Canberra, 3 January 1951
Colombo Plan
I visited Washington on December 15th and the Embassy arranged for me to have a discussion with five or six officers of the various bureaux and divisions interested in the Colombo Plan.
Willard Thorp1 was absent from Washington.
The persons concerned were not at a high level, but could be taken as reflecting policy attitudes at ‘operational’ level. I used the United States aide memoire2 on the question of their participation in the next meeting of the Consultative Committee as the basis for discussion, feeling that it would be inappropriate to raise the question of a United States contribution at a time when Australia had not decided its own position.
In the discussion, I was asked many questions about the kind of machinery contemplated, which revealed that the United States would be likely to insist upon purely bilateral arrangements between themselves and recipient governments. I was asked whether the Commonwealth countries had in mind that there should be a pool and whether it was intended that any machinery should be ‘executive’. The Americans were quite firm in the view that Congress would be unlikely to contemplate any executive machinery or departure from the principle of bilateral arrangements. The opinion was expressed, however, that it might be possible to reconcile bilateral arrangements (and unilateral decisions) with some regional machinery to enable common problems to be discussed and to give the Asian countries themselves a definite and publicly understood forum at which they could air their doubts and protect their ‘economic sovereignty’. I stressed the importance of this function from the political point of view.
The Americans are clearly thinking in terms of a ‘project’ approach. I made some of the arguments against this. In reply to my proposition that the project approach made no allowance for supplementing internal savings for internal expenditure (and similarly providing foreign exchange for general consumer imports), the American officials claimed that this point could be covered by meeting part of the local costs of each project. I said this seemed rather artificial, since the proportion to be selected would be essentially arbitrary; on the other hand, if one adopted this device with a vast number of projects, the aggregate allowance for local costs would have to be checked against some perspective of the total balance of payments position. Therefore it seemed more practical and sensible to adopt the approach implicit in the Colombo Report, which was to start with the deficiency in internal savings (and the identical expected deficit in the balance of payments) and decide the amount of foreign assistance required accordingly. The officials agreed that there could be some cross checking by the two approaches but did not suggest that the United States would relinquish the project approach as the basic point of departure.
We talked about the problems of supervision. They prefer the project approach because it does enable adequate supervision to be carried out. I agreed that the balance of payments approach raised many problems of supervision, since it would require some vetting of import programmes and, if carried to its logical conclusion, of internal taxation policies and other policies related to the mobilisation and expenditure of savings.
The Americans made the point that any co-ordination could best be carried out in individual countries rather than through some regional organisation. I said that I thought we would agree with this approach, especially in relation to technical assistance, but that it still did not rule out some regional machinery of the kind outlined above to deal with broad principles and broad magnitudes.
The Americans asked many questions about the validity of the estimates made in London and I told them fairly frankly that there had been no detailed screening in London. On the other hand, I claimed that this was a better first attempt at assessing the nature.of the problem than had ever been made before and that, while some further screening would no doubt be necessary, the estimates could be taken as reasonable. Many revisions had been made in London as a result of the probing that went on there.
The Americans asked a number of questions about particular projects and I admitted that we had not in London gone very deeply into the technical or economic merits of particular agricultural, industrial, or transport projects. The Americans seemed to be dubious about the emphasis on transport in the Indian programme. They also asked what would be the effect of eliminating from the Indian project a number of the longer-term engineering projects about which there might be considerable doubt as to the capacity of the Indian Government either to engineer them or to acquire the necessary imported equipment. I was not able to offer any opinion. They also asked my opinion on the validity of the Indian assumptions concerning the field of internal finance. Again, I simply said that the Indian case had been presented in a most able way and, prima facie , it seemed to make sense, but that the amount of local savings which could be mobilised was essentially a relative conception.
The Americans asked me whether the potential recipient governments had shown any interest in integrating the programmes in order to reach certain regional targets—for example, in food production and so forth. I said that plans had been prepared individually, but that a good deal of attention had been paid in London, particularly by the non-Asian governments, to the question of getting regionally beneficial results. I pointed to the chapter which summated the expected yields in food production and the like. There was some brief discussion about the prospective programmes of India and Pakistan for the production of similar goods, and I offered the opinion that it was inevitable that, following partition, there should be some development towards reduced dependency of one country on the other.
When discussing the merits of the balance of payments approach, I was asked whether this meant that countries offering assistance were committed indefinitely to sustain a general level of imports. For example, what happens when the Indian food position deteriorates rapidly, as in fact it has done in recent months? Does this mean that the volume of external assistance has to be increased in order to maintain a given level of internal consumption while preserving the balance of payments?
I was asked what attitude Australia took towards the selection of particular countries for assistance. Which countries would Australia assist?
I avoided any precise reply to this question.
1 was asked (and this may reflect some concern in the State Department as to where they are being led) what international reaction might be if the United States took part in the consultations at the next meeting of the Consultative Committee but subsequently found that they were unable to provide any finance for the countries concerned. I did not attempt to reply to this question.
Subsequently, I talked to Sir Leslie Rowan3 at the British Embassy. He was firmly of the opinion that the United States approach to foreign aid would not follow the course adopted in the past when individual country and regional programmes (e.g. Greece, Turkey, Western Europe) were built up into an aggregate; but that the administration would probably ask Congress for a lump discretionary fund which could be allocated by the administration where and when it thought fit. If this approach were accepted by Congress, it would leave some continuing doubt as to the likely availability of funds for the Colombo area until the administration actually made the decision.
Rowan was not able to offer any opinion about the prospects of American participation, but thought that the administration was actively considering the question. He made a point of stressing the desirability of countries like Australia announcing promptly their intentions to contribute.
[NAA: A9879, 2202/B]
1 Willard L. Thorp, US Assistant Secretary of State for Economic Affairs.
2 Document 128.
3 UK Economic Minister, Washington.