282. Memorandum From the Special Representative for Economic Summits (Owen) to President Carter 1

SUBJECT

  • Economic Assistance Options

Attached is a memorandum that the PRC decided should be prepared, asking you to make choices concerning the aid strategies and long-term funding levels that will guide internal US planning. OMB is anxious to get your decisions soonest, to help it in reviewing AID’s FY [Page 867]1979 request. If you wish a meeting with the PRC principals before deciding, please let us know.

A later memorandum will come to you by November 30 about organizational issues.

This memorandum was prepared by Guy Erb of the NSC staff and me. It is based on the Development Coordination Committee and Brookings studies of foreign aid, and on PRC discussion of these studies. It has been coordinated with other agencies. The preferences of these agencies among the indicated strategies and options are stated in the memo.

My own views are not recorded in the memorandum. I favor Strategy #1, focusing concessional development aid on helping poor people in poor countries, while using Supporting Security Assistance and such non-concessional aid as World Bank loans to help middle-income countries; and I favor the moderate funding option, a one-third overall increase in concessional assistance by FY 1982. I would make implementation of whatever decision you reach about aid funding conditional on your being satisfied that needed improvements in aid effectiveness have been achieved. This is at least as important as funding levels.2

If you are pressed for time, it is not necessary to read the tabs. You may, however, want to look at Cy’s memo at Tab F, commenting on the future of US foreign assistance.

Attachment

Memorandum for President Carter 3

CONCESSIONAL ECONOMIC ASSISTANCE OPTIONS

This memorandum is to secure your guidance on US concessional economic assistance strategy and longer-term (FY 1982) funding goals.

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That guidance will provide the basis for Executive Office review of 1979 aid budget requests and for the planning of later aid programs.

This memorandum draws on studies of alternative strategies, funding levels, and organizational arrangements prepared by the Development Coordination Committee and the Brookings Institution. Summaries of these studies are at Annexes A and B. This memorandum deals only with concessional assistance. It does not deal with the capital replenishment of the World Bank and other hard lending agencies—a replenishment which, although largely without impact on federal outlays, will require substantial appropriations under present Congressional procedures. Nor does it deal with military assistance.

I. Introduction

In the last twenty-five years, considerable progress has been made by the developing countries. With substantial external assistance, many of these countries have achieved sufficient growth so that they no longer fall into the category of poor countries as defined by the World Bank, i.e., countries with less than $520 per capita annual income in 1975 dollars. These middle-income developing countries, most of which are in Latin America and East Asia, can now rely mainly on export earnings, hard loans from the World Bank and other private and public lending institutions, and private investment. Their growth rates do not depend on further large-scale concessional aid.

Nonetheless, over a billion people in the developing world still live in degrading poverty. Many of them are in the middle-income countries; these countries often lack the technical expertise and resources, and more importantly the political will, to improve the lot of their poor. Most of the world’s poor, however, are in poor countries—largely in South Asia and Africa. US policy should seek to help these countries achieve faster growth with equity, so that their peoples can overcome poverty and so that their governments can reduce their reliance on concessional aid. In addition to the strong moral and humanitarian considerations involved, we have a powerful interest in helping to bring about the increased food output and the reduction in rates of population growth that would attend more rapid growth in the developing world.

The main prerequisite to achieving these goals, apart from open markets and expanding economies in the industrial countries, is more effective domestic policies in the LDCs. Although external resources are only a small part of the total resources available to LDCs, they can be important in bringing about needed policy reforms. To secure these external resources, the poorer LDCs need increased concessional aid; they cannot rely wholly on export proceeds.

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The United States currently provides only about 30% of total OECD Official Development Assistance. The poor countries’ needs for increased concessional aid must thus be met by increased contributions from all donor countries. The US role will be critical in determining whether such an aid effort is forthcoming. Although other countries’ aid as a share of GNP is greater than ours and has been rising, while ours has been declining as a percentage of GNP, we are still the largest single donor, and other countries look to us for leadership.

Concessional aid is only one of several means by which the industrial countries assist progress in the developing world. A total policy response to economic development must include such other actions as trade and commodity policy, which are not treated in this paper. But bilateral and multilateral concessional aid is an essential element in the mix.

Two contradictory trends bear on the future of concessional assistance:

—US interdependence with the developing world is increasing. An improvement in the economic welfare of LDCs benefits the United States, both economically and politically. Higher LDC production of food, energy, and raw materials would serve US interests—as would the decline in the rate of population growth that would likely result from higher LDC levels of health and education.

—The difficulties of securing foreign assistance appropriations from the Congress remain; they will grow if aid requests are increased.4 Widespread public support for aid is lacking. In part, these difficulties reflect criticism of the effectiveness of bilateral assistance. In part, they reflect Congressional concern over lack of US control over multilateral aid.

These facts underline both the importance and the difficulty of securing the increased US assistance pledged at the Downing Street Summit5 and elsewhere. They point up the need for measures to improve the effectiveness of our bilateral aid programs, if enlarged resources are to be secured. They also point up the need for having a clear foreign assistance strategy and for explaining to the Congress and the American people the link between that strategy and our domestic and international interests.

Against this background, three questions need to be addressed in determining the optimum role of US economic aid to developing nations:

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—What aid strategy will best achieve US objectives?

—What FY 1982 funding levels should be envisaged as goals?

—What are the organizational prerequisites for an effective aid program?

This memorandum addresses the first two questions. A separate report about organizational issues will be forwarded to you by the end of November. Decisions on the questions raised in this memorandum need not wait on that report.

II. Present Programs

Bilateral concessional economic assistance is immediately responsive to Presidential decisions and permits concentration on geographic and functional areas of importance to the United States. It has three major components:

—The development assistance program of AID, which has been running about $1 billion annually, concentrates around 80% of its resources on meeting basic human needs of the poor in poor countries. The rest goes for similar programs in middle-income countries, largely in Latin America. There is a heavy functional concentration (90% of the total program) on agriculture, health, population, and education—by Congressional mandate.

—PL–480 food aid, which has been running at almost $1.5 billion annually, provides food to foreign countries in the form of grants or concessional loans. About 70% of PL–480’s total dollar resources is allocated to poor countries for humanitarian relief, economic development, balance of payments support, and support of US political objectives; the rest goes to such middle-income or affluent countries as Portugal, Korea, and Israel. The selection of recipients among middle-income countries has been heavily influenced by foreign policy considerations. The size of PL–480 is partly determined by domestic agricultural conditions and objectives; these have sometimes led to its being used in ways that reduce incentives for food production abroad. USDA has announced its intention to place less emphasis on domestic-oriented goals in planning future PL–480 programs.

—Security Supporting Assistance (SSA), which has been running about $2 billion annually, is given for political reasons and is heavily concentrated in the Middle East, particularly Israel and Egypt. The funding levels requested for SSA have tended to vary from year to year, depending on political events. Its size is determined by the executive branch independently of the levels requested for development assistance; there is a potential trade-off in the Congress between SSA and development aid, however, since both are appropriated in the same bill.

Other components of US bilateral concessional assistance run to around $200 million annually and include the Congressionally funded [Page 871]Inter-American Foundation, and private voluntary organizations, which draw on official as well as private funds. Such organizations have had considerable success in reaching poor people directly through grass roots activities.

A table showing major recipients of AID funds and PL–480 over the last several years is attached as Annex C.6

Multilateral concessional assistance has two major components:

—The roughly $1 billion that the US contributes annually provides about 30% of the resources of soft-loan windows of international financial lending institutions, of which the largest is the International Development Association (IDA). These institutions’ aid is provided on concessional terms to poor countries. (The middle-income countries receive loans on non-concessional terms from the hard-loan windows of international financial institutions; the FY 1978 US foreign aid appropriation includes about $1 billion for callable capital for this purpose.)

—The roughly $200 million that the US contributes annually to development programs of the United Nations is directed to all developing member countries, both middle-income and poor.

III. Effectiveness

Measuring the relationship between aid inputs and project outputs is complicated. Some progress has been made, however, in answering the basic question of what does and does not work in respect of individual development projects.

Measuring the impact of aid on overall development programs is more difficult. As noted earlier, economic growth and social progress are determined mainly by each receiving country’s own resources and policies. Since concessional assistance usually provides only a small part of these resources, its impact hinges on encouraging the receiving countries to adopt improved policies. This leverage will vary according to the size of the recipient economy and its need for external resources. The potential for influence is thus greater in poor than in middle-income countries, and in small than in large countries.

Trying to estimate this critical link between aid flows and policy reforms is difficult—not only because it requires sorting out the impact of concessional aid from other social and economic variables, but also because it must be attempted with inadequate data and relatively weak analytic tools. To overcome these constraints and build solid assessments of aid impact will take time. A few generalizations can be made, however, about the economic effectiveness of present programs.

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The international financing institutions’ soft windows are generally well managed and have a reputation for apolitical professionalism. Our contributions to these institutions evoke larger total contributions from other countries. The fact that these institutions are international and disburse large resources enhances their influence on the receiving countries’ economic policies.7

Bilateral aid has had substantial successes, e.g., in Korea and Taiwan. These successes took place at a time when the US provided large resources and the receiving countries needed and welcomed US advice. Neither condition now obtains in the same degree. The opportunities for exerting policy leverage through US bilateral assistance programs thus hinge on an increase in its scale and a close linkage between that aid and the policies of the international lending agencies. US willingness to exert bilateral pressure for economic reform and the recipient country’s ability to yield to such pressure are now sharply constrained.

Measuring the effectiveness of US aid in promoting political objectives depends on the specific objectives involved. If aid is given as part of a base rights negotiation, its effectiveness can be judged by whether we do or don’t get the base, and at what price. But the effectiveness of aid in advancing more general objectives, such as peace in the Middle East, is more difficult to appraise: No one can be sure whether that peace would be further removed if we had given less aid. The effectiveness of aid in promoting good relations with the receiving country is even more difficult to assess. The United States probably gets more political credit from recipients for bilateral than for multilateral aid. But it is hard to define whether, and if so how, this credit gets translated into policies of benefit to the US. Countries’ gratitude tends to be short-lived.8 Providing aid for generalized political purposes is partly an act of faith—or of fear that things would be even worse without aid.

IV. Strategies

Although the funding levels discussed later in this paper treat both bilateral and multilateral aid, the strategies presented below focus largely on bilateral US assistance, since US influence over the policies of international financial institutions is limited. The question of how best to use this influence is being examined in a separate study of multilateral aid strategies and funding levels being conducted by the Treasury Department, in close consultation with the Congress.

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All the strategies described below have four things in common:

—All would continue Security Supporting Assistance,9 as a means of providing concessional aid to advance our political purposes.

—All would continue, in varying degree, the US policy of using bilateral development aid and PL–480 aid to serve basic human needs of the poor abroad.10 This means a focus on improving the lives of poor people and helping them to gain access to such amenities as adequate food and nutrition, health and family planning services, shelter, and basic education. (The definition of aid for basic human needs recommended by the PRC is given at Annex D.)11

—All would have the US take account of the human rights performance of countries in allocating aid.12

—All would emphasize global problems—food, population, health, and education13—in some degree. This emphasis could be harder to come by under a strategy that stressed political purposes than under one that stressed helping poor people. If the attack on global hunger was given greater emphasis as a rationale for increased aid, we would probably elicit increased support among the American people.

Strategy #1 would limit bilateral development assistance to meeting the basic human needs of poor people in poor countries (defined as those meeting the IDA eligibility of $520 or less in 1975 dollars),14 on the grounds that they need it and have no other recourse. The proportion of PL–480 going to poor countries would rise. Bilateral development assistance and PL–480 would be heavily concentrated in Africa and South Asia; bilateral development aid to governments in Latin America and the Near East would be limited to a few poor countries. Allocation of concessional development aid among IDA eligibles would be determined principally by the receiving country’s economic performance and commitment to helping its poor.

Concessional aid to middle-income LDCs would be gradually phased down; concessional aid to these countries in support of technological collaboration (increased US support of research, development, and training on problems of special concern to LDCs) would continue, as it would under the other strategies discussed in this report. SSA and [Page 874]hard loans from international financial institutions would continue to be used to meet other needs for aid to middle-income countries, e.g., discouraging emigration to the US and encouraging regional collaboration in the Caribbean.

Because the poor countries have a limited capacity to design and implement projects, this strategy would allow only moderate increases in AID funding levels, unless we either moved toward a broader interpretation of current Congressional mandates regarding the kinds of projects that can be aided or resumed substantial aid to India. If these changes were made, this strategy would probably result in more aid going to poor countries than any other; as a result, US influence in seeking to improve these countries’ policies would probably be greater than under any other, and there would probably be more progress toward meeting basic human needs in poor countries than under other strategies.15 Important segments of the Congress, which have been pressing for elimination of bilateral development assistance to middle-income countries, would react favorably to the greater emphasis on poor countries. So would many poor developing countries; middle-income countries might well take a different view. There might be some Congressional objection to the broader interpretation of current Congressional mandates, which would allow AID to finance infrastructure programs in support of human needs.

Strategy #2 would provide concessional assistance (both bilateral development assistance and PL–480) to meet the basic human needs of poor people, primarily in low-income countries, which would continue to receive top priority, but also in middle-income countries if enough aid were available.16 The dominant factor in allocating aid among countries would be where it would do the most good to help poor people; any aid to governments of middle-income countries would thus depend on the recipient’s commitment to helping its poor.17 Like strategy #1, this strategy would allow a sharp sectoral focus.

In granting concessional loans to middle-income countries under this strategy, our terms would be stiffer and we would expect the recipients to contribute more of their own resources than low-income countries. Because our aid would represent a smaller part of the total resources available to middle-income countries, it would probably [Page 875]provide less leverage18 on the receiving countries’ overall policies than it would in poor countries. It might have a catalytic effect, however, in stimulating middle-income countries to carry out specific programs or projects to help their poor.

Strategy #2 would allow more flexibility19 than strategy #1, since it would permit more concessional assistance to reach middle-income countries that are politically important to us and that we may want to see participate in regional development programs—provided that these countries are prepared to use US aid to help their poor. Since we cannot assume that this will always be the case, this strategy would provide less political flexibility than strategy #3, below.

The Congress might perceive this strategy as a rejection of its clearly stated preference for concentrating foreign aid in the poorest countries. If the Congress considered the amount going to middle-income countries excessive, increased aid appropriations might be jeopardized. On the other hand, we would still be serving poor people; State and AID believe there is a good chance that many Congressional objections could be surmounted.

Strategy #3 would be directed to multiple purposes, under improved procedures and with differences dictated by changing circumstances, e.g., a greater emphasis on meeting equity concerns. This strategy would give the President greater flexibility20 than strategies #1 or #2 in meeting political needs. Bilateral development aid and PL–480 aid would be used to promote such foreign policy purposes as regional cooperation and non-proliferation, even if this required using aid in ways that were not directed toward helping the poor.

Thus, although most bilateral development aid and most PL–480 would continue to go to helping meet the basic human needs of poor people, more would go to advancing political or security purposes than under strategies #1 or #2. Larger amounts of bilateral development aid and of PL–480 would be directed to key developing countries, regions, or problems of importance to the United States, regardless of the recipients’ level of development, and their commitment to helping the poor. SSA would probably be a larger part of total concessional aid than under strategies #1 or #2.

To the extent that this strategy emphasized political purposes, it would evoke stronger Congressional criticism from supporters of development aid than strategies #1 or #2. It would probably be supported by those who view aid primarily as a foreign policy, rather than a developmental, tool, on the other hand.

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Underlying the choice among these strategies are two key issues: What should be the relative emphasis in allocating concessional aid between poor and middle-income countries; and what should be the relative emphasis between development/humanitarian and political purposes? The temptation is to say that we should do all of these things: provide all the aid that is needed for all countries and all purposes. This will be possible if we can secure all the aid funds needed to these ends. But if aid funds are limited, and if the limit does not vary greatly as between strategies, hard choices will have to be faced. In this event, more aid for middle-income countries will mean less aid for poor countries, and more aid for political purposes will mean less aid for development needs. The selection of a clear strategy should assist us not only in resolving these choices but also in effectively managing our programs and in presenting them to the Congress and to the public.

V. Long-Term (FY 1982) Funding Goals

US concessional aid totaled about $5 billion in FY 1977 and nearly $6 billion in FY 1978. The breakdown follows:

Concessional Development Assistance
(Commitments in $ billions)
FY 1977 FY 1978
Bilateral
Security Supporting Assistance 1.8 2.221
AID development programs 1.1 1.2
PL–480 food aid 1.2 1.4
Other .2 .2
Subtotal 4.3 5.0
Multilateral
Contributions to multilateral soft lending .7 1.022
Voluntary contributions to UN development-oriented programs .2 .2
Subtotal .9 1.2
Total 5.2 6.2

These totals overstate the amount of aid allocated to development purposes. Some bilateral development aid, a good part of PL–480, and most SSA responds to political objectives.

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Three broad options for the levels of US concessional assistance to be achieved by 1982 are discussed below, two of them involving a real increase in aid.23 The mix of programs mentioned under each of these illustrative options is only one of a number that might be appropriate at each funding level.24 Your selection among these options will provide guidance for internal executive branch planning, but not for submission of future aid projections to the Congress at this stage.

1. Continue Present Aid Levels in Real Terms. Total FY 1982 concessional assistance (including SSA) would rise in current dollars to about $7.5 billion.25 In constant dollars it would remain the same as in FY 1978, i.e., about $6 billion. Unless there were a marked shift from bilateral to multilateral aid, this would require us to refuse the increase in the size of the soft-loan windows of the multilateral banks that their presidents are likely to propose. If SSA were held constant in nominal terms, however, this option would permit a modest increase in US bilateral concessional development assistance. Aid levels would decline as a proportion of GNP. Other donor countries’ aid performance would be adversely affected. Developing countries’ growth rates would thus be as heavily dependent as in the past on their internal economic policies and on trends in the world economy. Relatively rapid growth would probably continue in the middle-income countries of East Asia and Latin America; there would be little or no per capita income growth in many poor countries of South Asia and Africa. US aid performance would be criticized and would have an adverse impact on US relations with developing countries. This option would be viewed by many as a violation of our Summit and CIEC pledges by you and Secretary Vance to increase aid.

2. Moderate Increase in Assistance. Under this option, FY 1982 concessional development assistance (including SSA), in FY 1982 dollars, would be over $10 billion.26 In constant 1977 dollars, it would range around $8 billion, or an increase of about one-third over FY 1978 levels. This could mean:

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—about a 50% increase in real terms over the FY 1978 contributions to the soft-loan windows of the multilateral banks, which is what the heads of these banks will likely propose;

—about a 100% increase in real terms in bilateral development aid over FY 1978 levels;

SSA remaining about where it is now;

—a moderate increase in PL–480 sales.27

Assistance at this level, if carefully programmed, might well induce important policy reforms in some poor countries. In resource terms, it could have significant impact on LDC growth rates if it were focused on countries where such reforms were being undertaken. Under this option, you could more readily carry out the proposal made to you in a recent report of the National Academy of Sciences for providing increased support for private and public agricultural research and development, in the US and the developing countries,28 and you could provide for increasing technological collaboration with developing countries in other fields, as well. US aid as a proportion of GNP would be about the same as now, given the projected increase in GNP. Other donors would welcome our absolute aid increase, as would the LDCs. There would, however, continue to be LDC pressure for US concessions in other areas. There would be significant Congressional resistance, mitigated by the fact of the increase being spread over five years; a large investment of political capital and a close working relation with the Congress would be required to overcome this resistance.

3. Large Increase in Assistance. Levels of US concessional assistance (including SSA) in FY 1982 would go up to around $13 billion in 1982 dollars. In constant 1977 dollars, aid levels would range around $10 billion. This could mean not only the 50% increase in multilateral aid described above (which is probably the most that the donor countries would agree to), but almost a doubling of PL–480 over FY 1978 and a tripling in real terms and quadrupling in nominal terms of bilateral development assistance. If concentrated in a relatively small number of countries’ with growth potential, this aid level might have a significant impact on the recipients’ economic growth and their progress in meeting basic human needs—although here, too, policy reforms would be more important than the resource transfer. The US would be providing about the same proportion of GNP as aid as the other OECD countries. This option would thus place you in a good position to call for increased international effort by all countries in attacking such [Page 879]global problems as hunger and disease. It would go a long way toward meeting the developing countries’ aid demands, although they would still press for initiatives in such other areas as trade and commodities. Obtaining Congressional support for an increase of this magnitude would be extremely difficult.

VI. Your Decisions

Your Decision on Strategy for Concessional Assistance

Strategy #1: Concentrate bilateral concessional aid on helping poor countries—with SSA, non-concessional aid, and concessional aid for technological collaboration going to middle-income countries. (Favored by Treasury, OMB, and the Brookings study on the grounds that it would concentrate aid on (i) the people who need it most, because they live in countries that have less recourse to such outside resources as World Bank loans than middle-income countries; (ii) the countries where it could have the most beneficial leverage on the recipients’ policies, because it will constitute a larger share of the total resources than it would in middle-income countries.)29

Strategy #2: Concentrate on helping poor people in poor LDCs with the flexibility to reach poor people in middle-income nations as well. (Favored by State, AID, and the NSC staff on the grounds that this strategy might reach the largest number of poor people, would give the US the opportunity to develop cooperative relationships with the largest number of LDCs, and would provide substantial flexibility to meet varied objectives including regional programs, as in the Caribbean, while allowing us to balance our interests between poor countries and middle-income countries, as well as between economic and political purposes, provided that these purposes could be served by programs that would help the poor.)30

Strategy #3: Follow multi-purpose strategy, with substantial attention to the political purposes of bilateral development aid, on the grounds that this will afford us greater flexibility than either strategies #1 or #2, since aid would not be limited to helping poor people. Since this strategy would place more emphasis than strategies #1 or #2 on political and security factors in programming bilateral development aid, it would make it easier to use bilateral development aid to advance such political goals as non-proliferation and regional collaboration.31

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Your Decision on FY 1982 Concessional Aid Funding Goals

Low Option: Maintain FY 1978 aid levels in real terms.32

Moderate Option: An increase of one-third in total concessional aid over FY 1978 in real terms. (Supported by Treasury, the NSC staff, and OMB as the most appropriate target, in view of likely relevant circumstances at home and abroad. Supported by State, subject to upward revision if it is demonstrated that increased aid can be used effectively.)33

High Option: A rough doubling of total concessional aid over FY 1978, in real terms. (Supported by AID, which believes it essential that the President approve a planning figure consistent with the enormous political and economic stakes that the US has in the future growth of the developing world. The Brookings study recommends a large increase in concessional aid, and notes that various estimates of future aid needs converge around this high option.)34

Whatever your choice among these strategies and funding levels, we face a difficult task in carrying it out—in making needed improvements in bilateral development aid, and in selling both bilateral and multilateral aid to the Congress. But we can address both these tasks more effectively if we have a clear sense of your long-range goals.35

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Annex A

Summary of Study Prepared by the Development Coordination Committee 36

DCC Study

Summary

The first section of the DCC report discusses the US stake in the developing world, the history and role of US development aid, and the major instruments used to provide assistance (bilateral development programs, PL–480, International Development Lending Institutions, or IDLIs, UN programs and strategy emphasizing growth with equity and aimed at meeting basic human needs) as the most effective way of promoting US development aid objectives.

The second part of the study, whose purpose is to examine the effectiveness of each of the major instruments mentioned above, concludes that all are generally effective in addressing major objectives but that some have comparative advantages in specific areas: bilateral development assistance; IDLI soft lending and UN programs in meeting developmental-humanitarian goals; IDLI hard lending in meeting economic-commercial goals; security supporting assistance in meeting security-political goals.

The study discusses problems which confront bilateral and multilateral assistance efforts. Citing improvements and reforms which could improve bilateral and multilateral assistance, the study includes the following measures which could enhance the effectiveness of the bilateral program: (a) concentrating bilateral development assistance on countries willing to adopt appropriate policies conducive to equitable growth, (b) influencing domestic LDC development policies by use of leverage, and (c) innovative programming to demonstrate new ideas and a dialogue with LDC officials to influence their acceptance of program and policy changes.

The final part presents major substantive and funding issues, some with DCC recommendations and others, where no DCC consensus emerged, with options for PRC consideration. Major issues include:

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—Overall strategy for development assistance.

—Funding levels: Illustrative 1982 funding levels are presented, each representing a substantial increase over current amounts for all programs in both real and nominal terms.

—US assertiveness in pushing basic human needs and types of BHN programs to be funded: the DCC recommends supporting the IDLIs and the LDCs in stressing BHN rather than taking the lead unilaterally, and also recommends an “intermediate” approach permitting some capital investments in addition to programs immediately benefiting the poor.

—Bilateral programs: Options are presented on the mix of countries to be assisted, the sectoral composition of the programs and the degree of conditionality to be used in allocating funds.

—Security supporting assistance: This issue relates to the separation of politically motivated programs from those with mainly developmental objectives.

PL–480: The DCC recommends de-emphasis of market development and surplus disposal, and maximum use of the new Title-III authority.

—IDLIs: Options are presented on the mix of hard and soft lending and the relative emphasis of the World Bank and regional banks. No recommendations are made because of Treasury’s agreement to undertake a full study of future US approaches to the IDLIs, in consultation with the Congress.

UN programs: Options are presented on increasing the US share of voluntary contributions to UN programs and on the relative role of UNDP and the specialized agencies.

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Tab B

Summary of Interim Report Prepared by the Brookings Institution 37

Brookings Interim Report: An Assessment of Development Assistance Strategies

Summary

The study is based on the premise that although development must occur primarily through self-help, increased concessional aid for the poorest and non-concessional aid for the middle-income countries is needed and can play an important role in hastening growth with equity. Furthermore, the continuous development of new knowledge is critical to development and is a field where the US has a unique capacity, drawing extensively on the US private sector, to build indigenous LDC capabilities.

In its consideration of the effectiveness of current programs, the report concludes that most bilateral foreign aid vehicles need substantial improvement.

1. AID: AID has over-narrowly interpreted the New Directions mandate,38 thereby missing areas important to development—such as regional development and research. Managerially, it has been hobbled by unnecessary paperwork, overly restrictive legislation, and insufficiently qualified personnel.

2. PL–480: With insufficient stress on promoting economic development, PL–480 aid has not fulfilled its potential, and has occasionally acted as a disincentive to LDC agricultural production.

3. Security Supporting Assistance does not go to the countries that most need development aid, and cannot be readily used to influence the receiving countries’ economic policies; has little development impact, and detracts from the amounts otherwise available for development assistance. Its benefits are largely political.

The report expresses a different view on multilateral assistance: The International Financial Institutions, particularly the World Bank Group, have been effective and efficient, have mobilized other donor [Page 884]countries’ resources, and have exerted substantial influence on the receiving countries’ policies.

The Brookings report includes the following recommendations:

1. Program Direction: US development assistance should focus on meeting basic human needs, by expanding productive employment, as well as by the direct provision of services and commodities to the poor. This would entail:

—concentration of bilateral concessional assistance on the poor countries and the use of concessional aid to support technological collaboration in the middle-income countries and non-concessional aid to meet their other needs;

—greater reliance on the recipient country’s responsibility for project design and administration;

—a larger effort to mobilize the resources of the private sector, in both the US and developing countries, to promote research, development, and training on problems of direct concern to developing countries;

—a PL–480 food aid program directed largely to development and humanitarian goals;

—continued support for expansion of multilateral hard lending to middle-income countries.

2. Institutional Arrangements: To improve the US capacity to implement an effective development assistance program:

AID should be replaced by (i) a Development Cooperation Agency (DCA) to carry out existing AID functions, whose creation could be the occasion for needed legislative, procedural, and personnel changes; and (ii) an International Development Foundation (IDF), guided by a board of public and private members, to define and support research, development and training programs on problems of concern to LDCs.

SSA should be administered by the DCA; its funds would be appropriated to, and justified to the Congress by, the State Department.

—A Coordinator for International Development Policy should be appointed to ensure that the different types of assistance (bilateral development aid, IFIs, PL–480, etc.) fit together into a coherent program.

3. Funding Levels

—The Brookings Study presents alternative funding levels. Under the high option, concessional assistance would double in real terms between 1977 and 1982—from $5.04 billion to $9.9 billion in 1977 dollars. Under the lower options, FY 1982 aid levels would be $7.5 and $8.8 billion respectively.

The report suggests only a modest increase in bilateral development assistance for next year; larger increases would only be requested the following year, after the proposed changes in aid procedures and organization had taken effect.

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Tab F

Memorandum From Secretary of State Vance to President Carter 39

SUBJECT

  • The Future of U.S. Foreign Assistance

You are receiving an NSC memorandum presenting three alternative strategies to guide future U.S. foreign assistance programs as well as alternative planning figures for FY 1982 funding levels.

I would like to reiterate my personal support for Strategy #2, which concentrates on poor people, with a priority for low income countries but with flexibility to maintain or initiate programs in some middle income nations as well. I believe this approach would permit us to respond to the needs of the greatest number of poor people and also maintain necessary foreign policy flexibility. In addition I believe this strategy can be successfully defended in Congress, because it will be focused on basic human needs in sectors such as health and agriculture, because middle income nations would be expected to devote a significant amount of their own resources to projects that we help fund, and because our loans to these countries would be on stiffer terms than those for poorer countries.

If we confine ourselves only to low income nations (Strategy #1), we will lose the opportunity for programs in areas like the Caribbean, which you have designated as high priority. On the other hand, if we pursue the so-called “multipurpose” approach (Strategy #3), I believe that our programs will be too diffuse and that both program effectiveness and congressional support will suffer accordingly.

On funding, I strongly recommend the middle option—a moderate increase in assistance with a planning figure of around $8 billion in 1977 dollars or $10 billion in 1982 figures. In my estimation this amount is sufficient to meet your pledge for “substantial increases.” However, I would hope that you will permit this planning figure to be revised upward if we can demonstrate that increased amounts of aid can be used effectively.

  1. Source: Carter Library, National Security Affairs, Brzezinski Material, Subject File, Box 16, Economic Assistance Strategy: 10/77–5/78. Confidential. Sent for action.
  2. In a November 11 memorandum to Carter, Brzezinski indicated his support for “State and AID in their preference for strategy number 2. It combines the morally desirable objective of focusing on the poor people with the needed political flexibility. Strategy number 3 is too vague, while strategy number 1 does not give us the occasionally needed flexibility for political purposes or, indeed, for the morally good objective of stimulating some concern within middle-income nations for their own poor people.” Carter initialed Brzezinski’s memorandum, a stamped notation at the top of which reads: “The President has seen.” (Ibid.)
  3. Confidential.
  4. Nonetheless, AID notes that in recent years the Congress has approved increasing levels of economic assistance, and that AID authorizing legislation has been passed by larger majorities than in the past. [Footnote in the original.]
  5. For the text of the Declaration issued at the conclusion of the London G–7 Summit, see Public Papers of the Presidents of the United States: Jimmy Carter, 1977, Book I, pp. 819–824. See also Documents 27 and 28.
  6. Tab C, attached but not printed, is a table entitled “Major Recipients of U.S. Economic Assistance Ranked by 1976 Per Capita GNP.” In the margin at the end of this paragraph, Carter wrote: “Table seems to lack logic in ’78 proposals.”
  7. Carter underlined these words and phrases in this paragraph: “international financing institutions”; “well managed”; “larger”; “contributions”; “other countries”; and “enhances their influence.”
  8. Carter underlined the words “gratitude” and “short-lived” and wrote “amen” in the margin adjacent to this sentence.
  9. Carter underlined the words “continue Security Supporting Assistance.”
  10. Carter underlined these words and phrases in this sentence: “continue”; “using bilateral development aid”; “PL–480 aid”; and “poor.”
  11. Tab E (not Tab D, as indicated in the memorandum), attached but not printed, is an undated paper entitled “PRC Recommendation for the Basic Human Needs Approach of US Foreign Assistance.”
  12. Carter underlined the words “human rights performance.”
  13. Carter underlined the words “food,” “population,” “health,” and “education.”
  14. The map at Tab E shows eligible nations. [Footnote in the original. Tab D (not Tab E, as indicated in the memorandum), attached but not printed, is a World Bank map entitled “Countries Eligible for Soft Loans from the International Development Association (IDA).”]
  15. Carter underlined these phrases in this sentence: “US influence”; “be greater”; and “meeting basic human needs.”
  16. Carter underlined these phrases in this sentence: “poor people” and “middle-income.”
  17. Carter underlined these phrases in this sentence: “most good” and “help poor people.”
  18. Carter underlined the words “less leverage.”
  19. Carter underlined the words “more flexibility.”
  20. Carter underlined the words “greater flexibility.”
  21. Carter drew an upward-slanting arrow next to this number and a horizontal arrow next to the next three numbers in this column.
  22. Carter drew an upward-slanting arrow next to this number and a horizontal arrow next to the number below it.
  23. The Brookings study concludes that substantial changes in past AID management practices and personnel procedures would be needed if these increased funds were to be effectively spent. Governor Gilligan indicates that he has already begun making these improvements. The Brookings study suggests that changes in legislation and in Congressional requirements regarding aid presentation and implementation would also be needed. These issues will be treated in our later paper on organizational issues. [Footnote in the original.]
  24. The illustrative figures shown under each option do not include the over $800 million by which we will soon be in arrears in meeting our past commitments to the soft- and hard-loan windows of international financial institutions. We will have to seek additional funds from the Congress to cover these overdue payments. [Footnote in the original.]
  25. Carter underlined these phrases in this sentence: “FY 1982” and “$7.5 billion.”
  26. Carter underlined these phrases in this sentence: “FY 1982” and “$10 billion.”
  27. Carter wrote “—?” in the margin adjacent to this point.
  28. This report, entitled World Food and Nutrition Study: The Potential Contributions of Research, called for additional spending on nutrition and food production research. See Foreign Relations, 1977–1980, vol. II, Human Rights and Humanitarian Affairs, Document 212.
  29. Carter did not indicate his preference with respect to this option.
  30. Owen wrote “Supported by Peter Bourne” at the end of this paragraph. Carter indicated his approval of this option and initialed “J.”
  31. Carter did not indicate his preference with respect to this option.
  32. Carter did not indicate his preference with respect to this option.
  33. Owen wrote “Supported by Peter Bourne” at the end of this paragraph. Carter indicated his approval of this option and initialed “J.”
  34. Carter did not indicate his preference with respect to this option.
  35. At the end of the memorandum, Carter wrote: “Need to sell to people—Develop comprehensive PR effort—Needs to sound conservative & idealistic—Use popular persons from movies, sports, etc.—Also, we do not need to use World Bank measurements which minimize importance of PL 480.” On November 29, Erb forwarded to Brzezinski a paper that he and Thornton had prepared entitled “Public Presentation of a North-South Strategy.” According to Erb’s cover memorandum, a meeting was to be held on the issue on November 30. No memorandum of conversation of the meeting was found. (Carter Library, National Security Affairs, Brzezinski Material, Brzezinski Office File, Subject Chron File, Box 108, North-South Policy: 1977)
  36. Confidential. Gilligan circulated the DCC study on U.S. foreign assistance, as well as a summary of its findings, to PRC members under cover of an October 6 memorandum. (Carter Library, National Security Council, Institutional Files, Box 26, PRM–08 3 of 3 [1])
  37. No classification marking.
  38. Reference is to the changes in U.S. foreign aid programs mandated by the Foreign Assistance Act of 1973 (P.L. 93–189).
  39. Confidential.