, 1967.

SUBJECT

• IDA Replenishment—White House Meeting

1. The Department, AID, and the Bureau of the Budget have strongly endorsed Secretary Fowler’s recommendation to the President that the United States support replenishment of the International Development Association (IDA) at the levels of $600, $800, and $1,000 million for the fiscal years 1969, 1970, and 1971 respectively, on two conditions: (a) that the U.S. share of the replenishment not exceed 40%; and (b) that certain balance of payments safeguards be instituted.²

2. The President is reported to have said: (a) that the recommended replenishment levels are too high. The Congress could not be expected to support a threefold increase in IDA resources from $750 million for FY 66–68, the amount agreed to in the first replenishment, to $2.4 billion for FY 69–71, the amount proposed for this second replenishment; and (b) that Mr. Woods should go to the Europeans first and see what they are proposing to put up.³

3. We believe there are compelling reasons for supporting the recommended threefold increase in IDA resources and that the Congress will find these persuasive:

a. Better distribution of the aid burden among donors. The U.S. share of total official free world aid is currently 60%. The share of other donors is 40%. In IDA, the ratio is reserved. Other donors put in $60 for every $40 we contribute. Moreover, their contributions are on a grant basis, not high interest, short maturity exporter credits masquerading as aid.

b. A hard-headed institution: an Eisenhower initiative. The World Bank and its affiliates are seasoned, respected institutions which enjoy wide public support in the United States. IDA’s performance standards are known to be exacting. The Eisenhower Administration took the initiative in 1960 in establishing IDA as a World Bank affiliate because of the widespread confidence the Bank enjoys.

c. The need for substantially increased IDA resources, (i) Official free world aid has been stagnant since 1961 (at about $6 billion a year) although LDC needs have been rising as population presses harder on resources and debt service payments eat into earnings. (ii) The war on hunger will hardly be more than a skirmish without added resources for fertilizer, pesticides, agricultural tools, rural education, farm credit, port and storage facilities, improved transportation. (iii) India and Pakistan alone will need a minimum of $450 million from IDA in the coming year if consortium targets (exclusive of food) are to be met. (AID planned its FY ’68 program for the Asian subcontinent on the assumption that IDA would be replenished at $600 million in the first year.) (iv) Because of the pressing claims of India and Pakistan on IDA resources (75% of total IDA commitments to date) other countries have been short-changed. Indonesia will need substantial concessional assistance. The Korry Report looks to IDA for African aid. (v) Mr. Woods asked for $1 billion a year for 3 years. If IDA doesn’t get substantially increased resources, more aid will have to come from bilateral sources, on the 60/40 ratio unfavorable to us rather than the 40/60 ratio of IDA.

d. An act of statesmanship. For the U.S. to respond generously to LDC needs while we are carrying a heavy burden in Viet Nam will be recognized as an act of statesmanship throughout the world. It is all the more important at this juncture to give concrete evidence of our positive purposes, our policy of attainment, while we are pursuing the necessary but negative policy of containment.

e. The sums are small; the threefold increase more apparent than real. IDA commitments have been rising; in the past year the rate was $500 million. The threefold rise in country contributions is necessary to maintain and modestly increase the rising IDA commitment level. Expenditures, which always lag behind commitments, are modest. The burden on the U.S. budget will rise very slowly, from about $120 million in FY ’68 (based on the first replenishment) to perhaps $150 million in FY ’69, $175 in FY ’70, etc. if IDA is replenished at $600, $800 and $1,000 million for ’69– ’71. It is these expenditures that are reflected in the U.S. administrative budget, the national income budget, and the cash budget; not the authorization we will be asking this year or the appropriations we will require in ’69– ’71.

4. The President should recognize that Mr. Woods cannot go to other donors without being able to indicate to them what the U.S. is prepared to do. They will take our silence as evidence of retreat and will be governed accordingly. The U.S. has always had to take the leadership. Even so, other donors will try to bargain down; but it will be more difficult for them to do so if we strengthen Mr. Woods’ hand by a generous response. The amounts we will actually seek from the Congress later this year will be our 40% share of the level all donors agree to support. That level may well be less than $2.4 billion for 3 years. It will certainly be less if we hang back now. In that case, we will have lost an opportunity to redistribute the aid burden more fairly.

5. Attached is a copy of the memorandum AID prepared for Mr. Gaud for the IDA White House meeting today.⁴ It gives key facts on India-Pakistan needs and IDA.

1. Source: Johnson Library, Papers of Anthony M. Solomon, Chron File—February 1967, Box 15. Confidential. Drafted by Ruth S. Gold (E) on February 3. A copy was sent to Gaud.
2. As set forth in Fowler’s December 31 memorandum to President Johnson; see footnote 2, Document 134.

3. In a February 2 memorandum to President Johnson, in preparation for the White House meeting on IDA replenishment on February 3, Bator summarized these concerns:

   “I understand your concern that our proposal calls for too much money and is likely to be badly beaten on the Hill. One point you will want to keep in mind, however, is that the main reason for starting with such a large figure is to give George Woods a chance to squeeze more money out of the Europeans. His chances of getting them to increase their contributions are far better if he can say he has a U.S. commitment—subject to Congressional approval—to go for a big increase. It is almost certain that the Europeans will not, in fact, come close to 60% of the proposed $600–800–1 billion target. To the extent that they fall short, our final proposal to the Congress will be cut accordingly.” (Johnson Library, National Security File, Subject File, International Bank for Reconstruction and Development, Box 20)

4. Memorandum from Gustav Ranis (AA/PC) to Gaud, February 2, not printed. The off-the-record meeting on IDA replenishment was held in the Cabinet Room at the White House on February 3 from 5:30 to 6:25 p.m. A list of participants, which included Secretaries Rusk and Fowler, Katzenbach, Gaud, Schultze, Bator, and Eugene and Walt Rostow, is in the Johnson Library, President’s Daily Diary. A handwritten note after Bator’s name on this list reads, “will send resume of mtg Mon, 2/6/67,” but no formal record of this meeting has been found.