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

[Section 10 of 18]

International Investment and Development Policy

178. Memorandum of Conversation

//Source: Department of State, Central Files, 398.13/3 - 861. Official Use Only. Drafted by Martin on March 13.

Washington, March 8, 1961.

SUBJECT

Expansion of IMF Resources

PARTICIPANTS

Mr. Frank Southard--IMF Mr. George Willis--Treasury Mr. James Tobin--CEA Mr. Robert Triffin--CEA Mr. Herbert Furth--Federal Reserve Board Mr. John Hooker--IMF Mr. Jack Pollock--IMF E--Edwin M. Martin

As a result of the discussion there seemed to be general agreement that it would be desirable for Southard to prepare a US position paper for consideration by various agencies which would provide authority for the US to offer a standing line of credit to the IMF of about $2 billion to be matched by similar lines of credit from 8 to 10 of the other principal financial countries in the amount of about $4 billion. This credit could be drawn upon only when the country providing it was in surplus to make advances to countries in deficit. In return it could be demanded back from the Fund as the country whose funds had been advanced became in its turn a deficit country and needed to add to its resources. It was thought that while legislation would be required it might be easier if the Federal Reserve Board should be the source of funds. It was agreed that means should be sought for the Fund to give in return for monies it had drawn a note which could be counted as a reserve of the Central Bank.

Southard thought no such proposal would succeed unless the US lobbied for it. The Europeans were exceedingly lukewarm. The Germans had come out with a rather favorable statement but immediately had been slapped at meeting of the Six for doing so without consultation. The French looked upon it as merely a device for strengthening sterling and would be very reluctant to participate, he feared. Even with our leadership, he was doubtful of success.

I asked whether such a move would be expected to be accompanied by any significant change in criteria for IMF advances. He thought not and that the Europeans would strongly oppose it for the same reason that the less developeds would support it. The Europeans fear the IMF will go bankrupt in backing up deficits of less developed countries. In this connection he also answered this by saying that the general view was that present Fund resources were adequate to take care of the needs of the less developed countries and this move is essentially to support reserve currencies, particularly sterling.

This does not preclude some modest changes in the willingness of IMF to make funds available automatically but they would be very modest.

It will be necessary for the US to have a position of action by early April.

179. Memorandum of Conversation

//Source: Department of State, Central Files, 398.051/3 - 1761. Official Use Only. Drafted by Plakias.

Washington, March 17, 1961.

SUBJECT

New York Daily News Editorial on Cuban Signature of Agreement with the United Nations Special Fund

PARTICIPANTS

Mr. Tim Smith, Office of Congressman Abner W. Sibal of Connecticut Mr. John N. Plakias, OES, Department of State Mr. Tim Smith was referred to this office by the Cuban Desk Officer.

Mr. Smith stated that Congressman Sibal had received a letter from a worried constituent quoting a New York Daily News editorial concerning the signature by the United Nations Special Fund of an agreement with Cuba.

Mr. Smith read excerpts of the editorial from the letter (copy of the editorial has been procured and is attached)./1/ I replied that while I had not seen the New York Daily News editorial, it appeared to include similar information to that contained in the news item which appeared in the New York Times of March 12th./2/ In fact, both might have stemmed from a UN Press Release (SPF/115) of March 10, 1961 announcing the signature of a basic agreement by Cuba and the Special Fund./3/

/1/Not printed.

/2/A typed copy of the article is attached to the source text but not printed.

/3/A copy of the press release is attached to the source text but not printed.

I read to Mr. Smith the UN Press Release and stated that it specifically pointed out that no project for Cuba has been approved by the Governing Council of the Special Fund. In this connection I explained that the agreement which had been signed is what is known as a basic agreement which sets forth the conditions which would apply should the Governing Council approve projects for a given signatory country. It did not refer to a specific project but was a prerequisite for assistance through the Special Fund and the framework within which projects subsequently approved by the Governing Council would operate.

Mr. Smith commented that it is to be assumed that Cuba would not have signed the agreement unless it intended to seek Special Fund assist- ance. I agreed that this was a logical interpretation. However, the Special Fund receives many requests and all are not recommended for approval, because certain ones do not qualify or for other reasons. Mr. Smith asked if the U.S. could withhold its approval and funds in the event the Special Fund submitted and recommended a Cuban project for approval by the Governing Council. I replied that the U.S. was only one of 18 members sitting on the Governing Council. Mr. Smith stated that he assumed that there was no veto provision in the Special Fund. I replied that this was my understanding.

I then explained in some detail the processing procedures to which requests for Special Fund assistance were subjected before they might be finally recommended to the Governing Council. (This explanation was similar to that given Mr. Socas--please see memorandum of conversation of March 16.)/4/ I explained that we had no knowledge of the requests made of the Special Fund by Governments. We would normally have knowledge only of those projects which the Managing Director recommended to the Governing Council in advance of the meetings of the Council which were generally held in May and December.

/4/Not printed. (Department of State, Central Files, 398.051/3 - 1661)

In commenting on the number of requests which the Special Fund has received and the number of projects which had been approved, I quoted from the "Programme recommended by the Managing Director" to the December meeting of the Governing Council (Doc.SF/R.2 of November 4, 1960), which indicates that up to September 30, 1960, the Special Fund had received 254 requests. The number of projects approved as of December 31, 1960 totaled 115, to which the Special Fund had made allocations of $95,894,000.

In answer to Mr. Smith's question on the Special Fund budget referred to in the news report, I replied by explaining that the Special Fund is financed by voluntary contributions as is the case with the UN Expanded Program of Technical Assistance. I described the pledging procedure to him and confirmed that the amount given in the press item was the same amount ($46.9 million) so far voluntarily pledged by governments to the Special Fund for the year 1961. I also described the U.S. 40% formula in matching contributions up to $100,000,000 for the Special Fund and the UN Technical Assistance Program combined.

Mr. Smith seemed pleased to have the information which had been given him and requested that I send to him a copy of the UN Press Release only. He felt that with the background given him and the Press Release he would have sufficient information to explain the situation to the Congressman.

180. Telegram From the Department of State to the Mission to the United Nations

//Source: Department of State, Central Files, 398.051/3 - 1761. Confidential. Drafted by Plakias and Walter M. Kotschnig (IO/OES) on March 17, cleared by Martin and David Wilken (E), Secretary of the Treasury Dillon, and Virginia Westfall (IO/OIA) in draft, and approved by Cleveland. Repeated to Brussels, Canberra, Copenhagen, The Hague, London, Ottawa, Paris, Pretoria, Rome, Stockholm, and Tokyo.

Washington, March 17, 1961, 8:24 p.m.

1742. Your 2304./1/ Subject: UN Capital Development Fund.

/1/Dated February 28. (Ibid., 320/2 - 2861)

1. In light of information furnished by USUN and after full consideration of issues with Klutznick, Dept is prepared have you inform Boland/2/ that he may include US among countries which he feels desirable participate Preparatory Committee and that US prefers to have him name these countries in plenary and ask governments concerned communicate to SYG within reasonable period (2 to 3 weeks) whether they are prepared to serve.

/2/Frederick H. Boland (Ireland), President of the Third Special Session of the U.N. General Assembly, August 21 - 25, 1961.

2. Dept favors this procedure because (a) it will make it unnecessary for US to make any statement at time announcement is made (b) it will permit consultations with friendly powers, particularly UK and Canada, to arrive at a common position regarding participation and (c) it will enable us by way of a formal communication to indicate clearly the basis on which we accept membership.

3. In discussions with other Dels you may indicate that in considering whether US would be prepared to serve on Committee US Govt will wish consider how useful Committee might be in affording sponsors and proponents of resolution opportunity express their views and objectives in more detail to US and other countries which had opposed or abstained on resolution and at same time afford US and latter group of countries opportunity to have their views better known and understood by proponents.

4. Communication to be prepared in Department will make it abundantly clear that US accepts membership only on clear understanding that it remains firmly opposed to establishment of a UN Capital Development Fund, that it would not feel committed in any way to contribute to such a Fund if established, and that it believes there should be a further exchange of views in Committee to see whether at this time drafting of statutes would in fact be a useful step to advance economic development of less developed countries.

5. This message being sent for info to selected missions in event questions raised their capitals.

6. Advise Dept any reactions received from Boland, UN Secretariat and other Dels./3/

Rusk

/3/Telegram 2563 from USUN, March 21, replied that USUN had disclosed the U.S. position to the other concerned delegations, Boland, and the U.N. Deputy Under Secretary and had received no new reactions and foresaw no problems. (Department of State, Central Files, 398.051/3 - 2161)

181. Memorandum of Conversation

//Source: Department of State, Central Files, 398.14/3 - 2061. Official Use Only. Drafted by Martin on March 21.

Washington, March 20, 1961.

SUBJECT

Preparations for EPC Meeting and IMF Council Discussions

PARTICIPANTS

Mr. Robert V. Roosa, Under Secretary of Treasury for Monetary Affairs Mr. Walter Heller, Chairman, Committee of Economic Advisers Mr. Arthur W. Marget, Board of Governors, Federal Reserve Mr. Jack N. Behrman, Deputy Assistant Secretary of Commerce Mr. R. Henry Rowntree, Chief, Economics Division, Export-Import Bank Mr. John Leddy, Assistant Secretary for International Affairs, Treasury Mr. George Willis, Director, Office of International Finance, Treasury Mr. Edwin M. Martin, Assistant Secretary, State

(I received a message late Friday, March 17, from Mr. Willis of Treas- ury that Mr. Roosa would have a meeting on Monday to consider new international financial arrangements. On Monday morning I received a message from Mr. Leddy that the meeting had been called because of concern by Secretary Dillon that a working group set up by CEA under Mr. Triffin to prepare for EPC meeting might get involved in international financial planning of the sort which was properly the responsibility of the NAC.)

Mr. Roosa opened the meeting by saying that he and Secretary Dillon were concerned with two points. The first was that in any international discussions, formal or informal, it was imperative that the US representatives speak with a single voice derived from coordinated positions. If there were to be any actual negotiations, they would presumably be handled by representatives of State and Treasury.

The second point was that, insofar as the United States took a substantive position on international financial questions in the course of the EPC meeting, it was important that these substantive positions be coordinated through the NAC, which was the established mechanism for this purpose. I inquired if it weren't possible that some of the issues involved were similar to those on which Mr. Southard was seeking guidance for use in IMF discussions of expansion of its resources. Mr. Roosa agreed that this was the case. It was, therefore, important not only to have instructions for EPC meeting but also for Mr. Southard on this particular subject.

Mr. Heller indicated that the Triffin group, to which Mr. Roosa had made reference, would be meeting, starting Tuesday morning, March 22, to deal with the question of the coordination of internal financial policies of member governments. Its mandate was confined to this subject.

It was agreed that there were two other subjects on which policy guidance was needed. One was the international financial mechanisms which were needed to deal with problems with particular reference to the role of the IMF and to the possibility of the US becoming a member of the EMA. This was clearly a NAC problem. It was left that Mr. Southard would be asked to prepare a paper on IMF aspects and State and Treas-ury on EMA aspects.

It was also felt that there would need to be a consideration of how better exchanges of views could be organized, particularly among a more limited group of countries than EPC within OECD framework. It was felt that this paper should be drawn on the assumption that the US would not be able to join the EMA as it now exists. It was agreed that State and Treasury would collaborate on this paper. I proposed that the first step might be to send some ideas to Mr. Tuthill for comment. Mr. Leddy agreed and asked that Mr. Abrams or Mr. Renner/1/ get in touch with him with respect to such a telegram as well as preparation of the paper.

/1/Manuel Abrams, Officer in Charge, Economic Organization Affairs, and John C. Renner, both in EUR/RA.

It was generally felt that the first problem would be the most likely subject for discussion in EPC and the other two might be more useful for informal conversation outside the meetings. It was agreed, however, that no formal decision could be taken on this point until the papers had all been seen.

It was agreed that the three papers have relationships with each other and that it will be necessary to examine them together to ensure that they are properly related.

It was agreed that this informal group, representing the NAC agencies at a higher level than the staff committee, but not an NAC body, would deal with paper #2 and with the coordination problem. It was agreed on my suggestion that we should wait until after the coordination had been achieved before deciding which parts of the package needed NAC approval.

It was felt that the three papers should be ready for examination within two weeks.

Neither Exim nor Commerce representatives played any part in the discussion. The Federal Reserve representative spoke strongly in favor of an active NAC role in the whole matter. The conversations were entirely friendly, though Mr. Roosa was firm on the need for clear US positions, even for exploratory conversations.

(Immediately after the meeting I informed Mr. Renner of what had transpired and asked him to get in touch with Mr. Leddy. I also confirmed that he was attending the meeting of the Triffin group and suggested in view of the subject matter, he might want to take someone from E. He indicated he had already been in touch with Mr. Goldstein.)/2/

/2/Mortimer D. Goldstein, Assistant Chief (E/FN).

182. Memorandum From the Assistant Secretary of State for International Organization Affairs (Cleveland) to Acting Secretary of State Bowles

//Source: Department of State, Central Files, 398.051/5 - 1861. Confidential. Drafted by Ruth S. Gold (E/OFD) and Richard N. Gardner (IO) on May 16 and concurred in by Achilles (S/O), Martin (E), Ball (B), Bell (B/FAC), Labouisse (ICA), and Hays (H).

Washington, May 18, 1961.

SUBJECT

UN Special Fund Project for Cuba

The Problem

The United States, as a member of the Governing Council of the United Nations Special Fund, will be required to act on a proposal by Paul Hoffman, Managing Director, that the Special Fund allocate $1,157,600 to an agriculture research project in Cuba. The Governing Council meeting will be held May 23 - 26, 1961.

Discussion:

As I explained in our conversation on Wednesday afternoon,/1/ we have recommended that the least unsatisfactory course for the United States to follow is to work for deferral of the project on technical economic grounds. If a majority of the Governing Council cannot be secured for deferral, the fall back position of the United States should be a quiet negative vote on the grounds that our questions about the economic soundness of the project have not been answered.

/1/May 17.

Following your verbal approval of this course of action, we have instructed our Embassies in various countries which are members of the Governing Council to seek support for deferral of the project. We have also informed Philip Klutznick, the United States Representative to the Economic and Social Council, of this decision.

Dick Goodwin of the White House staff has seen this memorandum and has expressed approval of our recommendation. You may wish to inform the President when he returns to Washington, since it will almost certainly be the subject of considerable comment in the press when the Governing Council meets next Tuesday.

The attached paper (Tab A)/2/ has the concurrence of the bureaus listed below. ARA, too, agrees with the conclusions but wishes certain sections of the paper deleted, especially (a) the possibility of explaining a favorable vote on the ground, inter alia, that the benefits of the research project will not be immediate but will accrue to the free government that succeeds the present regime. They would explain the vote solely on the ground that projects should be examined on their economic and technical merits; (b) allusions to the benefits of the project to the Cuban people; and (c) the analysis of the likely foreign reaction to a U.S. effort to defeat the project. These sections have been retained in the paper in an effort to set forth all the possibilities and the merits and defects of each. The ARA memorandum is attached as Tab B./2/

/2/Not printed.

Recommendation:

That you inform the President of our decision when he returns to Washington on Friday at your meeting with him on Friday.

183. Letter From the Managing Director of the U.N. Special Fund (Hoffman) to the Under Secretary of State (Bowles)

//Source: Department of State, Central Files, 398.051/6 - 3061. Personal.

New York, June 30, 1961.

Dear Chet, In view of the uncomplimentary references made by both Senators Bridges and Capehart on the Cuban project/1/ I felt it was desirable to have a better understanding among some of our friends in Washington on why this project was included in our programme and also of its relationship to the whole of our programme. As a consequence, I spent a day in Washington and called, at their invitation, on Senators Humphreys and Aitken, on Representatives Walter Judd and John Rooney and also on Al Friendly and Roscoe Drummond. Enclosed is a copy of the memorandum which I left with them which might be of some interest to you./2/

/1/Not further identified.

/2/The 2-page memorandum and a 16-page attachment are not printed.

I continue to believe that the United States missed a great opportunity in not supporting this project actively because it is clearly designed to help the Cuban people and not Dr. Castro, just as our projects in Formosa are designed, not to help Chiang Kai-Shek but the people of the Republic of China and those in Korea, not for the help of the military junta presently running Korea, but the Korean people. However, that is all water over the dam. I do believe in the future an opportunity will be missed unless we do emphasize the distinction between projects designed to help people and those designed to help governments, many of which are archaic.

Best regards.

Sincerely yours,

Paul

184. Letter From the Under Secretary of State (Bowles) to the Managing Director of the U.N. Special Fund (Hoffman)

//Source: Department of State, Central Files, 398.051/6 - 3061. No classification marking.

Washington, July 10, 1961.

Dear Paul: Many thanks for your letter./1/ As you know, I agree wholeheartedly with the viewpoints which you expressed in it and indeed which you and I have both been expressing with a great deal of consistency in the last few years.

/1/Document 183.

Although it does not show on the surface, the State Department policies are rapidly moving in the direction that you would feel is right, and I believe they will become much more apparent in the next six months. So many wrong habits are deeply ingrained here, but I am encouraged to think that we are moving ahead, perhaps with greater speed than we have a right to hope for.

If you are coming to Washington in the next few weeks, do let me know, as I would like to see you and talk with you about several questions-- nothing immediate, but important for the longer haul. I expect to be away in Africa, the Middle East, and South Asia from the 25th of July to the 11th of August.

With my warmest regards,

Sincerely,

Chet/2/

/2/Printed from a copy that indicates Bowles signed the original.

185. Memorandum From the Managing Director of the Development Loan Fund (Coffin) to the Staff of the Development Loan Fund

//Source: Washington National Records Center, RG 286, AID Administrator Files: FRC 65 A 481, Development Financing, FY 1962. No classification marking. Attached to the source text is a July 24 memorandum from Joseph S. Toner to Labouisse, noting that the memorandum was distributed to the DLF staff on July 21. The source text bears the handwritten marginal comment: "Noted H.L. by PYJ[ones]." Jones was Labouisse's Executive Assistant.

Washington, July 21, 1961.

SUBJECT

Transition to the Program for International Development

Although Congress has not yet passed the necessary legislation and the new Agency for International Development remains to be established, we have already, for all intents and purposes, embarked on the President's program for the Decade of Development./1/ The period which we are all now going through provides an opportunity for all concerned to contribute to the transition to the new program.

/1/In his special message to the Congress on March 22, President Kennedy referred to the 1960s as the "crucial Decade of Development." For text, see Public Papers of the Presidents of the United States: John F. Kennedy, 1961, p. 205.

I wish first of all to commend the staff for the many constructive activities which have recently been taken to facilitate the transition. We are offering to assist in the efforts soon to begin to evaluate the responses to the outgoing cable No. CG 1066 which has asked the field missions for preliminary recommendations on the aid approach to be taken in each country under the new program./2/ We are also identifying and preparing an inventory of policy and procedure decisions that will be required. We are cooperating in developing development lending procedures which will prevail in the period prior to the time when there is a final decision made by the new agency. We are also evaluating the backlog of loan applications we now hold.

/2/See footnote 2, Document 114.

The actions which the DLF takes between now and when AID is established can have an important bearing on the shape of the new program. We can contribute to the solution of the many important policy and procedural questions that are involved in the transition to the new program. Conversely, we can also conduct ourselves in such a way to avoid prejudicing future policies and procedures. Finally, the development lending function continues to form a most important part of the economic assistance program of the U.S. Government--an importance which does not permit us to stand still.

More specifically, DLF can contribute to the transition in the following three ways:

1. The DLF staff, which has developed an expertise in lending for economic development, should take the opportunity to distill from four years of lending experience considerations which should bear on the procedures and policies of the new Agency for International Development.

2. In responding to inquiries and new applications, it can couch its replies so as to indicate the new context and the new considerations which will be brought to bear in evaluating specific loans.

3. In evaluating proposals already on hand and in communicating with applicants, it can indicate the changed concepts and bases for evaluation that are now taking effect.

In making our contributions it will be necessary to bear in mind the central features of the new AID program. Perhaps the most important of the new concepts is that each activity, whether of a loan or grant nature, will be undertaken as a part of a total country approach or program. In following the approach or program for each country, it will be necessary to relate each activity to a priority goal, program or national development plan. In selecting countries for assistance as well as activities to be supported, priority consideration will be given to those making a reasonable self-help effort in terms of mobilizing all available resources by means of sensible planning, budgeting and other measures; undertaking measures to reduce dependence on external resources; tapping the energies and spreading benefits of development to the entire population; and exhibiting honesty in the administration of public affairs. Moreover, we will be seeking ways to use particular financing as leverage for obtaining improvement along the following lines. In the case of loans, which will now be on a largely dollar repayable basis, we will need to consider the capacity of each economy to service debt rather than the character of each activity to be financed.

There are a number of ways immediately available to us which can give us a basis for proceeding consistent with the criteria of the new program. The staff should keep in close touch with the materials developed in the course of Congressional consideration of the foreign aid program and specifically the funds programmed for the Fiscal Year 1962. Each staff member should familiarize himself with the red-covered presentation to Congress entitled "The Act for International Development--A Program for the Decade of Development; Objectives, Concepts and Proposed Program."/3/ In addition, as they become available, I suggest that the staff also obtain and read this year's testimony on the International Development and Security Act before the Senate Foreign Relations Committee and the House Foreign Affairs Committee, and in particular my statement on June 22, 1961 before the House Committee on Foreign Affairs./4/

/3/Not found.

/4/Reference is to International Development and Security: Hearings Before the Committee on Foreign Relations, United States Senate, Eighty- Seventh Congress, First Session (Washington, 1961), Parts 1 and 2, and The International Development and Security Act: Hearings Before the Committee on Foreign Affairs, House of Representatives, Eighty-Seventh Congress, First Session (Washington, 1961), Parts 1 - 3. Coffin's testimony is ibid., Part 2, pp. 821 - 892.

Additionally, the staff should take into account existing country commitments, which, of course, are tentative as to amount pending final action by the Congress (e.g., India). We must also have the views of the Department of State, ICA, the Program Development Task Force, and the field from the standpoint of the criteria enumerated above.

In addition to the above guidelines, I am confident that the ingenuity of the staff, with which I have been impressed, will make it possible for us to make the turnaround and effectuate a rapid integration of our activities into the new foreign aid program.

Frank M. Coffin

186. Memorandum From the Under Secretary of State for Economic Affairs (Ball) to the Assistant Secretary of State for International Organization Affairs (Cleveland)

//Source: Kennedy Library, National Security Files, Kaysen Series, Economic Policy, OECD Development Center. Confidential. Transmitted through S/S. Copies were sent to David Bell, Kaysen, Labouisse, Edwin Martin, and John Bell.

Washington, August 12, 1961.

SUBJECT

Proposal for United Nations Development Authority

Despite the elimination of any specific commitment of United States funds from the proposal for a United Nations Development Authority, I continue to have serious reservations about the desirability of a US initiative along these lines. Before proceeding to crystallize our thinking on this proposal, I believe we must have satisfactory answers to the following questions:

1. Would the UNDA actually represent a significant addition to existing facilities in the field of development planning? At present, in addition to our bilateral arrangements and those of other countries, there are various multilateral devices available, including the IBRD and the UN Special Fund. Assistance in development planning can also be provided by certain regional organizations and by private foundations. Since there are obviously a limited number of personnel who possess real talent in this field, I think we have no assurance that a UNDA, even if created under favorable conditions, would possess the means to offer substantial assistance to the lesser-developed countries.

2. Would the UNDA proposal, as now formulated, actually be received enthusiastically by the lesser-developed members of the UN? There is also a strong possibility that the lesser-developed countries would make a strong drive to amend--and succeed in the effort--the proposal in order to create something in the nature of SUNFED. Might it not be dangerous to risk the prestige of the President of the United States on a proposal of this kind?

3. Is it not probable that a UNDA, because of its broader function and the larger sums of money involved, would be subjected to much stronger and less responsible political influences than has been true of the UN Special Fund?

4. Even if the UNDA could actually be established under optimum conditions, isn't there a strong possibility that its operation would prove to be a political liability to the US rather than an asset? We would face a continuing problem of priorities between UNDA-approved projects and other projects which we may wish to work out bilaterally. For example, we might arouse considerable political resentment in Country A if we should fail to offer to finance a UNDA-approved project in that country at the same time that we are engaged in financing projects in Countries B, C and D which have never received a UNDA stamp of approval. Automatic priority for UNDA-approved projects would be a "pig-in-the-poke" policy. On the other hand, the failure of the donor countries to give priority to UNDA-approved projects might backfire politically against the US and other donor nations.

5. Would other major donor nations support the UNDA proposal, and would they be willing actually to use it as a basis for a significant portion of their economic assistance? I suspect that the fact that UNDA has approved a particular project would be meaningless in the case of France. Germany, of course, is not a member of the UN. I suspect the United States would in the end be the only country channeling significant amounts of aid into plans approved by UNDA.

6. The foregoing questions seem to me to cast considerable doubt on the desirability of making the UNDA proposal a major Presidential initiative. But in addition there is an objection which I think may be even more important. In entrusting the AID program to a single agency we have sought to achieve both coherent administration and the effective utilization of foreign assistance in support of foreign policy objectives. It can be argued that the UNDA proposal itself represents the fulfillment of a foreign policy objective since it might serve to strengthen the UN. But at the same time there is no assurance that the plans proposed by UNDA would be consistent with the more precise requirements of our foreign policy, and certainly the existence of UNDA would tend in the direction of diffusing rather than concentrating the direction of our foreign assist-ance effort. It seems to me quite necessary that in the next few years we should think not merely in terms of the development of individual countries but of such matters as the effect of total development planning on world markets or even on the commercial interests of areas for which we have special responsibility. The proliferation of agencies to guide country planning by the creation of new instrumentalities such as UNDA would seem to make these objectives more difficult to achieve.

George W. Ball/1/

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

187. Letter From Secretary of the Treasury Dillon to the Belgian Finance Minister (Dequae)

//Source: Department of State, Central Files, 398.13/8 - 2361. No classification marking. Attached to the source text is an August 23 letter from Theodore L. Eliot, Jr., Dillon's Special Assistant, to Lucius D. Battle, indicating that Dillon had sent the enclosed letter to Dequae as well as to Karl Blessing (Belgium), Franz Etzel and Ludwig Erhard (Federal Republic of Germany), Wilfrid Baumgartner (France), Pierre Werner (Luxembourg), J. Zijlstra and M. W. Holtrop (Netherlands), and Paolo Emilio Taviani (Italy). Also attached is a copy of a note from Dillon to Hubert Ansiaux, Governor of the Banque Nationale de Belgique, thanking him for his support for the proposed multilateral borrowing scheme in the International Monetary Fund and enclosing a copy of the letter printed here for his information. All these letters were transmitted through the appropriate Embassies.

Washington, August 21, 1961.

Dear Mr. Minister: I have been following closely the plans which are being made for a multilateral borrowing arrangement in the International Monetary Fund, because I attach very great importance to this project. Reports which have reached me of the discussions which the financial officials of the European Economic Community had in Ostend on July 17 have been of great interest,/1/ and I understand there will be further discussions early in September. I am writing this letter to let you know of my concern regarding certain aspects of the negotiations in the Fund.

/1/This meeting has not been further identified.

I am glad to learn that substantial agreement was reached at the Ostend meeting that the resources of the Fund should be strengthened so as to improve its capacity to deal with major pressures in the foreign exchange field, and that the best way to do this is by means of some sort of borrowing arrangement. I fully share these conclusions, which should pave the way for active negotiation in the Executive Board of the Fund following the Annual Meeting in Vienna. There are of course many details to be worked out, including matters such as the duration of loans, the rate of interest, repayment arrangements, the additional drawing rights to be acquired by lending countries, and the very important question of the amount which each country would agree to lend. I am most hopeful that the agreed plan will be completed by the end of the year so that legislative action can be taken early in 1962 in those countries such as the United States, where it is necessary.

I understand that some officials who met at Ostend feel that the participating country should retain full discretion to decide whether it would loan to the Fund at a given time, and that no firm commitment should be given to the Fund by the countries participating in the borrowing arrangement.

I feel strongly that our objective must be to create confidence that the Fund is equipped to meet major demands at a time of emergency, as it was able to do in the recent case of the United Kingdom. Frankly, I doubt that an arrangement which would leave it quite uncertain whether in fact participants would lend to the Fund would provide that much-needed confidence. The Fund is not now equipped to meet large demands. Following the drawings by the United Kingdom and India, the Fund's holdings of the eight currencies used in those drawings amounted to only $1.6 billion, plus $2.2 billion in U.S. currency and $2 billion in gold (excluding gold invested in U.S. bills). Also by the end of this year additional demands of at least $300 million probably will have to be met by the Fund. Yet firm assurance that the Fund will have adequate resources at its disposal is the best insurance that those resources will not have to be used. If the speculators and others who are keeping close watch of the balance of payments positions of the industrial countries conclude that the Fund does not have the resources to meet major demands, they will be much more likely to probe for weak spots.

For these reasons I believe that any effective borrowing arrangement should provide for firm commitments by each participating country to lend to the Fund up to a stated amount of its own currency. At the same time operating safeguards should be included in the arrangement to protect participating countries against unreasonable demands for loans. There should be criteria to determine the selection of the currencies to be borrowed at a given time and their actual use thereafter, and there should be full consultation with the lending member.

These questions probably cannot be worked out prior to the Annual Meeting. However, I hope that you and your colleagues in the EEC will continue to consider them with an open mind so that the Executive Directors after the Annual Meeting can undertake a full and unhampered negotiation.

So far as concerns the Annual Meeting, I understand that Mr. Jacobsson's speech will probably include a careful statement of the progress being made in working out the borrowing arrangement. In my speech I intend to encourage the Executive Directors to proceed promptly with negotiations, and I hope that you and other Governors will find it possible to give similar encouragement.

Since we agree on the objective of a borrowing arrangement, even though the details remain to be worked out, I believe it would be useful for the Governors at Vienna to approve a brief resolution. You are familiar with the draft prepared by Mr. Jacobsson which reads as follows:

"The Board of Governors of the International Monetary Fund hereby requests the Executive Directors to consider measures by which the Fund's holdings of currencies could be replenished, should this be appropriate, and to report thereon to the Board of Governors at an early date."

Adoption of a resolution of this kind would have the great advantage of indicating to the world in simple language that the Governors have thrown their support behind this effort. I should very much appreciate hearing your reactions to it. Of course, its adoption would be without prejudice to differences of view which still exist on various points of detail.

In view of Governor Ansiaux's interest in these matters, I am sending a copy of this letter to him.

Sincerely,

Douglas Dillon/2/

/2/Printed from a copy that indicates Dillon signed the original.

188. Memorandum From the Under Secretary of State for Economic Affairs (Ball) to the Under Secretary of State (Bowles)

//Source: Washington National Records Center, RG 286, AID Administrator Files: FRC 65 A 481, State Department, FY 1962. Confidential. The source text forms part of the daily log of the AID Executive Secretariat, September 12.

Washington, September 9, 1961.

SUBJECT

Proposal for an IDY

I understand that the Secretary has referred to you the proposal developed by IO and S/P for a U.S. initiative in the 16th UNGA for making 1963 an International Development Year./1/ Meanwhile, I have discussed the matter in some detail with Harlan Cleveland. Our discussion covered both the merits of the idea and my reservations about it. A new idea emerged from this discussion which is acceptable to both of us--that the IDY proposal be converted into a proposal for an International Development Decade. We believe the "IDD" alternative has the following advantages:

/1/This proposal is summarized in a memorandum from Cleveland to Secretary Rusk, August 30. (Department of State, Central Files, 398.00/8 - 3061)

1. All the arguments advanced in support of an IDY initiative would apply with equal or greater force to an IDD.

2. The particular activities and functions envisaged for the IDY could be carried on much more effectively if extended over a longer period of time. In fact, it would be difficult to try to cram some of them into a single year. An IDD would obviously give us a better opportunity to develop programs having real substance, as contrasted with "showcase" programs.

3. We have already strongly emphasized the need for thinking of economic development in long-range terms. In addition, President Kennedy has already referred to the 1960's as the "decade of development."/2/ There is no reason why 1963 should be regarded as having more significance than 1962 or 1964, for example.

/2/See footnote 1, Document 185.

4. An IDY proposal might be regarded by many of the underdeveloped nations as a mere gimmick, or the type that might have been expected to emanate from the Eisenhower Administration. On the other hand, an IDD proposal would probably have considerable attractiveness, since it would imply a commitment by the UN and the advanced industrial nations to concentrate on the problem of economic development for a long period of time, and would permit the evolution of new functions and institutions which might be impracticable within a single year.

5. The opportunities for developing genuine cooperation with other nations, possibly including even the Soviet Bloc, would be much better within the context of a decade rather than any particular year.

On the basis of the foregoing considerations, I hope you will agree that the IDY proposal should be converted into an IDD proposal, and will join in making a recommendation to this effect. If the proposal is recast in these terms, I would also be inclined to favor having it mentioned in the President's speech at the UNGA.

George W. Ball/3/

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

189. Editorial Note

On September 25, 1961, President Kennedy addressed the U.N. General Assembly. Among a number of international issues covered in the speech was the President's statement that the United States "now proposes officially designating this decade of the 1960's as the United Nations Decade of Development." Within that framework, he suggested, the U.N. development efforts could be expanded and coordinated.

Following his address, McGeorge Bundy issued National Security Action Memorandum No. 101 to the Secretary of State, October 6, which provided a list of items in the speech for which the President wanted special implementation and reporting. Among these was Item D, which involved the promotion of the expansion and coordination of economic growth. (Department of State, S/S - NSC Files: Lot 72 D 316, NSAM No. 101)

For the initial report on this item, see Document 191.

190. Current Economic Developments

//Source: Washington National Records Center, E/CBA/REP Files: FRC 72 A 6248, Current Economic Developments. Unclassified. The source text comprises pp. 1 - 6 of the issue.

Issue No. 633 Washington, September 26, 1961.

MOVE TO EXPAND IMF RESOURCESWINS BACKING AT VIENNA MEETINGS

Representatives of the US and major European countries have reached basic agreement on a program to expand the resources of the International Monetary Fund. The proposal was set forth by Per Jacobsson, Managing Director of the IMF, at the September 18 - 22 meetings in Vienna of the Boards of Governors of the IMF, IBRD, IDA and IFC.

Basically the plan calls for the US, UK, France, Germany, Belgium, Italy, Netherlands, Sweden, Luxembourg, Canada, and Japan to establish stand-by credits in their own currencies to the IMF. While the amount each country will provide is not yet fixed, the total is expected to reach $5 - 6 billion. The IMF would then have available sufficient amounts of francs, lira, deutsche marks, guilder, etc. as the case may be to meet any foreseeable demands on the Fund's resources, including hot money flows or balance-of-payments crises of the type the US faced last fall and the UK faced this spring and summer. At the moment, the IMF, after various transactions including a $1.5 billion drawing by the UK in various currencies (see August 15, 1961 issue)/1/ is short of the European currencies, particularly deutsche marks and liras.

/1/Issue No. 630. (Ibid.)

Details of the plan including the amounts to be contributed remain to be negotiated by the Executive Directors of the IMF in Washington. Among the important questions yet to be resolved is the autonomy to be granted the IMF to dispose of the stand-by credits. Some countries, notably France and the Netherlands, have taken the position that the IMF should draw upon such loans only after consultations. The effect of this would be to give the lending country or countries a voice in the conditions that the IMF might establish before the recipient country would be granted assistance.

The major aim of the plan is to ward off speculation by demonstrating that the defenses behind all the main currencies, including the dollar, are adequate.

US Backs Expansion of the IMF Resources

Representatives from Cyprus, Laos, Liberia, Nepal, New Zealand, Nigeria, Portugal, Senegal, Sierra Leone, and Togo were welcomed to the meetings for the first time by Secretary Dillon, who gave the principal address for the US./2/ He backed Jacobsson's proposals for an expansion of the IMF's resources. While he had no fixed opinions on the details of the multilateral borrowing arrangement, he emphasized four aspects; a) the aggregate amount committed should be large enough to add decisively to the Fund's resources; b) the additional resources must be promptly available in case of need; c) safeguards will be required to ensure effective consultation between the Fund and the lenders; and d) there must be no weakening of the policies that have guided the Fund in the use of its resources.

/2/For text of Dillon's speech, September 20, see Department of State Bulletin, October 9, 1961, pp. 584 - 588.

US Reviews Its Balance of Payments

Dillon devoted the bulk of his speech to an exposition of US economic policies. He said that the US was already on the road to recovery from the 1960 recession; the GNP is expected to rise from a recession low of $500 billion in the first quarter of this year to a total of $540 billion in the last quarter. Unused capacity and an ample supply of labor should avert any inflationary pressures that might otherwise develop.

Dillon reiterated the Administration's determination to present a balanced budget in FY '63. We are resolute, he said, in our determination to maintain both a sound and an expanding economy so that the US may play its full part in the defense and the development of the free world and, at the same time, meet the requirements of an increasing population at home.

Turning to the US balance of payments, Dillon noted that our merchandise trade surplus in 1960 amounted to $4.7 billion, whereas in 1959 it had been less than $1 billion. In the first half of 1961 our trade surplus was running at a seasonally adjusted annual rate of $6 billion. But the improvement in our trade surplus so far this year cannot be expected to continue in the months ahead, since it was accomplished more through a decrease in imports than through an increase in exports. The US is devoting considerable effort to bringing marketing opportunities abroad to the attention of the business community. Dillon also noted that the elimination of current payments imbalances can be greatly facilitated by the cooperation of surplus countries in pursuing liberal trade policies, in increasing long-term development assistance, and in sharing expenditures for the common defense in accordance with their capabilities.

US Emphasizes Social Needs of LDC's

Under Secretary of State Ball, who made the US presentation to the IBRD meeting, emphasized that economic development will have to be accompanied by other political, social, cultural and economic processes./3/ Economic development cannot serve its real purpose if its benefits are enjoyed exclusively by a wealthy elite, while the great masses remain in poverty. Nor can there be any assurance of lasting benefits from economic development in any nation where the government is the master of society and not its servant.

/3/For text of Ball's statement, September 19, see ibid., pp. 579 - 584.

Another major problem stems from the fact that the successful achievement of our humanitarian objectives depends to a considerable extent upon the ability of economic growth to keep pace with demographic developments. The prevailing rate of population growth affects not only the net rate of economic advancement, but also the volume of resources and the nature of the national programs required to achieve rapid development. Even under the best of circumstances, the less-developed nations will fight a losing battle, unless they can obtain, and use with maximum efficiency, a huge volume of capital and technical skills. In this context, the population explosion, if continued, will place an ever-increasing burden on the more advanced countries and international lending institutions. It will place a burden as well on the developing countries to achieve greater effectiveness in mobilizing internal resources for development.

A further problem, too often neglected, is the total economic impact of the development revolution on the world as a whole. Any program for economic development may become an absurdity unless it reasonably takes account of world trading patterns and prospects. We are only at the beginning of a process in which the governments of the industrialized nations must take the lead in providing an orderly opportunity for the expansion of markets for the production of the under-developed nations.

IDA to Solicit Additional Funds

Eugene Black, President of the IDA and its parent organization, the IBRD, sounded the warning that IDA, the youngest of the international financial institutions, would be seeking more money. Black's basic theme was that, increasingly, underdeveloped countries with sound development programs and well-prepared projects needing finance had reached or were reaching their capacity to take on any more "hard" loans. Black noted that during the period 1956 - 1959 more than nine-tenths of the aid extended on other than "hard" terms came from the US and France. Other countries, during this period and since, have become substantial lenders to the underdeveloped world, but they have not yet brought themselves, to the extent that circumstances require, to extend their aid on other than conventional terms. Black expressed the hope that lending countries will step up the flow of official capital at very long term, with only a token interest burden, to avoid the kind of disruption that kills peoples' hope for orderly economic progress.

The IDA was set up to meet the need for "soft" loans, but its total resources in usable currencies are less than $800 million. Black said that India and Pakistan alone could easily absorb the whole of this sum.

The US, and somewhat more cautiously Britain and Italy, gave support to the idea of enlarging IDA's resources, although the UK stressed that it could do nothing more until its own finances were in better shape. The matter in all probability will be brought up for action during the course of the coming year.

IDA in its fiscal year ending June 30, 1961 extended credits of just over $100 million for development projects in four member countries. The credits were extended on the following terms--50 years, without interest, and with a ten-year grace period. A service charge of 3/4 of one percent is levied. Loans signed thus far include a $60 million credit to India for highways; $19 million to Chile for highways; $13 million to Sudan for agriculture; and $9 million to Honduras for highways.

Activities of the IBRD

During the past fiscal year the IBRD extended loans totaling almost $610 million. There were 27 loans bringing the total number of the Bank's loans to 292 in 57 member countries. More than two-thirds of the Bank's lending is for basic investment in transportation and electric power. In the past few years loans for transportation have been slowly drawing ahead; this was markedly in evidence in the past year with transportation loans accounting for $311 million. Railway improvements made up the bulk of this total, including two large loans--$70 million to India and $80 million to Japan for the improvement and expansion of their rail services.

Electric power loans for the year totaled $125 million and were widely spread throughout the world. In all, eight loans were made for this purpose; one in Africa (Uganda), two in Asia (Ceylon and Japan), three in Latin America (Colombia, Costa Rica, and El Salvador) and two in Europe (Norway and Yugoslavia). These loans will help to add an estimated one million kilowatts of capacity in the countries concerned.

Loans for agriculture amounted to $126 million. This total was mainly accounted for by the loan of $90 million made to Pakistan as the Bank's contribution to the financing of the large irrigation works required to implement the settlement reached in the Indus Waters Treaty. The other loans for agriculture assisted agricultural credit in British Guiana and irrigation projects in Mexico and the Sudan.

Industrial lending in the past year totaled $48 million, made up of loans for steel in Japan and for industrial development banks in India and Pakistan.

The new loans for the year brought the cumulative total of IBRD loans to $5,669 million of which $4,320 million had been disbursed at June 30, 1961. Of the latter amount, $1,452 million had been repaid to the Bank or sold to other investors.

The past year saw the highest level of activity yet reached by the Bank in providing assistance to its member countries through general economic surveys, which examine the development potential of the country concerned and recommend the main directions which planning and investment should take. The report of the general survey of Libya was published in October, the Tanganyika mission report in March, and the Venezuela mission report in May. A general survey of Uganda, begun last September, will be published in early 1962. A large general economic survey mission was sent to Spain, and recruitment began for a general economic survey mission which the Bank is sending to Kenya.

To expand its technical assistance programs, Black announced in Vienna that the Bank is forming a group of highly qualified development advisers who will be available to member countries on request for extended periods of time. They will perform such duties as chief or senior economist of a general survey mission; resident economic or financial adviser to a government; member of, or adviser to, a planning office; administrator, or adviser to, the administrator of a development program; or simply an adviser on current economic and financial problems.

The task of the development adviser is not to try to impose solutions but rather to illuminate the choices which governments must make if they are to proceed along the road to economic growth. The choices may be among the various economic sectors covered in a national program or among the various projects within a sector. In any case, the development adviser's job will be to present choices in orderly way, gathering cost data and identifying the benefits of projects so that the government can decide more confidently how fast to proceed and in what direction, given all the competing claims on its financial resources.

IFC to Expand Scope of Activities

The International Finance Corporation (IFC), another affiliate of the IBRD, was originally established to extend loans to private businesses principally in the less-developed countries. The IFC has recently amended its charter so that it is now able to make equity investments in new enterprises. During the fiscal year ending June 30 the IFC made investments of $6.2 million, which brought the cumulative total of its investments to $44.4 million. The IFC has recently made commitments to provide equity-type capital to two private financial institutions in Colombia. This will enable these institutions to expand their investment activities over a broadening range of local enterprises--chiefly smaller and medium-size concerns, which it is impractical for the IFC to finance directly.

[Here follow articles on unrelated matters.]

191. Memorandum From Secretary of State Rusk to President Kennedy

//Source: Department of State, S/S - NSC Files: Lot 72 D 316, NSAM No. 101. Confidential.

Washington, October 18, 1961.

SUBJECT

Follow-up on Your Address to the United Nations General Assembly--United Nations Aspects

[Here follow unrelated items.]

VII. United States Plan for United Nations Decade of Development (Item D of NSAM 101)/1/

/1/See Document 189.

Subsequent to your speech, the Department has revised and cleared with appropriate Government agencies a detailed position paper on the United States initiative for strengthening the capacity of the United Nations to act in the fields of economic and social development (Tab C)./2/ Our representative made a major speech which was very well received on October 6 in Committee II in which he outlined our proposal for a UN Decade of Development./3/ Consultations have been held at the General Assembly with friendly delegations and within the framework of the OECD in Paris and in London. Reactions have, on the whole, been positive.

/2/Tab C, a position paper entitled "United States Economic and Social Initiative at the 16th Session of the General Assembly--Organization of United Nations Development Decade," September 19, is not printed.

/3/Reference is to U.S. Representative Klutznick's statement, which is printed in Department of State Bulletin, December 4, 1961, pp. 939 - 947.

Our present concept is that the Secretariat of the United Nations in cooperation with the Managing Director of the Special Fund (Paul Hoff- man) would prepare and submit before the close of the present General Assembly detailed plans and recommendations for the organization and implementation of the UN Development Decade. Mr. Hoffman supports our proposals and stands prepared to act accordingly. We plan soon to introduce a resolution in Committee II embodying our objectives and assigning a particularly important role to the Special Fund.

Dean Rusk/4/

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

192. Memorandum From the President's Special Assistant (Schlesinger) to the President's Special Assistant for National Security Affairs (Bundy)

//Source: Kennedy Library, National Security Files, Subjects Series, United Nations, General, 12/61. No classification marking. The word "Noted" is written on the source text in Bundy's handwriting.

Washington, December 6, 1961.

Ambassador Stevenson's memorandum for the President of November 13th/1/ represents substantially the position of all government agencies involved--State, AID, USDA, and Food For Peace.

/1/Stevenson's November 13 memorandum, which is developed in two parts, a background paper and recommended actions, is printed in The Papers of Adlai E. Stevenson: Ambassador to the United Nations, 1961 - 1965, vol. VIII, pp. 148 - 150.

The background paper and recommended action stems from a meeting which George McGovern initiated in New York on November 10th with the U.S. Representative on the Economic and Social Council, Ambassador Klutznick; Harlan Cleveland's office.

A second meeting followed in Washington with all interested agencies represented, and instructions were sent on November 14th to the U.S. delegation to the FAO Conference in Rome./2/ Those instructions followed the action as recommended in Ambassador Stevenson's memorandum except for one point. The governing body, which will direct the multilateral distribution of commodities, will be elected jointly by FAO and the Economic and Social Council with each organization designating one-half of the members on the body, instead of entirely by ECOSOC.

/2/Not found.

McGovern had initiated last April in Rome, with the approval of the President, State and USDA, an offer of $40 million in commodities toward an overall UN - FAO program of $100 million. This offer, first announced by President Kennedy at his press conference of April 22nd [21st],/3/ was officially ratified by the FAO Conference on November 24th./4/ It is understood that the experience of this initial multilateral program will enable us to decide whether at some future date the United States should push for a larger UN food program.

/3/At his press conference on April 21, President Kennedy announced that the U.S. Government was prepared to contribute $40 million in food commodities toward an initial U.N. reserve of $100 million, which would be administered by the U.N. Food and Agricultural Organization (FAO). For the transcript, see Public Papers of the Presidents of the United States: John F. Kennedy, 1961, p. 307.

/4/See Food and Agriculture Organization, Report of the 11th Session of the Conference, 4 - 24 November 1961.

So far as I can see, everything is progressing smoothly. There is no present need for direct Presidential action. I shall continue to keep in touch with the situation.

Arthur

193. Current Economic Developments

//Source: Washington National Records Center, E/CBA/REP Files: FRC 72 A 6248, Current Economic Developments. Confidential. The source text comprises pp. 13 - 15 of the issue.

Issue No. 641 Washington, January 16, 1962.

[Here follow articles on unrelated matters.]

ACTIONS ON ECONOMIC ITEMS AT RECENT GENERAL ASSEMBLY

Industrialization as a means to achieve more rapid economic development and the creation of a more favorable climate for the export trade of the underdeveloped countries were the principle themes underlying the economic resolutions adopted during the recent session of the United Nations General Assembly.

It became clear early in the session that the changed voting pattern under the UN might lead to the adoption of resolutions completely unacceptable to the US. The decision was made, therefore, that in order to exercise a moderating influence the US would, without sacrifice of principle, view with sympathy the expressed wish of the majority. To a large extent this tactic was successful. We were not forced into any new major compromise to US interests during the session.

UN Development Decade

A number of resolutions were approved calling on the Secretary General and the subsidiary bodies of the UN to take specific action looking to the early achievement of industrialization in the underdeveloped countries and for the expansion of their export trade. Guiding principles to achieve these two major themes are contained in the resolution initiated by the US for a United Nations Development Decade (UNDD) and adopted unanimously by the General Assembly./1/ This resolution is basically a charter for economic development over the next ten years. It combines a call to action together with recommendations for: closer cooperation between the UN and its subsidiary bodies as well as with bilateral and other multilateral programs; a request to member governments to pursue policies designed to enable the less-developed countries to sell primary commodities at more stable and remunerative prices; measures to assist countries in the development of their country programs; support for diversification and industrialization; measures to increase the flow of development capital, both public and private, to the under-developed nations; establishment of aggregate growth targets for the under-developed countries and other similar policies.

/1/Reference is to Resolution 1710 (XVI), adopted unanimously by the U.N. General Assembly on December 19; printed in American Foreign Policy: Current Documents, 1961, pp. 153 - 156.

The US was unable to avoid the inclusion of two items in the resolution which may cause concern in the future. The most hotly debated issue was the proposal by the representative of Iraq that an increasing share of the profit from the exploitation and marketing of natural resources by foreign capital be made available to the host country. After several days of intense negotiations, agreement was reached on wording calling on member countries "to pursue policies designed to ensure to the developing countries an equitable share of earnings from the extraction and marketing of their natural resources by foreign capital in accordance with the generally accepted reasonable earnings on invested capital."

The UNDD resolution also contains a provision inviting the Economic and Social Council to accelerate its examination of and decision on principles of international economic cooperation. ECOSOC has the matter on its agenda for the spring session, and the USSR has circulated a draft for consideration. The decision which now must be made by the US and its allies is whether to oppose the adoption of principles on international economic cooperation as being unnecessary in view of individual resolutions already approved by the UN or whether a set of principles containing Western views should be submitted for ECOSOC consideration. At the moment the US inclines toward the latter approach since it is clear that the consensus of the UN membership is favorable to the adoption of a set of principles in one document. It is unlikely, however, that meaningful East-West agreement can be reached.

As a corollary to the UNDD resolution (I) the Assembly also adopted a UNDD resolution (II) calling on member states to increase their contributions to the Special Fund and Expanded Program of Technical Assistance with the objective of reaching $150 million for 1962 and for the Special Fund to consider the advisability of establishing an information service on existing and future sources of development capital and assistance./2/

/2/Reference is to Resolution 1715 (XVI), adopted unanimously by the U.N. General Assembly on December 19; printed ibid., p. 156.

Program for Food Surpluses

The other major initiative of the US was the proposed establishment of a $100 million program for the provision of food surpluses to food- deficient peoples through the United Nations system. The subject was first discussed and approved by the Food and Agriculture Organization in November. The US together with Canada submitted a proposal to the UN which, in addition to supporting the program as approved by the FAO, looked to the future when the program could be expanded in size and increasing emphasis placed on the use of food for economic and social development. Major opposition was encountered from the food exporting countries which wished to keep the program primarily one for meeting emergencies and limited to a three-year period. Many of the underdeveloped food importing countries were also fearful that an attempt was being made to substitute food for dollar aid. The resolution, as finally adopted, was more limited in purpose than the original US-Canadian proposal and reiterates throughout the necessity for maintaining safeguards for the protection of food exporting countries and for the development of agriculture in the developing countries./3/

/3/Reference is to Resolution 1714 (XVI), adopted by a vote of 90 - 0 with 9 abstentions by the U.N. General Assembly on December 19; printed ibid., pp. 187 - 191.

United Nations Capital Development Fund

With negative votes only from France, South Africa, the UK and the US, the General Assembly reaffirmed the mandate of the Committee on a UN Capital Development Fund and instructed the Committee to proceed with the drafting of a statute to establish the Fund./4/ The draft is to be submitted to ECOSOC in the first instance and then to the GA at its seventeenth session. In addition to the negative votes, seven countries abstained, but 70 countries voted favorably.

/4/Reference is to Resolution 1706 (XVI), adopted by the U.N. General Assembly on December 19; printed in U.N. General Assembly, Official Records: Sixteenth Session, Supplement No. 17 (A/5100) (New York, 1962), pp. 13 - 14.

[Here follow the remainder of this article and other articles on unrelated matters.]

194. 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.

Washington, January 24, 1962.

[Here follows a list of participants (16).]

WAYS IN WHICH THE US MIGHT USE INTERNATIONALORGANIZATIONS MORE EFFECTIVELY IN THE FORMULATION AND EXECUTION OF FOREIGN ECONOMIC POLICY

Presentation

Harlan Cleveland, Assistant Secretary of State for International Organization Affairs, made the presentation.

We can start with the proposition that, whether pursued bilaterally or in one or another of the international economic organizations in which we participate (there are 49 to which we make regular contributions), our purpose is to put the resources that go beyond our borders in the service of our national aims, if we can figure out what the resources are and what our aims are.

A standard canard used to be that we had to choose between bilateral and multilateral ways of acting. This sterile argument ran out of gas after about ten years. Now the canard is that we have to choose between one or another of the international organizations, for example, the UN versus the Latin American regional arrangements. This is a sterile assumption also, because we use such instruments as there are and as we use them for such particular purposes as seem to give the greatest advantage.

There are a good many cases in which the multilateral arrangements served where bilateral arrangements wouldn't have served as well, although most of our relations will continue to be on a country-to- country basis.

In the trade field the old idea was that the way to negotiate was bilaterally and apply the results to the rest of the world under most- favored nation treatment. This really didn't turn out to be a very good way of handling trade negotiations because it didn't take into account the advantage which could be obtained through reciprocal concessions from third countries. The result was that we devised GATT, with a kind of round-table procedure rather than an across-the-table procedure. Similarly in the payments field, both the EPU and in the IMF were considered a better way to provide short-term credit and monitor exchange restrictions than could be done on a country-by-country basis.

In the aid field we found that the deep involvement inherent in an aid program--necessary aid if to be effectively used--the interference of outside people in public administration and budget processes (the very stuff of sovereignty)--was a problem that could be handled if we had adequate relations with a country but were difficult to work out with some countries--particularly sensitive newly independent ones. The working out of some functions with some countries directly through international agencies has become increasingly important. It also became possible to develop long-range financing in the multilateral field through the IBRD and the IDA faster than it was possible to present the proposal to the American people and Congress under a bilateral program.

The problem for all of us is partly to prevent ourselves and our colleagues from getting so enthusiastic about one particular instrument that it becomes a substitute for all the other instruments that are available when we need all we have and probably others that are not invented yet.

Our difficulty is that in the developmental field we have a staggering number of organizations involved in the affairs of a typical less- developed country. This proliferation has become a problem in itself. The number of organizations which are routinely found involved with the Ministry of Finance in country "X" is about 16, and in Latin America it gets up to 30, counting the American agencies, the international agencies and the regional agencies. You get a kind of competition between these organizations in the less developed countries. This puts on the LDC the burden of coordinating the developed countries--the very kind of burden the LDC can't support.

Our problem in IO and also in the regional bureaus is first to develop some doctrine and agreement about what these organizations are supposed to be doing, what we want them to do, and what serves our interests for them to do.

The problem in the development field is getting the receiving countries to get set up so they can coordinate the external input they require. What is the best way of doing that? One way is to have fewer competitive agencies trying to sell technical assistance. Part of that solution is coordination on our side of the dotted line. Part of it is developing in the receiving countries the capability of managing their own destinies-- their economic planning and financial and personnel support for their plans.

These two things need to be done: a) pulling together the external agencies so there are only two or three groups in each country instead of 16 - 30, and b) getting the receiving country itself able to make rational sense out of all of the input. (There should not be over- emphasis on health projects, for example, just because the WHO may be a better salesman than the FAO.)

We are beginning to make a certain amount of progress on the UN side. The Committee of Eight has now been established, and the ECOSOC has addressed itself to this problem of coordination. The establishment of the OECD may do the same thing with respect to bilateral programs in these less-developed countries. If we can get both of these enterprises further along, we may end up with two groups operating in related fields--one in technical assistance and preinvestment, and the other in the bigger money operations that will have to be bilateral. The World Bank gets into it by consortia on the money side and the UN Special representative can perform on the multilateral technical assistance side. There has to be an idea as to whether the best channel of influence on countries in the development of their planning machinery is bilateral or UN agencies or some other form of multilateral arrangements such as the Pan American Union of the OAS.

Since Mr. Cleveland's concern is with multilateral organizations, he concentrated on them. Each specialized agency has a budget and we are represented on all of the Executive Committees of the specialized agencies. The budgets come up at a moment when it is too late to do anything very much about them. Not only that, but the growth of the budgets for each specialized agency is really a matter of faith for most of the people going as delegates to these meetings. At Agricultural meetings, for example, the Ministers of Agriculture are present and of course they come to the conclusion that agriculture is more important than anything else. The "budget bureau nastiness" is not present at these meetings. The same thing is true in the health field and, in fact, of every specialized field. We are not tackling the over-all budget problem for these agencies as early as we could--i.e., when budgets are being developed instead of when it becomes a problem of confidence in the agency if any questions are raised.

We don't really have in our hands the raw material with which to affect the budgets of these organizations. The reason is that the ambassadors and USOM's have regarded themselves as responsible for the bilateral relations with the country and regarded these multilateral operations as the responsibility of someone else, despite the fact that the US is a 40% stockholder. They regard the specialized agency operations as a foreign concern--as something even competing with their own programs-- instead of thinking of themselves as responsible for the effective operation of FAO, WHO, etc., as they should be. Consequently, we don't get in Washington a flow of the meaningful information at the country level with which our representatives to these organizations could be intervening in the budget processes early enough to make any difference.

We had a long discussion with the UK officials about this. Their Treasury is allergic to these increased budgets and said it couldn't afford more for this purpose next year. We asked if they had any ideas how to carry out the Chancellor's idea not to spend any more money but we didn't get the impression that they had thought through the implications on the financial side. Their budget people said that these increasing budgets are terrible and had to have a ceiling, but there seemed no practical way to effect this and the UK officials going to these meetings are going along with the budgets because there is nothing else to do.

We need the assistance and cooperation both of the entire field establishment of the American Government and also of the American functional agencies--Agriculture, Public Health, etc. It is not going to be easy or very rapid, but it is extremely important that we get a better coordinated collection of UN agencies and a system for exercising our influence on their financial budget processes and their programming processes that is more effective than the present system. I believe these agencies as a group can be a very important facility for us in getting things done inside some of the less developed countries, particularly in Africa.

Another thing that it is important to focus on is the development of a doctrine on the relationship between these UN agencies and some other things we are doing in the field. There is little or no documentation in this Government about the place of multilateral agencies (UN or other) in the Alliance for Progress. The Budget Bureau very properly has raised the question of whether what we put through the international organizations should be counted toward the $500 million target. There are the questions of what we do through the UN Agencies and what we prefer to do through the OECD on development planning, on technical assist-ance and on coordinating capital investment programs of various kinds. The fact that the capital investment program is coordinated and carefully planned does not necessarily mean that we have it under control. The Indus Valley is an example--this was really the first consortium. It was beautifully planned; the only trouble is that the cost estimates have gone up 60% and will go up 100%. We didn't really have this under control. The World Bank makes determinations about bids that are in excess of the planned estimates that we had agreed to without clearing back with the US Government.

Discussion

Mr. Hansen said we have been having a dialogue along this line. He was glad Mr. Cleveland, after having called the budget problems to our attention, put the emphasis on programming. The budget is strictly a place to convey decisions, it is a discipline of your operations. He has been completely frustrated in the sense that they were asked to approve budget requests and they found that even if they had questions to raise, the time that they should have been raised was a year or two ago. And when they asked what was really happening, except in a few cases, they were led to believe these things were normally growing and salaries were getting higher, etc. all bringing about a proportional increase. When they related it back to programming, they found no place where there was an evaluation.

Mr. Hansen said he found in Iran that the only answer was to establish an Iranian Government office to coordinate the assistance going into Iran. This was the only way to get hold of the problem. There is another aspect which should be looked into at the same time--the question of evaluating the particular competence of various organizations. There are some elements of strategy we should think about. This came up in connection with the Alliance for Progress, with respect to housing and how to deal with it in the program. We could have a number of organizations go in and offer assistance in housing. This could get out of hand. It might be best for the US to say to these countries--if you want housing assist-ance, go to the IDB but not to AID and other sources. This could apply to other areas where we could nominate certain types of funds for certain things. This is appealing in the first instance, but when you turn it around and look at the capability of organizations to serve the need for this, you find if they don't have competition it gives rise sometimes to the worst elements of bureaucracy and is subject to influence and has disabilities. Another aspect of the question is where you are trying a large range of these activities you will find that some things are not susceptible to being handled by a multilateral organization because of problems of political interest or some other reason. One area of work where UN Specialized Agencies excel is in the pre-investment study. Mr. Hansen added that he hoped Paul Hoffman will emphasize that, e.g., geological surveys, things that do not get too deeply into national planning--as that is a political area. A UN agency in the administration of finance gives him the creeps, but there are other areas in which they have done a tremendous job. They can do resource studies and technicians can put together the standards of judgment that can be applied. But when the multilateral agencies get involved in the political procedures of a country, you get diminishing returns. We should analyze these things and decide where it is best to put the emphasis and there is no better time to do it than now, when we are trying to turn around a lot of attitudes.

Mr. Cleveland said it is not only a question of deciding whether the FAO or some other UN agency is a good one to do the kind of thing that needs to be done, it is also a question of the country. It doesn't make sense in some countries, but in other countries you couldn't get inside except through a multilateral agency.

Mr. Hansen said we need a strategy at different levels, different things. It is disheartening to see a US bilateral agency in basic competition with the IBRD or some other multilateral agency when we are in effect paying 40% of that agency's bill.

Mr. Coppock asked if we aren't complicating things by getting European countries into the Latin American program? Why not let the Europeans be predominant in some other area?

Mr. Cleveland replied that there is a broader question there. The primary thrust of discussion in the DAC is to discuss among themselves what they are going to do bilaterally. He wondered if DAC should not also consider what they are doing about the Special Fund as they are the major contributors to the Special Fund. Of course, there is a limit beyond which you can't go--setting up a kind of NATO caucus in the UN. Also, people talking in Paris may not be the kind that know the tactical situation, so maybe some discussions of this sort should be in New York. The caucus of the main contributors isn't broad enough.

Mr. Coppock asked about the private groups that are providing technical assistance. If our Embassies or missions are to do a better job, shouldn't they take them into account too?

Mr. Cleveland replied, yes, like the Ford Foundation and others.

Mr. Coppock then added that if the technical assistance were put on a cash or loan basis rather than a grant basis, might not the recipient country take more responsibility, so that we could drop out of the picture to some extent?

Mr. Cleveland said the essential problem is developing an administrative fiber in the other countries to do the thing that is too difficult for us. That is a difficult job.

Mr. Hansen said there is the matter of sorting out where to ask for support and from whom. The relationship very soon breaks down when you have a lot of agencies in a country. You have, in effect, the FAO dealing with the Ministry of Agriculture, and you have other agencies dealing with other ministries. It is a question of the proper utilization of these people. The resident UN or specialized agency representative can't do much about it. It is hard to pull a man out if this kicks back and the Foreign Minister steps in. In Iran we tried an experiment that worked because we had a Central Planning Organization. The UN detailed people to the Central Organization and the Central Organization took the responsibility for detailing them to the other ministries and when they weren't needed, it pulled them back and reassigned them elsewhere--something an outside agency couldn't do. In talking with many resident representatives, Mr. Hansen found it was not just the problem of disengagement but also the quid pro quos required-- space, secretaries, etc. They (the resident representatives) are inhibited unless there is a central place in the government to exert discipline.

Mr. Coppock asked if there is any real effort to get from the missions abroad a real size-up of the programs going on there?

Mr. Kaplan replied that a message was sent out early this year for the first time trying to get them to do something more than estimating what the various UN agencies would contribute to the country. We asked this year for an evaluation. We received very few answers before we had to get ready for the budget.

Mr. Cleveland said that even in the Congo, the AID country study says that it (the country team) knows nothing about the technical assist-ance programs coming from the various specialized agencies. He doesn't know why not. Every country study as a matter of course should look at these technical assistance programs and regard them as ours as we are 40% stockholders.

Mr. Kaplan said there is a problem of coordination between technical assistance and capital assistance as a whole. Much of the problem of coordination of technical assistance takes care of itself--the agricultural group works with the Ministry of Agriculture, the health group with the health organization. That coordination is less significant than coordination of all the assistance that is going in, what bilateral arrangements there are, whether technical assistance is outstripping the availability of capital. In some areas there is a serious shortage of technical assistance while large amounts of capital are going into a country. This is true of management services. Lots of LDC's have received much less technical assistance in training of managers and much more for training of people in agriculture, public health, etc. This is partly because of the availability of technicians and specialists in the agricultural and public health fields and partly because no specialized agency has managers.

Mr. Ioanes asked what we should do that we are not doing now?

Mr. Cleveland replied that the one most important ingredient is to use the field establishment of the US Government to work on this problem rather than just the Washington agencies. Use of this information in a logical fashion by delegates to all sorts of conferences and by resident representatives of the US with the various specialized agencies will mean that we can help manage these budgets rather than being in our present ineffectual position. There will be resistance to this--the reaction will be, "We are doing too much and shouldn't take this on."

Mr. Ioanes then asked how we can help in this area when you talk about planning and coordination in the field?

Mr. Cleveland's reply was that Agriculture's case is most direct when we come to the FAO budget--it went up 40% and there was nothing the US could do about it. That budget had started two years ago.

Mr. Coppock asked if anyone knew whether it is practical to get these reports in.

Mr. Cleveland said he was not sure that doing it once a year is the right thing. It should be rounded up when the country book is done, but it may be more complex than that. He thinks there is an opportunity here and spoke about it in a session with regional assistant secretaries a couple of days ago. He said he is trying to build a basis of consent for a strong instruction to go out.

Mr. Hansen remarked there might first be an across-the-board approach on a minimum level. It might be that we should pinpoint particular areas to be worked on intensively, including having a group to look into the programs--go to these key countries and make evaluations.

Mr. Cleveland said this is right. We might get some kind of a private organization--such as Rand--to investigate this problem in some of the key countries and perhaps take a whole new look at some of the specialized agencies. The specialized agencies go on from year to year without any one saying whether or not they should be doing this at all. For example, the Atomic Energy Agency was set up on two basic assumptions--one that uranium would be in short supply and the other that there would be commercial use of atomic power before long. Both assumptions were wrong, but we still have the agency. IO has a study going on that.

Joseph D. Coppock/1/

Executive Secretary

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

195. Airgram From the Mission to the United Nations to the Department of State

//Source: Department of State, Central Files, 398.051/2 - 2862. Confidential. Drafted by Klutznick, Seymour M. Finger, and David Tilson and cleared by Klutznick and Hefner.

Washington, February 28, 1962.

A - 206. Subject: Special Fund Project in Cuba. Ref: Department's A - 84;/1/ USUN 2906./2/ In its numerous discussions with Special Fund officials on the Cuban project, USUN has included the four points cited in refairgram. The Department will recall that in his statement to the Governing Council in May 1961, in which the four points cited in refairgram were made, Ambassador Klutznick concluded by saying: "We are confident that the project will not proceed until the staff has satisfied itself (emphasis supplied) about the questions we have raised and is certain that the project can be completed successfully to the ultimate benefit of the Cuban people."

/1/Airgram A - 84, February 22, noted with concern USUN's position set forth in airgram A - 157 (see footnote 3 below) and offered several arguments for urging Hoffman to delay signing the Cuban project. (Department of State, Central Files, 398.051/1 - 3162)

/2/Telegram 2906 from USUN, February 27, argued that the Cuban project could not be delayed beyond early May. It also urged the Department to try to accelerate the hearings on the bond issue and get them out of the way as soon as possible, and asked it to consider utilization of an Italian firm for execution of the Cuban project, including Italian lira for payment. (Ibid., 398.051/2 - 2762)

Following this statement, the Governing Council approved the project, despite reservations by the US and several other members on the technical matters cited by Ambassador Klutznick. Subsequently, the staffs of the Special Fund and FAO made a thorough examination of the questions we raised and concluded that there are no technical, administrative or economic obstacles to successful implementation of this project. The Special Fund has assured USUN, however, that the project would be discontinued if new circumstances arise which would make its successful implementation appear doubtful. The carefully drafted operations agreement includes safeguards to give the Special Fund the authority to do this.

With respect to the four specific points raised by the Department, USUN has the following comments:

1. The Special Fund is convinced that the Cuban Government will cooperate in implementation of this project (despite their attitudes toward IAIAS) because they have cooperated fully to date and appear anxious to see this project proceed expeditiously. As noted in USUN A - 157,/3/ the FAO is likewise convinced of this point.

/3/Dated January 31. (Ibid., 398.051/2 - 2862)

2. The Special Fund feels that the aftermath of a revolution invariably brings about important personnel changes in any government. Both the Special Fund and FAO are convinced, however, that the Cuban Government will assign the qualified personnel needed by this project.

3. With respect to the question of livestock slaughter and other misuse of resources, the Special Fund reviews each project request on its merits and in relation to other requests received. Whatever the completely accurate facts were it is the judgment of Fund and FAO they do not justify failing to go ahead with long run project calculated to benefit Cuban people.

4. The Special Fund and FAO are convinced that this project will not overlap or otherwise be inconsistent with any other activities underway in Cuba. As noted above, the question of whether there is a real need for this project and whether this need is more urgent than the needs of other countries interested in Special Fund assistance was assessed by the FAO and the Special Fund on the basis of a careful on-the-spot study of the project request and a solid review on the one hand, and an examination of other project requests received, on the other. The existence of needs generally not pertinent this matter. Special Fund can only act upon requests of governments.

USUN is fully aware of the issues raised by this project and shares the Department's view that in terms of our present policy toward Cuba, it would be desirable to eliminate it. However, this project was properly processed in accordance with the regulations of the Special Fund, to which the US is committed, and there is no legitimate way of stopping it. If we go much further in attempting to eliminate this project, the standing of the Special Fund as a truly international institution will be compromised. Moreover, we would destroy Paul Hoffman as an international figure who enjoys the full confidence of the SYG and of the underdeveloped countries. It must be remembered that FAO has complete record of completing all preliminary work necessary this project. It must also be remembered other countries have interest and are not uninformed. Any unaccountable delay or failure to act reasonable time before Governing Council meeting May can set stage for developments that could be tragically counterproductive US objectives.

Furthermore, Hoffman is now responsible for working out the program for the UN Development Decade, a proposal originating with President Kennedy, which may have a profound effect on the future economic and social work of the UN and its specialized agencies. If we damage Hoffman's standing, we destroy one of the greatest assets we have in the United Nations and in our relations with Asian, African and Latin American countries. Consequently, USUN is convinced US should not push this matter further.

Stevenson

196. Letter From the Managing Director of the U.N. Special Fund (Hoffman) to Secretary of State Rusk

//Source: Department of State, Central Files, 398.051/3 - 162. No classification marking. Attached to the source text is a March 2 note from Swank to Cleveland, indicating that this letter was left with the Secretary by Hoffman during the latter's call on March 2. Secretary Rusk met with Hoffman and Deputy Assistant Secretary of State for International Organization Affairs Gardner on March 2 from 2:56 to 3:28 p.m., but no record of their conversation has been found. (Johnson Library, Rusk Appointment Books)

New York, March 1, 1962.

DEAR MR. SECRETARY, Since President Kennedy, in his eloquent address at the United Nations, proclaimed the decade of the 1960s as "The United Nations Development Decade", an effort has been underway at the United Nations to intensify substantially and speedily its activities in the economic and social fields. Acting Secretary-General U Thant has assumed personal leadership. He has strengthened the Economic Policy Board to assure effective coordination of development activities within the Secretariat. He has sought and obtained assurances of full cooperation from the Specialized Agencies.

The Secretary-General has placed on me primary responsibility for obtaining the necessary financial support for an expanded pre-investment programme. The needs for 1963 can be stated very simply. For 1962 we have contributions and pledges for the Special Fund and the Expanded Programme of Technical Assistance of approximately $100 million. For 1963 we must have $150 million. The minimum requirement of the Expanded Programme is $50 million; of the Special Fund $100 million. This I am prepared to document if desired.

I am reasonably confident that the target figure of $150 million can be reached provided the United States contributes the $60 million it has conditionally pledged. The condition is, of course, that $90 million be obtained from other sources. There is no question in my mind that $90 million can be obtained from other sources--that is not the problem. The problem is securing from the United States Government a sensible administrative decision as to which contributions from other sources, particularly recipient Governments, can be counted for matching purposes.

Five types of contributions are made by the recipient Governments. Each of these is a crucial contribution to development, representing the mobilization of scarce material resources by the low-income countries themselves for the success of vital projects. Here are the five types of contributions:

a) Voluntary contributions to Special Fund gross resources, centrally collected and audited.

(matched by the US Government)

b) Local operating costs, amounting to 15% of expert costs--centrally collected and audited and merged with gross resources to form an unidentified part of Governing Council allocations, which are administered by the Executing Agency.

(matched by the US Government)

c) Cash counterpart contributions, centrally collected and audited and merged with gross resources to form an unidentified part of Governing Council allocations, which are administered by the Executing Agency.

(not matched by the US Government)

d) Cash counterpart contributions which are administered by the Government or jointly with the Executing Agency but are not processed through the Special Fund accounts and are not merged with gross Special Fund resources.

(not matched by the US Government)

e) Counterpart contributions in kind, consisting of services, facilities and plant provided by the recipient Government as an integral part of the project, appraised and evaluated by the Special Fund.

(not matched by the US Government)

The question as to which of the three forms--((c) through (e) above)-- the counterpart financial contribution will take is decided by the Special Fund entirely on the basis of operational considerations. So far as the Governments are concerned the costs are the same, whether the contribution is in cash paid over to the Fund, in cash controlled by the Government, or in the form of services or physical facilities, and the cost is in all cases determined and specified in the contract (plan of operations) with the Government.

The distinction presently made by the US Government in determining which type of contribution it will consider in making its matching voluntary payments to the Special Fund, based on the form in which the contribution is made, is arbitrary and appears to be illogical. The legislation authorizes matching of local costs payments, and all counterpart provisions are of course made in respect of local currency costs. A question might arise concerning the evaluation or appraisal of counterpart turned over in kind to the project, though, if desired a detailed and impartial appraisal of the value of such contributions could easily be arranged. There can be no question concerning the amounts of cash which have been made available by the Government, as these are a matter of accounting record.

It is especially difficult to follow the distinction made by the United States Government between local operating costs (15% of experts' costs) paid by the recipient Government, which are matched, and other counterpart cash paid over to and administered by the Special Fund. Both are paid in respect of local costs; both are centrally collected and audited, and thus meet the requirement in the fine print of the legislation; both are taken into the gross resources of the Fund, form part of the earmarking from the Governing Council and their disbursement is completely controlled by the Fund. There is, in short, no distinction between the way in which these two forms of counterpart cash are handled by the Fund.

Acceptance by the United States Government of one form of counterpart cash payment for matching at the exclusion of other forms gives rise to a number of anomalies, some of which are listed below:

--Governments are required to make two cash counterpart payments instead of one: the first amounting to 15% of expert programme costs (in order to obtain US matching); the second to cover the balance of counterpart obligation as determined by the Fund. This requirement is not understood by the Government, and makes for double bookkeeping locally and at headquarters. Cash payments, when received, have to be identified as to category, which further complicates the matter.

--Certain projects do not have an expert component per se, or the expert component is in the form of consulting contractors, so that the expert component can only with difficulty be identified. Nevertheless, in order to obtain US matching, the Fund has attempted to make these determinations.

--Projects executed by the IBRD normally and for good reason involve contracts between the Government and the consulting firm direct, under which the IBRD uses Special Fund financing to reimburse the Government (as a maximum) for that portion of the total contract cost which was in foreign exchange. All local currency costs are paid to the firm by the Government from its own resources. In order to obtain the US matching payments the Special Fund was for a time attempting to identify expert programme costs, assess the government 15% for local costs, receive the money from the Government, pay it to the IBRD, which would then use it to reimburse the Government for a portion of the local costs it was paying the firm. This is the reductio ad absurdum of the whole arrangement, and the Fund has given it up, and foregone the US matching payments in such cases.

Governments cannot understand why their counterpart payments must be subdivided; there is no difference in treatment of the two payments by the Fund; there is no difference in their value either to the Government or to the Fund, except that the United States Government had decided to match one and not the other.

In your consideration of how these contributions by recipient Governments should be classified for matching purposes may I suggest that there are two additional and very important issues involved in your decision--first, obtaining the maximum amount of development possible from the dollars invested by the United States and second, strengthening the United Nations. Proof that more development can be obtained per dollar by channelling, as far as possible, aid through the United Nations rests in a very simple set of figures. The Governing Council of the United Nations Special Fund to date has approved 205 projects calling for total expenditures of $415 million. The United States contribution to these projects is approximately $70 million, or less than 17 per cent. The fact that the United Nations will be strengthened by increasing its capacity to assist the less-developed countries in speeding their development is obvious. It has shown up in votes in the United Nations time and again when efforts have been made either to weaken or destroy the United Nations.

In closing may I say that we at the United Nations are eager to make a reality of the United Nations Development Decade, further that we want to get started now, and finally, that we are very much in need of your help.

Sincerely yours,

Paul G. Hoffman

197. Memorandum From the Deputy Assistant Secretary of State for International Organization Affairs (Gardner) to the Assistant Secretary of State for International Organization Affairs (Cleveland)

//Source: Department of State, Central Files, 398.13/4 - 1662. Limited Official Use. Drafted by Gardner. Attached to the source text is an April 19 note from Cleveland to Ball, remarking that Gardner's memorandum was worth reading and suggesting a meeting among Dillon, Leddy, and Ball on the Bank and Fund leadership question after Ball returned from abroad the first week in May.

Washington, April 16, 1962.

SUBJECT

Luncheon Conversation with John Leddy

I had a long overdue luncheon today with John Leddy, Assistant Secretary of the Treasury for International Affairs. We covered the following subjects of current interest to IO:

1. Senior appointments in IMF and IBRD. The most immediate problem here is the retirement of H. Merle Cochran, the American who is the number 2 man in the IMF. This job is part administrative, part substantive. Frank Southard, the agreed Treasury-State choice to succeed Cochran, indicated reservations about taking the assignment and Jacobsson also suggested that someone else would be desirable. Leddy said that two "banker-types" from within the Federal Reserve system had been suggested but that he thought the number 2 man in the Fund should be a person of broader background, sympathetic to the needs of less developed countries. Ambassador Riddleberger suggested on a recent visit to Washington that he would be interested in the job. Treasury is favorable to this idea. I agreed with Leddy that the number 2 man should be more than a financial technician and that Riddleberger might fill the bill./1/

/1/In the margin next to this sentence is a question mark, presumably written by Cleveland.

Our conversation then turned to the top jobs in the IMF and IBRD. Leddy apparently had not considered George Ball's interesting suggestion that the United States might vary the traditional formula and seek to have an American as Managing Director of the IMF and a European as President of the IBRD. This turnabout would constitute recognition of the increasing US interest in IMF as a supplement to our weakening Reserve position and the European increased ability to mobilize capital for the IBRD. Leddy pointed out that the decision on Cochran's replacement was tied up with this problem because the US could not have the number 1 and number 2 man in the IMF. He suggested that Cochran's replacement should not be given the normal long-term appointment but should be appointed only until the end of Jacobsson's term (two years) in order to take care of this problem.

Concerning the top job in the IMF, I suggested that Jacobsson's successor should be someone a good deal more flexible and sympathetic to new devices to deal with the free world liquidity problem. I suggested that this problem was not yet acute but that it could become difficult later on in this decade if gold production continued to lag substantially behind the growth in world trade. I pointed out further that Britain's entry into the Common Market would aggravate the liquidity problem by weakening and perhaps eventually destroying the sterling area, so that the overseas members of the area would gradually transfer their sterling balances into other currencies. In short, we face a prospect of an aggravation of the British payments problem as well as the prospect of a long term US payments problem and some means might have to be found to take pressure off the dollar and sterling as the two reserve currencies of the free world by some institutional innovation beyond the recent Vienna agreement which would provide real "collective security" in free world financing. Leddy said that the Treasury did not think there was a liquidity problem now but agreed there might well be one as the decade proceeds. I suggested that someone like Sir Oliver Franks, who appears to be impressed with the liquidity problem, might be the sort of person who should succeed Jacobsson at the Fund. Leddy said Franks' name had come up in connection with the Bank and was regarded in some circles as "too unorthodox" on monetary matters.

As for the IBRD, Leddy indicated that Black's recent medical reports had been good and that no information had come to him which would indicate that Black would leave the IBRD before the end of his term in 1963 to take up a post as "Finance Minister" at the UN. Leddy mentioned Malagoddi as an able Italian banker who might be considered for the IBRD job.

2. UN Development Decade. Late in February I sent Leddy copies of the circular telegram we sent to US missions to specialized agencies urging them to take up with members of the Secretariats possible ways in which the agencies could implement the development decade./2/ I asked Leddy just how the financial agencies (IMF, IBRD, IDA, IFC) might fit into the development decade concept.

/2/This circular telegram has not been further identified.

In the course of our conversation the following principal points emerged:

a. The activities of IDA might be expanded. IBRD officials are already taking soundings about increasing the capital of IDA from $1 billion to $4 billion. They would like to get this proposal approved in principle in the next Board of Governors meeting in September. The practical case for doing this now is that most of the IDA's loanable capital is already committed so that the agency will run out of useable funds within another year or so. I observed that there were good political reasons for moving this year on an increase in IDA's resources--it could be billed as a measure to advance the Development Decade and help forestall any further attempt to press the UN capital fund idea. We also agreed that if IDA resources could be expanded to $4 billion the agency could take a more sympathetic view than it now takes toward projects in the field of social infra-structure, e.g., education, housing, and health.

b. The IBRD development advisory services might be related to the Development Decade. I suggested that we might find some way in which the expansion of this effort might be linked with similar efforts on the part of the Special Fund and the regional commissions and presented as part of progress in the Development Decade.

c. Consideration might be given to ways in which the UN financial agencies could be integrated in the field more effectively with other UN agencies. I emphasized that the US was trying to use the weight of the Development Decade concept to influence the Specialized Agencies to relate their efforts in the field more effectively in support of total country programs and in this connection to make greater use of the resident representatives. So far, however, all the talk about coordination did not appear to apply to the financial agencies. Leddy seemed rather vague about all the UN efforts which had recently been taken in the direction of greater coordination but promised to have his staff look into this question.

d. The Bank might place further emphasis on loans for research and demonstration projects in areas of science and technology which promise special benefits for less-developed countries. I asked Leddy if he might look into the possibility of having the Bank put greater emphasis on projects in fields like desalinization, solar energy, etc., pursuant to that part of the Development Decade resolution which emphasized the importance of possible scientific breakthroughs.

In conclusion I noted that it might be advisable for Leddy to identify a member of his staff who could work closely with us in implementing the Development Decade. At this point I have the feeling that no one in his shop is really interested, which is unfortunate, since Treasury will have a lot to say when US position papers are drafted which have financial implications. Leddy said he would have his deputy, John Bullitt, take charge of the subject and that further down the line we could look to a Mr. Hirschtritt as a point of contact.

198. Telegram From the Mission to the United Nations to the Department of State

//Source: Department of State, Central Files, 398.051/4 - 2462. Secret; Limit Distribution.

New York, April 24, 1962, 8 p.m.

3503. Special Fund and Cuban project. Deptel 2768./1/ Hoffman has agreed subject to condition herein after set forth to try to hold project until August 1 latest. He insists if this is to be done he must have assurances SecState or equivalent he will not be called upon for further extensions. Dept must appreciate hazards involved for Hoffman and Special Fund. These have been carefully reviewed and Hoffman deserves commendation as well as protection he asks. Await Secretary's assurance so matter can be finalized. Have personally reviewed situation and urge if we must have extension to August 1 assurance be given./2/

Plimpton

/1/Telegram 2768 to USUN, April 20, requested a delay in signing of the Special Fund project agreement with Cuba beyond the Governing Council meeting in May and the present session of Congress without implying that the United States would have no further objections to signing after that time. Although aware that a delay in signing might put strain on Hoffman and weaken the Special Fund, the Department feared that signing at this time could spark public and Congressional reaction, which could seriously endanger the Special Fund, the U.N. bond issue, and other U.S. initiatives in the United Nations. (Ibid., 398.051/2 - 2762)

/2/The decision on the Cuban project was extended again into early 1963; see Document 202.

199. Letter From the Assistant Secretary of State for International Organization Affairs (Cleveland) to the Managing Director of the U.N. Special Fund (Hoffman)

//Source: Department of State, Central Files, 398.051/3 - 162. No classification marking. Drafted by Frank K. Hefner (IO/OIA) on April 5.

Washington, May 9, 1962.

DEAR PAUL: The Secretary has asked me to reply to your letter of March 1, 1962,/1/ wherein you discuss the future course of the Special Fund and especially your desires for additional matching by the United States Government of contributions made by other recipient governments. As you know, we indicated that Departmental staff would examine carefully your proposals in the light of the new initiatives connected with the Decade of Development and previous Congressional guidelines expressed in legislation governing our contributions to the Special Fund.

/1/Document 196.

Our preliminary examination leads us to the conclusion that we should explore the possibility of matching the cash counter-part contributions which are centrally collected and audited, and administered by the Special Fund. These contributions--although project costs--appear to be somewhat similar to the local operating costs which are also centrally collected and audited and merged with the gross resources. However, I have asked that more data be secured on the types of costs covered by such contributions and the extent to which countries receiving Special Fund assistance provide this type of contribution.

It is our belief that cash counter-part contributions which are not processed through the Special Fund accounts and counter-part contributions in kind should not be matched. This belief is predicated on intent of Congress which has been rather clearly expressed. One of the ways in which the Congress intends to retain control of the matching contribution is that of matching funds deposited into the central accounts of the Special Fund. The stipulation in the AID legislation that we may only match "assessed and audited local costs" is another measure of control which cannot very well be exercised on contributions administered by governments or counter-part contributions in kind.

Further, I believe the Department must present a well justified case to the Congress so as not to cause a recurrence of the moves made several years ago to reduce the matching proviso to a lesser percentage.

As we move ahead on this proposition I must indicate the concern felt by a number of us about the large cash balances now existing in the Special Fund. I realize that many of the Special Fund projects require considerable time in terms of negotiating operations agreements and getting projects going, which in some cases may require three or four years to complete. However, given the close scrutiny now being made of the programs and budgets of all international organizations, I would hope that you might find ways to speed up the initial phases of the implementation process. I recall during your recent visit that one of the suggestions we discussed was the possibility of utilizing private contractors who might move ahead on projects which cannot now be handled by executive agencies within the UN family./2/ Unless such a forward movement occurs, it is my feeling that we might need to reexamine the level of the cash payments we will be making to the Special Fund. Such a re-examination would not mean any decrease in the amounts made available but might influence the timing of our payments.

/2/An apparent reference to Hoffman's call on the Secretary on March 2; see the source note, Document 196.

I would appreciate your informing me of your thoughts on this score and of actions we might take to be of assistance.

Sincerely yours,

Harlan Cleveland/3/

/3/Printed from a copy that bears this typed signature.

200. Current Economic Developments

//Source: Washington National Records Center, E/CBA/REP Files: FRC 72 A 6248, Current Economic Developments. Confidential. The source text comprises pp. 14 - 15 of the issue.

Issue No. 657 Washington, August 28, 1962.

[Here follow articles on unrelated matters.]

ECOSOC SESSION SHOWS SUBSTANTIVE PROGRESS

An outline of goals for the UN Development Decade, a call for an international conference on trade and development, and a proposal for a group of experts on commodity and trade problems of the less-developed countries were the major actions taken by the UN Economic and Social Council, which met in Geneva July 3 - August 3. The general atmosphere at this session was an improvement over last year. There were only a few limited flare-ups between the Soviet and US representatives. The active and on the whole constructive role played by a group of developing countries--India, Yugoslavia, Ethiopia, and Brazil--was in contrast to last year when the US was responsible for most initiatives.

The US can justly claim credit for having helped contribute to an agenda which compelled a good, hard look at problems rather than leaving a great deal of time for political maneuvering. Ambassador Adlai Stevenson's attendance for ten days was a stimulating and constructive force. It was proof of US determination to elevate the work of the Council and brought a greater understanding of our activity.

On the economic side, the Council's discussions were dominated by two main themes--the UN Development Decade and the holding of a UN conference on trade and development. Within the context of the discussions on these subjects, the traditional preoccupation of the Council--commodity problems, rate of growth, need for industrialization, inadequacy of capital--were given the usual attention. Underlying much of the debate was evident concern as to the effect on other countries of the European Common Market.

Development Decade

The idea of a Development Decade has taken hold, particularly among the less-developed countries. They resisted Soviet bloc attempts to play it down.

The item was introduced by the Secretary General in a well balanced talk. He was followed by Ambassador Stevenson who placed considerable emphasis on the importance of the human factor in economic development. Two competing resolutions were put forward: one by Brazil, Ethiopia, India, Senegal and Yugoslavia, the other by Denmark, El Salvador, and the US. Our delegation took the lead in combining the two. The resulting resolution was subject to protracted negotiation, first with the sponsors of the other resolution, then with many Western powers and finally with Poland and the Soviet Union. (When the Soviet delegation found it could not sabotage or avoid a resolution, it tried, unsuccessfully, to include in the resolution a mechanism for a ten-year world-wide plan modeled after bloc kind of planning.)

The final resolution was of an umbrella character with fourteen points embracing some mention of practically every UN program./1/ A principal operating clause requested the Secretary General to prepare a program consisting of detailed phased proposals for action with respect to the basic factors of economic growth. Among other things, the resolution calls on member governments to give particular attention in the first years of the Decade to industrial development; improved access to world markets for the developing countries; stabilization of commodity prices; an increased flow of development capital; the development of human resources through adequate programs for education and training, nutrition, health, public administration and housing; and exploration and exploitation of natural resources aimed at establishing a raw material and energy basis for economic development. Other action recommended for the Decade include steps designed to secure prompt attainment of the present goal of $150 million yearly for the UN Special Fund and the Expanded Program of Technical Assistance; an appeal for full support by participating governments to the Freedom-from-Hunger Campaign of the FAO, and an expression of hope that resources will be provided commensurate with the role envisaged for the UN in the Development Decade will be made available.

/1/Reference is to Resolution 916 (XXXIV), passed unanimously by the U.N. Economic and Social Council on August 3, for text, see U.N. Yearbook, 1962, pp. 234 - 235.

The resolution was approved unanimously, but at the request of the USSR, separate votes were taken on the paragraphs dealing with the $150 million target, the Freedom-from-Hunger Campaign and the World Food Program, and the role envisaged for the UN. On these paragraphs the USSR and Poland abstained.

By a separate resolution the Council established a "Special Committee on Coordination with particular emphasis on the United Nations Development Decade."/2/ The Committee is to be composed of eleven members of the Council and TAC and will keep under review priority areas on projects relating to objectives of the Decade.

/2/Reference is to Resolution 920 (XXXIV), passed unanimously by the U.N. Economic and Social Council on August 3; for text, see ibid., pp 235 - 236.

[Here follow the remainder of this article and articles on other matters.]

201. Editorial Note

Adlai E. Stevenson sent a long memorandum to President Kennedy on September 14, 1962, in which he urged support for a U.S. proposal to increase the capital of the International Development Association from $1 to $4 billion over the next several years. The International Monetary Fund and the International Bank for Reconstruction and Development, which included the IDA, were going to discuss this proposal at its upcoming annual meeting in Washington. Stevenson argued that the IDA would require these additional reserves in the near future and that the increase would provide a unique opportunity to ask the Western European countries and Japan not only to spend more money on economic development but to provide it on easier lending terms. Stevenson's memorandum is printed in Papers of Adlai E. Stevenson: Ambassador to the United Nations, 1961 - 1965, volume VIII, pages 289 - 291. Regarding the IMF - IBRD annual meeting, see Document 62.

202. Telegram From the Department of State to the Mission to the United Nations

//Source: Department of State, Central Files, 398.051/1 - 3063. Confidential; Priority. Drafted by Gardner and McKitterick on January 29; cleared by ARA (in substance), Wallner (IO), and Little (S/S); and approved by Secretary Rusk. Also sent to Rome. Attached to the source text is a January 29 memorandum from Wallner to Secretary Rusk, requesting the Secretary's approval of the telegram and recommending against a final appeal from Ambassador Reinhardt in Rome to Dr. Binay Ranjan Sen, Director General of the FAO, to declare the Cuban project unfeasible, because Sen would probably ignore the appeal. At most he would send a special investigator to Cuba who would probably report favorably on the project. "At best, we would have gained a month without changing the outcome and at the risk of drawing additional public and Congressional notice to this matter."

Washington, January 30, 1963, 12:40 p.m.

2043. Following is summary interview January 29 between Secretary of State and Paul Hoffman concerning Special Fund Project in Santiago de las Vegas:/1/

/1/No other record of this interview has been found.

Hoffman informed Secretary he had decided against sending investigator study feasibility Special Fund Projects Viet Nam and Cuba and felt had no alternative but to proceed with signing plan of operations for Cuban project. Repeated importance insulating Special Fund from cold war logrolling and his regret that US continued oppose Cuban project./2/ Conceded signing project agreement would inevitably attract adverse publicity which would hurt Special Fund as well as support for US participation in UN system. But as international civil servant he was under mandate to carry out decisions Governing Council once technical questions raised by US about feasibility project had been resolved, which in his view they had been by FAO.

/2/U.S. Alternate Representative Jonathan B. Bingham had told Hoffman on the telephone on January 7 that the United States would continue to oppose the Cuban project. Thereupon Hoffman became "very upset" and "said, in most vehement terms," that "any such decision by US would be `stupidest possible' in view of oft-repeated US position that special fund must be kept free of political considerations." (Telegram 2639 from USUN, January 8; Department of State, Central Files, 398.051/1 - 3063)

Hoffman then informed Secretary that Special Fund intended cable FAO January 30 saying that authorization to sign project agreement would be given if FAO confirmed that three remaining technical prerequisites fulfilled, i.e., Cuba deposit necessary local currency, assurance freedom of movement foreign technicians, and availability physical facilities.

In reply Secretary declared anything related to Cuba was major issue for US. Cuba had brought world to brink of nuclear incineration and continued pose grave foreign policy problem. Hoffman, as international civil servant, had to reach own decision on problem. US, for its part, would continue make known its opposition to project.

For Embassy Rome: Please advise Dr. Sen of position Secretary took with Paul Hoffman. He should understand that we can neither approve, acquiesce in or remain silent concerning this project after it is approved.

Rusk

203. Editorial Note

On February 13, 1963, Paul Hoffman signed the plan of operations that allowed the agricultural project in Cuba to proceed. Hoffman approved the project after receiving confirmation from the Food and Agriculture Organization about technical points he had raised. The plan of operation included provision for three phases, the first of which would determine whether suitable working arrangements would permit the implementation of the second and third phases.

Later the same day, Secretary Rusk made two statements that reiterated U.S. objections to the U.N. project. For texts, see Department of State Bulletin, March 11, 1963, pages 357 - 358. When Paul Hoffman was shown the first of the Secretary's two statements, he remarked it was "another instance `stupidity' US in this matter. Stated that, if he felt project was against US national interest, he would have resigned rather than permit project to proceed." (Telegram 3028 from USUN, February 13; Department of State, Central Files, AID (UN)) Additional documentation on the issue is ibid., UN 13 - 1 and AID (UN).

For the Congressional testimony on February 18 by Richard N. Gardner, who reviewed the U.S. position on the Cuban project, see United Nations Special Fund: Hearing Before a Subcommittee of the Committee on Foreign Relations, United States Senate, Eighty-eighth Congress, First Session (Washington, 1963), passim.

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

//Source: Department of State, Central Files, AID (IDA). Limited Official Use. Drafted and cleared by Bullitt (Treasury), Springsteen, and Read and approved by A. Evans Hiley (OC/DCT) and Jacob J. Kaplan (AID/IDOS). Sent to Canberra, Vienna, Brussels, Ottawa, Copenhagen, Helsinki, Paris (Embassy and USRO), Bonn, Rome, Tokyo, Kuwait, Luxembourg, The Hague, Oslo, Pretoria, Stockholm, and London.

Washington, May 13, 1963, 9:08 p.m.

1957. Re Circular Telegram 1904./1/ Assistant Secretary of Treasury Bullitt (U.S. Executive Director, IBRD/IDA) held meeting May 10, 1963 as discussed Reftel. Bullitt described over-all target for Part I countries of $250 million per annum for 3 years, payment commencing 1965. Informed group of U.S. willingness make final offer of $100 million as its share, conditional on $250 million package actually being reached. Also indicated willingness four other large countries make following contributions: UK $30.7 million; Germany $24.4 million; France $19.4 million; Italy $10 million. Total of 5 countries $184.3 million, leaving $65.7 million to be found among remaining 13 Part I countries. Stated belief that certain members of group would feel improvement their financial and economic position since 1959 when IDA shares first negotiated would warrant increase in their relative share. Reiterated importance U.S. attached to reaching rapidly $250 million total and emphasized need for early action in view decreasing availability IDA resources for new commitments and tightness of legislative schedules in several countries.

/1/Circular telegram 1904, May 7, outlined the purpose of the upcoming May 10 meeting, which was to discuss progress on the amount of subscriptions by Part I countries to the replenishment of IDA resources and to see which ones might be able to increase their share because the United States, United Kingdom, and Netherlands were seeking to reduce their share. (Ibid.) The Part I countries were Australia, Austria, Canada, Denmark, Finland, France, Federal Republic of Germany, Italy, Japan, Kuwait, the Netherlands, Norway, Union of South Africa, Sweden, the United Kingdom, and the United States. Belgium and Luxembourg were not yet Part I members but had recently applied for membership.

Group agreed to have a follow-up meeting May 27 to review responses by governments.

In discussion, Bullitt avoided tying individual country subscriptions to precise formula but noted that increase from present level IDA subscriptions roughly $150 million per year to proposed level of $250 million per year would require minimum increase by factor of 1.66 in other's contributions and urged those in an improved position to consider greater increase.

Addressees again requested in any discussion of aid or related matters and otherwise as appropriate, stress IDA as tested IBRD affiliate to channel resources into economic development on soft terms and express hope that constructive attitude will be taken on question of new resources.

Rusk

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

//Source: Department of State, Central Files, AID (IDA). Limited Official Use. Drafted by Bullitt (Treasury), cleared by Kaplan (in substance), and approved by John S. Whitt (OC/DCT). Sent to Canberra, Vienna, Brussels, Ottawa, Copenhagen, Helsinki, Paris (Embassy and USRO), Bonn, Rome, Tokyo, Kuwait, Luxembourg, The Hague, Oslo, Pretoria, Stockholm, and London.

Washington, May 29, 1963, 8:11 p.m.

2047. Re: Circular Tel 1957./1/ Assistant Secretary Bullitt held follow- up meeting mentioned reftel May 27 with IDA Part I Representatives. Pledges toward $250 million per annum target made at meeting total $233.37 million, subject to varying conditions. Total does not include amount hoped for from Kuwait ($3.36 mil.) or from Luxembourg (about $0.25 mil.).

/1/Document 204.

Following table in four columns: country; share of present subscriptions in percent; share of $250 million based on present percentage; amount pledged. Australia 2.64; 6.60; 6.46; Austria 0.66; 1.65; 1.00; Canada 4.96; 12.40; 12.40; Netherlands 3.64; 9.10; 3.75; South Africa 1.32; 3.30; 1.33; Denmark 1.15; 2.88; asterisk; Finland 0.50; 1.25; asterisk; Norway 0.88; 2.20; asterisk; Sweden 1.32; 3.30; 5.00; France 6.94; 17.35; 19.40; Germany 6.94; 17.35; 24.20; Italy 2.38; 5.95; 10.00; U.K. 17.19; 42.98; 30.70; U.S. 41.97; 104.93; 100.00; Japan 4.40; 11.00; 11.00; Belgium 2.97; 7.43; 3.50; Luxembourg 0.13; 0.33; dash; totals; 100.00; 250.00; 233.37; asterisk--aggregate of $4.63 million; end table.

Major problem is Belgian and Dutch pledges which substantially below minimum necessary to make $250 million target feasible. Belgians proposed $3.5 million and indicated would not go above actual Dutch contribution. Proportionate Dutch contribution would be $9.1 million; Dutch proposed $3.75 million on basis earlier standing instructions and noted difficulty in obtaining further commitment due caretaker government. Further direct approaches Belgians and Dutch planned which are subject separate messages Brussels and Hague./2/ Total $12 million for two countries seems reasonable.

/2/Neither message has been found.

View low Austrian pledge, Secretary Dillon seeing Austrian Ambassador Tuesday, June 4 and has written Minister of Finance directly. Swedish pledge represents 150% increase and was warmly welcomed by Bullitt; other Scandinavians, however, contemplating reduction their aggregate contribution to point where their subscriptions plus Sweden would only total proportionate increase for whole group. Bullitt called in Baron Nauckhoff, Swedish Commercial Counsellor who represented Sweden at meeting and requested him urge G.O.S. to urge Denmark and Norway to maintain share. Efforts also being made through Danish IBRD/IDA Director representing group to keep Norwegian and Danish Contributions up to level of proportionate increase. UK Director's (Pitblado) assistance being enlisted this effort, as well as to seek some increase in Australian pledge and further move toward proportionate increase by South Africa. Reasonable prospects for greater-than-proportionate increase by Japan and U.S. officials urging $15 million target on Japanese IBRD/IDA Director./3/

Rusk

/3/The IDA Part I members agreed during the summer of 1963 to increase IDA's resources by $750 million over a 3-year period. The Federal Republic of Germany pledged the largest increase, and significant increases were pledged by France, Italy, Japan, and Sweden. The United Kingdom, South Africa, and the Netherlands made the largest reductions in share. (Letter from Bullitt to Ball, September 26; Department of State, Central Files, AID (IDA))

206. Editorial Note

When the annual meeting of the Governors of the International Bank for Reconstruction and Development convened jointly in Washington with the International Monetary Fund, the International Finance Corporation, and the International Development Association September 30 - October 4, 1963, the Bank had a new president, George Woods, and the Fund a new managing director, Pierre-Paul Schweitzer. The main subjects at the meeting were international liquidity and the loan policy of the International Bank for Reconstruction and Development. For text of the speeches by President Kennedy and Douglas Dillon at the meeting, which focused on liquidity, see Department of State Bulletin, October 21, 1963, pages 610 - 619.

Regarding the Bank's loan policies, in his address on September 30, Woods proposed expansion of the Bank's lending activities, especially for the financing of agricultural credit and new industries, long-term financing for the import of individual items of industrial equipment and spare parts, and new facilities in the field of education, and more flexible lending terms. In his address to the Bank on October 2, Under Secretary of State Ball particularly welcomed Woods' "suggestion that the Bank may, in appropriate cases, modify the terms of its lending so as to lengthen grace periods and extend maturities" as well as his flexibility and "willingness--indeed his eagerness--to explore new ground." For text of Ball's speech, see ibid., pages 619 - 623.

The major subjects at the meeting were summarized in Current Economic Developments, Issue No. 686, October 15, 1963, pages 14 - 18. (Washington National Records Center, E/CBA/REP Files: FRC 72 A 624, Current Economic Developments)

207. Letter From the Vice President of the International Bank for Reconstruction and Development (Wilson) to the Under Secretary of State (Ball)

//Source: Department of State, Central Files, AID(IBRD) 9. No classification marking.

Washington, October 21, 1963.

DEAR GEORGE:/1/ Once or twice lately you have emphasised to George Woods and to me how important it is in your view that all the capital exporting countries should be fully aware of the indebtedness and debtservicing problems of the borrowing countries. You may be interested to know what the Bank is at present doing in this regard.

/1/The salutation was handwritten by Wilson.

In the first place, our staff, as a matter of routine, produces reports on the economic situation and prospects for each of the countries to which we make Bank loans or IDA credits. These reports contain all the available debt information about that country and they also contain an analysis of the debt burden. Secondly, four or five times a year we prepare reports on the external public debt of a selected group of countries--each debtor country appears once a year. I enclose copies of our last two reports of this kind. They contain statistical information only, without any analysis and, like the country reports referred to above, they show scheduled amortization and interest payments for the next fifteen years.

Both these reports are circulated to the Executive Directors of the Bank among whom, of course, all the DAC countries are represented. In addition, a copy of the external public debt statistical report is sent to the DAC Secretariat in Paris.

All the above material is collected from the borrowing countries. We also receive information from the creditor countries about their claims. Under a special "exchange of information" arrangement, the Bank receives six-monthly statements from each of the fourteen major creditor countries on their scheduled receipts of amortization and interest, during the next ten years, from the public and private sectors in each debtor country. We process this information here and circulate, to the creditor countries only (and also to the DAC Secretariat), figures showing the total debt position of each borrowing country. I enclose our latest version of this report for your information./2/

/2/Not printed.

Finally, the Bank staff occasionally undertakes comprehensive analyses of the debt servicing burden and debt servicing ability of all or most of the borrowing countries. One such analysis was published in 1958 and another in 1960./3/ We are now up-dating the earlier publications and the new study should be completed in a few months' time and will be available to the UN Conference on Trade and Development./4/

/3/Neither found.

/4/The U.N. Conference on Trade and Development was held in Geneva March 23 - June 16, 1964.

All this may sound quite impressive, so I should add that we are not satisfied with the scope or form of our information and we are actively considering how it might be improved./5/

/5/In this October 24 reply, Ball thanked Wilson for the information on the Bank's monitoring "of the debt position of the borrowing countries and the problems encountered by these countries in servicing such debts," and noted he was encouraged by the Bank's consideration of "further improvements" in its activities. (Department of State, Central Files, AID (IBRD) 9)

I am sending a copy of this letter to John Bullitt.

Yours sincerely,

G. M. Wilson

(###)

[End of Section 10]

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