U.S. Department of State
FRUS, 1961-63, Vol. IX: Foreign Economic Policy
Office of the Historian

[Section 6 of 18]

Foreign Assistance Policy

84. Report Prepared by the Policy Planning Council

//Source: Department of State, Central Files, 740.5 - MSP/1 - 1961. Secret. Drafted by William O. Webb (S/P) on January 19. Forwarded to Deputy Under Secretary of State for Political Affairs Raymond A. Hare under cover of a January 19 memorandum from George A. Morgan, which is attached to the source text. Morgan indicated in his memorandum that, following Hare's oral request, the Policy Planning Council "has for some months been analyzing the problem of the effectiveness and optimum goals of US external military aid policies and programs," and this paper represented its general conclusions.

Washington, undated.

US MILITARY AID POLICY TOWARD NON-NATO COUNTRIES

1. Development of a clear concept of the rationale and purpose of US external military aid programs has been hampered by a widespread disposition to justify military aid primarily on grounds that it should contribute--more or less directly--to strengthening the military posture of the United States. Experience since World War II, however, has shown that US military aid also serves a variety of non-military purposes and that even the purely military returns vary widely in nature and amount from country to country. This confusion about the purpose of military aid and the impossibility of laying down broad criteria applicable to a world-wide military aid program has caused difficulty not only with Congress but in the formulation and administration of military aid.

2. Military aid does and should serve a variety of purposes. The more important ones are listed below and demonstrate clearly that (a) many are non-military; (b) few if any have general application; most are important in some areas and unimportant or inapplicable in others; and (c) their importance in different areas changes with changing military and political conditions. These variously valid purposes are to:

(1) Assist the US to deter or meet overt Bloc aggression;

(2) Provide quid pro quo for the right to maintain US bases;

(3) Develop facilities in the recipient nation for possible use by US forces in the event of local aggression;

(4) Assist a country to cope with Bloc-inspired subversion, disorder, or guerrilla activity;

(5) Assist in maintaining internal security;

(6) Preserve the territorial integrity of the recipient nation against its neighbors;

(7) Deter recipient nations from seeking military aid from the Bloc or other undesirable sources, or balance the effects of such aid;

(8) Maintain pro-US regimes;

(9) Assist in assuring a pro-US indoctrination in local military groups;

(10) Support nation-building activities.

3. One principle that is generally valid with regard to military aid is that we should tailor the aid to serve, as well as possible, as many as possible of the purposes that are valid at the particular time and place. Thus for example even if an aid program is initiated as quid pro quo for base rights, we should seek to have it serve other constructive purposes, such as nation-building, not just tickle the vanity of the recipients.

4. Non-NATO recipients of US military aid by and large now fall into three general categories:/1/

/1/Some countries fall into more than one category. [Footnote in the source text.]

(a) those requiring assistance for military forces to meet a demonstrable military threat;

(b) those requiring military assistance to meet threats of subversion, guerrilla activity, or local aggression;

(c) those having no demonstrable military requirement for assist-ance but receiving military aid largely for political or other reasons such as quid pro quo for base rights.

5. The problems with regard to administering military aid programs for countries in category (a) are largely military ones once the decision has been made regarding the desired level of indigenous forces it is in the US interest to support. However, the decision which places a given country in category (a) is not always a purely military or strategic one. For example, Pakistan has been receiving military assistance with the aim of building a force capable of contributing to the defense of Pakistan against Bloc aggression. It might well be asked, however, whether the limited contribution even US-supported Pakistani forces could make toward coping with Bloc aggression compensates for the drain on Pakistani resources which could otherwise be devoted to economic development and for the political problems US military aid to Pakistan has caused with India and Afghanistan. In short, military criteria should not be the only basis for deciding what kind of a military aid program in a given country best serves US interest.

6. This is clearly even more true in the case of countries falling in categories (b) and (c). Overemphasis on conventional military criteria has in part been responsible for the comparative neglect in US military assistance programs of the need for aiding non-NATO nations to cope with the whole range of internal security problems including subversion, internal disorders, and guerrilla activity. Internal security, as thus defined, is rapidly becoming a major problem for many non-NATO nations and hence for the US. In most areas, political and economic meas-ures are necessary for a permanent solution of the causes of internal security; hence the military aspects of an aid program must be dovetailed with them, and often be subordinate to them.

7. Finally, there are countries in category (c) which for a variety of non-military reasons are receiving or should receive military aid. In these cases, the type of military aid given should be determined almost exclusively by political considerations.

8. Thus, in all cases where purely military requirements, from the US point of view, are not overriding or are subordinate to political requirements, US military assistance programs should be geared primarily to achieving US economic, social and political objectives in a given country. These objectives will vary, of course, from country to country, but in general this approach to military assistance should make for greater efficiency in the use of military aid, not only to improve internal security capabilities, but, for example, to indoctrinate military personnel along lines favorable to US interests and assist nation-building activities through the construction of roads, harbors, etc., and the training of labor in useful civilian skills.

9. If US military assistance programs are going to achieve maximum results politically as well as militarily, it will be necessary to make some changes in the administrative arrangements under which these programs are now formulated and implemented in order to achieve closer cooperation between State and Defense. It is not recommended that any type of new joint agency be established. Indeed, despite the substantial and increasing political content of military aid programs, primary responsibility for them should remain with Defense. The desired goal could perhaps best be achieved by assigning a few State officers to work on an integrated basis in Defense. They would not be expected to speak officially for State or to be a substitute for the liaison that now takes place at various levels between State and Defense on military assistance programs. Their primary contribution would be to bring their experience in political and economic affairs to bear at an early stage on the formulation and administration of military assistance programs, in a way that is virtually impossible within existing bureaucratic liaison machinery between the two Departments. Their participation in the preparation and implementation of military assistance programs would, at the very least, assure that political and economic, as well as military, goals were being given constant and fruitful attention.

85. Memorandum From Manning H. Williams of the Operations Coordinating Board to the Executive Officer of theOperations Coordinating Board (Smith)

//Source: Kennedy Library, National Security Files, Departments and Agencies Series, Food for Peace. No classification marking. Attached to the source text is a newspaper clipping from The New York Times, January 25, 1961, summarizing a task force report, chaired by Murray D. Lincoln, President of Cooperative for American Remittance Everywhere, Inc. (CARE), which recommended among other things discarding the concept of "surplus disposal" legislation in favor of increased funding for 5-year contracts with foreign nations wanting U.S. farm products. This report is also summarized in Department of State Bulletin, February 13, 1961, p. 217.

Washington, January 25, 1961.

SUBJECT

Food-for-Peace through Development

In his memorandum of January 24,/1/ President Kennedy said he has asked the Food-for-Peace Director to conduct an intensive review of uses of U.S. agricultural products abroad and possible improvements in them.

/1/In this memorandum to department heads and agencies, the President explained the centralization of government oversight of the movement of agricultural commodities and products abroad under the Director of the Food for Peace Program, who was directed "to exercise affirmative leadership and continuous supervision over the various activities in this field, so that they may be brought into harmonious relationship." Accompanying the memorandum was Executive Order 10915, January 24, 1961, which provided the legal authority for the Director's assumption of these additional coordinating responsibilities. For text of the President's memorandum and Executive Order, see Department of State Bulletin, February 13, 1961, pp. 216 - 217.

Immediate attention should be given to focusing on the "food for development" aspects of Food-for-Peace. This is the realistic focus for advancing U.S. interests and also the interests of the impoverished countries.

Although "food for development" is already an integral part of the President's general Food-for-Peace program, it seems to have been pushed to the background by the idea of "helping provide a more adequate diet for peoples all around the world."/2/ If our program is too broad, it will arouse expectations abroad we cannot fulfill, and seem unrealistic to our own people.

/2/The quotation is from the President's January 24 memorandum.

"Food for development," however, is a promise we can readily fulfill. We can/3/ use our tremendous food production capacity to help other people prepare to feed themselves better. What is involved can be easily explained. For example, if we send steel rails and engineers to help country X build a railroad, we also send enough wheat to feed and pay the wages of the local workmen who clear the jungle and lay the rails.

/3/The word "can" has been inserted by hand.

This has been done already to a limited extent; we need to stress/4/ the concept "food for development" and popularize it.

/4/The word "broaden" has been crossed out and "stress" has been inserted by hand.

Yugoslavia has been an excellent example. Large quantities of American food made available to the Yugoslav government and sold for local currency have not only averted hunger in Yugoslavia but have generated the funds necessary for important development projects. One of the results has been that Yugoslavia no longer needs American food imports, which can be diverted where they are more needed. Another result is that Yugoslavia is making better progress toward meeting the present and future needs of its people than it could as a member of the Soviet bloc. Use of food for development on a limited scale has also been successful in India.

In Europe after the war, our agricultural products helped prime the pump. In many parts of Asia and Africa today food can help build the pump. The example of building a railroad was used above. Wheat can also generate funds to build universities, pay teachers, and subsidize students.

Generous and kind as the American people are, in the long run they will probably give much more enthusiastic support to a food program geared to developing a foreign country than they will to an appeal to feed the hungry. (This does not apply, of course, to disaster relief, or to other emergency measures, when the American people will of course want to help.) Food for development programs have the extra advantage of promising an eventual end, and a happy one, even if a long way off.

I am not suggesting that the slogan "Food for Peace" be abandoned. I do suggest that consideration be given to emphasizing that "Food for Peace" means primarily food for development. The slogan might even be expanded to "Food for Peace through Development."

M.H.W.

86. Editorial Note

On January 28, 1961, President Kennedy nominated Henry R. Labouisse to succeed James W. Riddleberger as Director of the International Cooperation Administration (ICA). Labouisse, a lawyer, held various appointments with the U.S. Government from 1941 to 1951. He served with the Mutual Security Agency 1951 - 1954 and was Director of the U.N. Relief and Works Agency for Palestine Refugees 1954 - 1958. Labouisse's nomination as ICA Director was approved by the Senate on February 22, and he was sworn in on March 1.

87. Memorandum From President Kennedy to Secretary of State Rusk, Secretary of Agriculture Freeman, and the Director of the Office of Food for Peace (McGovern)

//Source: Department of State, Central Files, 800.03/2 - 161. No classification marking.

Washington, January 31, 1961.

I believe it would be useful to send a food-for-peace mission immediately to Latin America to explore the manner in which our food abundance can be used to help end hunger and malnutrition in every area of suffering throughout the hemisphere./1/

/1/This memorandum is apparently a response to a January 26 memorandum from McGovern to President Kennedy, in which he suggested that a special food-for-peace mission, composed of representatives from FAO, ICA, and the Department of State and directed by the Food for Peace Office, should be sent to Africa, Latin America, and possibly Southeast Asia. (Ibid., 800.03/1 - 2661)

Responsibility for developing and directing the mission should rest with the Director of the Food for Peace Program. However, I believe it should be done in cooperation with the Mutual Security Administrator, the International Cooperation Administrator, and the Secretary of Agriculture.

This mission can have an important effect upon our international obligations and responsibilities. Please give it your full cooperation.

John F. Kennedy

88. Editorial Note

At the National Security Council meeting on February 1, 1961, one agenda item for discussion was studies of Executive branch organization. Following discussion at this meeting, President Kennedy approved, among other items, NSC Action No. 2399 - c, which "Noted the President's view that the foreign assistance program must be reorganized before presentation to the Congress; and that the Director, Bureau of the Budget, was planning to submit such a reorganization along with the new foreign aid program." (Department of State, S/S - NSC (Miscellaneous) Files: Lot 66 D 95, Records of Action by the National Security Council) In National Security Action Memorandum (NSAM) No. 6, February 3, addressed to David E. Bell, Director of the Bureau of the Budget, McGeorge Bundy confirmed this assignment. (Ibid., S/S - NSC Files: Lot 72 D 316, NSAM No. 6)

89. Memorandum From the Assistant Secretary of State for Economic Affairs (Martin) to the Under Secretary of State for Economic Affairs (Ball)

//Source: Department of State, Central Files, 811.0040/2 - 761. Confidential. Forwarded to Ball through the Executive Secretariat. A handwritten notation on the source text reads: "Seen in B."

Washington, February 7, 1961.

SUBJECT

Multilateral Approach to Increased Foreign Aid

I spent an hour with Mr. Rostow this morning during which he outlined his understanding of what the President wanted to accomplish in this field and we discussed various possible approaches and means for overcoming the obvious difficulties in the way of accomplishment prior to the presentation of the FY '62 aid program.

He asked that we do some preliminary work on what we thought would be a fair distribution of an increment of about $1 billion in European aid defined, as we would define it, to exclude private investment and exporter credits. He also asked that we prepare a diplomatic plan of campaign.

With respect to the latter I would recommend on the basis of my discussion with Mr. Rostow, and I think he would agree with the broad outlines, that we should operate approximately as follows:

1. Get Adenauer to Washington as soon as possible and discuss with him in the context of an expanded US program the need for an expanded German program as an absolutely necessary prerequisite for an expanded European program. This is the crucial part of the operation. As Adenauer is concerned above all with his election prospects, he is likely to feel that too heavy pressure on him to commit himself to raise taxes or cut welfare expenditures to provide foreign aid will damage his election chances. Being a sensitive and often irrational old man, he could well interpret such pressure as reflecting a desire on the part of a new left-of-center government in the United States to have a similar government in Germany. It will be necessary to emphasize this program as a part of a general plan for putting new life into the Atlantic Alliance, as one in which the United States will add to its contribution and not just ask Europeans to pick up more and as one which is in Germany's interest as well as our own. Mr. Rostow has suggested that we may wish to offer to secure a commitment to such a program from Mr. Brandt in order to take it out of the election arena. This is a matter to be examined with great care to ensure that Adenauer doesn't resent it. Our future negotiating tactics should be explained to Adenauer in detail so he feels he is in full knowledge of our plans and a full partner. Talking to Adenauer may well not be enough as he does not really understand economic matters and may make general commitments which his Cabinet will talk him out of. There, therefore, should be other contacts in addition to that between our President and the Chancellor but, of course, with the Chancellor's approval.

2. The best chance of getting a general willingness to move ahead on aid in Europe would be to hold a NATO Ministerial meeting, preferably of the 3 Minister-type, by mid-March at which we would present a four or five- part package for revising and strengthening the alliance. Presumably such a package will include an attack on the division of the military effort as well as on the economic aid effort. A connection between the two must be recognized. Such a meeting should be asked to approve a commitment to move ahead on aid by all countries in a position to do so by a round amount divided between Europe and North America. Something should probably be agreed as to what counts as aid broadly speaking and as to the broad guiding plan which should govern the division among countries of such a program. The United States should make clear that any commitment is contingent. This is necessary to take account of the difference between the United States position, where the executive can only recommend to the Congress, and the position in most European countries where the legislature carries out the executive decision or the executive falls.

3. This decision in broad principle should be followed by a Ministerial meeting of OEEC to bring the neutrals into the picture and enlist their aid, and to work out a more specific program of aid utilizing such technical, economic and statistical assistance as may be necessary. Great stress must be placed throughout on avoiding getting started on any considerable exercise with respect to categories of aid or definitions of capacity to pay or give aid.

4. Discussions should be held promptly with FE on how to bring Japan into this schemata.

5. Once a general outline of this character is agreed, we will wish to examine the role to be played in it by the DAG meeting scheduled for end-March and by the Indian and Pakistan Consortia meetings now scheduled for mid-April and mid-May. They all have a minor role but they can be useful in dramatizing the problem and the steps being taken.

6. If a scheme of this general character has some merit, it would be desirable to discuss it informally with Frank Lee and Jean Monnet/1/ next week. They are both knowledgeable and discreet.

/1/Frank Lee, British Joint Permanent Secretary of the Treasury, and Jean Monnet, French political economist and chairman of the Action Committee for a United States of Europe.

90. Memorandum From the Deputy Coordinator for Mutual Security (Bell) to the Under Secretary of State for Economic Affairs (Ball)

//Source: Department of State, Central Files, 811.0040/2 - 861. Confidential.

Washington, February 8, 1961.

SUBJECT

Mr. Martin's February 7 Memorandum on Multilateral Approach to Increased Foreign Aid/1/

/1/Document 89.

I am in general agreement with the thesis that it is desirable to attempt at the highest political level to obtain a political decision on the part of European governments to engage in an increased economic aid effort to be related to a similar increased aid effort on our part. As I understand it, the Rostow notion envisages a possible dimension of an average of a billion dollars a year over the next four years with flexible phasing.

It seems to me, however, that it would be most unwise to mix efforts to extract such decisions from the Europeans with efforts to deal with the military problem. It is true enough that increased military and economic aid efforts come out of the same budgets but this is in itself a good reason not to deal with the two together. The most important consideration, however, seems to me to be the absence of a clear basis for delineating what the NATO military posture should be. Most people concerned with the subject have been agreed for a long time that the present plan (MC - 70)/2/ particularly needs revision and I would think any effort to deal with burden sharing on military costs ought to come after, not before, a revision of the military plans.

/2/Regarding MC#70, see in Foreign Relations, 1958#1960, vol. VII, Part 1, pp. 314 - 317.

Obviously also, the negotiations envisaged presume a decision yet to be made with regard to U.S. effort and a decision which can only be made in the context of other decisions regarding the handling of foreign aid in the 1962 budget.

John

91. National Security Action Memorandum No. 22

//Source: Kennedy Library, National Security Files, Meetings and Memoranda Series, NSAM No. 22. No classification marking.

Washington, February 20, 1961.

In the wake of our discussions last week with the Germans and the British,/1/ I hope we can press on as a matter of high priority the development of formulas for fair sharing in both foreign aid and military partnership, with our European allies, as well as with arrangements that will ease the balance of payments problem of the United States and other deficit countries. We need to make rapid progress with these ideas in order to prepare the way for our efforts on behalf of foreign aid in Congress and with our own people.

/1/German Foreign Minister Heinrich von Brentano visited Washington February 16 - 19. For memorandum of Brentano's conversation with President Kennedy on February 17, vol. XIV, pp. 8 - 11. On February 16, Edwin M. Martin and Sir Denis Rickett, Second Secretary of the British Treasury, discussed plans for the upcoming March meeting of the Development Assistance Group in London. (Memorandum of conversation, February 16; Department of State, Central Files, 398.00 - WA/2 - 1661)

I know that George Ball has been making good progress in this area, and all I am saying is that I hope he will keep it up as a matter of urgency.

JFK/2/

/2/Kennedy's initials appear in an unidentified hand, indicating Kennedy signed the original.

92. Memorandum for the Record

//Source: Department of State, Central Files, 800.0000/2 - 2361. Confidential. Drafted by Fessenden.

Washington, February 23, 1961.

SUBJECT

Burden-sharing

In a brief conversation after the meeting of the Acheson Advisory Group/1/ on February 22, Mr. Rostow made the comments below in response to a question about the concept of burden sharing especially in the field of aid to less-developed countries. He also said that he had made similar points in his talk with Kristensen.

/1/President Kennedy appointed the Acheson Advisory Group to study the future needs of NATO.

Mr. Rostow said that he believed it was most important that we not permit the "statisticians" to dominate any burden-sharing exercise. He thought that any burden-sharing operation should be under firm political direction so that the outcome of the exercise will make political sense. However, the help of economists and statisticians should be sought in order to provide an adequate factual basis for whatever general conclusions are reached. In other words, the operation should involve an interaction between political authorities, who should be clearly in charge, and technical experts, who would provide a factual rationale for the conclusions reached.

It is unlikely that the first attempt at arriving at an adequate burden- sharing arrangement would result in agreement. The necessary next step will undoubtedly be the establishment of a small, high-level, independ- ent "Wise Men's" group, which would, it is to be hoped, reach impartial conclusions regarding the overall nature of the Western effort and the proper distribution of the burden.

Mr. Rostow also said that he thought representatives from selected less- developed countries should be invited to participate with any OECD burden-sharing operation. Mr. Rostow felt that the representatives should be drawn from "hard criteria" less-developed countries. In other words, we should not have representatives from countries which simply would bid for excessively large aid from the Western world, but by countries like India which have in the past established realistic criteria and which would be interested in seeing the criteria kept on a realistic basis.

I mentioned to Mr. Rostow my views on the danger of attempting to combine into a single operation burden sharing on both aid to less- developed countries and sharing of the common defense burdens. I pointed out that combining them into a single exercise in this way could well mean that the Europeans would bargain off their defense responsibilities against their responsibilities to provide economic aid to less-developed countries and that this would undoubtedly work to the detriment of their defense efforts. Since it may well be that we will be attempting to persuade the Europeans to increase their defense efforts, particularly their conventional forces, and since this will require them to allocate increased resources to defense, it might therefore be seriously detrimental to our efforts in the defense field if a single joint economic aid and defense burden-sharing exercise were attempted.

93. Memorandum of Conversation

//Source: Department of State, Central Files, 700.5 - MSP/2 - 2561. Secret. Drafted by James M. Wilson, Jr. (B/FAC) and Seymour Weiss (B/FAC) on March 1.

Washington, February 25, 1961.

SUBJECT

Meeting Between the Secretaries of State and Defense and the Director of the Bureau of the Budget on the Military Assistance Program

PARTICIPANTS

See Page 4 below/1/

/1/The list is not printed. Secretary Rusk was accompanied by 12 officers, including Chester Bowles and George Ball. Secretary McNamara was accompanied by 10 officers, including Roswell Gilpatric and General Lemnitzer. Also attending were Walt Rostow from the White House, Robert Knight from the Department of the Treasury, and David Bell and Robert Macy from the Bureau of the Budget.

1. Mr. McNamara indicated that the briefing which Defense personnel were to provide as a point of departure for the meeting had not received prior review or clearance within the Pentagon. Thus all principal participants would be hearing it for the first time. Mr. Bundy of Defense then presented a briefing in two parts which covered, first, the development of Five Year Military Assistance Plans and the derivation of the $2.4 in new MAP funds for FY 1962 originally requested of the previous administration and, second, certain possible alterations in concept stemming from preliminary conclusions of evolving strategic studies which suggested themselves for further consideration. He noted that while there were obvious dangers inherent in generalizing on the direction of these strategic studies four basic patterns appear to be emerging which could materially affect military assistance planning: (1) the ability of U.S. forces to conduct effective limited war operations and thereby deter limited war is receiving higher priority than heretofore; (2) increased attention is being given to a greater sharing of the security burden by our more developed allies and the consequent tapping of their military potential; (3) Free World ability to counter the guerrilla and other subversive tactics of the Communists' sub- limited war threat is receiving greater emphasis; and (4) ultimate victory in the cold war is dependent on top priority being given to the achievement of self-sustaining growth by the underdeveloped countries.

The implications of the foregoing in terms of the future design of military assistance programs, according to Mr. Bundy, might include the following:

1) Basic national policy currently requires that "the United States and its allies in the aggregate will have to have, for an indefinite period, military forces with sufficient strength, flexibility, and mobility to enable them to deal swiftly and severely with Communist overt aggression in its various forms and to prevail in general war should one develop." The mix of aggregate free world capability to deal with overt aggression must be changed by expanding the role of U.S. forces and the forces of economically-developed allies and by reducing the role of underdeveloped countries.

2) Top priority should be given by MAP to assist those economically- developed countries which possess the potential for significant contributions to free world military might to make the most effective possible contributions to free world limited and general war capabilities. An important by-product of this approach would be the establishment of the U.S. as the arsenal of the free world, its exports of military equipment and services substantially expanded through the use of cost-sharing assistance to our economically developed allies.

3) The top priority objective of U.S. policy in the underdeveloped countries is the achievement of a progressive internal environment secure from the ravages of Communist guerrilla activity and the various other covert activities which characterize the international Communist conspiracy. Where substantial fighting potential exists, particularly in ground forces (e.g. Greece, Turkey, Korea and GRC), a compact force structure should be sought which will permit effective indigenous support of free world military operations without sacrificing the priority objective.

2. Insofar as the foregoing bore upon the necessity for reaching judgment on the FY 1962 budget level for military assistance, the Defense studies suggested that the requirements, whether developed under previous guidelines or under the altered concepts would require no less than the $2.4 billion originally recommended by the Departments of State and Defense for inclusion in President Eisenhower's FY 1962 budg-et. This compares to the $1.8 billion figure actually agreed upon by President Eisenhower.

3. General Lemnitzer noted JCS support for the basic long range planning concept as essential to the development of sound programs and stated that the JCS agreed that a FY 1962 level of $2.4 billion was required if U.S. security objectives were to be accomplished. He nevertheless reserved his position on the second part of Mr. Bundy's presentation pending further JCS study.

4. Mr. David Bell pointed out that President Kennedy had indicated that decisions on the amount of economic and military aid to be requested of the Congress and the presentation of Presidential messages related thereto should be completed by the third week of March.

5. Secretaries Rusk and McNamara noted that there were a significant number of highly complex issues which would have to be considered on an urgent basis in any substantive review of the Military Assistance Programs, and agreed that this could not be completed prior to the March deadline for fixing the FY 1962 budget request. A judgment on the FY 1962 figure would therefore have to be reached on the basis of a more rapid and broad brush approach to the problem.

Action: Secretary McNamara agreed to provide recommendations for State consideration with regard to the FY 62 level to be proposed to the President, such recommendations to be available within 10 days. Mr. Nitze was assigned Defense responsibility for this effort. Mr. Rusk asked that Mr. Ball accept responsibility for coordinating the State - Defense effort.

6. It was recognized that there were a number of fundamental political and economic issues which might warrant an altered approach in our military aid posture toward NATO as well as toward the underdeveloped areas. Particularly in connection with certain of the alterations which were suggested for further consideration, e.g. such as the concept of the development of "compact forces", General Lemnitzer indicated that the JCS would want to have the opportunity for a careful study of the underlying implications. Secretary McNamara indicated a similar view. Mr. Rusk stated, however, that an effective review obviously required an ample period of time for completion, and indicated a number of areas which he suggested required a fresh approach with our thinking not being unduly proscribed by our past posture. Mr. Rostow pointed out that even in the event that adjustments in policies or concepts were agreed upon, actual implementation would have to take into account the need for careful and time-consuming negotiations with our allies to secure agreement to any proposed adjustments which affected our implied or specific commitments. Mr. John Bell indicated that a careful interagency review of basic political and military concepts was deemed highly essential and suggested that the President's submission of the FY 62 program should make clear to the Congress that such a review was going forward.

7. Mr. David Bell asked whether there was a consensus of views as to where, within the President's budget, Military Assistance should be shown. Mr. McNamara and General Lemnitzer expressed the strong view that MAP should continue to be presented as an integral part of the Mutual Security Program budget. Mr. Rostow indicated that this was a matter which should be explicitly checked with the President, who, Mr. Rostow felt, may prefer a separation of MAP from the MSP legislation in order to de-emphasize the security aspect of foreign aid. It was generally agreed that under either arrangement no adjustment was contemplated in the administration and control of the program and that the place of MAP in the budget would be discussed with the President at the appropriate time.

8. Secretary Rusk referred to the current study on U.S. bases being conducted by the Dept. of Defense noting that it would be of great interest to the Dept. of State. Secretary McNamara stated that he would see that a copy would be made available to Mr. Rusk.

94. Memorandum From the President's Deputy Special Assistant for National Security Affairs (Rostow) to President Kennedy

//Source: Kennedy Library, President's Office Files, Staff Memoranda, Rostow. Secret.

Washington, February 28, 1961.

SUBJECT

Crucial Issues in Foreign Aid

Note: You will be getting George Ball's official view shortly./1/ Here are the highlights as I now see them. I shall be prepared to comment on finer points as you wish.

/1/Not further identified.

The Old Look.

1. The foreign aid program we have inherited has these characteristics. The bulk of the resources available is either for direct military purposes (about $2 billion), or to assure military base rights, to support military forces, or to avoid short-run political or economic instability or collapse. Of the $2.2 billion sought in the last Eisenhower budget for non-military purposes, less than $500 million was for development purposes. We are in the position of, say, the New Haven Railway, pouring out large sums to keep afloat, but with neither a defined forward objective nor the fresh capital to move towards it. We begin with a program that is almost wholly defensive in character and one which commands neither the resources, the administration, nor the criteria designed to move the underdeveloped countries towards sustained economic growth.

2. In addition, the program has the following familiar weaknesses. Its financing, as well as its perspective, is short-run rather than long- run. The small development component is mainly guided by a project approach rather than an approach in terms of developing whole nations. Its legislative underpinning is piecemeal, reflecting geological layers of past interests and problems. Its administration is diffuse. Its personnel is, for the most part, mediocre: in particular, the program is long on technical assistance types and desperately short of men at home and in the field who understand the economic development problem. The European contribution to the whole program is inadequate, somewhat misdirected, and there is no effective machinery for coordinating our own efforts with those of the Europeans. At home there is profound uneasiness and dissatisfaction with a program which has appeared to yield little result at great cost. This is where we start.

The New Look.

3. In general, the new look consists of a turn-around from a defensive effort to shore-up weak economies and to buy short-run political and military advantage, to a coordinated Free World effort with enough resources to move forward those nations prepared to mobilize their own resources for development purposes. The goal is to help other countries learn how to grow. Aid ends when self-sustained growth is achieved and borrowing can proceed in normal commercial ways; e.g., Mexico. This notion can be made an effective basis for a new non-colonial approach of the Atlantic Community to the southern half of the world; and even relatively poor countries, who have passed the take-off, can contribute- -in technical assistance if not in long-term capital; e.g., Mexico, Israel, Philippines, as well as Japan.

4. The crucial element here is the new criteria we wish applied in granting aid. Aid shall go to those who have developed at home the capacity to absorb capital productively. We cannot, clearly, pull the plug immediately on countries we are shoring up (e.g., Viet-Nam, Laos, Jordan); nor can we eliminate aid from places where we are buying what we regard as a serious military advantage [less than 1 line of source text not declassified].What we can do is shift rapidly out of defense support and special assistance into long-term development lending in places where there appears to be a basis for turn-around (e.g., Taiwan, Korea, Turkey, Greece, the Philippines, and even, perhaps, Iran). We can put countries which are asking for aid but do not now have good development programs, on notice that they must develop serious domestic programs before any increases in aid will be granted; e.g., Indonesia and Afghanistan. This kind of response, however, can only be given without grave political risk if we have long-run borrowing authority, or its equivalent, so we can say the funds are, in effect, earmarked against the time when, with our help, they have qualified under the new criteria. Most important of all, we must promptly expand our commitments to those countries which now have the capacity to absorb capital productively in a reasonably short period; e.g., India, Pakistan, Nigeria, Argentina, Brazil, Colombia, Venezuela.

5. It will take some time and the greatest discipline in our whole establishment to bring this turn-around about; but it is the only path that makes sense. And it can be promptly begun.

6. More concretely, the program we must devise should have these technical characteristics:

--Military aid should be separated in the budget; but it should be under tighter civil control with respect to policy than it now is.

--Both the scale and the type of forces we support under the military aid program should be put under fresh scrutiny, notably in the light of the guerrilla problem.

--A concerted effort should be made, through our military aid programs, to induce the local military to use their military resources for constructive purposes.

--Given the situation in Korea, Viet-Nam, Taiwan, and Jordan, it is doubtful if in the first year we can much reduce total aid to our rickety partners; but a concerted effort to squeeze non-development aid this year should be attempted.

--The development funds available must be put on a long-run basis. This is crucial.

--The volume of American development funds available over, say, a four- year period must be enlarged at about an average rate of $1 billion a year more than the $500 million or so we now command. But the application of the new criteria makes it unlikely that actual disbursements would increase very much in the first year of the new program. Of this average $1 billion per annum increase, half might well consist of expend-itures for agricultural commodities.

--The outcome of the burden sharing exercise in OECD should be a net increase in long-term development aid from other industrialized countries of about the same order of magnitude; that is, an extra $1 billion per annum over present levels. This would give us an extra Free World margin of about $2 billion a year. Over the four-year period something like a third of the net increase in European lending should come from Germany; a bit less than a third from Great Britain; and the balance from other European countries, Canada, etc.

--Perhaps the most crucial technical decision you will have to make is whether you seek this long-term element in the program via borrowing authority for a banking institution within the foreign aid organization, or whether we go on with annual appropriations with a vague Marshall Plan type of forward commitment by the Congress as to scale. There are other alternatives Ball will present.

--Contingency aid for emergencies should be at least as high as it has been ($250 million); and it should be much more firmly in your hands.

--Administratively the foreign aid effort must be unified firmly under the direction of a single, strong person. If we decide that it should remain within the State Department, as at present, and under the direction of the Under Secretary of State, the choice of his deputy for foreign aid is a crucial choice.

--The greatest weakness within the foreign aid organization, both at home and in the field, is the lack of first-class development planners; and whatever table of organization is finally agreed, this fundamental weakness must be remedied.

Education and Human Resources Development.

7. In addition to the capital fund, we need radically to reorganize the whole ICA technical assistance program in new directions. It is now, both at home and in the field, weighted heavily with traditional technical assistance projects, some of them of a low order. In the field our embassies are loaded with too many people doing small jobs where the net gain is probably not worth the administrative burden and cost, either to ourselves or to the local governments. A major and ruthless overhaul of existing programs is necessary with a new emphasis on basic education; on bringing modern science to bear in the underdeveloped areas; on technological training (notably in local institutions) to complement economic programs; and the financing of projects aimed at modernizing social institutions--land tenure; self-help housing; etc.

8. The Peace Corps, while separate in important ways, should be linked to Education and Human Resources development. This program might cost over-all perhaps about $500 million per annum.

9. In presenting this part of the new effort, we should dramatize the relation between education and human resources development, on the one hand, and a nation's capacity to absorb capital productively on the other.

Organization Structure.

10. Since November 8, 1960, a most extraordinary concentration of thought and memoranda-writing has taken place on the question of how to reorganize foreign aid. Much of this literature is centered about whether the foreign aid structure should be built around a country or a functional approach. The crucial issues to watch are these:

--Who the boss will be. He must be very good.

--Is there provision for a new group of first-rate country planners who understand the new criteria, who will be able to deal firmly with the military aid component, who will be able to weave together sensible country programs from what foreigners contribute in capital, what we contribute in capital, what human and institutional development can provide along with what the locals are doing. Such men are not now in our organization.

--Is there a definable unit which Congress and the public can see, to which the large development funds we are requesting can be allocated.

--Is there serious provision made for conducting surgery on the present ICA technical assistance program and staff.

11. Should you decide to go ahead with this new look which would commit this country to a substantial increase in development funds over a four- year period (but not much increase in disbursements in the first year), these problems should be settled soon:

--Congressional consultation before your message to Congress.

--The drafting of a dramatic message which you may well wish to deliver personally--which would give life to the new look, the turn-around process, and our whole stance towards the underdeveloped areas.

--We must arrange a first-class mobilization of the public groups now waiting in place within Eric Johnston's old outfit,/2/ ready to back your play.

/2/Johnston, a motion picture executive, had served as chairman of the International Development Advisory Board since the early 1950s.

--We shall need a maximum effort at the March meeting of DAG to get contingent commitments from the Europeans so that Congress will understand that any cutting of your program is likely to involve at least a dollar-to-dollar loss of European contributions.

12. Only you can make a judgment as to whether the launching of this new program, with its dual components of long-term development and tough banking criteria, can be pulled off. None of us underestimates the reality of the political problem, the unpopularity of foreign aid as it has been, and the dissatisfaction with the results it has yielded. On the other hand, these things should be borne in mind:

--Unless we move on an expanded basis, it is unlikely that we shall, in the end, get anything significant out of the Germans and other Europeans. We have given the Western alliance a real lift with our recent initiatives in this direction. Unless we back our play, these moves will properly be regarded as empty gestures in the Eisenhower tradition.

--We have stirred great hopes in Asia, the Middle East, Africa and Latin America and acquired very serious commitments to development, notably in the Indian Peninsula and in Latin America. We must back our play or these hopes will fade. Foreign aid will not solve the guerrilla problem; but a program like this may be the necessary backdrop to a solution.

--With respect to the balance of payments situation, we can put ourselves in a fairly good position on foreign aid. If there is a radical breakthrough on the reserves question this spring--which is doubtful--we could go ahead making our loans untied. If the balance of payments situation is still unresolved, we can make these new loans on tied basis. This will mean that the new development program can be honestly presented as a measure which would increase American domestic production and exports.

--If we can translate the fair shares principle into some kind of reality in OECD this spring, the political basis in the U.S. for our program will be strengthened before Congress finally votes.

--From having worked with the American groups interested in foreign aid (enlightened businessmen, labor leaders, churches, women's clubs, etc.), I know that their efforts and tenacity will be directly proportional to the boldness of our vision and our program.

13. Finally, I simply report what Dick Bolling/3/ told me: "The bigger the President goes in foreign aid, the easier it will be in the House."

/3/Presumably Representative Richard Bolling (D - Mo.).

95. Memorandum From Secretary of State Rusk to President Kennedy

//Source: Department of State, Central Files, 700.5 - MSP/3 - 1061. No classification marking. A March 6 draft, attached to the source text, is identical to the text printed here, except for the first paragraph that makes no mention of the upcoming Monday meeting. In the margins of the March 6 draft are the following handwritten comments: "Hand carried to Pres. by Sec 3/6/61" and "Revised & sent 3/10 to W[hite] H[ouse]".

Washington, March 10, 1961.

SUBJECT

New Proposals for the Foreign Aid Program

In anticipation of our Monday meeting to discuss the report on Reorganization of Foreign Assistance, and its accompanying proposals,/1/ I want to take this opportunity to restate my own deep concern and strong convictions on the historic situation in which we now find ourselves.

/1/Neither the report nor its accompanying proposals nor a record of the meeting on Monday, March 13, has been found. A March 8 memorandum from Battle to S/S - RO indicates that this White House meeting with the President would concern foreign aid. (Ibid., 800.0000/3 - 861) Participants at the 10:05 - 10:50 a.m. meeting on March 13 were the President, Secretary Rusk, Bowles, Ball, David Bell, McGeorge Bundy, Sorensen, and Rostow. (Kennedy Library, President's Appointment Books)

I feel certain that this concern and these convictions are widely shared by all those who have worked to produce these new proposals. The scale, shape, and direction of the new proposals are themselves based on an awareness of the increasing seriousness of the world situation. But we are also aware that both public opinion and political sentiment on Capitol Hill require the highest level Presidential leadership if our proposals are to attract the necessary support.

Unquestionably, the need for the intelligent use of foreign assistance continues and is likely to increase. In three underdeveloped continents we have reached a watershed where the holding operations of the past are clearly inadequate and where new initiative of a dramatic and positive kind are essential. Even if the Soviet threat did not exist, these requirements would be present and should impel us and other economically developed countries to adopt new policies. But the Soviet threat itself is taking on new forms, specifically including the availability of massive sums for trade and aid to be expended as Soviet political aims dictate.

Here at home the political and public climate for the aid program has been allowed to deteriorate just at the time when a more sophisticate understanding and a stronger long-term commitment is needed.

Part of this is the result of years of fraudulent justifications of the program as a short-term, anti-communist, quick-results proposition. Part of it is the understandable effect of boredom with the old symbols, maladministration and waste, neo-isolationism, and the protectionism produced by the economic distress inside our own economy.

I believe that most of us who have worked on this program feel that we have come to an important crossroads. In all likelihood, a fresh, positive aid program, scaled to the requirements, and presented with persist-ence and boldness, has a much better chance of Congressional approval and popular acclaim than another round of the old Mutual Security bill with the now standard figures on military assistance, "defense support", "special assistance", and all the rest.

We are facing a period much like 1940, when Lend Lease would never have been thought politically possible by ordinary politicians, but when farsighted leadership and Presidential initiative achieved a breakthrough. This is also a time like 1947, when neither the Congress nor the country was supposed to be ready for the Marshall Plan, but when a similar energy and influence provided the national momentum we needed.

The accompanying proposals have been drafted under the assumption that the top leadership in the new Administration throughout the White House, Cabinet, and sub-Cabinet levels, can and will be mobilized to undertake the important assignments in public education which will be an essential prerequisite to the program's enactment. In practical terms, this will require a major public effort in the months of April and May between the presentation of your aid message and the presentation of the detailed program on Capitol Hill.

These considerations are uppermost in my mind at the moment, and I am sure that my colleagues share them. I think it is essential that they be appreciated and understood at the outset, for without them the program itself will be in trouble and indeed would not have been devised.

Dean Rusk

96. Letter From Secretary of State Rusk to Secretary of Defense McNamara

//Source: Department of State, Central Files, 700.5 - MSP/3 - 1561. Secret. Drafted by Weiss and retyped in B/FAC on March 14.

Washington, March 15, 1961.

Dear Bob: At our meeting on February 25, a record of which is attached,/1/ we agreed that a review of the basic premises underlying the Military Assistance Program should be initiated without delay while recognizing that the complexity of the problem would require a considerable period of time to assure an adequate product. I believe we should pursue this effort with a view to having at least initial recommendations for our joint consideration by May 1.

/1/Not attached, but reference is to Document 93.

I suggest that this matter can be most effectively approached by a joint State - Defense effort. I have asked Mr. Charles Burton Marshall to undertake this and he will be in touch with you in the very near future.

Substantively, I would anticipate that our efforts should address themselves to an assessment of evolving political, economic and military concepts as they relate to a projection of how the MAP should be formulated as to best serve United States strategic interests, including our foreign policy objectives, in the future. As I indicated at our meeting I believe that there are a number of problems in the various geographic areas which require a fresh look, initially uninhibited by preconceptions as to the limitations placed upon us by our past policy posture. As you know, we already have underway a number of studies such as those being conducted by Mr. Acheson on NATO/2/ and Mr. Berle on Latin America/3/ which we should be able to draw upon. Similarly the Defense studies which you made reference to, such as those on Local War and Military Bases,/4/ would undoubtedly make a major contribution to achieving an effective reassessment of the basic promises underlying the military assistance program.

/2/See footnote 1, Document 92.

/3/Documentation on the Latin American task force, chaired by Adolf A. Berle, Jr., is scheduled for publication in volume XII.

/4/Documentation on these two Defense studies is scheduled for publication in volume VII.

Those and other similar areas of investigation should proceed from the basic policy guidance outlined in my letter to you of February 4/5/ since I view this reassessment of our military assistance program as an essential part of the total long-range study of U.S. military posture to which my letter was addressed.

/5/Not found.

The full facilities of the Department will be mobilized to provide a prompt but thorough address to this matter, and I am sure that you share an equal interest in having the fullest and most effective Defense participation.

With warm personal regards,

Sincerely,

Dean Rusk/6/

/6/Printed from a copy that indicates Rusk signed the original.

97. Memorandum of Conversation

//Source: Department of State, Secretary's Memoranda of Conversation, Lot 65 D 330. Confidential. Drafted by Lucius D. Battle (S/S) on March 17.

Washington, March 17, 1961.

Mr. Ball reviewed the aid presentation and indicated that he would ask Mr. Labouisse to take on the matter full time with Jack Bell as Deputy provided it was agreed that we would support Mr. Labouisse for the top job. Mr. Rusk agreed and asked Mr. Battle to clear with Mr. Bowles. (Mr. Battle saw Mr. Bowles who was enthusiastic about the appointment but felt that release of information should be delayed as long as possible to prevent any opposition or rival candidates from developing.)

Mr. Ball reviewed the problem of burden sharing and indicated that he thought the Germans might agree to one per cent of gross national production. This seemed satisfactory to Mr. Rusk.

Mr. Ball reviewed the need for top level members in the DAG organization and described the functions of the DAG which he described as a clearing house for country reports on the aid they are giving other countries. He indicated it would not be an operations coordination but an information clearing house. The requirements of the Tuthill job were discussed./1/

/1/Reference is presumably to John W. Tuthill, who became Representative to the Organization for European Economic Cooperation (OEEC) on March 6. On October 4, President Kennedy designated him Representative to the Organization for Economic Cooperation and Development (OECD), the successor to the OEEC.

[Here follows discussion of the task force report on the Konkoure Dam and foreign assistance to Africa.]

Mr. Ball informed the Secretary that the White House might announce that he would go to the OECD meeting in the statement on the signing of the treaty./2/

/2/By a vote of 72 - 18, the U.S. Senate consented to ratification of the OECD treaty on March 16. At the signing ceremony for ratification of the treaty at the White House on March 23, President Kennedy announced that Ball would represent the United States at the Development Assistance Group (DAG) meeting in London March 27 - 30. For text, see Public Papers of the Presidents of the United States: John F. Kennedy, 1961, pp. 212 - 213.

The Secretary thought that a signing ceremony with photographs at the White House and with appropriate Congressional representation might be desirable. Mr. Battle pointed out the urgency of getting the papers through so that we would be the first depositor of ratification.

LDB

98. Circular Telegram From the Department of State to Certain Diplomatic Missions

//Source: Department of State, Central Files, 398.00 - LO/3 - 1761. Official Use Only. Drafted by James C. Lobenstine (E/OFD/ED); cleared (all in draft) by Myer Rashish and Bator (B), Edwin M. Martin (E), Foy D. Kohler (EUR), John C. Renner (EUR/RA), Isaiah Frank (E/OFD), Jacob J. Kaplan (B/FAC), Walter J. Stoessel, Jr. (S/S), and Griffin and Hooker (Treasury); and approved by Ball. Transmitted to Bonn, Brussels (pass BUSEC), The Hague, Lisbon, London, Ottawa, Paris (pass USRO), Rome, Bern, Dublin, Madrid, Stockholm, Tokyo, and Vienna.

Washington, March 17, 1961, 10:12 p.m.

1415. Department calling in Economic Counselors Embassies DAG countries Monday March 20 for delivery following paper as US paper for new DAG agenda item. Make text available appropriate officials earliest opportunity, Monday at latest. Washington Embassies will be told you have text.

Text memorandum following:

Begin Verbatim Text

The Fourth Meeting of the Development Assistance Group will be the first since the United States Senate approved U.S. membership in the OECD./1/ The Senate action symbolizes the American commitment to progressively closer cooperation in solving our common economic problems. In this spirit we have certain proposals to make for expanding joint efforts to assist the less-developed areas.

/1/See footnote 2, Document 97.

A. The Problem and the Opportunity.

1. The poverty of large parts of the world is the central problem of the 1960's. We should jointly mobilize the capital and skills of the industrialized countries to help solve this problem.

2. Opportunities for progress in the economic development of the less- developed countries are greater than they were in past decades. The poor nations realize that their poverty is not preordained and immutable. They aspire to the fruits of development, and are determined to break the bonds of poverty.

3. Many countries are now able to use effectively more outside resources. The industrialized countries have the resources which in many cases are of vital importance.

4. We have a moral obligation to help these less-developed countries. As President Kennedy said: "To those people in the huts and villages of half the globe struggling to break the bonds of mass misery, we pledge our best efforts to help them help themselves, for whatever period is required--not because the Communists may be doing it, not because we seek their votes, but because it is right."/2/

/2/The quotation is from President Kennedy's inaugural address of January 20, 1961. For text, see Public Papers of the Presidents of the United States: John F. Kennedy, 1961, p.1.

5. Without substantial outside help there is small chance that most less-developed countries will achieve rapid economic growth in freedom. Only by the hope and reality of achieving an adequate level of growth will they be able to turn their energies toward constructive purposes. If they are frustrated in this--if progress proves a delusion--then their energies will be diverted to purposes which are not only self- destructive, but destructive of our whole Free Society.

B. A New Approach to the Needs of the Less-Developed Countries.

1. The collective needs of the less-developed countries for development assistance are very large. By any reasonable calculation, however, these needs are small when measured against the wealth of the industrialized countries. The amount of such assistance which can be used effectively for economic development will vary from country to country, depending in part on its stage of development.

2. Both for the countries in the stage of preparation and for those already growing rapidly the problem of external assistance must be viewed as a long-term one. It can not be thought of, or dealt with, in terms solely of individual projects, or of annual programs. If external assist-ance is to be effective in accelerating economic development, it must be used to support and encourage the less-developed countries in undertaking long-term national or regional development programs.

3. Not only the quantity of resources, but the terms on which they are made available, are important. The terms must correspond to the economic situation of the individual recipient country. It is not enough to examine only the individual projects on which the money is spent and the extent to which they are self-liquidating. Rather, it is in relation to a country's total expected growth rate and its balance of payments that a judgment must be made as to its capacity to service additional external debt. In most less-developed countries today, the principal need is for grants or "soft" loans. Only when a country is well on the way to achieving cumulative growth should an increasing fraction of outside resources be made available on normal banking terms. There appears to be general agreement on these propositions, to judge from the papers on Terms and Conditions of Aid submitted by member governments, and the Secretariat's summary./3/

/3/Neither identified.

C. The Joint Program.

1. The prospective members of the OECD have accepted the principle of cooperation in contributing to the sound economic expansion of countries in the process of economic development. DAG is the appropriate vehicle for continuous consultation, for reaching together some consensus on principles and procedures, and for mounting an adequate effort.

2. What is required is an increased, long-term, joint effort to help meet the needs of the developing countries. For this purpose, we can perhaps set as a collective target a sum of one per cent of our aggregate income.

3. This is not proposed as a specific target for each member country. Rather it is proposed that the members of DAG seek to agree on equitable principles for sharing the common effort.

D. Principles of Fair Sharing.

1. There is no simple formula. The benefits of an effective aid program are joint and indivisible. They accrue to each member from the scale and quality of the total program--not in proportion to the member's own contribution.

2. In deciding how to share the total program, we should look to the principles which have come to be accepted within our countries as fair and reasonable. These principles can be briefly stated. The contribution of each should be in relation to his capacity to pay. The rich should contribute a larger fraction of their income than those less well off. The contribution to economic aid must take full account of the contribution to the joint defense.

3. The balance of payments and state of reserves of an aid donor are particularly relevant to the form in which aid is given.

4. We should be able to endorse these general principles, and, on this basis, to agree on what it is reasonable for each member to do.

E. The New United States Program.

The President is about to send to the Congress a message requesting authority for a long-term economic assistance program./4/ This message will be made available before the DAG meeting convenes.

/4/See Document 100.

F. Proposals.

1. All the more advanced countries accept the obligation to join in assisting the less-developed countries. The members of DAG have assumed a special responsibility in this effort.

2. The members of DAG would, at the Fourth Meeting, consider expanding their aid programs and agree on a mechanism for the coordination of aid efforts. The following principles would guide the joint efforts:

a. A sustained and enlarged aid program, systematically financed;

b. Government assistance on terms more favorable than normal banking terms, including grants, loans repayable in the currency of the borrower, and loans repayable in foreign exchange at low interest and with long maturities;

c. Fair sharing of the joint aid effort, taking into account capacity to pay and contributions to the common defense.

3. Each member would seek to develop its own aid effort embodying the foregoing principles.

4. In order to facilitate consultation on the joint development of new programs, and in order to prepare for the transition to the Development Assistance Committee of the OECD, all DAG members would:

a. Agree to the selection of a permanent Chairman, who would be empowered to initiate and carry forward the work of the group;

b. Assign to DAG senior officials, empowered to speak for their Governments. These officials should be prepared to meet on call of the Chairman between regular meetings of the DAG.

5. The Chairman would:

a. Initiate and carry forward, with the assistance of the OEEC Secretariat, any studies required to carry out the purposes of DAG.

b. Undertake such discussions with member governments as might be required to assist in the development of effective and adequate programs of economic assistance.

6. The DAG would provide:

a. A forum in which member governments can systematically consult regarding their individual economic assistance efforts and through which cooperation can be effected.

b. A central point for the collection and compilation of information regarding the assistance activities of all members. In this way the DAG should serve as a clearing house through which all members can be kept continually informed as to the economic assistance activities of other members in each underdeveloped country. This would require an expansion of the system of reporting on new aid commitments.

c. A mechanism for improving the effectiveness of existing programs and for bringing about a greater total effort on the part of the member countries.

End Verbatim Text.

Rusk

99. Editorial Note

On March 18, 1961, George W. Ball left for Europe to explain the administration's new foreign aid program and to participate in the meeting of the Development Assistance Group (DAG) in London March 27 - 29. Founded in early 1960, DAG was composed of the representatives of the United States, Canada, United Kingdom, France, Italy, Federal Republic of Germany, Netherlands, Belgium, Portugal, European Economic Community, and Japan. For text of the note delivered to the DAG member nations in preparation for Ball's visit, see Document 98.

From March 19 to 22, Ball had informal sessions in Bonn with German Finance Minister Franz Etzel, representatives of the German Foreign Office under the chairmanship of Hilger van Scherpenberg, Economic Minister Ludwig Erhard, and Defense Minister Franz Josef Strauss. For texts of memoranda of Ball's two conversations with Van Scherpenberg on the morning and afternoon of March 20 and of the informal minutes issued by the two sides on March 22, see the Supplement.

From March 23 to 26, Ball visited Paris. On March 23, he conferred with French Finance Minister Wilfrid S. Baumgartner, Foreign Minister Maurice Couve de Murville, and other French officials, and he attended an OEEC Council meeting on March 25.

After flying to London on March 26, Ball met with A.F.W. Plumptre, head of the Canadian DAG delegation. For reports of the morning DAG meeting on March 27 and the subsequent meeting restricted to the heads of delegation, see Documents 101 and 102. Memoranda of Ball's conversations on this European trip and memoranda summarizing the DAG sessions, March 27 - 29, are in Department of State, Conference Files: Lot 65 D 366, CF 1817, 1819, and 1821. For texts of two resolutions adopted at this DAG meeting, March 29, and the communique, March 30, see Department of State Bulletin, April 17, 1961, pages 553 - 556.

100. Editorial Note

On March 22, 1961, President Kennedy sent a special message to the Congress on foreign assistance. While preparing for this foreign aid initiative, the President directed that no foreign aid bill should go to Capitol Hill without his "explicit approval." (Memorandum from McGeorge Bundy to Ball; Department of State, S/S - NSC Files: Lot 72 D 316, NSAM No. 21) The President's March 22 message was the outgrowth of studies and memoranda on the subject by concerned principals and meetings with the President. See, for instance, Documents 94 and 95. Moreover, in a March 13 memorandum to the President, Walt Rostow forwarded his ideas for the "crucial portion" of the President's upcoming foreign aid message, as did Bowles in his memorandum to Richard Goodwin, March 18; for texts of both, see the Supplement.

Regarding the drafting of the President's special message, Arthur Schlesinger, Jr., gives credit to Walt Rostow, David Bell, and the latter's deputy, Kenneth Hansen, who took the original text, drafted in terms of "an old-fashioned `let's beat communism through foreign aid' appeal," and "managed to insert a little of the new philosophy into the text before it was delivered." (A Thousand Days: John F. Kennedy in the White House, page 592)

According to Rostow, Sorensen wrote a "low-key first draft of the aid message," which "was geared to the rather gloomy prospects on the Hill. Kennedy evidently wished to aim somewhat higher. He had Sorensen send the draft to me for revision. And, when Kennedy approved the new directions suggested by me (and perhaps, by others), Sorensen, quite typically, carried forward in a more heroic direction with verve and elegance." (The Diffusion of Power: An Essay in Recent History, page 187)

The President's message began with a discussion of three propositions: 1) the existing foreign aid programs were "largely unsatisfactory and unsuited for our needs and for the needs of the underdeveloped world as it enters the Sixties;" 2) the economic collapse of free but less- developed nations "would be disastrous to our national security, harmful to our comparative prosperity and offensive to our conscience;" and 3) the 1960s presented "an historical opportunity" for the United States and other free industrialized nations to initiate a major foreign assistance effort that could "move more than half the people of the less-developed nations into self-sustained economic growth, while the rest move substantially closer to the day when they, too, will no longer have to depend on outside assistance."

After elaborating at some length on these points, the President expounded on "a whole new set of basic concepts and principles," which included integration in a single agency of the aid programs of the International Cooperation Administration, Development Loan Fund, Food- for-Peace, Export-Import Bank, and the Peace Corps; the need for country plans carefully tailored to meet the needs of each country; long-term financing and planning; special focus on development loans repayable in dollars; and special attention to those nations most willing to utilize their own resources, make necessary reforms, and engage in long-range planning. He also emphasized a multilateral approach designed to encourage and complement an enlarged foreign aid emphasis of other industrialized nations, and a separation of social and economic development from military assistance.

President Kennedy concluded by asking Congress for a foreign aid budget of $4 billion, which the previous administration had requested, although he proposed reduction of the military assistance component from about $1.8 billion to $1.6 billion so that more could be spent on economic aid, especially development loans.

Text of the message is in Public Papers of the Presidents of the United States: John F. Kennedy, 1961, pages 203 - 212.

101. Telegram From the Embassy in the United Kingdom to the Department of State

//Source: Department of State, Central Files, 398.00 - LO/3 - 2861. Confidential. Repeated to the OEEC mission in Paris, Reykjavik, Oslo, Stockholm, Copenhagen, Luxembourg, Athens, Ankara, Madrid, Vienna, and Bern. A typewritten note on a draft copy indicates that the telegram was repeated to the DAG capitals. (Department of State, Conference Files: Lot 65 D 366, CF 1821)

London, March 28, 1961, 11 a.m.

3897. From Ball. This reports on Monday/1/ morning session DAG meeting.

/1/March 27.

Meeting chaired by Selwyn Lloyd who made short welcoming speech and emphasized need to provide assistance to less developed countries collectively. He referred to US note on joint aid program/2/ and asked Under Secretary Ball to speak first.

/2/See Document 98.

US (Ball) stated that since last DAG meeting three events of importance have taken place in US: 1) national elections and installation of new administration, 2) ratification by US of OECD Convention,/3/ and 3) transmittal by President Kennedy of message to Congress calling for increased effort assist less developed countries./4/

/3/See footnote 2, Document 97.

/4/See Document 100.

Ball explained evolution of US attitude toward OEEC/OECD. In contrast with period after World War II, today economic cause and effect is two- way street and major industrial powers live in world of great economic interdependence.

Ball stated that we regarded broadening cooperation to embrace common responsibility of industrialized countries for assisting LDCs as the most important feature of transformation OEEC to OECD. This common task of aiding LDCs is more difficult and complex than problem encountered in connection Marshall Plan. LDCs not only have great need for capital but also for skills and administrative talents. This task requires not only contribution of our resources but also our ingenuity.

Ball emphasized that present decade must be decade of development. No task confronting us is more important. If we succeed there is real chance that LDCs may be able direct their energies to constructive tasks. But if they become convinced that benefits of industrialization are not being attained there is a great chance that their energies will be turned to destructive ends.

Even a substantially increased effort to assist LDCs will require only small portion of our total resources. Assistance in magnitude of one percent of our aggregate GNP is relatively small and we must think in terms of sustained effort of approximately this magnitude.

In assessing contribution of each country to such a joint aid effort account must be taken of other contributions to the common welfare, with particular reference to defense expenditures. Also an assessment of proper share for each country should be based on capacity to pay, with richer countries making proportionately greater effort than those less well off. Balance of payments considerations are most relevant to form of aid. Countries with persistent payment surpluses should make aid to LDCs available on untied basis. Countries with payments deficits could extend aid on tied basis.

Concerning quality of aid, Ball said it essential recognize that aid should be tailored to requirements of LDCs. There is substantial difference between usefulness to LDCs and burden on industrialized countries of short-term export credits and grants and long-term loans. He warned against putting too much emphasis on short-term loans. Industrialized countries must be careful not put LDCs in position of having become capital exporting countries because of necessity repaying short-time loans. Type of assistance that contributes most to economic development is that made available by official grants and long-term loans as part sustained governmental program. If LDCs are to make necessary sacrifices they need to be assured that economic assistance will be sustained over period longer than one year.

Ball then made following procedural suggestions:

1. Expansion and improvement of reporting facilities with emphasis on current information concerning what each member is making available to each LDC. Expanded and improved information would provide sound basis for further coordination of aid efforts.

2. DAG and later DAC should have full-time chairman./5/ He should be assisted by Secretariat of OEEC/OECD.

/5/The Development Advisory Council (DAC) took over the functions of the DAG after the OECD treaty entered into force on September 30, 1961.

3. Representatives to DAG should be senior officials in position speak for their governments.

4. On basis improved reporting and strengthened mechanism, we could then develop common enterprises and improve efficiency our national programs.

Ball concluded by indicating that this proposal on joint aid effort reflected US determination to move forward with our partners in common endeavors in OECD. In view magnitude of task and shortness of time, he urged others to approach problem of assisting less developed countries in same spirit.

UK (Barber) welcomed US statement and characterized it as inspiring, constructive and extremely important. Barber said that task was of immense proportions and great importance and that DAG members should strive to respond positively to US proposal.

Barber said US proposal was complex and would require careful study. He made following preliminary remarks: he stated that DAG/DAC was proper place to discuss levels of aid and country contributions. Concerning question of taking into account defense expenditures, Barber said that this was relevant factor for UK with worldwide commitments. He was not, however, ready to agree at present that defense effort has general relevance in assessing aid contributions.

Barber welcomed emphasis placed by US on type of assistance most likely to help LDCs. He considered that it would be useful to arrive at some agreement on what constitutes aid.

Concerning US procedural suggestions Barber said UK was willing to consider what steps might be usefully taken to facilitate transformation of DAG and DAC so that DAC could take over going concern full of vitality and purpose when OECD comes into force.

In conclusion Barber said that all must do as much as possible to help LDCs and respond to US proposal in that spirit.

Germany (Westrick) welcomed President Kennedy's aid message and Ball's statement. He said DAG countries must not fail respond to US initiative. Germany welcomed basic points of US proposal. He thought it useful set goal for general aid effort and welcomed opportunity discuss principles pertaining capacity to pay--most important of which in German eyes was concept of progressivity. He cautioned against examining defense expenditures in DAG.

Westrick welcomed idea of permanent chairman for DAG and considered it desirable expand exchange information as basis intensified coordination aid policies. He proposed that first permanent chairman be American.

Italy (Aggradi) characterized US proposals as far-reaching and requiring careful study. He presented preliminary Italian reaction in very general terms as follows: He said it absolutely essential prevent increased disparity between standards of living in developed and less developed countries. Italy agreed in principle to joint program of aid to LDCs sustained for long period. Aggradi said that Italian experience in southern Italy demonstrates that long-term loans and grants are much more useful than short-term credits.

France (Sadrin) expressed agreement with many features of US proposal. He stated his understanding that US does not intend formulate precise mathematical formula for burden sharing. Sadrin stated that all DAG countries should undertake aid effort of about one percent GNP and that we should take opportunity provided by OECD to harmonize aid efforts. He agreed to concept permanent chairman for DAG.

Canada (Plumptre) welcomed inspiring initiative so ably presented by Ball. He pleased that US should have given question of aid to less developed countries such high priority and stressed need for common effort. He welcomed Ball's comments on quality as well as quantity of aid, indicating that unbridled extension of short-term loans could be harmful.

He agreed aid should be increased and improved. However, he had some question as to whether it would be wise put forward as goal one percent of income. With this qualification Plumptre welcomed substance and spirit of US proposal and agreed to strengthening DAG by appointing permanent chairman.

Japan (Shimoda) expressed appreciation to US for putting forward such extensive plan. He said that while unable make drastic increase Japan will do best and will cooperate with other countries.

Concerning burden sharing, Shimoda considered it essential take fully into account per capita income. He also cautioned against referring in public to common defense because of probable reaction of LDCs.

Netherlands (Van Houten) welcomed US initiative and stated that aid effort of all industrialized nations should be intensified. Concerning goal of one percent GNP, Van Houten expressed agreement with Canadian position. He agreed with US proposal for permanent chairman.

Belgium (Daufresne de la Chevallerie) said that aid is problem common to all and that coordination of aid efforts is essential. He agreed that DAG, within framework OECD, should be forum for discussing aid coordination.

Portugal (Pereira) said it premature to establish program of any given size. He thought that it important discuss coordination commercial policies with view to stabilize commodity markets.

Barbour

102. Airgram From the Embassy in the United Kingdom to the Department of State

//Source: Department of State, Central Files, 398.00 - LO/3 - 3061. Official Use Only. Repeated to Reykjavik, Oslo, Stockholm, Copenhagen, Luxembourg, Athens, Ankara, Madrid, Vienna, Bern, the other DAG capitals, USRO in Paris, and USEC in Brussels.

London, March 30, 1961, 1 p.m.

G - 1215. From Ball. Subsequent to Monday morning DAG session Heads of Delegation Meeting was held to consider further U.S. proposal. Minutes of Meeting, of which two copies circulated to each Delegation, are quoted below.

"Sir Frank Lee said that he had suggested this restricted meeting because he thought that it would be helpful if Heads of Delegations considered together what should be aimed at as the outcome of the Fourth meeting of the Group in respect of the proposals made by the United States Government. There might be some limit to the extent to which it was practicable to take final decisions at this meeting, but it was important to convey the sense of urgency which Mr. Ball had emphasized and which all Delegations shared.

"Mr. Ball said that he had had an opportunity since he made his statement at the first full session/1/ of having some conversations with Heads of Delegations and their colleagues and had found that there were some areas where his proposals were perhaps not fully understood.

/1/See Document 101.

"So far as burden sharing was concerned the United States aim was to secure recognition from the major industrial powers that they each had an obligation to contribute to the effort to raise the standard of the less-developed countries to the fullest extent, having regard to their own capacity and commitments. It was not the intention at this stage to seek agreement on a precise mathematical measure of what each country's effort should be. The suggestion that 1% of the aggregate national incomes of the industrialised countries should be devoted to less- developed countries was a broad indication of the overall target. It was not a new figure: something of the kind had been talked of for some time past. It might be possible later for the D.A.C. or the Development Assistance Committee of the O.E.C.D. to consider whether a more precise formula which was acceptable could be found, but he entirely agreed that there should be no question of dictation by the Group to member countries. He thought that an extended exchange of information about member countries' policies and programmes and the pooling of common experience might lead to more effective action and should be considered by the D.A.C., which should also address itself to the somewhat delicate question of its own relations with the less developed countries.

"So far as the proposal that the D.A.G. should have a full-time Chairman was concerned he said that the description `full-time' was more important than the description `permanent'. It was clear that the Chairman would have to be an experienced man of first-rate qualities but a man who at the same time could work easily with member Governments and not impose his views on them. Mr. Ball hoped that this meeting of the Group would be able to agree in principle that there should be a full- time Chairman for the future. This would give considerable impetus to the work of the Group: and problems could be the more readily solved the earlier they were tackled. Delay would mean not only wasted time but that the task ahead might prove still more difficult.

"M. Sadrin (France) said that the D.A.G. did not itself make a contribution to the less developed countries but one of its functions was as it were to carry a message to them. The effect of the United States proposals would be to give a clear impression that the D.A.G. in future would concentrate on practical measures rather than purely theoretical approaches to the problem of providing aid, and this impression would be reinforced by the appointment of a Chairman who would devote his full time to the work of the Group. Co-ordination could be even more important than an increase in the total amount of aid since it would help to ensure that aid was not wasted, and it was most desirable that the Chairman, who could bring about better coordination, should begin work without delay.

"So far as the 1% formula was concerned, this would have the advantage of demonstrating the desire of the industrialised countries to continue to contribute to the poorer countries according to their means and capacity, but he thought that it was important that no specified amount of aid should be allocated to donor countries. In any case nothing was more difficult than to find a statistical formula which would suit a number of countries. The intangible pressures which a Group like the D.A.G. could put upon member countries could be more effective than agreement on mathematical burden sharing.

"M. Marjolin (European Economic Commission) said that he agreed fully with Mr. Ball that the most urgent task was the creation of an effective D.A.G. with a competent and skilful Chairman and a good Secretariat. The essence of the problem was co-ordination and this in turn implied a need for more information. Among the first tasks of an improved D.A.G. would therefore be, as Mr. Ball had said, an extension of existing reporting procedures. This involved some difficult technical problems--for example the question of comparability of aid statistics--but he had no doubt that a meeting of experts from the countries concerned could find solutions quite quickly. The D.A.G. itself should proceed to a broad exchange of views on the experience of member countries. In particular they should be frank about aid which in the past had been wasted or not used to the best advantage. The provision of aid also raised certain social and political problems which might be considered in a more restricted session of the D.A.G. like the present meeting of Heads of Delegations. In theory it was possible to argue that while each country should control its own programmes there should be a broad `division of labour' among donor countries and programmes should be co-ordinated beforehand, but each donor country had areas of priority and had to make its own decisions about the direction of its own effort. He thought that the D.A.G., and later the Development Assistance Committee of the O.E.C.D., should be ready to help under-developed countries to draft their own aid programmes. The President of the United States had said that if aid was to be provided by the donor countries on a long term basis there should be long term planning on the part of the recipients also, but many of the less developed countries could not draft their programmes without outside help. He thought finally that it might be desirable for a Working Party to meet before the next session of the D.A.G. to consider how best the Group might be made a more efficient instrument.

"Mr. Westrick (Germany) said that he agreed with Mr. Ball that the principle should be adopted that each country must do the maximum that it could having regard to its own circumstances, and must decide for itself what contribution it should make, though he sympathised with the view that it was useful to have some formula as a guide so long as a precise allocation was not imposed on donor countries. So far as the question of a full-time Chairman was concerned it would be useful to obtain a decision at this meeting on this matter, but this would have to be a decision in principle only since it was necessary to know in more detail the precise functions which the Chairman would have. It was important to proceed slowly and not to put too much power in the hands of the Chairman at the outset. It might be desirable to set up a small working party to consider what the functions of a full-time Chairman should be. It was certainly important not to lose time. Mr. Westrick added that in his view it was important to examine all programmes and projects for aid to under-developed countries so as to ensure that they were arranged in the interests of the less developed countries themselves and not in the interest of the exporters of the donor countries. Only on this disinterested basis could the Group hope to achieve its political aims.

"Mr. Ferrari-Aggradi (Italy) said that he entirely agreed that there was a need for effective action, but the present meeting should seek agreement on the aims of the Group rather than on details. It was right that each country's effort should be made in accordance with its own capacity. His Government fully recognised the importance of the problem of aid to under-developed countries and thought that the next few years would be crucial. There were many difficulties in this field, both economic, psychological and practical. There was a lack of capital and a shortage of trained men, as well as the psychological difficulty that the less developed countries were often impatient to get ahead with development plans more quickly than was practicable. While it was important that donor countries should themselves act quickly and decisively, it was nevertheless true that long-term programmes needed time in their preparation as well as their fulfilment. The Group would be achieving something if it gave hope that the programmes would be carried out. So far as the question of a full-time Chairman was concerned he agreed that this was most desirable. He thought also that aid should be organized on a regional basis since the problems were not the same, for example, in Latin America and in Africa. The question of co-ordination and collaboration was most important, since among other things it would help to avoid mistrust and should lead to a more effective joint effort.

"Sir Denis Rickett (United Kingdom) thought that it might be useful to consider briefly the past history of the Group. Its life had been relatively short and it had held three meetings./2/ These had concentrated first on the collection of information, and this had led to the preparation of the O.E.E.C. Basic Study;/3/ secondly the Group had used the technique of confrontation under which the host Government on each occasion made a statement about its own aid policies and practices and was subject to questioning by other member governments. In addition the third meeting of the Group had concerned itself with the question of technical assistance. The Group already had some achievement to its credit: the question now was to determine how far its functions should be changed and developed. It should be remembered that at the first meeting it had been expressly decided and stated in the Press Communique that the `Group's efforts should not involve discussion of amounts of financing for particular regions, countries or projects'. It might be desirable to reconsider this, but it would be necessary to examine the position thoroughly before any change was made. The Group had also agreed that it would not embark on elaborate statistical calculations of burden sharing, though an equitable distribution of the burden of providing aid had always been one of the broad objectives of the Group. What might now be desirable would be to consider whether there were any objective tests which could be applied so as to ensure that member countries were taking a fair share.

/2/The first three meetings of the DAG were in Washington March 9 - 11, 1960, Bonn July 5 - 7, 1960, and Washington October 3 - 5, 1960. Documentation on these meetings is in American Foreign Policy: Current Documents, 1960, pp. 329 - 331, and Department of State Bulletin, October 24, 1960, pp. 645 - 646.

/3/Reference presumably is to the Study Group of Four, which the Special Economic Committee created on January 13, 1960, and the OEEC approved the following day. The OEEC published the report of this study group, A Remodelled Economic Organisation, in April 1960.

"So far as the question of a full-time Chairman was concerned, he thought that this was an eminently sensible idea and that the importance of the Group's work fully warranted the appointment of someone who could impart new drive and direction to it. In addition it might be desirable to arrange in future for fewer large formal sessions and more informal restricted meetings. The Working Party which had been meeting in Paris under Dr. Stedtfeld's Chairmanship had already achieved a great deal in a short space of time, and still more use might be made of such working parties. The next steps might be to get ahead with the appointment of a full-time Chairman and then for a small group to be called together to draw up plans for the future work of the D.A.G.

"Mr. Plumptre (Canada) said that it was clear that the D.A.G. could be more useful in future if it concentrated on an improvement of both the quality and the quantity of aid programmes. He welcomed the proposal that there should be a full-time Chairman whose own character and ability, however, would be of supreme importance. So far as proposals for the expansion of arrangements for exchanging information were concerned, he thought that member countries ought to be sure that the information already available was being fully used before it was agreed to embark upon still further exercises. So far as the question of a formula was concerned, he attached much more importance to the influence of personality than to mathematical calculations, and thought that the right Chairman could help to solve the problem by giving sensible and effective guidance. The provision of aid was a heterogeneous matter: it depended very greatly on the political background in each donor country, and formulae which suited political conditions in one country would not suit another. It would in his view be necessary for the D.A.G. to move very cautiously in respect of any direct consultation with the under- developed countries. The United Nations and the other international institutions of which the less developed countries were members were far more suitable bodies for activity of this kind. He agreed that the Group should consider most carefully the question of changing the decision that it should not allocate aid to countries or projects.

"Mr. Kristensen (Organisation for European Economic Co-operation) said that so far as reporting of aid transactions and the exchange of information was concerned the arrangements made within O.E.E.C. were already developing and improving. The Basic Study of the flow of funds from donor countries in the years 1956 - 59 would be kept up to date by a system of half yearly reporting and the Secretariat was now seeking also to provide figures, so far as possible, of the flow of funds into recipient countries. They were finding new staff and hoped to embark on new analysis and evaluation. So far as the question of the early appointment of a full-time Chairman was concerned he agreed that a man with all the qualities which had been mentioned could make the Group very effective, but there were difficulties about the proposal. In particular, the Preparatory Commission had recommended that the Development Assistance Committee of the new O.E.C.D. should appoint its own Chairman./4/ Even if it was agreed now in principle that the appointment of a full-time Chairman for the Group was desirable it was advisable to leave the actual election until after the O.E.C.D. came into being. There might be danger in the interim period in having two centres of gravity--the Chairman of the D.A.G. and the Secretariat of the O.E.E.C. There might also be intensified difficulties with less developed countries and members of O.E.E.C. who were not members of the D.A.G., as well as those who were considering whether to join, and this should be borne in mind. If the Working Party which it had been suggested might be set up to consider the new functions of the D.A.G. were agreed upon it might also consider these problems.

/4/On July 23, 1960, the OEEC created the preparatory committee to complete the draft convention on the OECD. For text of this committee's report, late November 1960, see The Organisation for Economic Cooperation and Development: Convention of 14th December 1960, Report of the Preparatory Committee, Related Documents, pp. 23 - 83.

"Mr. Shimoda (Japan) said that while he agreed that the idea of a full- time Chairman had advantages there were some disadvantages and he found it difficult to come to a conclusion without knowing more precisely what the powers and functions of the Chairman would be. Moreover, since Japan was not a member of the O.E.C.D. he would like to have time to consider the relationship of this Chairman and the O.E.C.D. He entirely agreed that the matter was urgent but nevertheless thought that there should be time for him to consult his Government before the Group took any decisions.

"Dr. Pereira (Portugal) said that he thought that ideally the election of the Chairman should not be made until after the O.E.C.D. came into being. If it were decided to nominate a Chairman of the Group before that, much would depend on the powers to be given to the Chairman and the qualities of the man who was proposed to be elected and he could not give a final decision on behalf of his Government. He was attracted by Sir Denis Rickett's proposal that the D.A.G. should meet more frequently in smaller groups.

"Dr. Van Houten (Netherlands) agreed about the desirability of a full time Chairman for the Group who would be able, among other things, to deal with the question of relations with the under-developed countries. The powers given to the Chairman, would, however, be a matter for consideration. He would have a very important co-ordinating task. He would have to see that aid to under-developed countries was provided more efficiently and to study the various proposals for burden-sharing according to a formula. But he would have to base himself on the assumption that the provision of aid to under-developed countries must remain in essence a national responsibility. All these questions ought to be considered in working out what should be the powers of a full-time Chairman.

"M. Daufresne de la Chevallerie (Belgium) said that he had sympathy with the view that the appointment of a full-time Chairman before the inception of the O.E.C.D. could create two separate centres of gravity even though the Chairman of the D.A.G. sat in Paris, and that this must receive full consideration.

"The following further points were made in discussion:

(a) Mr. Ball emphasised that the United States proposal would be for the full-time Chairman to have his office in Paris.

(b) The recommendation of the Preparatory Committee of O.E.C.D. was that the Development Assistance Committee should elect its own Chairman.

(c) The sense of urgency which member countries were agreed was important might be dissipated if decisions on the Chairmanship were postponed until after the O.E.C.D. came into being--which might not be until September 1961.

(d) In considering the functions of a Chairman of the D.A.G. reference must be made to the original Resolution of the Special Economic Committee in Paris on 12th January 1960./5/

/5/Reference may be to the prepared draft on the establishment of the Development Assistance Group and its terms of reference, which the U.S. delegation circulated to the Special Economic Committee on January 12, 1960. See Department of State Bulletin, February 1, 1960, pp. 144 - 145.

"Sir Denis Rickett (who took the Chair after Sir Frank Lee had left the meeting) said that it was quite clear that the D.A.G. could not appoint the Chairman of the Development Assistance Committee of the O.E.C.D. On the other hand it would be possible for member countries of the D.A.G. to agree upon the election of a Chairman of the D.A.G., and to arrange subsequently that the same Chairman should be elected by the Development Assistance Committee. The discussion had illustrated some of the difficulties which the proposal that there should be a full-time Chairman of the D.A.G. presented, but it had also shown the broad lines on which a resolution for adoption by the Group at the Fourth Meeting might be drawn up."

Barbour

103. Editorial Note

On March 30, 1961, President Kennedy appointed ICA Director Henry R. Labouisse as chairman of a task force to bring about the transition from existing foreign aid programs to the new approach outlined in the President's March 22 message. Labouisse was given "responsibility and authority to formulate programs and legislation appropriate to bring into effect my proposals, as well as to establish a new organization which will integrate the programs of ICA, DLF, the Peace Corps and the Food for Peace Program." (Memorandum from President Kennedy to the Secretaries of State, the Treasury, and Defense, et al., March 30; Department of State, Central Files, 700.5 - MSP/3 - 3061)

At his press conference on April 12, President Kennedy formally announced the creation of this task force--what he called "an advisory group"--under Labouisse. He also indicated that Eugene Black, President of the International Bank for Reconstruction and Development, and "other distinguished members of the banking community" would be helping the administration on the problems of development assistance abroad, while Theodore Tannenwald, a New York lawyer, would assist in the drafting of the foreign aid legislation, and George Gant of the Ford Foundation would help with the organizational aspects. Finally, he announced the appointment of several experts to provide advice on putting the aid on a sound and economical basis, which the President called "the most important phase of the effort." For text of the President's statement, see Public Papers of the Presidents of the United States: John F. Kennedy, 1961, page 258.

Labouisse created three task force groups, or subcommittees, as follows: Legislation and Congressional Presentation, chaired by Tannenwald; Organization and Administration, headed by Gant; and Program Development, with Frank M. Coffin, Managing Director of the Development Loan Fund, as chairman. In addition, Professor Max Millikan, Director of the Center for International Studies at the Massachusetts Institute for Technology, and Henry Alexander, Chairman of the Morgan Guaranty Trust Company of New York, headed panels of private citizens and consultants.

The task force met regularly during the spring of 1961. It solicited comments and suggestions from posts abroad in circular telegram 1644, April 21. (Department of State, Central Files, 700.5 - MSP/4 - 2161) For text of a report entitled "Research and Development in the Development Assistance Program," prepared by the Development Assistance Panel of the President's Science Advisory Committee, which was made available to Labouisse's task force, see the Supplement. Following NSC discussion of U.S. policy toward Cuba on May 5, NSC Record of Action No. 2422 - l, approved by the President on May 22, directed implementation of several measures to strengthen the Alliance for Progress. (Department of State, S/S - NSC (Miscellaneous) Files: Lot 66 D 95, Records of Action by the National Security Council) Among these measures, the task force was directed to study Latin American needs and capacity to absorb capital in preparation for the administration's proposed request for a supplemental appropriation of $200 - 400 million for development loans for FY 1962. (Memorandum from Ball to Labouisse, May 9; Department of State Bulletin, June 12, 1961, page 918)

The Labouisse task force report was published as a paperback pamphlet under the title An Act for International Development: A Summary Presentation, June 1961 (Department of State Publication 7205).

104. Memorandum of Conversation Between President Kennedy and Foreign Minister von Brentano

//Source: Department of State, Presidential Memoranda of Conversation: Lot 66 D 149, January - April 1961. Confidential. No drafting information appears on the source text. Approved in B on April 24, in S on April 25, and at the White House on May 11. The meeting was held at the White House.

Washington, April 13, 1961, 10:30 a.m.

ADENAUER VISIT

Washington April 12 - 13, 1961

SUBJECT

Aid to Underdeveloped Countries

PARTICIPANTS

(See attached list)/1/

In opening the discussion on aid to underdeveloped countries, the President stated that useful discussions had taken place with Foreign Minister von Brentano in February,/2/ and that more recently Mr. Ball had held equally useful talks in Bonn on this subject./3/

/1/Not printed. The list included Chancellor Adenauer, but he apparently did not take part in this part of the conversation. For a memorandum of Adenauer's conversation with President Kennedy on the balance-of- payments problem on April 13, see Document 44.

/2/See footnote 1, Document 91.

/3/See Document 99.

The President added that it is in the common interest of all of us to provide for a stable economy for the underdeveloped countries, so that they will see some hope in solving their problem through a non-communist system. He cited one example of German aid efforts for which the US is particularly grateful--what they are doing in Bolivia. The President stated that this is most helpful. The US has been carrying a very heavy aid burden for the past few years, and the needs are growing rather than diminishing. Therefore the US will appreciate anything the Federal Republic can do to help.

The President added that the US feels that the Atlantic Community is the key and the anchor to free world security. If the world to the south becomes unstable and insecure, then the Atlantic Community will be insecure. Therefore all these aid efforts should be coordinated. The US aid program is now to be more efficiently coordinated. There should be continuing consultation between countries so that each country knows what is being done by other countries in the aid field. Foreign aid should be a multi-national and not a national effort.

The President noted that there are presently four areas offering possibilities for cooperative efforts:

Bolivia--Bolivia is a most critical problem, both politically and economically. This would be the worst time for the Castro regime to get a foothold in another Latin American country; this would add momentum to the Communist movement at a time when the momentum is going down.

Turkey--Here is a NATO ally which has vigorously opposed the Soviet Union and which is maintaining a large military program, assisted by substantial US grant aid. Turkey has a critical economic problem, resulting in considerable measure from its military effort.

India and Pakistan--Both countries have broad long-range economic development plans which call for continuing and large-scale external assistance.

The President then called on Under Secretary Ball to comment on aid to underdeveloped countries. Mr. Ball noted that steps are being taken within the forum of the DAG and OECD to expand and improve the areas of cooperation for providing assistance to underdeveloped countries. As to India, Mr. Ball noted that meeting with the consortium of nations responsible for financing the third 5-year plan would be taking place in the next two to three days to discuss the next economic plan for India. He hoped that the Federal Republic could commit substantial amounts toward the fulfillment of that plan, extending over the next two to three years. Both Pakistan and India require financing for longer than a one-year period. Pakistan also is being examined by a consortium of nations meeting soon. The US is entering into a sizable burden of commitments, and it is hoped that Germany can do likewise. Both countries need long-term loans at low interest rates. Turkey too has a balance of payments problem. It has taken on tremendous military burdens under its NATO commitments. The US has given $90 million in grant aid over the past three years. We hope that the Federal Republic can help now by providing long-term loans as well as grant assistance, so as to not add further to Turkey's short-term capital debt problem. On COMIBOL, Mr. Ball noted that we have a representative in Bonn for discussions on Bolivia, and that the Federal Republic has been very helpful in cooperating with us. We hope that in view of the political situation, the Federal Republic will continue to provide assistance to Bolivia, jointly with the United States program.

Foreign Minister von Brentano said that there was a question whether in the case of Bolivia, the problem was simply one of reviving COMIBOL. Preliminary reports on the German side indicated that a much broader program of economic reconstruction would be required, costing a minimum of $150 million.

Turning to Turkey, the Foreign Minister reported that bilateral talks will begin tomorrow in Bonn on the 1961 financial needs of that country. The Federal Republic plans to make DM 100 million available for Turkey in 1961/62 and will also consider extending long-term 3% loans for economic infrastructure purposes.

Minister Etzel recently visited India and tentatively pledged DM 400 million in assistance for first year of India's third 5-year plan. The Federal Republic will participate in the consortium for the India and Pakistan programs along with the World Bank.

As to Pakistan, the Federal Republic is prepared to make available DM 75 million annually for 1961/62 and also through the coordinated efforts of the consortium discuss possibilities for further financial assist-ance.

The Foreign Minister then reverted to Turkey and stressed the Chancellor's special interest in that country, which he regarded as a particular responsibility of the Federal Republic to assist. A total of DM 1.5 billion has been made available up to the present time, and the Federal Republic is prepared to undertake whatever may be necessary in further meas-ures.

The Foreign Minister summed up by stating that the Germans are prepared to do their share with the US on foreign aid through the DAG and OECD, and within this framework to determine what program should be undertaken bilaterally and multilaterally.

Mr. Ball stated that he was grateful for von Brentano's statement. It shows there is general agreement on the problem of foreign aid. He then commented briefly that the US is prepared to extend substantial assist- ance to India and Pakistan and hopes that in the consortium talks the Federal Republic will contribute in proportionately substantial measure. Mr. Ball stressed the need for long-term assistance to Turkey rather than short-term or even medium-term loans, in view of their balance of payments situation. In conclusion, the US would be pleased to discuss Bolivia with the German Government representatives when they come to Washington in May for that purpose.

The President expressed his gratification that progress is being made in aid planning. The problem will continue for years to come. The US is now trying to provide aid on a longer term basis. This is a difficult political problem domestically, just as it must be for the Chancellor.

105. Memorandum From the Assistant Secretary of State for Educational and Cultural Affairs (Coombs) to the Under Secretary of State (Bowles)

//Source: Department of State, Central Files, 811.0000/5 - 561. Personal and Confidential. The source text is initialed "PHC per LL," presumably Lillian Lovitz (CU). A typewritten note at the end of the source text reads: "Dictated but not signed by Mr. Coombs."

Washington, May 5, 1961.

SUBJECT

The "New Look" in Foreign Assistance

In the next few days, before the Foreign Aid Pattern gets frozen, I hope you will sit down with Labouisse, Coffin, Ball and Bell and make sure that the foreign aid program is really going to have a "new look", with a heavily increased emphasis on people and their development, not two or three years from now but in FY 1962.

There is real danger that two years from now people will ask, "What is new about Kennedy's foreign aid program?" Much attention has been devoted to important technical changes--such as longer budget periods-- but the cards are stacked against a major shift in the pattern of programming.

(1) Many old timers either do not understand or do not believe in the "new emphasis" on human resource developments.

(2) The staff, in Washington and the field, is loaded with narrow specialists whose projects would hereafter receive less emphasis. They will naturally resist a shift.

(3) The argument is made that so much old stuff is in the pipeline that at least one year, maybe two, of "turn-around time" is needed. There is some truth to this, but we need to be very tough in cutting off old stuff in order to start on new.

(4) The loan program will in all probability go into physical stuff which can be photographed and mortgaged and earn an interest rate. Actually, investment in education will yield a higher economic return in the long run but it's not a banker's idea of an "investment."

(5) There is a prevalent notion that education can be emphasized at little cost by supporting a few pilot demonstrations here and there. On this premise, people say they are all for an emphasis on education but then end up providing meagre money for it. Actually educational development will require a great deal of money and we kid ourselves if we think otherwise.

For weeks now I have been pushing hard at every opportunity for a genuine emphasis on education and human resource development. Harry Labouisse and Harry Coffin are fully sympathetic, I am sure. But somehow, when the charts get drawn and the budget figures get laid out, education tends to get obscured and lost in the shuffle.

I am afraid that everyone has been so busy with the technical details that insufficient attention has been given to the political dimensions, both domestic and international, on which the success of the program will ultimately rest.

(1) It is imperative that the Kennedy foreign assistance program look different and be different, right from the outset. It must not be the same old program with new labels.

(2) Both the American people and foreigners will respond to a strong and clear emphasis on people and on education. This should be the hallmark of the new Kennedy program. The philosophy should be clear and simple: a society's main wealth is in its human resources; the development of people must precede the development of industry (this is the history of U.S. development); the development of new, viable, free societies is much broader and more complex than simply economic development; the United States values people more than material things, we place our confidence in the liberation of human energy and aspirations through the education of peoples' minds.

Incidentally, I saw Adlai in New York on Friday/1/ and he feels strongly along the same line.

/1/April 28.

I hope that you and Dean and the President will all ask one key question about the plans for the new foreign assistance program: How new will it actually look and be--as seen by the public--in the coming year, and how much increased emphasis will there really be on human resource development?

One final point: It is very important that our accent on education be very visible, even in the organizational structure of the program. If education is buried away in the regional bureaus and there is no provision for a top flight person with a good staff to worry about educational development in the program generally, it will be impossible to attract good enough people into the program to provide strong leadership on the education front, and we will lose an important political advantage at home and abroad.

106. Letter From Secretary of Agriculture Freeman to the Under Secretary of State (Bowles)

//Source: Washington National Records Center, RG 286, AID Administrator Files: FRC 65 A 481, Agriculture, FY 1962. No classification marking.

Washington, May 12, 1961.

Dear Chet: Pursuant to our conversation of yesterday morning at the Cabinet meeting,/1/ the enclosed are forwarded for your perusal as you review the whole matter of the new economic aid agency this weekend./2/ I believe they are self-explanatory.

/1/No record of this conversation has been found.

/2/The enclosures are not attached nor further identified, but Bowles in his reply (Document 110) identified one as a May 5 memorandum from Freeman to the President. For text, see the Supplement.

Two points really are made. First, that food and agriculture are fundamental to any economic aid program for any developing country. This includes the food, as such, as an element of nutrition and capital investment, and also the matter of technical agricultural development and assistance. Second, the whole matter of how an aid agency should operate is vital we think, and the report of the Labouisse Committee, in my judgment, is very seriously lacking in a number of respects./3/ I believe it very important that responsibility be centralized but that operations be specifically delegated to operating agencies. On the surface, these may seem like conflicting principles, but in practice they need not be, and if a program is properly administered it can combine the centralization of responsibility necessary to resolve operating conflicts in the field with the effective operation that will flow from getting the best personnel, together with the resources of the operating department, behind a specific program which has been delegated to that operating department.

/3/Regarding the Labouisse report, see Document 103.

A third phase of all of this, of course, is the paramilitary and developing extra government organizations, to wit: cooperatives, trade unions, etc. Here I think we again find our greatest opportunity in agriculture and through cooperatives, and it's an area in which I have special interest, having spent a bit of time in some of these nations during World War II.

All in all, I'm deeply concerned about this and I desperately hope that no final decision is made until it has been carefully reviewed for a mistake with the resulting conflicting jurisdictions, and competition between agencies I think will be very serious. Our resources are limited and we ought to use them to the best advantage and move in close coordination and harmony in the same direction. Anyway, do look this over, and I hope you will give me a ring sometime early next week.

Sincerely yours,

Orville

107. Memorandum From the Director of the International Cooperation Administration (Labouisse) to President Kennedy

//Source: Washington National Records Center, RG 286, AID Administrator Files: FRC 65 A 481, Agriculture, FY 1962. No classification marking.

Washington, May 12, 1961.

SUBJECT

The Food for Peace Program

The Foreign Aid message calls for the creation of a single Aid Agency equipped with a flexible set of tools including the Food for Peace Program./1/ In order to carry out these basic concepts, the Task Force recommends that an Office of Food for Peace be established in the new Agency with primary responsibility for the over-all Food for Peace Program./2/

/1/Reference is presumably to the President's March 22 message on foreign assistance; see Document 100.

/2/Attached to the source text but not printed is a task force paper titled "Working Group III, Organization and Administration, Document No. 1," dated May 8.

This office would, among other things, formulate and negotiate sales agreements with other nations for agricultural commodities under Titles I and IV of PL 480. This would be done after consultation with the appropriate elements of the State Department and other interested agencies. The availability and composition of specific commodities for these sales and their possible effect on usual dollar marketings would continue to be determined by the Department of Agriculture. The necessary authority for putting this function in the Aid Agency is provided for in the omnibus farm bill now before Congress which will amend PL 480 so as to transfer from the Secretary of Agriculture to the President the authority to determine which nations are eligible for Title I and Title IV Sales Agreements.

USDA objects to placing these functions in the new Aid Agency on the grounds that it would subordinate the USDA sales program to the Aid Agency./3/ It argues that the Congress is more likely to support a reasonably high level for these programs if the present arrangements remain essentially undisturbed. This would leave the initiative for the formulation of sales agreements in the USDA and the power of final decision in the present interagency committee.

/3/The specific arguments advanced by the Department of Agriculture have not been found.

The Task Force recommends against the USDA proposals because they are inconsistent with the decisions already made by you as set forth in the Foreign Aid message and because they would seriously undermine the country programming concepts fundamental to the new approach set forth in the message.

We also believe that the integration of the PL 480 program into the assistance effort will enhance, rather than hinder, the utilization of agricultural commodities overseas. The decision-making process will be streamlined under the Task Force recommendation and the Director of the Office of Food for Peace will have the opportunity and responsibility for developing new techniques for increasing the use of these products in our assistance programs.

The above arrangements recommended by the Task Force would assure protection of the interests of both agencies and any dispute between USDA and the Aid Agency which could not be reconciled by them would require Presidential decision.

Henry R. Labouisse/4/

/4/Printed from a copy that bears this typed signature.

108. Editorial Note

In late March 1961, Charles Burton Marshall began his study of the military assistance program. Marshall had served as a staff assistant to the House Foreign Affairs Committee 1947 - 1950 and as a member of the Department of State's Policy Planning Staff 1950 - 1953. Marshall's appointment to write this study derived from agreement among the new leadership of the Department of Defense and Department of State that the complex economic and political issues might require a different approach to military aid. At an interagency meeting on February 25, Secretaries McNamara and Rusk discussed the prospect of a study of these issues; see Document 93. In a March 15 letter to McNamara, Secretary Rusk outlined the parameters for the Marshall study; see Document 96. In a March 29 letter to Secretary Rusk, Deputy Defense Secretary Gilpatric endorsed Secretary Rusk's recommendations for this study which Marshall had already begun. (Department of State, Central Files, 700.5 - MSP/3 - 2961) Other documentation on the preparation of this study is ibid.

Marshall completed the study on May 17. For its recommendations, see Document 109. For interagency discussion of its conclusions at a meeting on May 26, see Document 112.

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[End of Section 6]

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