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

[Section 7 of 18]

109. Report Prepared by Charles Burton Marshall

//Source: Department of State, Central Files, 700.5 - MSP/5 - 2361. Secret. Attached to the source text is a May 23 memorandum from Marshall to Secretary Rusk, which indicated that the report was completed on May 17 and recommended that it be discussed "in a meeting similar to the one of February 25 which gave rise to it."

Washington, May 17, 1961.

MILITARY ASSISTANCE FOR THE 1960'S

[Here follow Parts I - V (pp. 1 - 45 of the source text). The parts are entitled: I, Military Assistance in Relation to National Aims; II, Military Assistance in Areas Subject Primarily to Threat of Internal Aggression; III, Military Assistance in Areas Under Internal and External Threat; IV, Military Assistance in the NATO Area; and V, Perspectives on Military Assistance.]

VI. Recommendations

100. The exigent questions about military assistance are best understood in relation to the whole situation now confronting the United States. However, necessary, empirical examination of needs in particular areas gives little clue to the answers. The range of opportunity for useful accomplishments is great and varied. The United States might resolve its will at any one of a number of levels of endeavor. Yet it cannot truly discover its will by poring over figures. It should do so by taking counsel of its aims and the measures of the danger it is in.

101. To put it moderately, that danger is high. The resolution of the United States has increasingly come into question. Adversary forces appear to have the initiative in many sectors. The exigency of the situation has been almost without exception among those consulted during the preparatory stages of this report. No amount of assurances exchanged among themselves, no amount of repetition to others of the firmness of our resolution, can suffice to redress the danger. The essential is to use opportunity--and to create opportunity--to demonstrate resolution by concrete commitments and actions.

102. Military assistance is a channel of action appropriate for that purpose. It is then to be used at the nation's initiative, without requiring concurrence of others. A demonstration now of the intention of the United States not just to hold a line but to push on to required achievements in joint security will serve the United States well. It can stir imagination and heart among those allied with the United States, reassure those under the pressure of uncertainty, and elicit complementary actions.

103. The important thing now is to use military assistance to begin far- reaching programs of force improvement stretching over a reasonably calculable future--say, six years. Such programs are relevant to needs consonant with the purposes of the United States in each of the areas considered in this report.

104. It would overtax the prophetic abilities on call to attempt to project the requirements called for over such a span. The various estimates scanned are too widely variant to permit exactitude. The principal variables in mind in stating this reservation are the following:

a. The level of modernization requiring to be undertaken in NATO.

b. The level of requirements for nuclear weapons in NATO and the related transferability to conventional capabilities of funds now allocated for nuclear capabilities in NATO.

c. The extent of complementarity likely to be found necessary as plans to this purpose develop in respect to meshing indigenous forces with United States forces in countries subject to external threat as well as internal threat.

d. The extent of military civic action programs likely to be found feasible in the above countries and those singly subject to internal threat.

105. In view of this report, a sum in the magnitude of three quarters of a billion to one billion dollars in addition to the authorization already requested is in order in fiscal year 1962.

106. On a conservative basis, subsequent annual requirements signally less than those recommended herein for authorization and appropriation for fiscal year 1962 scarcely seem likely. A reasonable premise is that about half of the cumulative increments over the period would go to the stimulus of force improvements for NATO.

107. Finally, military assistance should be carried on in consonance with the views developed in the body of this report.

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

//Source: Department of State, Central Files, 811.00/5 - 1961. No classification marking. Drafted by Alice May (ICA/EXSEC) on May 17 and redrafted in ICA/D on May 18 and cleared by Labouisse. Attached to another copy is a May 19 memorandum from Labouisse to Bowles, urging Bowles to sign the letter the same day if possible. He argued, "In view of his [Freeman's] memorandum to the President of May 5 and the likelihood that the President may make some decision on this matter within the next few days, I feel it is most important to have the Department's views on record as soon as possible." (Washington National Records Center, RG 286, AID Administrator Files: FRC 65 A 481, Agriculture, FY 1962)

Washington, May 19, 1961.

Dear Orville: After your comments to me at Cabinet last week, I gave some further thought to the points you touched upon with respect to the new aid agency and how it should operate, and specifically in reference to food and agriculture programs abroad. I appreciate your giving me your views in greater detail in your letter of May 12,/1/ and the enclosed copy of your memorandum to the President of May 5./2/ Obviously, all of the questions concerning the new aid agency have not yet been resolved, but an enormous amount of thinking has gone into the plans as they now appear to be shaping up, and I know that the proposals of Mr. Labouisse's Task Force are the product of the best judgments of some very competent people on the basis of past experience of the ICA and other aid agencies, their analysis of the current situation worldwide, and their assumptions as to the President's own desires as set forth in his Message.

/1/Document 106.

/2/See the Supplement.

Of the three major points made in your letter, I should like to comment first on the one relating to operation of the aid agency. You have suggested that responsibility for aid programs abroad be centralized in the aid agency, but that operations be delegated to those agencies of the Federal Government having the specific expertise and greatest facilities for the particular functional area involved. It seems to me that what we are really confronted with here is a kind of a perennial dilemma which confronts organization planners, i.e., whether a job can best be done by a comprehensively organized, central organization, or whether it can best be done by a relatively small central group, farming out the operating end to specialized agencies for implementation. As you know, the fragmentation of our aid efforts has been the cause of one of the program's greatest difficulties in the past, and the President's proposal to establish a single aid agency "in place of several competing and confusing aid units" was aimed specifically at overcoming this difficulty. I feel that the President, in calling for a single aid agency, did not contemplate simply a coordinating entity which would develop plans, coordinate and negotiate with other agencies for operation of the program, and then make final recommendations to the President. Since the aid agency must defend the program before the Congress, it would seem essential that it also must take responsibility for the over-all direction and operation of the program in each country.

This does not mean, however, that specialized departments of the U.S. Government--Agriculture, HEW, Labor, Federal Aviation Agency, etc.--do not have an important and vital role to play. I am told that the major existing aid agency--ICA--makes extensive use of the expertise of the other departments, both in the process of developing programs and their implementation. For example, it is "buying" about $2,000,000 worth of services from the Department of Agriculture, including plant and seed testing, distribution, etc., salinity and soil fertility testing and advisory services, insect control, technical consultation and support activities, preparation of technical guidelines, special publications, and the like. Again, ICA is using the Corps of Engineers and the Bureau of Yards and Docks to supervise construction projects overseas, particularly road construction projects; is using the Federal Aviation Agency to supervise the installation of navigation equipment in key airports around the world; and it has a "contract" with the National Institute of Health to carry out certain research and development activities in connection with the health components of country programs, particularly with respect to malaria eradication. I am told this list could be extended almost indefinitely. I am sure that the new administration will continue and indeed expand the use of such specialized services.

Moreover, it seems to me there might well be additional ways in which such Departments as Agriculture and the new aid agency might work together in a common U.S. interest. For example, consideration might be given to a substantially greater exchange of agricultural technicians between the Department of Agriculture and the new agency, with personnel of one from time to time being detailed to the other. Perhaps also a more efficient arrangement could be made so that the new agency might rely upon the Department to provide it--on a reimbursable basis, if necessary--prompt access to top-notch departmental experts for short- time consultancy. No doubt further conversations between the Department and the new aid agency would uncover still other areas where closer cooperation would be highly effective.

As to the other points in your letter--the importance of food and agriculture in economic aid programs abroad, and the use of cooperatives--I am in complete agreement. The meeting of the food requirements of a country is to my mind a matter of first priority. Whether this is accomplished through emergency food programs utilizing our surpluses, or through augmentation of the country's own food production resources, or both, the role of food and agriculture is indeed a primary one. I think it must, nevertheless, be fitted in as a component of the total country program. I believe cooperatives offer a particularly useful potential for providing the first and primary needs of farmers in the developing countries and I know that Mr. Labouisse shares this point of view. He has, in fact, just recently notified the farm organizations that the ICA would welcome their assistance in helping to find competent technical advisers and in the creation and development of cooperatives in some of the countries in which we operate. I think it would be very useful for you to solicit the views of the members of your advisory committee as to ways in which cooperatives of the U.S. can assist in the work we are attempting to do in the newly developing countries.

Thank you again for giving me your thoughts on this important matter. We are all anxious that the aid program be established on a sound footing that will assure the most effective operation of our programs abroad. I should be happy to discuss this whole matter with you further if you wish.

Sincerely yours,

Chet/3/

/3/Printed from a copy that indicates Bowles signed the original.

111. 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 25, 1961.

Dear Chet: Thank you for taking the time to read my memorandum/1/ and to think about my views in connection with foreign aid administration and to write me your long and detailed letter of May 19./2/ You have had a great deal more experience with this than I, but I must say that I am fearful that a mistake may very well be made in connection with the nature of the new aid agency.

/1/Presumably reference is to Freeman's May 5 memorandum to the President. See the Supplement.

/2/Document 110.

Since receiving your letter I have carefully canvassed a number of the people here in our Department; there are literally hundreds of them who have served in various capacities overseas, many of whom have been involved from the very early days of the aid programs and have operated under different kinds of organizational setup. Without exception, they feel strongly that at the present time and place--and particularly in the under-developed Nations--it is crucial that we do the best job possible, obtain the best people, and have a continuity of operation which can best be accomplished through the medium of our operating departments.

It would appear from some of the discussions that we may end up somewhere in between in connection with this with a good deal of delegation in fact, if not in theory. For my part, I have expressed this viewpoint as strongly as I could and I hope it will be recalled; in any event, we in Agriculture are anxious to do a job.

I hope as the new agency is launched that you will be able to give it some of your personal attention, Chet, for it will be very important how initial relationships work out. We in Agriculture expect to have in a few weeks an evaluation of some of the key nations in terms of both the use of food and technical assistance in agriculture and also what we think ought to be done. We are anxious to move ahead and prepared to give of our resources in making development programs work in crucial areas around the world. As always, I expect those who are willing to work and have some resources to work with will have a chance to use them and I am assuming that will be the case here.

In any event, thanks for your letter. I hope we have time to visit some day soon.

Sincerely yours,

Orville

Chet--We just want to do a job & not from left field where this Dept. has been for 8 years--Tell us what to do & we will go!/3/

/3/The postscript is handwritten. For additional correspondence on the question of the responsibilities of the Department of Agriculture in the foreign assistance program, see Freeman's May 25 letter to Secretary Rusk, Secretary Rusk's August 3 letter to Freeman, Freeman's June 30 letter to Bowles, and a September 20 memorandum from Joseph S. Toner, ICA Executive Secretary, to John O. Bell (B/FAC), all in the Supplement.

112. Memorandum of Conversation

//Source: Department of State, Secretary's Memoranda of Conversation: Lot 65 D 330. Top Secret. Drafted by Weiss on May 31. Not submitted to the Secretary for approval but cleared by S/S on June 2.

Washington, May 26, 1961.

SUBJECT

Meeting on Marshall Study of Military Assistance Program

PARTICIPANTS

[Here follows a list including Secretary Rusk, Dean Acheson, Charles Marshall, Roswell Gilpatric, and officials from the White House, ICA, Department of the Treasury, and CIA.]

1. Secretary Rusk opened the meeting by expressing appreciation for the excellent study of the Military Assistance Program conducted by Mr. Marshall. He noted that it dealt with one of the most complex of problem areas. Mr. Rusk stated that it was to be expected that military assistance would be vigorously attacked by the Congress, with members of the Foreign Relations Committee having given notice to this effect. There would undoubtedly be criticism concerning: too great an emphasis in the past on the military effort without proportionate success, of our military aid supporting regimes which cannot survive because of lack of popular support; of its effect in projecting a militaristic image of the United States, etc. Despite the foregoing, the Secretary noted that dealing with the Sino-Soviet threat around the globe presented very serious problems which at least in part could perhaps only be met through use of the military aid technique. With this introduction, he asked Mr. Marshall for a brief synopsis of the major points covered by his study.

2. Mr. Marshall alluded to the fact that his last previous association with the military assistance program was in 1949 when he assisted in the writing of the Congressional Report on the first military assistance program. He thus undertook the current study without prejudice to the past and without compulsion either to endorse or to reject previous policies and programs. Mr. Marshall stated the point of departure for the study represented the enduring aim of U.S. policy, specifically the need for preserving an environment compatible with a continuing vitality of the political propositions summed up in the preamble of the Constitution. He noted that U.S. policy aims vary from one stage to another, were by no means fully subject to our dictate and only in part subject to our influence.

3. He then turned to our present circumstances which set the frame of reference for the study. He referred to the fading away of the imperial colonial order which formerly served as the basis of order between peoples of highly different cultures and levels of development living great distances from each other. This together with the heightening awareness of disparities in economic and political equality between states and among various portions of the populations within states, the growth and power of the world communist movement, and the effect of invention and weapons systems having such a redundancy of power as to place them out of all balance with rational political ends, all contributed to the problems with which US foreign policy and military assist-ance as a tool of that policy were required to deal. The general lines of the objective should be to attempt to proceed with a new order reflecting collaboration among juridically free and equal states. This would require a development of communities of outlooks and interests. But it would also require the countering of the military threat and the preventing of communist pre-emptions, whether they be military or political. He noted that it was important to understand that our aims were not logically distinguishable as between the long and short term since all of the undertakings required of us begin now and all carry into the far future. The point is that the objectives of countering the military threat and preventing pre-emptions must be realized if we are to have a chance at developing the new order and developing a community of outlook.

4. Mr. Marshall then turned to a discussion of the Communist threat with its total claim on the future and on legitimacy related to its version of a law of history which dictated the inevitable triumph of its point of view. To pursue its aims the Communists had many assets stemming from its inter-continental deterrent force through its large conventional war making capabilities, to its far-flung underground organ-ization and, indeed, even in its internal organization which permitted a short response time in decision making, a monopoly of information channels and the possession of the revolutionary mantle. For the calculable future the threat would continue. A key point in his study was the recognition that the threat of communism may be expected to continue, restrained only by considerations of prudence relating to countervailing factors. The prolongation of the cold war, however undesirable in itself, is preferable to the alternatives of unleashed violence on the one hand or capitulation on the other.

5. As described by Mr. Marshall the threat ranged from internal security through external aggression and over this spectrum there existed a wide range of varying scope and intensity of effort. The requirement for U.S. policy, therefore, was to provide a matching continuity of response, a matching wholeness. Mr. Marshall noted that there did not exist a hierarchy among the options available to us but rather a set of concurrent and linked necessities. There were the needs of internal security in its various forms, beginning with economic development and proceeding through para-military and military forces, to counter guerrilla actions. Similarly with regard to the external threat, there was involved both country military forces and US support, for coping with and deterring limited hostilities, through the series of collective security preparations for local wars, finally into requirements related to US strategic forces. In his statement, Mr. Marshall pointed out that he attempted to classify countries into three major categories: (1) the single threat countries, (2) the double threat countries and (3) the asset countries, i.e., largely NATO. In considering the situations which affected these various countries, Mr. Marshall found it necessary to put aside the distinction between military and political as not representing a meaningful division. All military assistance programs contain elements of both and to be properly understood must be considered as totalities.

6. As to the single-threat countries, these being along the Asian littoral, Africa and Latin America, these were typified by internal political malaise and by being removed in terms of logistic proximity from the Sino-Soviet heartland. Here the root problem was that of a peoples being thrust into modernity without habits and institutions for coping with it. This situation was aggravated by such factors as cultural dislocation, population growth, the power of modern communications, etc. In such situations there was the danger on the one hand of the development of oppressive regimes or of forces gaining an ascendancy having aspirations beyond capacity for fulfillment. In either case, the eventual absorption by the Communists was a clear threat. Military assistance along with diplomatic activities, cultural and information programs and assistance in economic development could provide a useful means for dealing with this problem. Military assistance represented one of the ways of reaching significant elements of these societies. Moreover, without the stability provided by military force, economic and political development was not possible. Mr. Marshall found that there existed a concern on the part of many that the development of military forces in these countries would be economically counter-productive. He also noted an opposite tendency on the part of some to believe that the production of military forces was the absolute and sole consideration. In fact, Mr. Marshall found that the relationship was much as a fence to a cornfield where an increase in the acreage planted did not suggest a decreased necessity for fencing or alternatively that it would be a sign of wisdom to put all efforts into the fence and none into the cornfield. The relationship should be mutually supporting. In fact, Mr. Marshall pointed out that the relationship of defense expenditures to economic productivity could be either retarding, neutral or, in some instances, positive depending upon how they influence the growth of capital, labor, skill and technology. In sum, in the single threat countries there was an essential role for military assistance to play: it provided a linkage between military proficiency and other factors, making for success in economic and political development.

7. In such countries, Mr. Marshall pointed out there was a high importance to be placed on military assistance in complementing civil responsibilities, i.e. so-called civil action programs. He pointed out that the military assistance program represented the largest exchange of persons activity which we conducted, that it had a direct relation to individuals and groups in sensitive positions within the societies concerned and that the military could and did play an important role in developing and imparting special skills to the society. He pointed to the importance of keeping the role of the military activities and civic action activities in correct perspective. Military activity must be considered as auxiliary but not as a substitute for the civilian components of government. Moreover, it was important that the essentially military character of military forces be recognized. They should be military forces with a civic action capability and not vice versa. He noted in passing that there would probably be certain resistances on the part of the countries to translating their military forces into civic action and police units, particularly as this impinged on the symbolic importance of military forces as a sign of sovereignty. Nevertheless, this was an important objective to be sought with the military forces entering into activities of recognizable utility to the society such as transport, communication, health, sanitation, etc. In doing so, it should be understood that the military forces and thus military assistance was getting very close to the heart of the relationship between regimes and peoples. The requirement therefore was for the closest of coordination both in the field and in Washington between the political, economic and the military aspects of US government programs and policies.

8. In conclusion, on the singly threatened countries, the question is not whether we believe that these countries should have armed forces or even whether we agree that these countries shall have military assist- ance. The question is how to best meet the Communist competition in providing such assistance. We have no choice since as in poker coming out second best is to lose the entire stakes.

9. Mr. Marshall then turned to the doubly threatened countries, noting that the internal threat posed a situation similar to that described in the singly threatened countries. But in addition, these other countries, in the vulnerable arc from Southeast Asia through the Middle East, by virtue of being adjacent to the Sino-Soviet heartland, were, as indicated by Mr. Khrushchev's own pronouncement, the targets of "legitimate wars". To such countries, the problem of meeting internal security requirements becomes all the more difficult because of the press of the external threat. None of the countries involved can count on an independent future without US support and each of them recognize this to be the case. The question is how to effect such support which can be effective and persuasive only if manifestly enforceable. In his study, Mr. Marshall discussed the idea of guaranties to such nations which would give them protection of forces from external aggression. Quite aside from the political questions which this involved, he questioned the persuasiveness and effectiveness of such guaranties unless they could be manifestly enforceable. For this condition to prevail indigenous forces were required unless we wished to resort to nuclear weapons which in themselves presented such serious problems as to make their use in such situations of highly questionable utility. Indigenous forces were required for a variety of reasons: To provide perimeter defense; for holding key areas essential to providing points of ingress for US forces; for complementing US forces after deployment; and for fighting a guerrilla action if overrun. Thus Mr. Marshall pointed out that in meshing the local forces with those of the US lies the heart of the joint defense in countries of the vulnerable arc. It was essential that this be reflected not solely in conceptual terms but as a specific reality in US planning.

10. Mr. Marshall then turned to the NATO area. Here he briefly reviewed the essential premises of the Acheson report which he stated he accepted as a point of departure for his military assistance study. He noted that this area represented the base for a relationship with all the areas of the world; without it the US would be at bay in its continental position.

11. With the withering of the nuclear deterrent, there was a necessity for forming a strategy better adapted to the new situation and specifically having greater emphasis on conventional capabilities. To accomplish this new strategy would require a consensus of the NATO allies. The cost of the undertaking was not yet defined in detail; however, initial studies indicated an order of magnitude of some additional $20 billion over a five year period. While from a theoretical point of view this was within the economic capabilities of the Europeans themselves, the difficulty was that we cannot deal with situations as if they represented pure economic theory. In fact they turn on a complex of considerations going to the question of public will, strength of governing authority, comprehension and acceptance of new strategy, etc. Mr. Marshall pointed out that an attempt to establish an equitable and feasible formula for burden sharing was a fruitless endeavor. Clearly, both we and the Europeans could do more. One way of looking at the problem was to weigh the alternatives foreclosed by accepting a bigger burden, in other words, who was hurt more by making an additional sacrifice. Here the Europeans might well believe that moving back from cars to bicycles, or bicycles to walking was more of a sacrifice than the Americans would be called upon to make if we contributed more of our resources to the common defense effort. It was necessary to recognize that the US was cast in the role as leader and as exemplar. It would be necessary therefore to combine persuasion with inducement. In order to demonstrate the importance with which the US views the necessity for an adequate NATO defense, we would have to share in the increased burden of the defense effort. Mr. Marshall described other methods of inducing an increased NATO effort such as US willingness to provide the nuclear support for NATO, the modernization and filling out of US forces; or even an increase in US forces in Europe. While all were significant, none singly nor combined provided a sufficiently rapid, sufficiently dramatic and irretractable contribution to serve the purpose. Mr. Marshall indicated that he would not favor simple unencumbered grants of increased military aid but would tie such assistance to conditions which resulted in specific increases in European defense budgets. This might be left to negotiation through our Ambassador to NATO.

12. Mr. Marshall concluded his presentation by indicating that his study had suggested that there would be a total requirement, above and beyond the approximate $1.6 level previously requested by the Administration for the maintenance of existing military forces, which would approach three-quarters to a billion dollars annually if the totality of the US national security objectives as presently identified were to be successfully accomplished. This was a need which he foresaw extending for an indefinite period into the future.

13. The meeting was then opened to discussion. Mr. Gilpatric stated his general agreement with Mr. Marshall's report though noting certain reservations. With regard to the value of a US guaranty, Mr. Gilpatric stated if it were to be collateralized on certain specifics such as the provision of airlift as was contemplated in SEATO, we should be able to exercise a greater degree of control. Secondly, he questioned whether, in connection with NATO, we could not induce an increased effort given the fact that this Administration had withdrawn the previous threat of force reductions left by the Eisenhower Administration, had agreed to provide a nuclear submarine commitment and was undertaking a buildup of conventional capabilities of U.S. forces. Mr. Acheson interjected that he agreed with the Marshall study that such inducements as those cited by Mr. Gilpatric simply would not be sufficient. There was no question that the Europeans had the requisite economic capability, this was unchallenged. But it was also unchallenged that the military requirement for more adequate forces, particularly with a conventional capability, existed and had existed for some time. Yet this requirement had not been met. We believe the Europeans have a capability for doing more but similarly they believe we could do more. The fact of the matter is, Mr. Acheson pointed out, the requirement will not be met until and unless the US accepts the role of the leader and shows the way. Unless we are prepared to undertake such an action which will mean a greater amount of military assistance for NATO, we shall be left with nice sounding policy statements but without the military forces which are absolutely essential to our own security.

14. Mr. Rusk commented on the inherent "witchcraft" in nuclear weapons where the temptation was to gamble that the threat to employ them will deter war. We have been telling our NATO allies for the last eight years that this was our policy. Now we want them to shift to a more effective conventional buildup and it is difficult to get them to do so. He then turned to Iran, pointing out the difficulty which would ensue in attempting to hold this area against the Soviets. [4-1/2 lines of source text not declassified] Mr. Marshall referred to his report stating that he felt Iran to be something of a special case where perhaps lesser numbers and lighter equipped forces might be possible. However, he noted that his study simply was much too abbreviated to permit the careful investigation that this situation would require. Mr. Nitze challenged the view that Iran was essentially different from other of the doubly threatened areas. In the first place, he pointed out that it was important to attempt to deter the Russians, and in this connection the existence of Iranian forces obviously played a role. The alternative was to have small forces which would clearly increase the pressures on Iran to accommodate to the Soviets. [4-1/2 lines of source text not declassified] As to the internal problem raised of the existence of large forces in Iran, this essentially was a political problem which would have to be solved as best we could but which did not invalidate the other arguments for Iranian forces.

15. Mr. Rusk commented that there was a danger in our commitments not being credible because of our own failure to believe in them ourselves. In this connection, he commented on the recent Laos history noting how little weight had been given to the fact that we had provided a commitment to Laos which we never really honored. Granting that Laos was a bad place in which to put US troops, Mr. Rusk noted that this was a matter which we knew before we made the commitment. Thus he noted that it was a bad idea to take on a commitment on which we have no intention of following through. If, however, in such places as Vietnam and Thailand we really were prepared to take our commitment seriously and combine our forces with theirs then the resulting situation was a quite different one. Mr. Gilpatric raised a question as to whether the act of prepositioning US forces didn't gain credibility for a guaranty. Mr. Rusk agreed that it did and cited an example of Korea. Mr. Rusk asked Mr. Acheson whether prepositioning of US forces in Iran would not make clear, as was clear with Europe, that we intended to engage the Soviets in the event that an invasion was attempted. Mr. Acheson stated that he thought there was a vast difference between the Iranian and the European situation, primarily because Europe was vital to the U.S., and Iran, however important, was not. Mr. Rusk, however, pointed out that a chain reaction could be expected--if we lost Iran. Mr. Nitze supported Mr. Rusk noting that while Berlin might very well be the key to the North, Iran could be the key to the Middle East and the South. Mr. Hilsman noted that there was considerable significance attached to manner in which an area such as Berlin or Iran was lost. If it is lost through a Munich-type negotiation, the entire alliance structure could be undermined. If, however, it is lost through military action, through being "kicked out", the result is more likely to be a solidification of resistance to the aggression. Mr. Nitze pointed out that there was a danger of a gradual, step-by-step takeover which moves slowly from neutralism to Communist absorption with each succeeding action being so gradual as not, in and of itself, to warrant counter-military action on the part of the United States.

16. Mr. Rusk questioned as to whether it would not be possible to consider the establishment of priorities in the programming of military assistance which took into account the relative importance of various areas to the United States. We might, for example, cite as a first priority areas needed for the support of the US strategic retaliatory capability; secondly, NATO which would be on an almost equal plane; thirdly, the Pacific basin; fourthly, the doubly threatened areas; and lastly, the single-threatened areas. Mr. Nitze stated that the biggest threat which we had to face was the political one and that this was true now and had always been the case. As a result, one might with some justification reverse the order of priorities cited by Mr. Rusk. Mr. Dulles said that he wished to comment on the fact that most of the underdeveloped countries could not afford an army, police force and an internal security/FBI type of force. He noted that considerable time had been given in the past to considering this problem, referring to the 1290d studies,/1/ but that he felt that additional consideration was required. Mr. Rusk noted that a different situation existed in each country even though we had a tendency to try to generalize about them. In returning to the question of priorities, Mr. Marshall questioned whether this was a feasible way to approach the problem. For example, were the requirements for countries in priority one to be completely filled before any attention was to be given to countries in lesser priorities? The problem really was that, if over an extended period we applied an inadequate level of resources, it would be impossible to carry out the policies which were currently stated to be in the vital national interest.

/1/Reference is to NSC Action No. 1290 - d, approved December 21, 1954, in which the National Security Council: "Requested the Operations Coordinating Board to present to the Council a report on the status and adequacy of the current program to develop constabulary forces to maintain internal security and to destroy the effectiveness of the Communist apparatus in free world countries vulnerable to Communist subversion." See Foreign Relations, 1952 - 1954, vol. II, Part 1, p. 844. At its meeting on April 11, 1957, the National Security Council discussed a progress report of the Operations Coordinating Board on the "Overseas Internal Security Program," formerly called the "1290 - d program." See ibid., 1955 - 1957, vol. XIX, pp. 475 - 477.

17. In turning to the disposition of the report, Mr. Gilpatric suggested that a more specific series of recommendations be developed by a smaller group. Mr. Rusk noted that there were a few questions which were perhaps not completely treated in the report, such as defining how far we go in competing with the Russians. Mr. Bundy returned to the question of priorities, noting that in many of the areas which created great problems of a political nature there was really not much money involved. The real money was required for Korea, Turkey, Formosa, and perhaps Vietnam and Thailand. These together with NATO were where the big dollar signs are. He noted that the Department of Defense planners had developed a draft proposal consistent with the Marshall Report which indicated a resource requirement distribution. He suggested that a working group be established (a) to identify the necessary policy decisions which were required and (b) to show the financial implications of such decision, this job to be completed in the immediate future. Mr. Nitze indicated that the line organizations of the Department of State and Defense should be ready to review the Marshall paper and proceed with its implementation which might well include requirements for NSC approval. Mr. Fowler raised the question of balance of payments considerations. Mr. Bundy pointed out that this was only slightly applicable to military assistance programs since the items procured for the program were procured in the US. Mr. Fowler asked about the problem as it related to prepositioning of US forces. Here it was agreed that this could have an important balance of payments impact and that this was a matter which should be identified in any subsequent proposals involving pre-positioning. Mr. Rusk returned to the subject of moving the report to a more definitive stage indicating that he thought a paper should be submitted to the NSC. He stated that the Marshall study should be covered by an appropriate transmittal indicating that general agreement had been reached on the study by the Departments of State and Defense. This might then be followed up by a more specific agency development of programming guidance as required for the development of subsequent military assistance programs. Mr. Wilson indicated the need for an NSC official sanction of the general policy guidance in order to permit the line organizations to proceed with the detailed programming operation.

113. Editorial Note

The fifth meeting of the Development Assistance Group (DAG) met in Tokyo July 11 - 13, 1961. U.S. memoranda, all dated June 24, which elaborated the administration's positions on several specific issues, were distributed to the participants in advance of the meeting. (Department of State, Conference Files: Lot 65 D 366, CF 1922) Extensive documentation on the Tokyo meeting is in Department of State, Central File 398.00 - TO.

James W. Riddleberger, head of the U.S. Delegation, presided over the DAG sessions, which discussed incentives to private capital investment in developing nations and the important role of public investment. The member nations created a working group to prepare recommendations for implementation of the common aid effort, including the issue of equitable sharing of foreign assistance. They also decided to coordinate the common aid effort more closely with the International Bank for Reconstruction and Development and agreed in principle to set up an OECD Development Center. In an address before the Canadian Parliament in Ottawa on May 17, President Kennedy had suggested such a center "where citizens and officials, and students and professional men of the Atlantic area and the less-developed world can meet to study in common the problems of economic development." For text of the President's address, see Public Papers of the Presidents of the United States: John F. Kennedy, 1961, pages 382 - 387. For text of the DAG communique, July 13, see Department of State Bulletin, August 14, 1961, pages 302 - 304.

114. Memorandum for the Files

//Source: Washington National Records Center, RG 286, AID Administrator Files: FRC 65 A 481, Labouisse. Confidential. Drafted by Labouisse.

Washington, August 26, 1961.

I had a talk today with Secretary Rusk. I covered the following points:

1. I said that I had become increasingly concerned over the tend-ency to extend our foreign aid commitments without adequate attention to the criteria of the President's new program, the availability of funds, and the undertaking the Administration witnesses had made in the course of the Congressional presentations./1/ I referred to the circular telegram, No. 1066, which had expressly pointed out that it should not be assumed that U.S. aid would be given to every country,/2/ and I mentioned the newspaper report about an alleged statement by Assistant Secretary Williams of possible aid to Malagasy./3/ I referred also to the attitude of some of our Ambassadors who seem to feel that we should give aid to the countries to which they are accredited, largely on the ground that we are giving it to other countries.

/1/Regarding the congressional hearings on foreign assistance, see Document 116.

/2/CG - 1066 to all posts, June 23. (Department of State, Central Files, 700.5 - MSP/6 - 2361)

/3/Not further identified. G. Mennen Williams was Assistant Secretary of State for African Affairs.

I said that my principal concern, however, had to do with the emergency aid provision of the Punta del Este Charter (Chapter 3)./4/ I pointed out that this was an open offer to all the Latin American countries to come in within 60 days for dollar aid; that it was very unlikely that such aid could be provided for out of development lending; that the uncommitted portion of our development grant fund was earmarked mostly for Africa; and that, consequently, the emergency aid for Latin America would have to come from the contingency fund which was already very seriously depleted. The Secretary indicated agreement with my concern. I said that I had spoken to Mr. Woodward/5/ about this matter yesterday, emphasizing the importance of advising our Latin American missions not to encourage requests for emergency aid and, on the contrary, to discourage it.

/4/The Charter of Punta del Este established the Alliance for Progress. For text of this Charter, signed by all members of the Organization of American States, except Cuba, in Montevideo, Uruguay, on August 17, 1961, see Department of State Bulletin, September 11, 1961, pp. 463 - 469.

/5/Robert F. Woodward, Assistant Secretary of State for Inter-American Affairs.

2. I suggested to the Secretary that it was most important for him to caution all Department officers about making aid commitments and requested that he instruct that no commitments be made without my approval. I also suggested that he advise the President of the seriousness of controlling our aid commitments. The Secretary indicated that he would take appropriate action along the above lines.

3. I then discussed with the Secretary the matter of the Djakarta Bypass (see accompanying memorandum of today's date)./6/

HL

/6/Not found.

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

//Source: Kennedy Library, National Security Files, Meetings and Memoranda Series, Staff Memoranda, Rostow, 2/61 - 6/62. No classification marking. Copies were sent to McGeorge Bundy, Ralph Dungan, and Theodore Sorensen.

Washington, September 18, 1961.

SUBJECT

Foreign Aid Strategy, Next Six Months

It is agreed that the first essential in foreign aid is a good boss; and it is agreed that his first job is to strip down the old staff and build a new one of first quality.

But given the fact that we have only about six months to create a new look in foreign aid--and to justify the battle for long-term aid--I believe it is also necessary to have a clear substantive strategy; and to move with maximum speed to give it life.

I believe the correct strategy consists of giving the highest priority and momentum to two enterprises.

First, bringing as many nations as authentically qualify under long term aid arrangements of the kind we now have with India. These are possible candidates: Pakistan, Nigeria, Tanganyika, Iran, Egypt, Formosa, Tunisia, Brazil, and two or three other Latin American nations. These nations now have reasonably respectable national plans, or could develop them in short order (e.g., Brazil). With a maximum effort, we could go into Congress next year with almost two-thirds of the population of the underdeveloped areas of the Free World under the new arrangement. The turn-around would then have substance in Congress, quite aside from its wholesome impact on our relations with the other underdeveloped nations.

But, second, in order to do this, we must develop consortium arrangements, in which others contribute as well as ourselves; notably, the Germans and the Canadians, who could do more. We must be able to demonstrate to Congress by next Spring not only that the turn-around is more than rhetoric but that, roughly speaking, our development aid is being matched by the rest of the Free World.

Technically both objectives are achievable; but the strategy must be understood from the top to the bottom of the government; Gene Black must cooperate to the hilt, as father of the consortia; Riddleberger must push DAG as hard as it can be done; you and the Secretary of State, as well as Ball and the aid boss, must work over the Germans, Canadians, etc., unremittingly.

116. Editorial Note

On May 25, 1961, President Kennedy delivered a special message to a joint session of the Congress on urgent national programs. Among the major measures discussed in his message was the importance of military and economic assistance, and he indicated he would shortly submit draft legislation to implement the administration's foreign aid program. On the following day, May 26, he sent identical letters to President of the Senate Lyndon B. Johnson and Speaker of the House Sam Rayburn describing the major features of the attached draft legislation on foreign aid. For text of his remarks to the joint session, see Public Papers of the Presidents of the United States: John F. Kennedy, 1961, pages 396 - 406. For text of his letter, see ibid., pages 407 - 411. The draft bill became S. 1983, which Senator J. William Fulbright introduced for the administration on May 31. Text of this bill is in International Development and Security: Hearings Before the Committee on Foreign Relations, United States Senate, Eighty-seventh Congress, First Session, Part 1, pages 1 - 25.

Hearings on the bill in the Senate and House of Representatives took place from May 31 to July 6. For texts of these hearings, see ibid., Parts 1 - 2, and The International Development and Security Act: Hearings Before the Committee on Foreign Affairs, House of Representatives, Eighty-seventh Congress, First Session, Parts 1 - 3. Testimony by Henry Labouisse, Adlai Stevenson, Secretary Rusk, and several other administration officials on behalf of the bill in closed session of the Senate Foreign Relations Committee as well as minutes of the Committee's meetings extending to July 24 are in Executive Sessions of the Senate Foreign Relations Committee (Historical Series), Eighty- seventh Congress, First Session, 1961, volume XIII, pages 3 - 18, 81 - 233, 277 - 378, 380, and 395 - 401.

Considerable documentation on the Kennedy administration's strategy in supporting the foreign aid legislation in Congress is in Department of State, Central Files 700.5 - MSP and 811.0000. Two letters from Under Secretary of State Bowles to President Kennedy, May 22 and 23, in which Bowles offered much advice and encouragement on the promotion of the foreign assistance program, are in the Supplement.

Administration officials also expounded on the foreign assistance program in public forums. For texts of the remarks of President Kennedy and Secretary Rusk, for example, in addresses to the Eighth National Conference on International Economic and Social Development in Washington on June 15 and 16, see Department of State Bulletin, July 3, 1961, pages 3 - 10.

After the House and Senate passed separate foreign assistance authorization bills, a conference committee resolved differences in the two bills on August 30, and the House and Senate passed the Foreign Assistance Act of 1961, as it was called, on August 31. On September 4, President Kennedy signed the bill into law. (P.L. 87 - 195; 75 Stat. 424) For text of President Kennedy's signing statement, see Public Papers of the Presidents of the United States: John F. Kennedy, 1961, page 588.

In his signing statement, the President said, "I am hopeful that the Congress will provide the funds necessary to fulfill the commitments it undertook in enacting this legislation." The congressional appropriations committees cut foreign assistance, however, and the resulting Foreign Assistance and Related Agencies Appropriation Act, 1962, approved on September 30, 1961 (P.L. 87 - 329; 75 Stat. 717), appropriated only $3,914,600,000 for foreign aid for fiscal year 1962, including $1,600,000,000 in military aid, $1,112,500,000 in development loans, and $296,500,000 in development grants. The total amount was $860,900,000 less than the $4,775,500,000 revised total that the administration had requested and $338,900,000 less than that authorized in the Foreign Assistance Act, 1961. (Congressional Quarterly Almanac, volume XVII (1961), pages 310 - 311)

A summary and analysis of the congressional legislation on foreign aid, including amendments to P.L. 480, is in Current Economic Developments, Issue No. 634, October 10, 1961, pages 1 - 8. For text, see the Supplement.

117. Editorial Note

On October 3, 1961, Fowler Hamilton was sworn in as Administrator of the new Agency for International Development (AID). The Foreign Assistance Act of 1961 specified that a new agency would replace the International Cooperation Administration and the Development Loan Fund within 60 days after enactment of the law. Executive Order 10973, November 3, 1961, specified the terms for the establishment of the Agency for International Development. The Department of State Delegation of Authority No. 104, November 3, 1961, conferred specific responsibilities on the Agency for International Development. Both the Executive Order and the Delegation of Authority were deemed to have been in effect since September 30. For text of the President's remarks at the swearing-in ceremony, see Public Papers of the Presidents of the United States: John F. Kennedy, 1961, pages 633 - 634. For an extract from Executive Order 10973, see Department of State Bulletin, November 27, 1961, pages 900 - 902. For text of Department of State Delegation of Authority No. 104, see 26 Federal Register, 10608.

President Kennedy's September 20 letter of appreciation to ICA Director Henry R. Labouisse for his services, and Labouisse's October 6 farewell message to the ICA staff are both in the Washington National Records Center, RG 286, AID Administrator Files: FRC 65 A 481, Labouisse. The President appointed Labouisse as Ambassador to Greece on December 15.

A memorandum from Ball and Hamilton to John O. Bell, October 14, designated Bell as chairman of a task force, with two additional representatives from the Department of State and two from AID, "to review the functional assignments and responsibilities of the Department and AID and to recommend plans for achieving the most effective and efficient division of labor between the two and the elimination of unnecessary functions." Bell's group was to present its report as soon as possible, with an interim report in any case no later than October 21. (Department of State, Central Files, 110.4 - AID/10 - 1461) This report has not been found.

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

//Source: Kennedy Library, National Security Files, Meetings and Memoranda Series, Staff Memoranda, Rostow, 2/61 - 6/62. Confidential.

Washington, October 4, 1961.

SUBJECT

Neutralism and Foreign Aid

This is a short version of a longer memorandum I circulated for criticism within the White House staff./1/ I believe it represents something of a consensus.

/1/The longer memorandum, as described in a covering memorandum from Carl Kaysen to J. Robert Schaetzel (U), October 5, was 6 pages in length. (Department of State, Central Files, 811.0000/10 - 561) The memorandum is not in the file and has not been found.

1. It appears urgent both with respect to the workings of the government and to the world outside that we clarify the approach we shall take in foreign aid with respect to neutrals and neutralism. The issue may, in any case, arise at your next press conference. Or you might wish to find some other occasion to issue a statement; for example, as clarifying guidance to the Director of AID and other responsible government officials.

2. The policy issue is this: To what extent shall we permit our aid policy to be governed by long-term considerations governing the American interest in the underdeveloped areas; and to what extent should we try to use aid policy to achieve short-range verbal or voting shifts in alignment on world issues? To put the matter sharply, should we let our aid policy be governed by our interest in the continued independence of these nations; in their absorbing their energies on domestic problems; and in building a long-term dependence of these nations on the West; or should we permit our aid policy to be sensitively governed by the positions taken on particular international issues by neutrals?

3. In my view our general rule should be that we use our aid program to achieve the three major strategic objectives to which aid might contribute: viable independence; an increased concentration on domestic affairs; and a long-term dependence on the West. We should, however, be prepared to make exceptions; but these exceptions must be very carefully weighed, case-by-case, against their cost to the longer strategy. In making exceptions, moreover, we should measure not only the cost but the realistic possibility of achieving a significant change in a nation's policy by the granting or withholding of aid on a short-run basis. We should also consider the technical and legal difficulties in turning aid on and off; e.g., the Volta project.

4. In short, I believe it possible for us to use aid for serious long- run American objectives with respect to neutrals and, also, occasionally and sparingly to yield a minor tactical gain. But it is crucial that we do not permit our short-term tactics to disrupt the long-term strategy; and this is notably the case because, as the accompanying appendix indicates,/2/ there is reason to believe that the degree of long-term dependence on American or Communist aid may be one significant factor in determining how neutrals align themselves on the major world issues.

/2/Entitled "U.S. and Soviet Aid and the Belgrade Conference"; not attached and not found.

5. A possible statement of policy guidance might read something like this:

"The fundamental objective of American aid is to assist the less developed nations maintain and strengthen the foundations of their independence and to improve the welfare of their peoples. As a general rule, American aid shall be allocated on the basis of evidence that the governments and peoples concerned are making serious and sustained efforts to mobilize their own resources and to create and to implement well balanced long-term development programs. The United States government expects other independent governments to pursue their interests as they see them; and it does not expect them to agree with American views on all occasions. But when the views and actions of a government systematically run counter to vital American interests--and suggest a basic change in orientation away from a truly independent stance--this fact will be taken into account in our aid policy, on a case-by-case basis."

6. You may find the attached Appendix of mild interest and amusement; but it is not to be taken too seriously.

119. Letter From the Deputy Director of the Office of Food for Peace (Symington) to the Administrator of the Agency for International Development (Hamilton)

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

Washington, October 4, 1961.

Dear Fowler: Your secretary will bear me out that I made some manful attempts to return your call last week.

Right now I am off to the Latin American Regional Operations Conferences which will give me a brief opportunity to regale Ambassadors and USOM Chiefs on the obvious advantages of food assistance versus, say, purely good old dwindling dollars. I will be returning around October 19, and hope to have a chance to see you shortly thereafter.

I understand you had an interesting luncheon yesterday with George McGovern, Secretary Freeman and others. There are market development aspects to certain Title III operations which perhaps serve as one basis for Agriculture's interest in taking them over. Indeed, one of the most effective school lunch programs I have seen is the one being conducted in Lima by the Great Plains Wheat people. However, I don't think it would be feasible for Agriculture to take over such an important aspect of Foreign Aid, driving an illogical wedge into what would otherwise be AID's jurisdiction.

Due to the dual nature of food assistance--that is its economic effect and political importance both at home and abroad--there is an understandable interest on the part of Agriculture which must constantly be recognized, if not always satisfied. That is one of the reasons, I think, why the President created the Food For Peace office, namely to help resolve the divergent approaches of ICA, State, and Agriculture toward PL - 480 operations./1/

/1/P.L. 480 was formally entitled the Agricultural Trade Development and Assistance Act, enacted on July 10, 1954. For text, see 68 Stat. 454.

Last spring when legislation was being prepared to create the new AID Agency, there was considerable pressure to remove the Food For Peace office from the White House and merge it into your Commodities Division. This would certainly have compromised our effectiveness as a go-between, and we hope we can still serve that function.

On the other hand, our effectiveness in "narrowing the gap between abundance at home and near starvation abroad" depends on the emphasis AID is willing to place on food assistance as an adjunct to economic development. We have gained the impression that State and ICA people both in Washington and in the field prefer to deal with dollars than with food. This is due to a combination of factors including the suspicion they have shared with foreign critics that Food For Peace is a "dumping operation", plus the relative simplicity of handling dollars versus food. But we hope that increasing attention will be given to food aid because, properly administered, it does "reach people", and help to create an inflation-resistant stability that dollars do not always create. I am enclosing a copy of the talking paper which will be the point of departure for my presentation to the conferees--and which shows what's on our minds these days./2/

/2/Not enclosed and not found.

Sincerely,

Jim

120. Memorandum From the Under Secretary of State (Bowles) to the Administrator of the Agency for International Development (Hamilton)

//Source: Washington National Records Center, RG 286, AID Administrator Files: FRC 65 A 481, Administration--State, FY 1962. Official Use Only. Drafted by A.E. Rice (U) and transmitted through S/S and EXSEC (AID). The handwritten notation, "Thank you F.H.," appears on the source text.

Washington, October 7, 1961.

SUBJECT

Criteria for Aid

Following our discussion the other day, I thought it might be useful to put down briefly my views on aid criteria. I do this hesitantly knowing what a difficult problem this is and well aware that my ideas are still very tentative. I hope, however, that in some measure they will be helpful to you.

My own experience in OPA during the war convinced me that standards can be made to work if they are reasonably devised and intelligently applied. I think the same lesson can be drawn from our experience with aid to the Philippines after World War II where the Bell mission set down rather rigid criteria and insisted on them./1/ The subsequent emergence of Magsaysay was strengthened probably by this insistence.

/1/Reference is to an Economic Survey Mission, headed by Daniel W. Bell, which visited the Philippines July - September 1950 to survey the economic situation there and to recommend self-help measures for the Philippines as well as measures for U.S. assistance.

If we do not have firm criteria, we will surely be in trouble on the Hill next year. And in our administration of funds we will be subject to intense pressures without the guidelines we need to discriminate among them.

Congress was quite explicit in the law. With respect to the development loans and grants, the President is directed to emphasize assistance to "long-range plans and programs" taking into account "the extent to which the country is showing a responsiveness to the vital economic, political and social concerns of its people, and demonstrating a clear determination to take effective self-help measures"./2/ This injunction is reiterated elsewhere in the act with special reference to Latin America.

/2/The quotations are from the Foreign Assistance Act of 1961. (75 Stat. 426)

These three are the essential elements: good planning, an awareness of popular needs, and efficient use of local resources. All of them clearly imply the need in many countries for major reforms in tax systems, land tenure, exchange controls, public administration, and the like.

In practice this means that now is no time for "business as usual". Time is short and the prejudices and vested interests of small elites must not be allowed to stand in the way of progress. These are days of real crisis. Those who face up realistically to the urgency of democratic change are those with whom we must work most closely.

This suggests that we may find it most useful in setting our stand-ards to divide countries into several groups, roughly as follows:

1. Countries with highest priority should be those taking with the greatest seriousness the importance of solid planning, maximum mobilization of local resources, and a dedication to social justice, and with programs already under way. For these countries we should take advantage of our five year authorization to give assurances of long- range assistance.

2. A second category would be countries with the right kind of ideas on paper but which have not yet carried them out. I would put these countries on a "short halter", helping them to get going by setting target dates and pointing to the aid which they might get if they bestirred themselves, but holding off on any major aid until they did so.

3. The third classification would be countries without even paper plans and programs. Here our first effort would be to help them develop the technical competence to take this fundamental step. It may well be that we should bring outside people right into the administrative structure of their government, perhaps through multilateral agencies.

4. The final group would be countries with such over-riding military or political problems that we must give emergency aid without regard to standards. Hopefully these would be only short-term situations.

Insisting on countries meeting our criteria is going to mean that we shall be turning down many requests for aid. The pressure to give in to these requests will often be intense but the answer, I feel, is not to lower our standards but to find additional inexpensive ways to show our goodwill. For instance, a powdered milk program for the school children of the national capital or a new public health clinic attached to an existing American institution would demonstrate our continuing concern. Some technical assistance and training would be possible. We may want to isolate individual projects which meet our standards, providing aid only to them.

In all of this I think we ought to be alert to the importance of publicizing our position. Of course it must be done tactfully but there is enough international agreement now--particularly in Latin America-- that it should be easy to quote utterances of the national leaders of recipient countries who have endorsed our views.

During my forthcoming visit to Latin America I intend to discuss these ideas with our people in the field. I hope that in so doing I can help sharpen even more our thinking on this crucial problem.

121. Memorandum From the Chairman of the Policy Planning Council (McGhee) to the Administrator of the Agency for International Development (Hamilton)

//Source: Washington National Records Center, RG 286, AID Administrator Files: FRC 65 A 481, Hamilton, Oct. 10 Memo "Foreign Assistance". No classification marking.

Washington, October 17, 1961.

SUBJECT

Foreign Assistance

On the points in your memo of October 10/1/ my thoughts are:

/1/This memorandum, which was sent to several foreign policy principals, has not been found, but from this response as well as others it apparently set forth procedures to ensure effective coordination between AID and other executive agencies in discussing assistance matters with foreign governments.

(1) Rather than distinguish between political and economic aspects of foreign aid matters, I would stress the relationship between foreign aid and overall U.S. objectives. These objectives, as formulated by the Department of State, should be the source from which stem the aid and other programs which constitute the tools of U.S. foreign policy. Conversely, the impact of a given tool on attainment of the over-all objectives should be the main criterion by which its results are evaluated.

I fully concur in the emphasis on country planning which characterizes the most recent thinking on foreign aid in our Government. In this connection, I would urge that over-all U.S. objectives for a particular country take priority as a rule over general concepts governing the use of our various foreign aid resources. Such concepts are of course necessary--I appreciated your comment on our aid criteria paper, by the way/2/--but they should be flexibly applied to individual cases.

/2/Reference is to a paper on foreign aid criteria prepared by the Policy Planning Council, which was forwarded to Hamilton under cover of a memorandum from McGhee, October 4. (Washington National Records Center, RG 286, AID Administrator Files: FRC 65 A 481, State Department Policy Planning, FY 1962) In a note to McGhee, October 17, Hamilton wrote: "Thanks for the able memo on Foreign Aid Criteria. Now that I am in the saddle I'll see that we use it in getting one out for the guidance of everyone concerned." (Ibid.) For an extract from the final paper issued on October 26, see Document 124.

Thus it seems to me that country aid programs should be developed initially in response to foreign policy guidelines supplied by the Department of State. Papers endeavoring to give such guidelines are in preparation for all countries with which we have diplomatic relations. They are discussed in draft at the working level in AID and you are given an opportunity to comment formally before the papers are issued.

These guidelines papers are an innovation in Washington and it may take some time to get them into fully satisfactory shape. Even then it may not always be possible to have a guidelines paper sufficiently up to date at just the time needed to start a new aid planning cycle. Hence although I hope the guidelines papers will generally do the job, procedures should always allow for the possibility of their being supplemented or replaced by ad hoc guidance, ordinarily to be given by the State regional bureau concerned.

After projections for a particular country aid program have been drafted pursuant to the foreign policy guidelines, I think the program should be further refined by a series of discussions between State and AID officers here and in the field, each of whom is aware of the special requirements of the other's business. The upshot of these discussions should be a meeting of minds, taking into account such limitations as the amount of funds probably or actually available. I assume that the regional bureaus would coordinate State's side of these discussions in Washington.

In some instances of course there will be unresolved differences, requiring an appeal mechanism. If the appropriate officer in AID is unable to settle the point with the appropriate regional Assistant Secretary of State, I would suggest an intermediate appeal to your Deputy and the Under Secretary of State for Economic Affairs. Only issues they were unable to resolve would then need to be discussed by you with the Secretary.

(2) I agree with the desiderate you mention under this head, but will leave it to my operational colleagues to suggest procedures.

122. Memorandum From the Assistant Secretary of State for Economic Affairs (Martin) to the Administrator of the Agency for International Development (Hamilton)

//Source: Washington National Records Center, RG 286, AID Administrator Files: FRC 65 A 481, Oct. 11 Memo "Terms of Reference for AID Negotiations". Official Use Only.

Washington, October 23, 1961.

SUBJECT

Terms of Reference for AID Negotiations

I concur fully in the belief expressed in your memorandum of October 11 that it is necessary to establish clearly the basic decisions, terms of reference, and level for our aid programs in individual countries./1/ A procedure such as you suggest may well be the most satisfactory approach to this question. In arriving at the determination of the individual elements in this procedure, I believe that we should above all seek to avoid some of the pitfalls of the past. In the first instance, this means being very clear on the meanings of the terms we use.

/1/This memorandum on the terms of reference for AID negotiations has not been found, but it apparently was sent to several Assistant Secretaries of State with requests for comments and suggestions on four specific areas. Replies from the Assistant Secretaries of several regional bureaus are ibid.

You suggest that a maximum aid level should be established for each country which would be controlling in any aid discussion with the foreign government. I fully share your preoccupations in this regard. We must, I believe, be careful regarding the use of this term "aid level," and regarding what we include in it. The meaning of the term varies considerably from country to country depending on the kind of assistance each has been receiving from the United States in years gone by. The term has greatest relevance in a country which, in the past, received little from the United States other than Defense Support or Special Assistance grant aid, and would now be receiving predominantly Supporting Assistance.

In those relatively few countries which have progressed sufficiently far so that we will in the future be able to make use of our long-term commitment authority in support of their development plans, there may be a commitment of development loan funds in support of the (annual segments of the) development plan, which come close to being an "annual aid level." Otherwise these funds can be included only on a very rough and preliminary basis.

In our new approach, we are to place greatest stress on the totality of U.S. instruments in meeting the development problems of development countries. In some countries it would certainly be quite appropriate to include P.L. 480 and Export-Import Bank loans in the U.S. aid figures. However, except in the Indian type of situation, it is not only impossible to include Exim loans in an "aid level," but would, I believe, be undesirable.

Regardless of what kind of "maximum aid level" you decide is necessary, I believe that we should keep clearly in mind the distinction between a level determined for internal programming purposes, and one which forms the basis for discussions with other governments. The former is necessary if you and your programming staff are to keep control over the funds appropriated annually to AID. If you are to maintain control over the program, and maintain your ability to meet constantly changing political as well as development situations, the programming levels must be kept under constant review, particularly in the development lending field, and cannot be permitted to become "frozen" early in the fiscal year.

Regardless of what kinds of provisos we hedge our statements with, any figure mentioned to another government invariably and inevitably becomes the minimum commitment with which we then have to live. If this is the annual allocation to a Supporting Assistance country, this is necessary and acceptable on both sides. To the extent that we really mean to turn over a new leaf in the development loan field, this becomes undesirable except in those few cases where we are making a commitment to support a development plan.

With respect to your second and third points, we certainly should have very clearly in mind the specific terms of reference and conditions under which aid commitments would be made and programs conducted. In some cases it may be possible, as you suggest, to prepare a statement of these terms and conditions for presentation to the other government. In some cases, I would imagine that we might be able to secure a greater degree of host government acceptance of the kinds of conditions we would consider desirable if we did not seek to present these in writing as conditions of U.S. aid, at least at the outset. We need to maintain a posture of supporting the most forward-looking elements in the country. We might find, for example, that we encountered intense resistance on the part of the government to reforms which the country team and we gave top priority in the particular country, but that much more progress was possible in another area than had been suspected. This, however, is a question of negotiating techniques. I certainly agree that before agreements with other governments are concluded, there should be a very clear understanding of what the conditions are.

There is one further reason for us to maintain a considerable degree of flexibility on maximum aid levels for individual countries. It is most important that we be able to show Congress some progress in getting other industrialized countries to increase their aid efforts and to improve their terms. Whether in formal consortium arrangements such as those organized by the IBRD for India and Pakistan, or whether in far more informal bilateral discussions with other potential donors, we can maintain some bargaining leverage only to the extent that our own position is not frozen in advance. If the recipient country is already fully aware of what we intend to do, our position is frozen.

Edwin M. Martin

123. Memorandum for the Record

//Source: Washington National Records Center, RG 286, AID Administrator Files: FRC 65 A 481, White House, FY 1962. Secret. Drafted by Komer. Copies were sent to McGeorge Bundy, Rostow, Bell, Dungan, and Kenneth Hansen. Attached to the source text is an October 24 memorandum from McGeorge Bundy to Hamilton, which indicates that Komer was conducting a White House review of major MAP programs and that he would be available if Hamilton "should want to talk with him about it." Bundy added that, although Jeffrey Kitchen was the formal chairman of the review, most of the energy for it came from Komer and Kenneth Hansen of the Bureau of the Budget. Also attached to the source text is a copy of an October 25 memorandum from Don Easum (AID) to Battle (S/S), indicating that AID was taking no action on Komer's memorandum and was giving a copy only to Frank Coffin, but that a copy could be given to G/PM at Battle's discretion.

Washington, October 23, 1961.

SUBJECT

Why Such Reluctance to See a MAP Turnaround?

The more I get into the MAP business the more I see that a key obstacle to a MAP turnaround and to frank appraisal of where the US ought to be putting the emphasis in its aid effort is the real fear on the part of ambassadors, country teams, and Washington officials that they will be giving up something for nothing.

They argue that if it were really possible to look at the aid to a given country as a total package and to tailor its components for optimum impact, they would happily opt for more economic and less military aid. But they fear that this would not be the case. They claim that if they recommend a cut in MAP over the next five years they will simply be denying themselves at least one sort of country leverage without any assurance whatsoever that this will be compensated for in other fields. This is one of the most serious impedimenta to a rational "new look" at the MAP.

One ambassador said frankly "If I play ball with you and tell you that I feel MAP ought to be cut because our chief problems here are internal and not external, but my colleagues in other countries don't play ball and continue making a big case for both economic and military aid, the result will be that my country takes a cut whereas they continue to get military baksheesh."

A DCM opined that he had for years written justifications for MAP with tongue in cheek because he was fully aware that the military threat was secondary to the internal. But he feared that if he did not, MAP would simply be reduced and the country team would lose one form of valuable leverage, without gaining another.

A State official complained that if his bureau recommended a cut in MAP and a switch of the funds saved into economic aid, the Budget Bureau would accept the MAP cut but would argue that an increase in economic aid was more than previous experience showed to be necessary and deny it.

I realize all the problems involved in shifting substantial funds from MAP to other aid programs. A prolonged educational process will be involved, not least on the Hill. However, unless we can convince all concerned that the objective is not just a reduction of the total aid burden but a redirection of our total effort into areas of real payoff, we're going to keep running into this powerful bureaucratic defense mechanism.

The remedy is obvious. We must shoot for greater fungibility between aid accounts and make it stick. Making Fowler Hamilton aid coordinator is an excellent first step, because he will have a vested interest in seeing this done. We should help him by seeking greater transferability between aid accounts, larger contingency funds, etc. We should not let MAP get put into DOD budget. And, in the six country MAP review we should not simply recommend a cut of so much in MAP over a six year period. Instead we should recommend a shift of comparable magnitude into forms of aid more directly attuned to the chief threats we face.

Bob Komer

124. Report Prepared by the Policy Planning Council

//Source: Washington National Records Center, RG 286, AID Administrator Files: FRC 65 A 481, State Department Policy Planning, FY 1962. Confidential. The portion of the source text printed here comprises pages 1 - 4 of the 40-page report.

PPC 12 - 61 Washington, October 26, 1961.

THE NEW AID CRITERIA ANDU.S. FOREIGN ECONOMIC PROGRAMS

I. Summary and Conclusions

Our new approach to foreign economic assistance with its emphasis on self-help and long-range planning represents a major advance in our aid thinking and holds out the promise of more prudent and effective use of our aid funds. No less important it aligns the US with the forces for economic and social progress in the less developed countries.

Because of widely different circumstances in individual countries our self-help approach needs to be flexible and pragmatic rather than doctrinaire. It cannot, moreover, be expected to achieve quick and dramatic results. Self-help must be viewed as a gradual and evolving proc-ess since it is addressed to some of the most deep-seated obstacles to economic growth.

Unquestionably we can utilize our aid more effectively to induce self- help than heretofore. We should be careful, however, not to overestimate our capabilities in this regard.

Many countries, particularly in Latin America, though they have the capability, have no great sympathy or understanding for self-help since it strikes at the heart of entrenched interests with which existing regimes are identified. Others in the pre-development phase, notably some of the newly independent states of tropical Africa, have only limited capacity for self-help. In still others such as Pakistan, Iran and Turkey overriding US political and strategic interests place limitations on the amount of leverage we can derive from our aid.

We cannot expect, therefore, to shift abruptly from a policy only mildly concerned with self-help to a rigid policy of adequate self-help on [and?] no aid. To do so would seriously undermine our relations with the less developed countries and jeopardize vital US strategic interests. Rather we should seek to achieve gradual but steady self-help gains in aid recipient countries, recognizing that sweeping demands for economic and social reform might even be counterproductive.

If we maintain persistent pressures for progressive economic and social reforms, the effectiveness of our efforts to move the less developed countries toward long-term political and economic stability will increase correspondingly.

Implementation of our new aid approach may be facilitated if we can develop more refined and objective guidelines for judging self-help. One possible approach is to group aid recipient countries according to their stages of economic development and to develop different sets of performance standards for each group. These could then be adjusted to take account of special political and other factors in individual countries within each group.

Most important, however, is the need to identify the half dozen at most specific self-help measures we should concentrate our efforts on in each country in order to maximize its economic and social growth. Our assistance gives us only so much leverage in aid recipient countries and we should not dissipate this by scattering our efforts.

We as the aid giver are going to have to assume the major burden of persuasion. This will require the most skilled and imaginative economic diplomacy if we are to achieve the full potentialities of our new aid concepts.

[Here follow Parts II - VII of the report: II. Introduction; III. Opportunities for Self-Help; IV. The Need for Flexibility; V. Obstacles to Self-Help; VI. The Need For More Precise Measures of Self-Help; and VII. Some Hazards in the Self-Help Approach.]

125. Memorandum From Secretary of State Rusk to the Chairman of the Policy Planning Council (McGhee)

//Source: Washington National Records Center, RG 286, AID Administrator Files: FRC 65 A 481, State Department Policy Planning, FY 1962. Confidential. An undated, mimeographed notice attached to the source text indicates that the Secretary's memorandum should be considered an addendum to the Policy Planning Council paper (Document 124).

Washington, November 1, 1961.

SUBJECT

The New Aid Criteria and U.S. Foreign Economic Programs

I have read the reference paper with great interest and found it a valuable discussion of a very complex problem./1/

/1/Document 124.

It seems to me that there are certain questions which could serve to clarify our policy and strengthen our notion of self-help.

First, will an investment of American aid yield a satisfactory return in results? We do not have resources to waste. There is more to be done than our resources can accomplish. Therefore, we cannot afford bad investments. A temporary amiability on the part of a government receiving aid or the warm feeling which an American ambassador gets by saying "yes" instead of "no" are not adequate returns on the investment of critically scarce resources.

Second, under what conditions are we justified in digging into our own taxpayers' pockets and postponing some of the great social needs of our own society in order to render assistance to another country? Can we defend aid to a country which protects its own entrenched interests at a time when we are picking up about 70% of the earnings of corporations in some form of taxation and when personal income taxes range from 20% to 90%? Are we justified in spending public money to provide capital to a country whose own capital sneaks off to Swiss banks?

I do not agree that we, as the giver of aid, must assume the major burden of persuasion on the subject of self-help. The burden of persuasion must be shifted to those who are trying to obtain U.S. resources for their own economic and social development. Clearly, their development is in our interest but we must not let this fact trap us into a responsibility for their standards of living or development.

I am not impressed by the thought expressed at our African Chiefs of Mission Conference that if we fail to respond to their economic development needs "our Missions might as well pack up and go home". To the extent that our ambassadors become dependent upon foreign aid programs, to that extent they become weak and ineffective representatives of American interests abroad. Surely our objective is to work toward an absence of need for American assistance; this means to me that there ought to be a number of countries in which we do not even start down the trail of providing assistance. If we plan to continue to keep going to the Congress for aid programs for 70 - 80 countries, the Congress and the American public will rebel--and in my judgment that would be right. We ourselves must establish some priorities and work toward some division of labor among the industrialized countries so that every underdeveloped country in the world is not an aid client of the United States. We should develop a special citation or decoration for an ambassador who gets his particular country off our aid list.

One possibility for dealing with the above problem is to put certain of our activities on a regional rather than a country basis. For example, we could have a regional program for training indigenous experts without having an aid mission in each country. Private foundations have been doing just that for decades. Further, we could play a regional role (without calling it that) by strengthening certain selective training institutions where young people of neighboring countries could receive advanced training. Further, we might combine this with some regional division of labor in the field of advanced training--somewhat along the lines on which a group of our own Southern States have been working for many years.

There are certain matters of self-help on which we should be as uncompromising as possible. I have in mind, for example, the question of graft and corruption. We can afford not to condone it in any way because we know that the elimination of graft is a continuing battle within our own society. Let us not underemphasize the critical importance of this matter; a handful of instances of corruption, with which our aid programs are associated, can blow our entire aid effort right out of the water.

Dean Rusk

126. Summary Minutes of Meeting of the Interdepartmental Committee of Under Secretaries on Foreign Economic Policy

//Source: Department of State, E Files: Lot 65 D 68, Interdepartmental Committee of Under Secretaries on Foreign Economic Policy. Official Use Only. Presumably drafted by Ruth S. Donahue, who is listed as Recording Secretary. Regarding the formation and functions of the ICFEP, see Document 5.

Washington, November 1, 1961.

[Here follows a list of participants (19).]

THE AID PROGRAM

Administrator's Statement.

Mr. Fowler Hamilton, Administrator of the Agency for International Development, first outlined the dimensions of the aid program. The total aid program provides about $6 billion for this fiscal year. The $6 billion includes (1) about $2 billion for military aid ($1.6 billion for hardware and $400 million for supporting assistance); (2) agricultural aid between $1.5 and $2 billion; (3) development assistance, with development loans comprising $1.1 billion and development grants $400 million; a contingency fund of $275 million, and $153 million for aid through international organizations. For the 1,500,000,000 people in the non-Communist underdeveloped countries, the non-military aid of about $4 billion amounts to about $2.70 per capita. Much of this is committed to programs already underway. Hence, the amount available is limited.

Mr. Hamilton then indicated the kinds of questions which have been put to him since he came on duty. Most of them relate to standards for making grants or loans. How to decide how much is to go to whom for what? The motif of the new program is economic development. Whatever other purposes are expected to be served are supposed to be served as by-products of the process of aid-dispensing and the economic development that takes place.

At the hearings before Congress, there were many comments that the program had been confused as to purpose and poorly administered. One reason for confusion is that the purposes of the program have been constantly changing: first, lend lease; then, post-war relief and European reconstruction; next, Point IV technical assistance to underdeveloped countries and defense support in selected places; large agricultural aid starting in 1954; more emphasis on development loans in 1958; and now, a new period when we are to support, on a fairly long- term basis, not just specific projects but also political and social reforms which will contribute to economic progress. It is understandable, with the constant change, that people are confused about the aid program. Even those who understand the different kinds of funds are confused as to what they are supposed to accomplish.

Mr. Hamilton said that we have to have some standards--both in order to do a useful job and in order to keep the program going (by articulating it to Congress and the public).

Mr. Hamilton said that his discussion with Mr. Jagan of British Guiana had provided the occasion to apply one sound procedural rule, namely, that we don't discuss money until we have seen a good plan. Mr. Jagan realized he was the victim of a principle--a procedural principle which he didn't like but which he understood--and therefore we didn't get into a discussion of the merits of his case.

But suppose there are satisfactory plans. What standard should we use in choosing among countries? Among projects? One person may say we should teach the blind to read Braille; another will argue that instead we should devote our funds to curing glaucoma. Mr. Hamilton asked for comments on what he should use as standards.

DISCUSSION

The discussion brought out the great diversity of views that prevail regarding the way the aid program should be handled. In view of the diffuse character of the discussion only selected points are enumerated here.

1. Danger of Ritual. There is the danger that countries will develop fairly respectable plans, send a high official to Washington, arrange some kind of a political threat or pressure, and extract an aid commitment.

2. Broad Character of Basic Objectives. The basic objectives--political independence (not necessarily an alliance with the United States), political stability, more democratic political institutions, non- Communist orientation, and economic improvement--are too general to provide much help in evaluating aid requests.

3. Exclusion of Countries Difficult. Countries that do not receive aid feel that they are discriminated against and the threat to reduce aid drastically elicits talk of a political upset which might turn the country toward the Communists or provide an economic setback. Poor, relatively stable non-Communist countries are likely to be particularly bitter about not receiving aid.

4. Development Plans. Countries should usually be required to have development plans. These plans tend to be projections which provide part of the window-dressing required for a grant. Granted the desirability of some kind of plan or projection, at least for Congressional appropriation purposes, refinement of a plan can be carried to useless extremes.

5. Project vs. Program Aid. It is often helpful in terms of efficiency to have the aid money directed toward a specific project and it is always helpful politically to have a project as a symbol of American aid, but a strong case can be made for aid which is not related to a specific project, particularly in connection with a consortium program.

6. Economic Productivity of Aid A Difficult Criterion to Apply. It is frequently said that the money should be put in those countries and in those projects or programs where it will yield the greatest return in terms of increased national output. There is so much uncertainty, however, as to the yields of various outlays, even in strictly economic terms, that this criterion provides no sure guide. Moreover, there are the claims on funds represented by projects or programs already started, unanticipated emergency needs, and the political necessity of making some funds available simply to help keep a sympathetic government in power.

7. Self-Help. One thing the Administrator can do, mainly through the field missions, is to determine whether countries are serious about their plans for improvement and whether they are prepared to do some extra things themselves. The word will get around very fast if countries have only to give lip-service to reform in order to get aid.

8. Absorptive Capacity. New and continuing studies should be made of the capacity of less developed countries to absorb productive resources from the outside. It may be that we grossly exaggerate the absorptive capacity of many countries.

9. Burden Sharing. The economic capacity of the United States and other relatively developed countries to supply development aid to the less developed countries is probably not the limiting factor at the present time. Arrangements can be made so that aid need not have serious adverse balance of payments effects. The consortium approach provides a device for coordinating aid to particular countries; its effect on the total volume of aid is hard to estimate.

10. Specific Short-Term Objectives for Particular Countries. It would be desirable for the AID Administrator to have quite specific concrete short-term objectives for the aid program in particular countries so that he, the Congress, and the public could have a reasonably firm basis for judging the usefulness of the aid expenditures.

The Role of Agricultural Commodities in the Aid Program.

Mr. Murphy noted the difficult time the Administration had in getting appropriations for aid. On the other hand, authorization for disposal of agricultural surpluses can be obtained without the Administration turning a hand. This brings up the question of what we can do with commodities instead of money in the aid program. He felt that to date the role of commodities has not been integrated very well with country aid plans and thought it would be useful for Agriculture and AID people to get together early in the planning stage.

Agriculture's part in the aid program is not merely disposing of surpluses. Some commodities will have to be purchased as they are not really in surplus. On cotton, for example, we now have the carry-over that we think there should be. If we want more cotton for PL - 480 programs, the acreage allotment will have to be increased and the cotton bought for the aid program! Wheat is the principal commodity in surplus.

Joseph D. Coppock/1/

/1/Printed from a copy that bears this typed signature.

127. Editorial Note

The Organization for Economic Cooperation and Development (OECD) held its first Ministerial Meeting in Paris November 16 - 17, 1961. Proposals by John W. Tuthill, Ambassador-designate to the OECD, for U.S. initiatives at this upcoming OECD meeting emphasizing the recent dramatic growth of the Western European nations and promoting a vigorous plan for future cooperative economic development are contained in Cedto 295 from Paris, October 27, which is attached to a November 1 memorandum from Edward R. Murrow to McGeorge Bundy, endorsing and elaborating on Tuthill's proposals. (Kennedy Library, National Security Files, Departments and Agencies Series, Department of State, 11/1/61 - 11/5/61) Under Secretary of State for Economic Affairs George W. Ball headed the U.S. Delegation to this OECD Ministerial Meeting. For text of his statement at the November 16 session, see Department of State Bulletin, December 18, 1961, pages 1014 - 1018. For text of the communique, November 17, see ibid., December 18, 1961, pages 1018-1020. Documentation on the OECD Ministerial Meeting is in Department of State, Central File 374.800.

128. Memorandum From the Deputy Assistant Secretary of State for Politico-Military Affairs (Kitchen) to Secretary of State Rusk and Secretary of Defense McNamara

//Source: Department of State, S/S - NSC Files: Lot 70 D 265, Guidelines for Military Aid Program. Secret. Attached to the source text were the conclusions of the Steering Group Report, paragraphs 7 - 19, which are in the Supplement, and the country alternatives and recommendations, paragraphs 54 - 85, not printed. Attached to an earlier, nearly identical draft of Kitchen's memorandum, December 9, which was addressed only to Secretary Rusk, was the entire report of 40 typescript pages.

Washington, December 12, 1961.

SUBJECT

Report of the Military Assistance Steering Group

Pursuant to the directive issued by you jointly,/1/ an inter-agency Military Assistance Steering Group has considered the principal military, political and economic issues bearing on the utilization of military aid for achieving U.S. objectives in six countries which are major recipients of U.S. Military Assistance. We have sought to determine whether there are feasible alternative methods which, if pursued over the long-run, might accomplish more satisfactorily U.S. objectives and which, in particular, would facilitate a more complementary programming of U.S. economic and military assistance. Our report, designed to establish policy guidelines for military assistance planning, is attached for your consideration. (Tab A)/2/

/1/The directive has not been found but is elsewhere identified as a July 8 paper by Secretaries Rusk and McNamara, which approved the creation of an interagency steering group, composed of State, Defense, JCS, ICA (AID), and White House representatives, to prepare a basic review of military assistance policy and planning assumptions for seven major MAP recipient countries (China, Greece, Iran, Korea, Pakistan, Turkey, and Vietnam). (Memorandum from Avery F. Peterson (FE) to Walter P. McConaughy (FE) and John M. Steeves (FE), July 21; ibid., FE/EA Files: Lot 65 D 235, K2 - C.1, Military Assistance (FY '59 - 61)) Regarding the preparation of this review, see also the source note, Document 123.

/2/Tabs A - D are not attached and have not been found.

The essence of our conclusions is that, although sufficient military strength must be maintained in these countries to help deter local aggression and to assure internal security, the main thrust of U.S. aid in the next decade should be directed toward repelling the more likely Soviet threat of indirect aggression by furthering economic development and nation-building. Because U.S. and local resources are limited, a redirection of our assistance programs is required which will involve shifting gradually increasing proportions of aid from military to economic programs, a stretch-out of force modernization, and avoidance of the introduction of advanced and sophisticated materiel into countries whose financial, manpower and skills resources are inadequate. While it is clearly recognized that such a program will introduce difficult problems of turnaround, and, indeed, that implementation at an early date may not be possible in certain countries for political reasons, it is considered most important to establish now the governing policy for program development.

As chairman of the Steering Group, I subscribe to the recommendations of the report. It is also endorsed by Robert Komer, the White House staff participant, Kenneth Hansen, the Bureau of the Budget participant and Seymour Rubin, the AID participant. William Bundy, the Department of Defense participant, while subscribing to the general conclusions of the report has entered a reservation regarding implementation of the recommendations for Korea on the grounds that "the alternative totals have no basis in any current analysis" and also that he is "not prepared to conclude that we should alter our basic conception of the mission of ROK forces." (Tab B) The report itself emphasizes that implementation in Korea can proceed only as our economic aid plans become firm and when we can determine whether increased U.S. conventional capability creates an additional basis for changing force posture in Korea. Mr. Bundy also notes that the Turkish situation is highly uncertain "on the economic front." I concur with his observation regarding attention which must be paid to increasing problems in obtaining important facilities in Turkey, although I believe that certain proposals known to you will have a more important bearing on resolving these problems than will any given amount of military aid.

As noted in the body of the report, the JCS take the position that this is no time to make, nor to plan, reductions in military aid to the six countries. Admiral Smith, the Special Assistant for Military Assistance Affairs to the Joint Staff, who participated in the group's work, has formally indicated his non-agreement "to reductions in military assistance to be imposed at present or in the foreseeable future." (Tab C)

Our ambassadors in the six countries, supplemented by their MAAG chiefs, responded to your letter requesting a reappraisal of the stewardship of U.S. aid in their countries of assignment with briefs generally defending strongly the existing field plans./3/ However, Ambassador Holmes was most forthcoming in dealing with a possible reduction in the force structure of the Iranian army provided selective modernization can be effected, increased economic aid can be substituted, and he can indicate to the Shah U.S. aid plans over a five-year period. Ambassador Berger, in a necessarily delayed response, left open the possibility of more far reaching changes in the Korean forces depending on accomplishments and developments measured over the next year.

/3/The responses have not been found.

At the request of Secretary McNamara and Budget Director Bell, a separate examination has been made of the implications of the steering group Report for the FY 1962 and 1963 military aid programs. This is presented in four charts at Tab D based on "high" figures representing DOD program requests and BOB "low" proposed alternatives. The steering group recognizes these are not firm figures but the best presently available for illustrative purposes, and the DOD figures, especially for 1963, reflect some reductions from previous plans. The charts set forth a six-country total difference of $94 million for 1962 and $151 million for 1963 which the Defense and Budget representatives respectively are prepared to support. Mr. Chenery,/4/ on behalf of AID, generally favors the larger reductions but believes such reductions should be offset by assuring, insofar as possible, early equivalent increases in economic assistance.

/4/Hollis Chenery, Director for Program Review and Coordination Staff, AID.

Mr. Komer and I, while advocating some cuts in FY 62 and particularly in FY 63 to emphasize firmly the new policy direction, recognize that too sharp a cut immediately would create strongly adverse local political repercussions. We suggest that (a) reductions greater than $50 million from DOD's present FY 1962 program and $125 million from FY 63 would be excessive; (b) sharper cuts should be delayed until reallocation of a substantial portion of the "savings" into economic aid programs is feasible; (c) the country teams and unified commands should be given latitude to re-program within the lower ceilings; and, (d) a substantial proportion of the cut in both years should be allocated to Korea, by far the largest single MAP recipient.

Copies of this memorandum and attachments are being transmitted to all steering group participants for the attention of their principals.

I recommend that if you approve the conclusions as set forth in paragraphs 7 through 19, and the recommendations as set forth briefly in the country sections of the report, you confer with a view to achieving agreement that the report be accepted as establishing policy for Military Assistance program formulation. It is suggested that you may then wish to meet with the President and selected members of the NSC to obtain final approval./5/

/5/The Steering Group report was discussed at meetings of the NSC Standing Group on January 5 and 12, 1962. (Record of Action, January 10 and January 12; Department of State, S/S - NSC Files: Lot 70 D 265, NSC Standing Group, 1/5/62 and 1/12/62) Kitchen's memorandum was transmitted under cover of a memorandum from Battle (S/S) to McGeorge Bundy, January 16, 1962, to supplement the draft NSC Record of Action for consideration at the NSC meeting on January 18, 1962. A draft NSC Record of Action on the military aid program, January 13, 1962, which was prepared in response to decisions at the January 12 NSC Standing Group meeting, is ibid., S/S - NSC (Miscellaneous) Files: Lot 66 D 95, Records of Action by the National Security Council.

Jeffrey C. Kitchen

129. Memorandum From the Acting Administrator of the Agency for International Development (Gaud) to Secretary of State Rusk

//Source: Washington National Records Center, RG 286, AID Administrator Files: FRC 65 A 481, Military Assistance, FY 1962. Confidential. The source text is Tab D to an attached memorandum from Chenery to the Acting Administrator, January 12, which also summarizes the Steering Group Report. The other tabs, not found, were the text of the report, country annexes, and comments on the report by members of the steering group and Department of State and AID officials. Also attached to the source text are a covering memorandum from Chenery to the Acting Administrator, January 12, recommending that Gaud familiarize himself with the Steering Group Report and sign the memorandum to Secretary Rusk, and a memorandum from Carol Carter Moor (S/S - RO) to Easum (AID), January 10, indicating that G/PM wanted AID comments on the report by January 12.

Washington, January 12, 1962.

SUBJECT

Report of the Military Assistance Steering Group/1/

/1/See Document 128.

On behalf of AID I wish to support the conclusions of the Military Assistance Steering Group. We particularly endorse their view that "the main thrust of U.S. aid in the next decade should be directed toward re- pelling the more likely Soviet threat of indirect aggression by furthering economic development and national building." It is increasingly apparent that neither the capability nor the will to resist communist aggression and subversion can exist in the absence of satisfactory rates of economic and social development.

Present plans call for substantial increases in development assist-ance to this group of countries in FY 1963, particularly for Korea, the Republic of China and Turkey. Planned lending would continue at a high level in Pakistan. In these four countries projected development lending levels appear to be near the upper limit of the effective absorptive capacities of their economies at this time. In the case of Greece and Iran, substantial amounts of U.S. development lending are projected. When combined with other free world assistance and more effective utilization of indigenous resources, it should result in satisfactory progress toward the goal of self-sustaining growth.

It is presently planned to reduce supporting assistance levels in FY 1963 in several of these countries. In every case where this is contemplated, however, increases in development lending will help ease the transition from supporting to development assistance. Furthermore, by directing assistance to long-term development, we enhance the ability of these countries to assume a progressively larger share of the joint defense burden from their increased national product.

Our support of the conclusions of the Steering Group Report is thus already reflected in our planning for FY 1963. For the longer term we believe a continuing effort should be made to adapt the size and character of the military forces of these countries to the changing nature of the security threats which they face. The Report points up the advantages of an overall approach to both military and economic aid programs which AID hopes to be able to continue in the future.

William S. Gaud

130. National Security Council Record of Action No. 2447

//Source: Department of State, S/S - NSC (Miscellaneous) Files: Lot 66 D 95, Records of Action by the National Security Council. Secret. The Action was taken at the 496th NSC meeting on January 18, along with Record of Action No. 2446. The source text is attached to a transmittal memorandum from Battle to several Department of State principals, January 23. A draft Record of Action was not discussed until an NSC Standing Group meeting on January 19 (Record of Action, January 19; Department of State, S/S - NSC Files: Lot 70 D 265, NSC Standing Group, 1/19/62), and was apparently not approved until some time between January 19 and 23.

Washington, undated.

Review of the Military Aid Program

1. Discussed the Report of the Military Assistance Steering Group and noted the following Presidential instructions:

a. Further reviews are to be made promptly of the military and economic aspects of long range US aid planning for certain major country programs. In these reviews, and in general aid planning, all concerned are to bear in mind that while we would like to have enough aid to accomplish all of our military and economic aid objectives, we are likely in any given period only to get enough appropriations to accomplish a portion of them. Therefore, we must plan in terms of which mix of military and other forms of aid will best serve our overall national security aims. In this sense, we must recognize that MAP and AID programs are competitive, as well as complementary, in terms both of their claim on US and local resources and their impact on the recipient countries.

b. The Joint Chiefs of Staff will reconsider their comments on the Steering Group Report,/1/ taking into account the considerations in a above and recognizing that decreases in/2/ military aid would be compensated by increases in economic aid.

/1/Reference presumably is to the undated JCS position paper, "Guidelines for the Military Aid Program" (JCSM - 43 - 62), which commented on a January 13 draft NSC Record of Action. (Department of State, S/S - NSC Files: Lot 70 D 265, Guidelines for Military Aid Program)

/2/The word "in" has been inserted by hand in response to a January 22 memorandum (attached to the source text) from Bromley Smith to all holders of this Record of Action, requesting this change.

2. Agreed that for Korea, Iran, Greece and Turkey, the following should be prepared for submission by July 15:

a. Proposed FY 1964 - 68 Military Assistance Plans (including the final proposed FY 1963 Program).

b. Similar plans for AID programs for the comparable period.

c. Recommendations, made in the light of the considerations in Para 1 - a above of the mix of these programs, as well as our appreciation of the relative threats to overall US security interests in these countries. Military Assistance plans for Korea and for Greece and Turkey should include an alternative program based on the lower financial levels proposed by the MAP Steering Group and an analysis of the pros and cons.

In addition, the following are to be made:

(1) For Korea the military economic and political studies necessary to recommend a desirable Korean force level and structure, including the desirable level of US forces in Korea. (To be submitted by 15 June 1962.)

(2) For Iran a report (to be submitted as promptly as possible and not later than 15 February) on a proposed approach to the Shah to achieve a reduction to a force level of 150,000, taking account of relevant political and economic factors.

(3) For Greece and Turkey the report (to be submitted by 15 July 1962) will take account of the special factors created by their NATO membership and participation in the present Berlin crisis buildup.

3. The Director of AID, acting under Executive Order 10973,/3/ will be responsible for carrying out the above studies. To assist him in an advisory role, he may continue, if he so desires, the Military Assistance Steering Group to be chaired by AID.

/3/See Document 117.

4. Agreed that the Director of AID will also study what improved planning and programming techniques are needed so that military and AID programming can be effectively coordinated to insure that total US aid to any given country is used to the best overall advantage. This report, to be submitted not later than 1 May 1962, is to include recommendations as to the most effective means, at both country team and Washington levels, for meshing the AID and MAP planning cycles.

131. Memorandum From the Administrator of the Agency for International Development (Hamilton) to President Kennedy

//Source: Washington National Records Center, RG 286, AID Administrator Files: FRC 65 A 481, Development Financing, FY 1962. Official Use Only. The source text, which was sent through the Secretary of State, bears the notation "DR per GWB" in the Secretary's handwriting. The source text also bears a second date, February 12, 1962, which is elsewhere given as the document control date and is presumably the day the memorandum was forwarded to the White House. (Memorandum from Easum to Executive Staff (AID), March 13; ibid.).

Washington, February 9, 1962.

SOURCE

Terms of AID Development Loans

The purpose of the accompanying memorandum/1/ is to provide you a summary of the results of the reappraisal of AID loan policy that you requested.

/1/Document 132.

The memorandum reflects in general the views of Douglas Dillon, Harold Linder, Eugene Black and myself. George Ball has expressed doubt about the position taken herein and he thinks that AID loan terms might be made somewhat harder now and that by such action we might be in a better position to influence other lending countries to soften their terms./2/ While our views represent our best judgment, they are not free from doubt; and as we further study these matters, they may change.

/2/For Ball's detailed comments on an earlier February 6 draft of the accompanying memorandum, which he sent in a memorandum to Hamilton, February 8, see the Supplement.

The memorandum may serve as a basis for consideration by the National Advisory Council/3/ and for such discussion as you may desire. We would suggest that any such discussion include the Secretary of the Treasury and the President of the Export-Import Bank.

/3/Reference is to the National Advisory Council on International Monetary and Financial Problems.

In the meantime there is no rigid rule on AID loans, but in general loans are being granted on the basis of a 40-year maturity, 3/4 of 1% credit fee in lieu of interest and 10-year grace period with substantially differing terms in special situations.

Fowler Hamilton

132. Memorandum From the Administrator of the Agency for International Development (Hamilton) to President Kennedy

//Source: Washington National Records Center, RG 286, AID Administrator Files: FRC 65 A 481, Development Financing, FY 1962. Official Use Only. The source text, which was sent through the Secretary of State, bears the notation "DR per GWB" in the Secretary's handwriting. Three charts and two tables of statistical material attached to the source text are not printed.

Washington, February 9, 1962.

SUBJECT

Terms of AID Development Loans

This memorandum sets forth the background against which AID loan policy has evolved, gives our conclusion as to present AID policy and plans, outlines the advantages of such policy and the principal objections thereto, and states our proposals to deal with those objections.

Background. The Development Loan Fund was established in 1957 as a means of shifting U.S. economic assistance to the extent possible from a grant to a loan basis and of emphasizing assistance to promote economic development. At the beginning DLF loans were almost entirely repayable in local currency in order to avoid burdening the balance of payments of the less-developed countries which in turn would have adversely affected the operation of the IBRD and the Export-Import Bank. The IBRD and the Export-Import Bank had been in operation for many years and both were engaged in development financing on terms which have come to be regarded as "conventional," and which are determined by their sources of lending funds, by the Articles of Agreement in the case of IBRD, and by U.S. legislation in the case of the Export-Import Bank. These terms provide for dollar payment, interest at 5-3/4 percent (presently) and maturity based generally on the estimated productivity of the project or generally in the range of 15 - 25 years. Again in 1959 consideration was given to making DLF loans repayable in dollars, although on more favorable terms than the IBRD and the Export-Import Bank. Eugene Black objected to substantial dollar repayment of DLF loans on the ground that loans on this basis would so consume loan repayment capacity of less developed countries as to make it impossible for them to gain access to private capital or to borrow further from IBRD, Export-Import Bank or from other Western country lenders. This view prevailed and DLF credits continued to be generally made repayable in local currencies with maturities comparable to those of IBRD; an interest rate of 3-1/2% was provided for economic overhead projects but other lending was generally at 5-3/4%. Such loans were substantially like grants from the point of view of impact on the balance of payments of developing countries because they were repayable largely in local currencies; unlike grants, however, they did impose the discipline of scheduled repayments on the internal finances of the borrowing countries.

The 1961 AID loan legislation required repayment in dollars because of the problems inherent in the accumulation of large amounts of local currencies derived not only from DLF loans but from other U.S. programs, such as the very large agricultural surplus sales under P.L. 480. Some currencies were being acquired in amounts far in excess of our prospective needs and of their usefulness in further programs in the countries concerned. Moreover, other countries became disturbed by the relatively large accumulation by the U.S. of their currencies. To reverse this trend, then, the AID legislation was established to provide dollar repayment on development lending. Since such lending was to be of greater significance in the future and since the ability of less- developed countries to service dollar indebtedness is generally minimal, it was proposed that loan service terms would be established to impose as light a burden as feasible on the present balance of payments of recipient countries and to permit repayments to be effected over a long term at times when the development efforts of such countries would show greater progress. It was therefore felt that it would be better to obtain a smaller annual service return in dollars than the larger returns in local currency previously in effect. Congress was fully advised and understood that such loans would be made on very liberal terms. For example, in your Foreign Aid Message, it was stated that "the single most important tool will be long-term development loans at no or low rates of interest."

Conclusion. Our policy review has led us to conclude:

1. A loan term policy with flexibility for special cases, but based primarily on loans at 40-year maturity, 3/4 of 1% credit fee in lieu of interest and 10-year grace period, would best serve United States foreign policy objectives of fostering long-term economic development and stable governments in friendly less-developed countries. It would be our intention, as individual recipient countries improve their payments position, to shorten the maturities rather than raising interest rates or credit fees until such time as it is possible to shift to conventional terms completely.

2. The United States should reserve the right to renegotiate with respect to shortening the maturity of loans at the end of the 10-year grace period.

3. The problem arising out of the difference between liberal AID loan terms and harder terms of other Western country lenders is best dealt with by continuing to exert pressure on such countries to soften their terms.

Advantages of Aid Policy. The considerations that lead us to support such an AID loan policy, with very liberal terms, include the following:

1. As a group the underdeveloped countries face serious balance-of- payments difficulties which are likely to persist for many years. The percentage of their exports which must be used for the repayment of foreign debt, public and private, is large and growing. As our aid expenditures and those of other countries increase--as they must if we are to achieve our development objectives--the problem of financing repayment of debt will become increasingly serious. The attached charts, although not completely up to date, illustrate these trends.

2. AID loans must be on liberal terms if they are not to impair the operations of IBRD and the Export-Import Bank, and private investors. If AID terms are hardened the debt-service burden of less-developed countries will become further strained, and the borrowing countries will not be able to meet required payments to the various lending institutions or make other required external payments. AID can best carry on its work as a source of capital needed by countries which cannot obtain sufficient conventional financing and for activities for which conventional financing is not available. Substantial hardening of AID terms would make most questionable the extent to which IBRD and Export-Import Bank could participate in loans such as those to India and Pakistan in the recent consortia. Our objective of stimulating a greater degree of development depends upon providing capital additional to that which is available from conventional sources. If this cannot be accomplished on a dollar-repayable loan basis, the alternative would appear to be to return to grant aid or local currency repayment.

3. Development loans frequently finance basic economic infrastructure projects which typically do not generate exportable wealth sufficient to repay the loans for many years.

4. It is our judgment that the most effective way to induce other lending countries to ease the terms of their loans is not to harden our terms to correspond more closely to theirs, but rather to continue to emphasize the discrepancy between our terms and theirs. We have succeeded in persuading other countries (notably Germany) substantially to liberalize their lending terms. Retreat from our liberal policy would also hamper Eugene Black's efforts to induce an increase in the country contributions to, and thus the loan capacity of, the International Development Association (IDA) which extends loans with 50-year maturities, a 3/4 of 1% credit fee in lieu of interest and 10-year grace periods. The present hard currency capitalization of IDA is about $760 million. The United States share is about 42%, the other industrialized countries putting in 54% and the less-developed countries 4% of the hard currency resources.

5. If AID loan terms approach those of IBRD or Export-Import Bank, Congressional opponents of the AID program will argue that AID development loan authority constitutes a duplication of effort and can be eliminated, leaving IBRD and Export-Import Bank to carry our entire development financing load--a task they cannot perform.

6. Liberal AID loan terms, generally based on 40-year maturity and 3/4% fee, permit the United States: (a) to induce long-term development planning, including self-help; and (b) to provide loan terms consistent with the limits on the dollar repayment capacity of less-developed countries; and (c) to respond to other foreign policy considerations where appropriate.

7. Liberal AID terms tend to offset such detrimental effect on borrowing countries as might arise from our balance of payments policy of requiring American procurement with respect to commodities for which the United States price is substantially higher than the world price.

Objections to AID Policy. The two principal objections to a liberal loan policy for AID are:

1. Present loan agreements fail to make provision for hardening of loan terms if the borrowing country's dollar repayment capacity unexpectedly improves, as in the case of Libya with its newly discovered oil reserves.

2. Liberal AID loans at least indirectly enable the borrower to repay loans made on harder terms by other Western countries. In this connection, however, it should be recognized that much of our lending is done by Export-Import Bank. This year Export-Import Bank may lend on its relatively hard terms as much as one billion dollars--almost equal to the total AID lending authorization. If Germany were to be persuaded to make half of its loans on relatively hard terms and half on soft terms comparable to those of AID, its total lending policies would be comparable to ours. It should be noted that in the case of France, about 85% of French economic aid totalling over $1 billion annually, mostly to the franc area, consists of outright grants.

Proposals to Deal with Objections.

1. We propose to deal with the first objection by requiring each borrowing country to agree that the United States reserves the right at the end of the grace period to renegotiate the maturity of the loan if conditions in the borrowing country, including its then existing and prospective dollar earning capacity, indicate that acceleration of repayment is feasible. Changes in the terms would require mutual consent. Furthermore, at any time that aid is no longer required because of dramatic changes in the recipient country, we would cease making liberal term loans.

2. We propose to deal with the second objection by continually pressing other countries further to liberalize their loan policies, so as to approximate as closely as possible the terms presently granted by the United States. To this end we are considering requesting a DAC Ministerial Meeting to be held in Paris in the spring at which we will again urge DAC countries to further soften loan terms. We would plan to follow up such a meeting with a second meeting in Washington in September at the time of the meeting of the Board of Directors of IBRD, at which we are hopeful more progress will be made in obtaining commitments by DAC countries to increase their development lending and still further to liberalize loan terms. Eugene Black has indicated his willingness to use his good offices to facilitate these ends in view.

Fowler Hamilton

133. Memorandum From President Kennedy to the Administrator of the Agency for International Development (Hamilton)

//Source: Washington National Records Center, RG 286, AID Administrator Files: FRC 65 A 481, Development Financing, FY 1962. No classification marking. An attached memorandum from Dungan to Hamilton, March 5, stressed that the President wanted AID loan policy to be applied in a flexible way and that he was concerned about the United States picking up the soft loans in consortia with other countries. Dungan added that it would be useful during the upcoming review of the AID program with the President "to discuss AID loan term policy along with the other matters under consideration." Regarding this review, see Document 134.

Subsequently, it was decided to distribute the memorandum, along with Dungan's memorandum, in the NSAM series, and they became National Security Action Memorandum No. 130, March 2. (Memorandum from Charles E. Johnson (NSC Staff) to Battle, Charles Sullivan (Treasury), Joseph Toner (AID/EXSEC), and Osborne Hague (Budget), March 8; Department of State, S/S - NSC Files: Lot 72 D 316, NSAM No. 130)

Washington, March 2, 1962.

SUBJECT

Terms of Aid Development Loans

I concur in your proposal in your memorandum of February 9, 1962,/1/ to establish liberal terms as a basis for development lending. Our fundamental purpose in offering these loans is to advance the development of countries who are already mobilizing their own resources extensively, whose needs are great, but whose capacity to repay will come only with the long run development of their national economy. Long term, low interest loans will allow carrying out many high priority and worthwhile development projects and programs which meet the stiff stand- ards set by Congress and the Executive Branch, but for which financing on conventional terms would be either unavailable or inappropriate.

/1/Document 132.

At the same time, I agree that we must also retain substantial flexibility in our loan term policies so that we can suit both interest rates and maturities to the individual situation. Countries have different repayment capacities justifying differing loan terms. Some kinds of loans, such as those for private and public revenue-producing projects or for short and medium term economic requirements, should usually be made on terms considerably more strict.

As we expand our lending programs, I am concerned that we construct a lending strategy involving foreign assistance loans, the Export-Import Bank, and the Inter-American Bank Trust Fund which builds on the individual advantages and specialties of each agency, and which ties in closely with the international lending agencies. To this end, I would like you to investigate thoroughly the use of consortia as a means of correlating our programs with those of others, and ways by which we can strengthen the organizational and administrative leadership of consortia./2/ I would further like to have your advice on other steps we might take to increase the coordination of the several U.S. and international lending agencies in major countries, and on whether it might be possible to build up functional specialties in certain of these agencies to attack specific development problems. You should assume a primary part in examining these questions and I look forward to your recommendations at such time as you have formulated them.

/2/In a memorandum to McGeorge Bundy, June 6, 1963, Executive Secretary Brubeck noted that he concurred with AID's opinion that this requirement for a study of the use of consortia and of the methods of coordination between the United States and international lending agencies had been fulfilled in the many reports on various aspects of AID programs and should be dropped from follow up reports to the White House. A handwritten note on this memorandum reads: "8/7/63, `OK to drop' per Bromley Smith." (Department of State, Central Files, AID (US) 2)

John F. Kennedy

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[End of Section 7]

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