Foreign Relations of the United States, 1969–1976, Volume IV, Foreign Assistance, International Development, Trade Policies, 1969–1972

131. Memorandum From the Chairman of the National Security Council Under Secretaries Committee (Richardson) to President Nixon¹

Washington, March 25, 1970.

SUBJECT

• Foreign Aid Review—Issues for the NSC Meeting

The Peterson Task Force Report sketches a new basis for U.S. participation in the international development effort. It sets out a general goal for the United States to:

“Take up the challenge of international development in a way that adds a new dimension to U.S. foreign policy and creates a broad and hopeful vision of the world and its future. Americans, young and old, can then take renewed pride in playing a constructive world role and in meeting the obligations of global citizenship.”

A reassessment of our aid policy is called for because a new national commitment must be forged if we are to protect our basic national interest and if the United States is to participate in full partnership with other nations—rich and poor. Both the public and the Congress must participate in this process. In order to create a national consensus the Task Force recommends that we define our obligations clearly and recognize the changes in the international environment which have occurred in the past decade, brought about in part by our assistance efforts.

Among the changes noted by the Task Force are:

• —The security situation in the world has changed substantially and while threats to peace will continue to exist, the sharply divided world of direct confrontation which existed in the 1950’s and early 1960’s has given way to increasing opportunities for cooperation. Security measures and assistance programs must take this into account.
• —The growing capacities in a number of developing countries to establish their own development priorities, to mobilize their investment resources and to implement efficient development programs.
• —The substantial economic progress of many developing countries which now makes the ability to export as important to them as obtaining aid financing. This requires a willingness by the industrial countries to facilitate imports of manufactured goods from the developing nations. Their economic progress also requires the development of more sophisticated and mature private sectors, with adequate financial institutions. An integrated approach to the problems of aid, trade and investment is deemed essential.
• —The rapid expansion of the assistance efforts of other countries so that today their combined official development assistance is equal to that of the United States.
• —The growth of international development organizations, most of which we have helped to create, which now account for an increasing share of development lending and technical assistance and have gained great competence in assessing and organizing development activities.

Based on their analysis of this changed world context, the Peterson Task Force reaches certain fundamental conclusions, which the Under Secretaries Committee believes the NSC should endorse:

1. The United States has a profound national interest in cooperating with developing countries in their efforts to improve conditions of life in their societies.

2. We should clearly define the rationale and objectives of our foreign assistance programs.

3. This country should not look for specific short-term foreign policy gains from our participation in international development programs.

4. The United States should help to create an international development effort which involves true partnership with the developing countries, assigns greater responsibility to the international organizations and joins with other donor countries to provide the resources necessary to make the development effort a success.

5. The downward trend in U.S. development assistance appropriations should be reversed.

6. Additional resources should be provided, primarily in support of international lending institutions.

7. The United States should provide a fair share of resources in the international development effort.

8. The United States assistance program should broaden the use of private initiative, skills and resources, both in providing assistance and in the developing countries.

9. We should recognize that development is more than economic growth. Popular participation and equitable income distribution are as important as increases in total productive capacity.

10. We should continue to provide security assistance on a selective basis to help countries assure their own security and move them toward greater self-reliance.

The Task Force also makes a series of recommendations on detailed objectives and organization, the general thrust of which is intended:

• —to demonstrate a new approach—with new institutions—adapted to current problems;
• —to delineate U.S. purposes more clearly; and
• —to provide a platform from which the President can initiate discussions to seek a new Congressional commitment and renewed public support.

The Under Secretaries Committee strongly recommends that the issues—described below—be thoroughly aired in the NSC to provide you with the best judgment of your Cabinet officers.

Your message to the Congress will launch consultations with the Congress, and discussions in public forums, on the course of the U.S. assistance effort in the 1970’s. Effective consultation is crucial to changing Congressional attitudes before the new aid legislation is submitted in January 1971. There will be strong views in the Congress on the means suggested by the Task Force to achieve our new objectives and thus the consultation effort may fail in its greater purpose if we give too much emphasis at this stage to the details of organization. Your message should provide:

• —the rationale and operating style for our assistance program, and
• —the general organizational framework to carry it out.

The refinement of national objectives and the details of legislative and organizational means to achieve them should be the focus of the consultations. There will also be a need for detailed follow-up planning within the Executive branch, and we suggest that the Under Secretaries Committee be instructed to do this. An illustrative list of such matters for further study is given on page 17 of this memorandum.

Basic Issues for NSC Discussion

Separate Rationale (Issues 1-8, pages 3–17)²

The Peterson Report distinguishes between U.S. security, development and humanitarian objectives and recommends separate institutions for pursuing each. The Task Force believes that this creates a more logical framework and thus provides a more effective basis for seeking public support.

This approach—and the new institutions implicit in it—could provide a clearer rationale for the public and the Congress in support of foreign assistance programs, an opportunity to put development assistance on a more rational multi-year funding basis, and possibly a more efficient development assistance program free of short-term policy constraints.

However, there are also some drawbacks:

• —Separate organizations and legislative authority substantially reduce the present flexibility of the Executive to respond to changing foreign policy interests in particular regions and countries.
• —In Southeast Asia, for example, we are moving away from security assistance toward economic assistance but we would have lost valuable flexibility if our programs are fragmented according to particular objectives.
• —There is likely to be substantial opposition in Congress, particularly in the House Foreign Affairs Committee and the House Appropriations Sub-Committee. The latter will be concerned with the multiplication of aid “spigots,” the former with the real possibility that bilateral development legislation cannot by itself obtain enough votes for passage.

Multilateral Responsibility (II, B, pp. 5-10 plus Issues 26-29, pp. 65-71)

The Report places great responsibility on international and regional organizations (principally IBRD/IDA and the IDB but also eventually the UNDP). While taking into account their expanded capacity and intention to expand further, the Report recognizes their present limitations to play this larger role and points out that a U.S. decision to turn over responsibilities to these organizations would spur their growth into this role. We should endorse this objective—as you already have in the case of Latin America—but recognize that:

• —it may take some time for the international development institutions to seize fully the larger role envisaged for them;
• —the increasing role for international organizations requires support by other major donors, and not all of them are enthusiastic;
• —the United States must be prepared to play an active role—while avoiding an appearance of domination—to get the international agencies to assume these increased responsibilities;
• —there may be considerable Congressional opposition to increasing substantially funds to international organizations which reduces Congressional control over purposes and expenditures.

Bilateral Program and Foreign Policy Interests (Issues 3-4, pp. 7-9)

The Report suggests that the bilateral program should support international agency programs and, within that framework, focus on countries in which the United States has special interests. The Report thus recognizes that while economic development criteria must be predominant in our bilateral assistance program, it must also reflect certain U.S. assistance priorities. The Report recommends, however, that our bilateral program should take its lead from the multilateral institutions and programs in arriving at economic assessments.

There may be practical limits to this approach, for example:

• —while development loans should be made on economic criteria, the U.S. may wish to apply a geographic formula for the distribution of aid resources which may not be reflected in the plans of international organizations;
• —it may not be realistic in terms of foreign policy objectives and Congressional interests to subordinate our analytical and decision making, process to that of international organizations;
• —bilateral programs serving specific national objectives of other donors will almost surely continue, and we may wish to recognize our own interests;
• —many LDC’s have argued that their interests are best served by having a balanced system of international and bilateral aid programs, because they fear an excessively centralized system. This will require expanding the present role and resources of the international agencies while retaining significant national programs.

Economic and Financial Policy (Issue 24, pp. 49-58)

The Peterson Report by its very nature gives particular emphasis to development issues within overall economic and financial policy. However, consideration of the Report’s proposals for an integrated approach to economic development policy requires consideration of the interaction of development policy with our international economic policies generally. There are economic trade-offs and economic costs associated with the pursuit of various courses of action that must be appraised.

Furthermore, the ways in which we help developing countries—in subsidizing housing, providing incentives for investments, financing health and education, etc.—can have an impact on desirable or undesirable proposals in similar fields domestically in the United States. Particular development policies involving local procurement preferences, preferential trade and investment privileges may conflict with our broader multilateral objectives of non-discriminatory freer trade and investment. Our tax policies, investment guidelines, and balance of payments policies could follow one set of rules if our objectives were solely or even principally developmental. There may be practical limits, however, to the extent to which complete focus can be applied to development programs in contrast to the general international economic programs and on fusing the coordination mechanism for emphasizing the former.

Security Programs (Issues 6-8, pp. 13-17)

The Report recognizes the essential part that security assistance programs have played in U.S. foreign policy over the last two decades. To strengthen these programs, it proposes to link them in one piece of legislation—an International Security Cooperation Act. The Task Force would have the Department of State continue to set policy for all security assistance programs and to administer Supporting Assistance, Public Safety and the Contingency Fund; the Defense Department would continue to administer Military Assistance and Sales.³

The Report supports the need for the kind of comprehensive country program analysis being developed within the NSC system. It also stresses the need for each nation to decide for itself what it is prepared to do and recommends that the United States should support these efforts in such a way as to enhance self-reliance and promote self-sufficiency.

The separation of development and security-related programs has much to recommend it. However:

• —Once security assistance is considered as a separate category, the need to obtain adequate funds for the programs becomes a major consideration. The Task Force did not recommend specific security assistance levels. If the security programs are not to be considered a temporary expedient by the Congress, there must be a coherent plan and justification based on the Administration’s new approach to indigenous efforts to become self-reliant. Security assistance should not simply be a combination of existing programs with a heavy focus on Southeast Asia.
• —Inclusion of $2.2 billion Vietnam and Laos military assistance now funded by Defense would, in FY-1969, have resulted in an inflated security program of $3.4 billion worldwide and a total foreign assistance program of $6.3 billion. To the extent the Congress looks at these programs in their totality—as the appropriations committees are likely to do—there would be considerable temptation to cut the development program sharply in order to reduce the overall total.
• —A basic issue is the advisability of linking the various security assistance activities in a single piece of legislation. There are also advantages and disadvantages in dividing the program in two pieces of legislation—one for supporting assistance, public safety and the contingency fund, the other for military assistance and foreign military sales. This is discussed on pp. 11–17 of the annexed issues paper.

Aid Levels (Issue 2, p. 4; Issue 3, p. 7; Issues 26-28, pp. 65-68)

The Report is silent on annual aid levels. We believe this tactically wise at this time. However, the Peterson Group does conclude unequivocally that the downward trend in our contributions of development assistance should be reversed, principally through contributions to international financial institutions. This is important for establishing the credibility of the U.S. commitment to development, both toward LDCs and other donors, and in such contexts as the Second UN Development Decade, UNCTAD, etc.

The major component is the $1 billion replenishment of IDA, which you have endorsed. Given opposition to this scale of replenishment from some key European donors and Japan, a strong U.S. effort will be needed to get agreement on a replenishment of this general magnitude. If we cannot reach the international flows suggested by the Task Force and if we do indeed wish “to reverse the downward trend” of our efforts, we may have to consider whether to support temporarily higher bilateral levels to accomplish our overall objective.

Targets (Issue 3, pp. 7-8)

The Report does not endorse any aid targets. We believe that the Peterson approach, with its emphasis on need and LDC performance, is the only feasible one with the Congress. Nonetheless, our failure to endorse a target would raise serious political problems in the U.N. and may be used as a justification for less support by other donors. We should accordingly consider whether it is feasible for us to support the principle of a global aid target while at the same time indicating that we could not subscribe to any specific date for attaining it.

Alternatively, we may wish to accept the implicit Peterson approach and emphasize our intent to seek higher levels but not subscribe to unattainable targets. This would be pleasing domestically to some in Congress and demonstrate a realistic policy to other countries that we are moving away from promises we cannot fill.

Coordination (Issue 4, p. 9; Issue 13, p. 26; Issue 24, pp. 49-58)

The separate organizations which are proposed create two separate problems of coordination—within the U.S. Government and between the U.S. program and those of international agencies. The Report recommends giving basic responsibility for achieving effective policy coordination to a U.S. International Development Council. Certain points require further discussion:

• —there will be need for close coordination with other aspects of U.S. foreign policy since economic and assistance issues are at the core of our political relationship with most LDCs;
• —policies toward LDCs in aid, trade and investment are inextricably linked to our policies in these respects toward the developed countries;
• —there is a link between what we do internationally and certain domestic economic policies; e.g. parallel domestic pressures for special investment tax treatment, aid to education, etc. These pressures must be taken into account when deciding on similar international programs.
• —effective coordination will entail both general policy guidance and operational coordination, to mesh the activities of the separate U.S. organizations and U.S. programs with those of the international agencies;
• —development and security programs must be related to each other in countries where, as is the usual case, we pursue both objectives;
• —it is unclear how the cabinet-level International Development Council and its supporting staff would relate to the National Security Council;
• —if the White House Coordinator is to be more than an advisory coordinator and strategist, is it intended that he have decision-making power in the areas of responsibility of the Secretaries of State and Treasury.

Relationship to Latin American Policy (Issue 24, pp. 49-58)

The U.S. economic assistance relationship to Latin America will be the most important expression of U.S. policy in the hemisphere in the years ahead. While the substantive policy thrust of the Task Force Report is consistent with your Latin American initiatives, its organizational proposals may create problems with:

• —the “one-window” policy you have stressed as the framework for our hemisphere relationships, including the role of the new Under Secretary for Western Hemisphere Affairs;⁴
• —effective administration of a U.S. bilateral assistance effort geared to the special Alliance for Progress relationship;
• —more effective U.S. efforts toward strengthening the already substantial inter-American multilateral assistance machinery.

Organizational Recommendations

If the rationale for separate institutions, discussed above, is accepted, there remain certain subsidiary but important issues of organization. These are outlined below and discussed in more detail in the NSC Issues Paper.

A. The U.S. International Development Bank (Issues 9-17, pp. 18-37)

The Development Bank proposal reflects the Task Force belief that development lending should be separated from current political issues although it does recognize that the United States has a strong foreign policy interest in the geographic distribution of aid. We believe that the suggested framework for the Bank has merit and could be an important element in focusing public support on the development aspects of our foreign assistance program.

The advantages of a “banking approach” are:

• —multiyear authority and programming;
• —a clearer image of strict economic criteria;
• —a structure that would more readily accompany the shift of LDC’s themselves and multilateral institutions to the center of the development process.

There are important questions of technique, appropriation and budget treatment. While a bank can be proposed without resolving all these questions, these issues are likely to be of great interest to the Congress. Problems relating to the management and financial structure suggested by the Task Force are spelled out in the issues paper. One particular problem is that a “bank” might indicate Banking and Currency Committee jurisdiction in the House and a bypassing of the Foreign Affairs Committee.⁵

A number of issues center on whether an institution with a “banking” focus is a flexible enough instrument to accomplish the broad development purposes of a bilateral development program. Changes are suggested in the annex to correct these deficiencies. For example, some technical assistance grant funds—limited in amount and for clearly defined purposes—might be needed in the Bank.

Any moves away from the banking approach for development purposes might mean a loss of public appeal and Congressional support for the “new approach” to deal with the “new situation” of the 1970s. On the other hand, strict adherence to the “banking approach” might limit the Bank’s ability to respond to LDC development needs.

If the banking approach is followed, it will be important to draw a clear distinction between the developmental, concessionary lending of the new bank and the harder-term, export financing performed by the Export-Import Bank. While EX-IM activities in developing countries related to U.S. exports contribute to development, efforts would have to be made to avoid any overlap or confusion by emphasizing the concessionary terms of the Development Bank.

B. The U.S. International Development Institute (Issues 18-23, pp. 38-48)

If it is accepted that an adequate technical assistance function is incorporated in the Bank,⁶ there is little debate on the validity of a separate Development Institute, particularly if it is focused on scientific, technological and professional sectors. The Institute should operate along the lines of the National Science Foundation. The Institute should focus on research and training activities in the United States and abroad and on social development programs, including family planning. It would operate principally through grants to private organizations in the United States and abroad, and include similar current programs such as grants to American schools and hospitals abroad. It would also handle technical cooperation activities with countries not requiring concessional assistance.

Significant issues relate to appropriate coordination with other bilateral and multilateral technical assistance (UNDP) programs, Congressional vulnerability of the Peterson suggestion for “endowing” the Institute, and the role it should play in supporting social development projects designed to assure popular participation.

C. The Overseas Private Investment Corporation

The Peterson Task Force endorses this Corporation, authorized by Congress in the FY-1970 Foreign Assistance Act as an effective instrument in encouraging U.S. private investment activities in developing countries. There are no major issues on the organization of OPIC.

D. Security Affairs, Department of State (Issues 6-8, pp. 13-17)

The Peterson Task Force proposes that the Department of State provide policy guidance and coordinate all security assistance programs, including military grants, military credit sales, public safety, supporting assistance programs and the Contingency Fund. The Department would administer the last three; DOD the first two. The major problems are flagged on page 8 and relate to formulating a coherent defensible “new” program. The remaining issues are in the area of coordination and operational effectiveness. These are subsidiary to the crucial question of obtaining Congressional support for a long-term, flexible security program.

E. U.S. International Development Council (Issue 24, pp. 49-58)

This Council is intended to provide a focus for development concerns and interrelated aid, trade and investment policies. It would assure consistency among U.S. development programs, and between U.S. programs and positions taken in international forums. The Chairman of the Council would be appointed by the President, served by a small staff, and located in the White House. However, as discussed on page 11, the proposal fails to relate these development concerns closely to other aspects of domestic economic and foreign policy and does not meet the need for relating security and development programs to each other, even though in most countries where we pursue security objectives we pursue development objectives as well. Alternative coordinating arrangements are discussed on pages 49–58 of the annexed issues paper.

Other Issues

In addition to these major conceptual and organizational issues the NSC might wish to discuss some additional items for possible inclusion in your aid message. These might include the following:

1. Population.

The Task Force recommends that we call for an international study of the population problem, led by the UN Fund for Population, to define assistance requirements in this area more clearly. There is no dissent from that recommendation. However, it is not certain that UN institutions can make this survey when many members still oppose population programs.

2. Debt Relief. (Issue 48, pp. 94-95)

The Task Force suggests international action to devise a strategy for long-term debt relief for countries likely to have a serious debt service problem in the next decade. NSDM 41⁷ established a group under Treasury leadership. While their report to you may turn up interagency disagreements on details, there is general agreement with the main thrust of the Peterson suggestion, namely that the debt service problem should be treated as a part of total development strategy, be approached multilaterally, but undoubtedly will need to be applied on a case-by-case basis.

3. Aid Untying. (Issues 46 and 47, pp. 90-93)

The Peterson Group suggests that we initiate multilateral action for general untying, unilaterally permit LDC’s to participate in providing goods and services under U.S. development loans (as was recently done for Latin America) and remove procurement restrictions in the U.S. investment guarantee program. The issue is the trade-off between U.S. balance of payments considerations and the advantages of using our assistance programs for development purposes (not for export promotion). There is the subsidiary issue of tactics and how we should encourage multilateral untying.

4. Administrative Flexibility. (Issues 38-41, pp. 81-85)

While many administrative restrictions can be removed when new legislation is prepared, the Peterson Task Force specifically mentions that (a) the Hickenlooper Amendment has outlived its usefulness and (b) the provisions relating to penalties for the purchase of sophisticated military equipment are unduly rigid and not consistent with your concept of a mature partnership. There is virtually no dissent among agencies that these “barnacles” should be lopped off and further encrustations resisted. Those who criticize what they consider to be the arrogant use of U.S. power are often responsible for the arrogant use of our foreign assistance program to impose a particular U.S. point of view.

Illustrative List of Follow-Up Studies

It is suggested that the USC be instructed to initiate studies along the following lines:

1. Financial Implications (appropriation levels for bilateral and multilateral development assistance; projected funding for security and other programs).

2. Security Assistance (implications of separate rationale and organization).

3. Development Bank (management and financial structure, functions, method of operation).

4. Development Institute (management, financing, functions, method of operation).

5. Financing of International Programs (UNDP, WFP, UNICEF, etc.).

6. Legislative Implications (Hickenlooper and other restrictive amendments; relation to FMCS, PL-480).

7. Assistance to the Private Sector (III A, ownership, U.S. investment restraints, tax incentives, guarantees).

8. Untying.

9. Debt.

10. PL-480 (terms, export flexibility).

11. Latin American Policy (the new assistance organization and cohesive country programming, a possible distinctive organizational arrangement for Latin America, the effect on hemispheric multilateral assistance mechanisms, the consequences for the existing separate Alliance for Progress).

12. Role of the Inspector General.

Elliot

1. Source: National Archives, RG 59, S/S Files: Lot 80 D 212, NSSM 45. Confidential. Attached to a March 27 memorandum from NSC Secretariat Director Jeanne Davis to the members of the NSC informing them the paper would be the basis for discussion at the NSC meeting on foreign assistance on April 8. The meeting was ultimately canceled.
2. Numbers in parentheses refer to the issues and pages in the annexed NSC Issues Paper. [Footnote in the source text. The 101-page NSC Issues Paper is not printed.]
3. The Export-Import Bank would also wish consideration to be given to having DOD assume full responsibility for financing the sale of military items to the developed as well as the developing countries. [Footnote in the source text.]
4. Expressed in the President’s address on Latin American policy on October 31, 1969. See Document 122.
5. International development bank bills in the Senate now go to the Foreign Relations Committee for authorization. [Footnote in the source text.]
6. This might include retaining the means for conducting technical assistance programs where they now exist, even though we may later choose to cut back some of these programs as suggested by Peterson. Having this facility in the Bank could ease adjustments in areas such as Africa where our technical assistance efforts are often the only visible sign of U.S. interest in development. [Footnote in the source text.]
7. Entitled “Debt Service,” dated February 18, 1970.