347. Telegram From the Embassy in Barbados to the Department of State1

922. Subject: PARM Proposal for Bilateral Assistance. Ref State 084733.2

1. In its FY 78–79 PARM, the Embassy proposed that the present US policy of providing aid to the states of the Eastern Caribbean on an exclusively regional basis be altered and that some aid be provided also on a bilateral basis.3 Reftel responds to this proposal by raising questions dealing with five separate areas of consideration. Specifically, AID asks us to comment on:

A) Types of projects envisaged, economic rationale, and relation to AID’s mandate;

B) The islands’ ability to plan, implement and absorb bilateral assistance;

C) Justification for grant aid;

D) The possible negative effect on regionalism of a change in our aid policy; and

E) The expected administrative burden and staffing needs.

2. The future of regionalism. Para one and question (D) of reftel express a concern that the proposed policy shift will have a negative effect on “regional cooperation” and “our desire to encourage the maximum participation by other aid donors.” It is true that, if regionalism were alive and thriving, our beginning to provide bilateral aid would to some, probably limited, extent impede its forward progress. Unfortunately, while the rhetoric lives, the substance of regionalism is quite dead (if indeed it ever really lived outside the minds of British colonial officials). Our continuing the present policy of providing assistance [Page 859] exclusively through regional institutions will neither revive meaningful regional cooperation nor prolong the lives or enhance the effectiveness of regional institutions. It will, however, rob us of the possibility of making a limited but realistic contribution to the small islands’ development, as well as of the opportunity to forestall political developments inimical to our interests. We do not disagree with the Department’s view that regional integration in the Eastern Caribbean (and elsewhere) is desirable. However, even prior to the recent restrictive trade measures enacted by the Jamaican and Guyanese Governments and the recent attacks by small island leaders on the CDB and CARICOM, disintegration rather than integration was the dominant trend. Nothing we can do will change that fact and, moreover, a continuing futile attempt to do so gains us nothing but risks losing us a great deal. Nor should we believe that our provision of bilateral aid will lessen the commitment of other donors. British aid is phasing out (even more rapidly than we had anticipated) and will eventually be reduced to a minimum irrespective of our actions. Canadian aid, we are told by Canadian officials here, may rise slightly but is basically fixed, and there is no reason to believe it will decrease if we go bilateral.

3. Programs. In our opinion, bilateral economic aid to the small islands should concentrate on projects that will lead to permanent employment. Infrastructure projects should be generally avoided unless correcting a particular deficiency is a necessary pre-condition to increased employment.

(For example, we should consider aid to promote light industry, build factory shells, and recruit investors, but not to construct roads unless transportation improvement coupled with the remedying of other disincentives will clearly increase production and thereby employment.) Social capital projects like housing should be avoided. But not necessarily housing improvement. On the other hand, health improvement efforts would be useful. Our rule should be to avoid seeking to do the “undo-able,” such as trying to make the islands self-sufficient in processed food. Instead, we should take account of their natural advantages (literate labor force, location close to North America, tropical climate, tourism potential) and assist both the governments and the private sector to exploit those advantages. Assistance to agriculture certainly should not be ruled out, but it should be aimed at promoting the production of crops that enjoy some natural advantage such as fruit crops, arrowroot, spices, coffee and cocoa. While it is appealing to concentrate on food production as an import substitution measure, and increasing local food production is an obvious way of reducing the islands’ foreign exchange outflows, we fear that, because of scale limitations, transportation problems and other economic and social factors, this effort can succeed in only a limited way. On balance, it is [Page 860] probably more rational economically for the islands to continue to import a substantial quantity of their food and to concentrate on producing for foreign exchange goods (e.g., traditional agricultural exports) and services (e.g. tourism) for which they have a natural advantage. Aid to education should be avoided, except for technical training, and even then, only if there is a present or realistically anticipated future local need for those to be trained.

Some of what we have proposed above AID is presently trying to accomplish using regional institutions. However, as we have argued previously (in last year’s CASP4 and this year’s PARM), it is our conviction that regionalism is on the wane and therefore our efforts—if they are to be effective and at the same time provide us with necessary political leverage—must necessarily be increasingly bilateral in character. The target groups we propose to reach with bilateral assistance are identical with those being addressed through present and proposed regional projects and therefore, in our view, should conform with AID’s congressional mandate.

4. Absorptive capacity and the ability of island governments to utilize aid.

The small island governments are “thin”, with normally a reasonable degree of competence at the top and scanty back-up capability down through the hierarchy. Much of our initial aid effort will require almost “turn-key” projects. Later, with increased competence in the governments derived from training assistance, this problem should diminish. (Training assistance, however, cannot be expected to be overly effective in the local context. The loss rate among those given external training will remain high and over-training should be carefully avoided. In addition, island govt personnel should only be trained for an existing or expected slot, and they should only be trained up to the level of sophistication their govts can effectively utilize.) The twenty-five percent contribution requirement should not prove a serious constraint, given both the islands’ limited absorptive capacities and the modest program levels anticipated.

5. Grant aid. Our rationale for grant aid to the Eastern Caribbean LDC’s is that their small size, economic difficulties, and the further burden about to be imposed on them of providing the trappings of sovereignty will make it difficult for them to service even moderate amounts of aid debt. It is not generally realized how poor these countries really are. Indeed, it may well be that a majority of the rural [Page 861] inhabitants of Dominica and St. Vincent (and possibly St. Lucia) enjoy a per capita GDP in Haiti’s class. Since we are not advocating a total abandonment of regional aid, we believe it would be logical in the beginning to provide bilateral aid in grant form while proceeding simultaneously with the more promising of the planned loans to regional institutions.

6. Administrative considerations/staffing. We see a multiplicity of arrangements as possible, but feel that ultimate choices must be deferred until the programs are cast in more concrete terms. Administrative costs will undeniably be high compared to aid delivered but, at the same time, low in absolute terms.

Mini-aid programs in the small islands will, of necessity break new ground and, in order to be effective, both in terms of program design and administration, will often require departures from standard practice. There will be new difficulties as well as the old familiar ones, but we trust that solutions can be found.

8. The independence timetable and our timing.

In the last 18 months, the expected order in which the five Associated States are expected to make the break has changed drastically. However, it now seems likely Dominica will go first (November 1977), St. Kitts-Nevis second (possibly before year’s end but more likely sometime in the first half of 1978) and St. Lucia third, although that island’s date is hard to predict. We are sure the British will interpose no objections to our laying the groundwork for bilateral aid prior to actual independence. The announcement alone of an intention to begin bilateral aid would, we believe, contribute significantly to stabilizing the political situation in the region. However, if we delay unduly and remain unresponsive to the island leaders’ repeated requests for bilateral aid, the political environment is likely to change quickly in ways damaging to our interests. Moreover such changes, if they occur, could preclude our later successful involvement. We understand that under normal programming procedures, bilateral projects could not be instituted prior to FY79. That, in our view, would be too late. We urge the Department and AID to find ways of devising a quicker response to the islands’ needs (even if it requires congressional notification).

  1. Source: National Archives, RG 59, Central Foreign Policy File, D770144–0130. Confidential.
  2. Not found.
  3. In telegram 723 from Bridgetown, March 31, the Embassy submitted the first part of its FY 1978–1979 Policy Analysis and Resource Management assessment for the Eastern Caribbean, which stated, “we believe that moderate amounts of bilateral aid, programmed with a view to alleviating the area’s number one socio-economic problem, unemployment, might at least help to halt the slide toward social disintegration and political extremism and buy time for forces that are moderate in outlook and favorably disposed toward the US.” (National Archives, RG 59, Central Foreign Policy File, D770113–0914) Parts II and III of the PARM were sent in telegram 735 from Bridgetown, April 1. (National Archives, RG 59, Central Foreign Policy File, D770113–0688)
  4. The FY 1977–1978 Country Analysis and Strategy Analysis and Strategy Paper for the Eastern Caribbean was sent in airgram A–12 from Bridgetown, March 10, 1976. (National Archives, RG 59, Central Foreign Policy File, P760037–0812)