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

147. Current Economic Developments¹

Issue No. 819

Washington, November 19, 1968.

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DAC HIGH-LEVEL MEETING CONSIDERS TERMS, VOLUME, AND DIRECTION OF AID

The seventh high-level meeting of the Development Assistance Committee of the OECD, held in Paris October 30–31, reviewed current aid programs and developments including volume, terms and direction of aid, and considered the means of improving and increasing present aid programs. The members welcomed the presence of Switzerland which recently became one of the seventeen members of the DAC, who, among them, provide well over nine-tenths of total world flows of official and private resources to developing countries. In agreeing to its work program for the coming year, the Committee laid stress on the need to define a more explicit long-run aid and development strategy so as to increase the impact of individual efforts. The main document before the Committee was the 1968 report of the DAC Chairman, Ambassador Edwin M. Martin, which is shortly to be published.²

DAC Chairman’s Report

In his general review of the aid situation, DAC Chairman Martin stated that there is no question that the economic and social progress of the developing countries, which contain most of the desperately poor majority of mankind, is entering a critical and decisive phase. The international development assistance effort, designed to speed up the date of that progress, is being re-examined and called into question. Far too little sense of urgency exists either in the majority of aid-providing countries or in many developing countries about taking practical steps to meet obvious and pressing development needs.

Achievements. It is tempting, Martin points out, to point a uniformly black picture of past achievements and future prospects. But this would neither correspond to the facts nor would it constitute sound tactics. Progress has been and is being made—but at a rate which is too slow to make the morally and politically acceptable difference to the economic and social situation of the developing countries. The extra effort which is required now to make this difference, both from aid donors and developing countries, is well within their capacities—and is vital if the progress already made is not to be thrown away.

The DAC Chairman points out that the only internationally agreed goal for the first Development Decade was contained in a UN Resolution of 1961—that the 1960’s should see a minimum increase in average growth of gross national product of five percent a year.³ Based on what must be considered as still provisional estimates for 1967, this goal had been just about reached in the period 1960–67. That this has been possible, despite the failure of the developed countries as a group to meet in most years the goal they accepted of an average net resource transfer (aid and private flows) of at least one percent of their national incomes, is a tribute to the efforts of the developing countries and to the value of other factors, such as their export earnings, up an average of 5.6 percent a year in this period.

Also on the positive side of the ledger are the almost spectacular changes in the prospects for increasing food production and controlling population growth. In the case of food, it is now clear that we know what to do to avoid the threat of famine for a good many years in the future. More important is the fact that in a good many developing countries famine is now being averted. The expected obstacle of peasant and farmer resistance to new methods of cultivation has usually proved illusory if prices for outputs are right and if they can be shown what needs to be done. Perhaps even more important in the long run than the increased output now being secured from the new “miracle” seeds is the widening awareness of our capacity, through intensive breeding programs, to continue to improve on nature. Many problems remain—in keeping the prices right, in providing credit, in radically improving storage and marketing systems—and we still face challenging problems in developing cheap and palatable proteins of the sort humans need, in enabling all families to afford to buy enough of these foods, and in persuading families in developing countries to consume a more balanced diet.

Equally striking has been the wave of support for family planning over the past two years. Not only international bodies and aid-giving and recipient governments but also parents themselves are adopting positive attitudes in place of apathy or opposition. It is clear, however, that we cannot yet be content with the efficiency of our current techniques. The task of reaching and persuading tens of millions of parents is so enormous that a breakthrough to a simpler, cheaper, surer method, with no side effects, is still an urgent challenge to our best scientific skills.

Negative Aspects. On the negative side of the ledger, the DAC report points to the frustration and disappointment of the developing countries. Many have accumulated a burden of debt service which weighs heavily on their current and future balance of payments. Most have found that even a 5 percent overall growth per year brings too little visible improvement in the living standards of their people because of the rapid increase in their populations and the low base from which they start. Countries having more than two-thirds of the less-developed countries’ population—or over one billion people—have average incomes of $100 per capita per year or less and annual population growths of two or three percent. Perhaps more fundamental as a cause of dissatisfaction is the increasing realization that overall economic growth satisfies only partially their ambitions for a better life. Better distribution of income, creation of enough new job opportunities, reform of outdated institutions, extension of education, achievement of national unity and political maturity, and the ability to generate as well as adapt to rapid rates of changes in attitudes are all fundamental elements in the progress toward a more modern and more satisfying society.

Volume of Aid. From the standpoint of the DAC aid donor nations, the Chairman’s report states that the short-falls in aid performance have certainly been significant and generally unjustifiable. But it is a great mistake to talk of a “decline” in the flow of resources. There was an 8 percent increase in total net official and private flow from DAC members in 1967, passing $11 billion for the first time, up to 7–1/2 percent from 1966. Six countries, including the US, had the largest actual disbursements of aid funds ever. Data now available indicates that net official aid disbursements will increase also this year and probably again in 1969. However, these increases are not expected to be large enough to raise the level to the UNCTAD target of 1 percent of gross national product which was in the form of a resolution at the UNCTAD II meeting in New Delhi in March 1968, which if achieved by the DAC members would raise the sights for the volume of resources they provide by about 25 percent above the DAC’s present national income based target. In part, this expected rising flow will result in emptying the accumulated pipeline of aid funds in some countries, and the talk of a decline in aid may be right two or three years from now. But, the Chairman points out, there is still time to prevent this happening if certain donor governments take action promptly to refill the pipeline with new appropriations and commitments.

The Soviet Bloc countries, though they are considered as developed countries, have not accepted either the previous DAC target of one percent of net national product not the higher UNCTAD II target for net resources flows. Data on their disbursements, as distinct from commitments, are only rough estimates, but it would appear that they have reached a level of only about 0.1 percent of national income. The flow of funds from these countries would thus have to increase some tenfold to reach even the DAC national product target.

Terms of Aid. The improvement in the volume of 1967 aid flows was unfortunately accompanied by a modest deterioration in the average terms of DAC bilateral aid committed in 1967, especially as to interest rates. This did not, however, reflect any major change in terms policy—on the contrary, official aid terms have softened in a number of countries—but rather a shift in the composition of financing flows from several countries, with large proportions being committed by government export creditor organizations whose terms generally are close to those in private capital markets. Further, there was no lessening of the degree to which aid funds were tied to purchases in the donor country, though there was increased use of general devices to minimize the effect of this requirement on recipient costs.

Quality of Aid. Mr. Martin also points out that the quality of donor aid and cooperation is just as important as the quality of development itself. DAC members are seeking to make aid resources produce more development by adapting the types of aid to the needs of developing countries in widely differing situations; fitting terms of loans to the capacities of each recipient; distributing the total available resources among receiving countries in ways which will best promote rapid and sound development; supplementing the self-help efforts of the LDCs; and directing resources toward those sectors of the economy or those aspects of the overall development process which should be given the highest priority.

High-Level DAC Meeting

The DAC high-level meeting agreed that the present assistance effort needs to be further strengthened in order to supplement the efforts of developing countries toward economic and social progress. It was noted that prospects depend heavily on the actions of the four major donors—the US, France, Germany and the UK.

The situation in the US is important both because the US provides half of the total DAC assistance and because of its possible impact on the collective efforts of the DAC countries. The fact that the US currently ranks tenth among DAC members in net public and private flow as a percentage of its national income was a matter of concern to DAC members. Actual US assistance expenditures will be maintained for the next year or two through drawing on undisbursed appropriations. However, the proposed reduction in new commitments and the fact that the International Development Association (IDA) can continue to operate only on condition that the US participates in reconstituting its resources create a disturbing situation for the future. There was concern also about the difficulty other donors have in matching US reductions with increases in their own programs. On the other hand, there were encouraging expressions of willingness of a number of members to go ahead with their IDA contributions regardless of the status of the US contribution. Our delegation informed DAC members that reductions in appropriations would not permit us to finance an important part (approximately $100 million) of needed fertilizer imports for Pakistan and India and strongly urged the Europeans to take advantage of their unutilized excess fertilizer production capacity to fill this need.

As to the other chief donors, France, in spite of its economic and budgetary difficulties, has not retrenched on its aid commitments and policies though as a result of French inflationary pressures the value of its aid to recipients will probably decline. The UK over the past year maintained its aid effort, in spite of its economic difficulties. Germany has taken steps to ensure a steady expansion of its aid over the next years, but the terms of German assistance, like that of several other donors, do not yet meet the targets of the 1965 DAC recommendation.

A striking and welcome feature in the aid volume picture is the continued rapid growth in the efforts of Australia, Belgium, Canada, Denmark, Japan, the Netherlands, Norway and Sweden to increase their aid efforts, although several of the countries named are still far from the one percent target.

Mr. Martin told the OECD Council that in his view terms of aid was the most important subject taken up by the high-level meeting. Prior to the meeting the DAC Working Party on Financial Aspects had been unsuccessful in getting agreement on any proposal for revision of the 1965 terms for aid. Japan, Italy and the Federal Republic of Germany were particularly opposed to any additional obligations.The 1965 agreement had contained a mandate for revision of the objectives after three years “in the light of relevant factors.” One of these factors was the UNCTAD II Conference which noted “with appreciation” that such a review was underway and expressed hope it would result in a liberalization of terms. The high-level meeting agreed to instruct the Working Party on Financial Aspects to complete, as soon as possible, its efforts to reach agreement on revised terms recommendations and report to the plenary session early in February 1969. Chairman Martin told the OECD Council he was struck by the emphasis, from those countries with soft terms, that it would be difficult for them to improve soft terms, or even maintain them, if others maintained hard terms and did not clearly show willingness to improve their terms.

The DAC work program was discussed principally in relation to the Pearson Commission (see page 17, August 27, 1968 issue)⁴ and Development Decade II. In Chairman Martin’s view, the sense of the high-level meeting was that, without committing itself to conclusions, DAC should seek to cooperate with these groups. He referred to the importance of the connection between aid and trade and suggested to the OECD Council that coordination might be of interest to the OECD. Also, he thought the Council would be interested in the suggestion at the high-level meeting regarding insulating aid from the fluctuations of the economic fortunes of donor countries. This will be a matter that will be considered further, he said.

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1. Source: Washington National Records Center, RG 59, E/CBA/REP Files: FRC 72 A 6248, Current Economic Developments. Limited Official Use. The source text comprises pp. 10–14 of the issue.
2. Not found.
3. Resolution 1710 (XVI), adopted unanimously by the U.N. General Assembly on December 19, 1961; text in American Foreign Policy: Current Documents, 1961, pp. 153–156.
4. “McNamara Establishes Pearson Commission To Study Development Strategy and IBRD Role,” Current Economic Developments, Issue No. 813, August 27, 1968, pp. 17–19. (Washington National Records Center, RG 59, E/CBA/REP Files: FRC 72 A 6248, Current Economic Developments)