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

94. Memorandum From the Assistant Administrator for Program, Agency for International Development (Chenery) to the Administrator of the Agency for International Development (Bell)¹

Washington, November 23, 1964.

SUBJECT

• Division of labor between the IBRD and DAC on coordination of aid for individual LDC’s—agenda for meeting November 24

Several factors—the Bell-Woods lunch² and the Coffin message in CEDTO A–293³—have stressed the need for increased donor coordination of aid for individual LDC’s. In pushing the IBRD to organize additional coordination efforts and in preparing for the December 9–10 DAC meeting on assessment of coordination experience we will need to develop a U.S. position on the division of labor between the two institutions. I propose this focus, recognizing that in the longer run the IDB and CIAP may play a larger coordination role in Latin America. Thus far, LDC’s have applied for coordination sponsorship mainly to the IBRD, and demand has exceeded supply. This memo is to provide a basis for discussion on the selection of appropriate institutions for coordination.

Aims of coordination

The logical aims of coordination are to obtain donor consensus on the amount and nature of an LDC’s requirements, on desirable LDC policies and performance, and on means to deal with indebtedness problems. The U.S. has these aims. Other donors have not fully accepted them though they agree that coordination should promote more effective use of LDC resources and aid. In addition, the U.S. has the objective of increasing the overall share of aid provided by other donors though increases in their share for certain LDC’s. Our aims in coordination imply the desirability of a substantial increase in the number of LDC’s subject to donor consultation.

Currently formal donor coordination is underway for six LDC’s. The IBRD manages consortia for India and Pakistan, and consultative groups for Nigeria, Colombia and Tunisia. A Bank group for Sudan is dormant. The OECD/DAC has consortia for Turkey and Greece, the latter phasing out. Recent discussions between Bank staff and PC staff indicate between six and twenty additional candidates for coordinating arrangements, depending on selection criteria. The Bank is geared to handle only a fraction of these possible candidates. We need to identify relevant factors for determining which possible candidates we want the Bank to cover.

Possible candidates for coordination

The PC-Bank discussion focused on selection criteria and specific LDC’s for coordinated donor action (a) to promote development and (b) to deal with debt-servicing problems. A memo of that conversation is attached.⁴

For countries receiving a significant amount of aid we agreed on two broad criteria for selecting candidates for development coordination: LDC performance (including desire and capacity) and interest on the part of several donors. (Continuing discussions with the Bank are resulting in refinements both of the criteria and of the countries listed below.)

On this basis LDC coordination candidates were classified as Sure, Probable, Possible, or Political. The Political category includes countries to which aid is extended by several donors for various political reasons and which may or may not meet development criteria. Several receive substantial amounts of Bloc aid. Further comments on specific LDC’s are included in the Annex.⁵

Sure	Probable	Possible	Political
India*	East Africa Morocco*	Ethiopia	Somalia
Pakistan*	Morocco*	UAR*	Guinea*
Turkey	Brazil*	Argentina	Liberia
Colombia	Chile	Costa Rica	Congo (Leo)
Nigeria	Peru	Mexico	Korea
Tunisia	Sudan	Iran	Thailand
			Jordan
			Afghanistan

Our discussions with Avramovic, DeMuth, and Wilson⁶ show that the Bank has not reached tentative agreement on how far it would go in sponsoring increased coordination, but indications are that Bank interest will be greatest in the “probable” countries.

Bases for the division of responsibility

To establish a basis for division of labor between DAC and the Bank on country coordination, several factors are relevant: (i) membership of the organizations, (ii) the policies and effectiveness of the management, (iii) the capability of the staffs, and (iv) the extent to which the U. S. can exert influence.

1. Membership. The membership of the LDC’s in the Bank increases their influence and hence their trust in the organization as an aid coordination sponsor. Conversely, the DAC’s exclusive donor membership increases its ability to deal with politically difficult LDC’s, e.g., DAC’s successful effort last year to raise contributions for the UN fund for operational personnel in the Congo. DAC’s limited membership has not prevented useful discussion in the past of some LDC’s where political problems do not overshadow development, such as the three East African states.

2. Policies and Effectiveness. On performance, the IBRD currently exceeds the DAC in effectiveness of coordination management. In addition, the Bank may be better able to influence LDC policies, though its previous efforts at such influence have been relatively mild.

This would be a debatable Bank advantage if the donors in DAC were in concert on an LDC’s performance.

The weakness of DAC and the OECD in their coordination endeavors thus far can be attributed at least in part to the newness of the organization and, in the case of Turkey, to past political events and financial irresponsibility of the country.

The Bank has not been an effective fund raiser among donors in the consortia. This task has fallen largely to the U. S. just as in the case of the OECD consortium for Turkey.

3. Staff Capability. The Bank staff is much larger and more experienced. It is normally engaged in country analysis and in loan operations. However, the OECD Secretariat can probably be strengthened to provide a capability for country analysis of comparable quality. Past Bank policy on sponsoring coordination has been cautious. With existing staff, the Bank could probably take on a few additional LDC’s. Beyond this, the Bank would have to decide whether to expand its staff since the staff requirement for mounting an effective effort is sizeable.

4. U. S. Influence. At present, U. S. effectiveness in obtaining agreement to discuss a given LDC is greater in DAC, where the agenda is controlled by member governments, than in the Bank. The Bank management can successfully resist organizing coordination for a given country; it has not been willing to assume this responsibility in many cases, particularly for politically sensitive countries. U. S. influence in the Bank can be considerably increased through effective appointment and use of the alternate U. S. executive director and more high level A.I.D.-Bank contacts.

The objectives in allocating countries for coordination responsibilities

A number of objectives might be served in the process of allocating countries between the Bank and the IBRD for coordination responsibilities. In some cases, conflicts may exist among the objectives; for example, the desire to maximize the number of countries subject to coordination may conflict with the desire to raise the DAC score on managing successful coordinating efforts.

The list of possible objectives below is presented to obtain responses of which should be judged of major importance, and which are second-order importance.

Possible objectives include:

1. Substantially increase the number of countries subject to effective coordination.

2. Strengthen DAC capabilities (including its image and staff) for coordination and for aid policy discussions.

3. Get the Bank to take on political candidates as subjects for coordination.

4. Seek to improve DAC record on coordination.

5. Seek to increase the share of non-U.S. bilateral aid.

Alternatives for a division of labor

1. The logical development of present practice based largely on the Bank’s preference would be for the IBRD to continue to focus on the LDC’s with better development performance and outlook, the DAC on LDC’s where political problems inhibit the Bank’s role and some developmental cases the Bank is not able to take on. This has the risk of giving DAC a political image and lessening its effectiveness in dealing with other development policy matters.

2. The Coffin proposal in CEDTO A–293 essentially was to make a deliberate effort to increase the DAC’s capacity to handle development coordination and divide the workload between DAC and Bank. This division could be ad hoc according to (a) Bank preference, (b) LDC preference, (c) donor country preference. In practice, all these parties would undoubtedly influence decisions. The advantage of this would be to strengthen DAC’s image and effectiveness. It should enable the OECD Secretariat to attract more competent staff.

3. Geoffrey Wilson informally suggested that the DAC could be used as a donors’ forum to discuss all coordination cases and establish consistent donor policies, but not maintain a supporting staff for coordination. In development coordination cases, the Bank could be used as the forum for donor discussion with the developing country and provide all the expert staff for country analysis. This has the advantage of capitalizing on the main current qualifications of the two organizations—the DAC as a restricted donor forum and the Bank as an experienced operating organization with donor and recipient membership. It has the disadvantage of minimizing the capacity of OECD to attract good stuff and thereby would weaken DAC’s capacity to deal with non-country matters.

In posing these alternatives for discussion, PC favors the second because it strengthens the DAC as an institution while not diminishing the role of the IBRD.

1. Source: Washington National Records Center, RG 286, AID Administrator Files: FRC 68 A 2148, PRM 7–1, Development Assistance Committee, FY 1965. No classification marking. Drafted by Richard Palmer (AID/PC/IDOS) and Robert Aliber (AID/AA/PC). A stamped notation on the source text reads: “Noted—DEB[ell].” A copy was sent to Gaud.
2. No formal record of this meeting has been found.
3. Document 92.
4. Entitled “Country Notes,” November 23, not printed.
5. The attached memorandum by Chenery to the files, November 23, is not printed.
6. Countries with serious external debt problems
7. Countries with serious external debt problems
8. Countries with serious external debt problems
9. Countries with serious external debt problems
10. Countries with serious external debt problems
11. Countries with serious external debt problems
12. Countries with serious external debt problems
6. Richard H. DeMuth, IBRD official, and Geoffrey Wilson, IBRD Vice President.