Canberra, 22 September 1950
414.SECRET IMMEDIATE
Commonwealth Consultative Committee
Thank you for your message No. S79 and 4277 of 8th September2 concerned largely with the coming meeting of the British Commonwealth Consultative Committee on aid to South and South East Asia.
2. I fully appreciate the significance of the coming discussion and agree with you that they must be made a success. I should certainly not wish you to feel unable to use sufficient discretion on policy questions to work towards this result but would be glad if you would keep me fully informed of all major developments.
3. I also agree with your emphasis on the importance of laying long-term plans rather than raising the question of immediate priority requirements. Your judgment is borne out by the findings of the Australian trade and financial mission which returned from Indonesia recently after the conclusion of mutually satisfactory trade arrangements.3 They report that economic conditions were reasonably favourable and that the Indonesian authorities were not interested in the extension of credit by Australia.
4. I am glad to note that you propose to take the stand that it will not be practicable at the London meeting to enter into any definite commitments about an Australian contribution since the Government will not have had time to study the matter. As you know, Cabinet has not been able to study the question in detail and with the current pressure of budget preparation and the opening of Parliament it would be impossible to submit your reports and obtain the necessary decision whilst the Committee is still in session.
5. A most important factor which must be taken into account in considering the whole development programme is of course the readiness or otherwise of the United States to make a substantial contribution. I should have thought that it was almost impossible for the London meeting of Ministers to reach sound conclusions on the practicability or otherwise of the development programme in the absence of fairly precise information as to the probable United States reaction. I confess that I myself am still uncertain, on the information available here at present, as to the extent to which the United States is prepared to participate. In your telegram No. 493 to Canberra referring to your discussions with Thorp and his officers4 there is no indication of the extent to which the United States Administration feels that it can secure the necessary funds from Congress. There is also an emphasis on the ‘project approach’ which has apparently not found much favour during the meetings of officials in London (see telegram No. 34 from Tange addressed to New York).5 On the other hand, in telegram No. 798 of 8th September addressed to Canberra from Washington6 there is evidence from confidential Canadian sources, that substantial contributions might be made by the United States in respect of South and South East Asia, particularly India. I would suggest that you should take the earliest opportunity in London of raising the question of probable American assistance. I f by any chance the United States should be ready to make no contribution or only a very small contribution surely the Commonwealth attitude towards the developmental plan would be far more cautious than if there were a prospect of substantial American aid.
6. It would help me considerably to have a more concrete and precise indication of your thoughts on the question of Australian participation before I arrange a meeting of the relevant Cabinet Committee established by Cabinet on 1st August.7 The particular points which trouble me are:—
(a) Our physical capacity to contribute Australian resources is severely limited. The countries concerned do not require wool and in any case this is in very short supply as evidenced by the recent U.S. approach.8 Food stuffs are very largely committed to the United Kingdom and on the margin to our dollar earning efforts. Our home production of steel and steel products and capital equipment generally is inadequate for our own needs and we have been combing every available source of supply to satisfy our own import requirements.
(b) On the financial side, our recent budget discussions, the Premiers’ Conference and the Loan Council, have shown the very serious difficulties which confront us.
(c) For both the foregoing reasons the problem of inflationary pressure would be intensified by any further demands on our resources. We must also remember the large defence commitments which are in prospect.9
(d) As far as foreign exchange is concerned, our London Funds position is at present rather flush, but this is largely as a result of private capital inflow, much of which has clearly been speculative in character and may be very unstable. Even a contribution of sterling would, of course, involve corresponding government financial operations in Australia and intensify the current budget difficulties. There is the further complication that a sterling contribution not backed by goods from Australia would need to be discussed with U.K. The U.K. is already obliged to limit the use of sterling by the countries in the area whose own sterling resources, at least as far as Commonwealth countries are concerned, are not unsubstantial. Our best recent information about the holding is India £stg620m., Pakistan £stg80m. and Ceylon £stg35m. Moreover, any transfer of sterling from Australia to these other countries would aggravate competition to obtain the share of U.K. production which we need for our own developmental requirements at a time when our demands will in any case have to compete with the increasing needs of the U.K. re-armament programme.
(e) I understand that at the discussions at the Sydney Meeting in May, U.K. representatives made it clear that U.K. would have less, not more, resources to devote to the area than over the past few years and that their rate of releases of sterling balances to the countries concerned would have to be slowed down as Marshall Aid diminished in scope and finally ceased. I f this is still the position, it might have a bearing on the practicable extent of our participation. Opinion here is becoming increasingly conscious of the present over-strain on our resources.
7. It would be extremely helpful if you could let me have your views on the foregoing factors and your best possible appraisal of the position however tentative as soon as possible.
[NAA: A9879, 2202/B]
1 Addressed to Spender in New York.
2 Document 94.
3 On 7 September, the Australian and Indonesian Governments announced the conclusion of an £A8,000,000 reciprocal trade agreement.
4 15 September. It contained a summary of the conversation recorded in Document 98.
5 Document 101.
6 Document 93
7 See Document 80.
8 The reference was to a US request to pre-empt the supplies of Australian wool for reasons of defence preparations.
9 On 20, 22 and 25 September Menzies broadcasted three speeches entitled ‘Defence Call to the Nation’. In these speeches he announced the introduction of compulsory National Service training and the establishment of a National Security Resources Board to advise on the balancing of economic resources between defence and civilian needs.