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

138. Research Memorandum From the Director of the Bureau of Intelligence and Research (Hughes) to Secretary of State Rusk¹

RSF–6

Washington, July 26, 1967.

SUBJECT

• International Flow of Economic Aid, 1966

The recently released draft report for 1966 of the Chairman of the Development Assistance Committee (DAC)² permits an overall view of the volume of aid given to less developed countries (LDC’s).

ABSTRACT

LDC receipts from economic aid donors fell off slightly in 1966. The flow of US private investment and credits was halved, and the consequent drop in the total private flow exceeded the rise in official grants and loans. The prospect for 1967 is for a rise in the total, especially because of greater official disbursements by the US and some pick-up in US private capital outflow.

The aid of Communist states to the LDC’s rose slightly in 1966 but still represents only a fraction of the action contributed by DAC members taken as a whole (Western Europe, the US, Canada, Australia, and Japan). Only about a fifth of the aid receipts of the LDC’s comes from Communist countries.

The gross official flow of aid extended by DAC members rose in 1966, except in the case of Belgium and France. For the past four years the official contributions of France have declined steadily. The US accounted for 56.9 percent of the gross official flow of DAC aid in 1966. Its average share for the previous three years was 59.4 percent.

The sharp decline in 1966 of private investments and credits granted by DAC members contrasted with the jump the year before, and was largely due to the high interest rates prevailing in 1966. But high interest rates did not preclude sizeable advances by private firms and banks in France, Italy, Japan, Canada, Norway and the Netherlands; however, the advances for most of these countries were primarily in the form of export credits rather than direct or portfolio investments.

[Here follows a List of Tables, which are identified in the footnotes below.]

I. Total Receipts

A. Total Slightly Lower in 1966

Table 1 provides the most comprehensive view of LDC receipts of all forms of economic aid, including official grants and loans, private credits and investment and the value of technical assistance.³ The table covers not only the aid of the 15 members of DAC, plus the Commission of the EEC, but also of the Communist countries. Only excluded are the capital and technical assistance contributed by the LDC’s themselves, notably Kuwait, India and Israel, and also the increasing volume of donations by non-profit voluntary organizations.

The total of LDC receipts fell off slightly in 1966. It was the second occasion since 1960 that the annual total declined. The drop in contributions of DAC members contrasts with a slight rise in 1966 in Communist aid. The sharp fall-off in private investments and credits in 1966 was greater than the rate in official grants and loans.

B. Communist Aid Small

Communist countries have accounted for about a fifth of LDC aid receipts in recent years. This share has not risen. In fact, table 1 shows that Communist contributions have advanced much less since 1961 than that from DAC members taken as a whole. Though the Communist total rose in 1966, it did not exceed the level of 1961 and was much lower than in 1962 and 1963.

C. General Trend Slowly Upward

The general impression of table 1 is of a modest advance since 1961 in aid flows from all donors. Were the rise in price levels taken into account, however, the upward trend would be modest indeed. Hopes in the early sixties for a steady, vigorous rise have not proved realistic.

The volume of debt service by the LDC’s taken as a whole has advanced much more rapidly than aid flows. More than a tenth of their export earnings now go for the payment of interest and principal, for example, and this burden will rise.

The prospect for 1967 is for a sharp rise in official contributions, thanks largely to greater US disbursements, and a moderate rise in the private flow. The total for 1967 will thus be distinctly higher than in 1966. It is too early to predict, however, if this rise will carry over into later years; the damage done by the Middle East crisis, for example, cannot yet be fully assessed.

II. DAC Members: Official Flow

A. Total Rising Slowly but France Down

Two-thirds of the financial resources provided by DAC members are supplied by official agencies. Table 1 shows these receipts net of loan repayments, while table 2 shows the gross flow as a more direct indicator of the action taken by DAC governments in behalf of LDC economies.⁴ The gross official flow has risen in each of the last two years and in 1966 was almost double that of 1956, but the period of vigorous advance came before 1962; since then the rise has been paltry and unsteady.

Table 3 provides the annual data on the official flow for individual DAC members.⁵ The total rose in 1966 for all countries shown except Belgium and France. For the past four years there has been a steady and sizeable decline in the gross official flow of France, accounted for in part by shrinking contributions to Algeria. This decline for the second largest donor among DAC members helps account for the failure of the DAC total to rise vigorously in the period covered by this table.

The US accounted for 56.9 percent of the gross official flow of all DAC members in 1966. Its average in the three previous years was 59.4 percent. There was then no basic change during the period covered in the relative importance of the official US contribution. The total of its official contributions, given in table 3, was generally stable since 1963.

B. Some Newcomers Up but Effect Small

Some newcomers to aid activities, notably Austria, Denmark, and Sweden, have come up quickly in the last four years, while Norway is distinctly laggard in comparison. Australia is coming along slowly but steadily. The totals of some traditional donors, especially Britain, Germany and Italy, have risen only slightly, while sharp jumps characterize the annual contributions of Canada and Japan.

III. DAC Members: Private Flow

A. Total Sharply Down

Table 4 provides yearly figures on private long-term investments and export credits.⁶ Year-to-year totals have recently fluctuated much more than those representing official contributions. The steady growth shown up in the trend of world trade is considerably less apparent in these private capital outflow figures.

That the private flow has not risen vigorously over the years covered is disappointing to governments of donors and recipients alike. The investment climate in many LDC’s has not become more favorable and the Middle East fracas will certainly not help.

B. US Contribution Cut in Half

Private investments and loans from the US in particular have dropped sharply in 1966. Table 5 shows that the US private total was about a half of the high volume of the year earlier.⁷ It was the chief reason for the DAC decline in 1966.

Many causes enter the ups and downs of the US private flow. The exceptionally high interest rates of 1966 were certainly a leading factor. Others were vigorous repayments of bank loans made in volume in earlier years and reduced royalties accruing to some oil-producing countries.

C. Others Expanding at Uneven Rates

The private flow from France has risen without interruption since 1963, though the rate of expansion has slowed down in the last two years. There is also some let-up in the expansion of the private total of Germany (which was only about half that provided by France). The private flow of the UK also declined in 1966. High interest rates discouraged overseas landing in these countries as well as in the US.

The private total of Italy rose sharply in 1966, while the expansion of capital outflow from Japan has been more steady and in fact without interruption since 1963. Export credits rather than direct investment are important in the private flow of these two countries. Private entities in Canada, Norway and the Netherlands also contributed larger sums in 1966. Table 5 also shows that all other DAC members taken together are not large donors of private funds.

1. Source: Department of State, Central Files, AID 1. Limited Official Use.
2. Not found, but probably a reference to the DAC paper, “Situation in Development Aid” (DAC(67)19(1st Revision)), some of which Thorp summarized in his oral statement to the Development Assistance Committee on July 19. (Summary Record of the 94th Session, held at the Chateau de la Muette, Paris, on 19th and 20th July, 1967, DAC/M(67)12(preliminary version), pp. 7–12; Washington National Records Center, RG 286, DAC Material: FRC 70 A 5922, Program (DAC Work Program) 1966–67)
3. “Net Flows to LDC’s, 1960–1966,” not printed.
4. “Gross Official Flow of DAC Members to LDC’s, 1956–1966,” not printed.
5. “Gross Official Flow to LDC’s, 1963–1966,” not printed.
6. “Net Private Flow of DAC Members to LDC’s, 1956–1966,” not printed.
7. “Net Private Flows of Selected DAC Members to LDC’s, 1963, 1966,” not printed.