CABLEGRAM FROM EMBASSY IN WASHINGTON TO DEPARTMENT OF EXTERNAL AFFAIRS

Washington, 9 April 1951

1. SECRET

Your 227¹ and our 458.²

Foreign Aid

Following information based on discussion with Malenbaum and Turnage³ of Investment and Economic Development Staff, Department of State.

Malenbaum expressed appreciation for your comments. While agreeing with views in your paragraph 2 he commented that India’s most urgent need at present time was for internal finance which would be provided if counterpart principle adopted in regard to food grain. In addition it was intended to include provision for some grant aid to India in request to be submitted to Congress for year ending 30th June 1952. This would aid external finance problem although Malenbaum felt that India’s balance of payment situation would be satisfactory this year and would include a dollar surplus. Malenbaum is of opinion that within the next few weeks Congress will authorise grant of funds for grain to India covering probably 1 million tons.

Malenbaum said that he was not in a position to give details of proposed aid figures which were being continually revised. He expected firm request would be sent to Congress about the end of April but did not count on passage until third quarter. He indicated that figure for the whole area including Afghanistan, Philippines, Formosa and Korea would be between 300 and 450 million dollars.

Both Malenbaum and Turnage strongly disagreed with the suggestion that requirements would not be covered sufficiently to enable successful undertaking of programmes. They implied that difficulties might well arise from competition between contributors for worth while projects. They think that situation has changed radically since Colombo Plan figures were prepared and doubt very much whether requirements of external aid are now as great. It was suggested that it might be desirable to make arrangements for revision perhaps twice a year of estimates of needs. This point is considered of importance as State Department propose to make use of Colombo Plan report in presenting case to Congress.

We were informed that the State Department expected both export-import and international bank loans on world wide basis to be larger than in previous years and that significant proportion would be for South and South-East Asia. Malenbaum said no firm details could be usefully provided except that a 60 million dollars international bank loan for Pakistan appeared assured.

In connection with the proposed distribution of aid, Malenbaum admitted that special political factors accounted for relatively large shares for Philippines and Formosa. Moreover Formosa could not expect international bank loans or grants from other sources.

He was of the opinion that India and Pakistan would both be receiving substantial assistance this year from various sources.

As regards criteria in determining distribution the officials referred to such factors as balance of payments position⁴ other prospective sources of aid, use which could be made⁵ of external finance aid available and political importance.

While United States does not propose to participate in any formal arrangements for financing the Colombo Plan i.e. Acheson’s statement on 21st February⁶ Malenbaum observed that any contributions United States made on bilateral basis must be considered as contributing to the success of the plan. No firm decisions have been made on the method of coordination of aid provided by various sources but he assumed there would be exchanges of views at Colombo, bilateral discussions and so on. No formal machinery such as OEEC with power to make allocations was however, intended.

In connection with the Rockefeller Report,⁷ Malenbaum briefly commented that the report was being carefully studied and it was not clear yet to what extent its recommendations would be followed. He personally thought that proposed overseas economic administration would be redundant in view of the plans to extend and increase rule of E.C.A. He did not favour the proposed International Development Authority but thought they might be much in favour of the proposed International Finance Corporation under the International Bank.

[NAA: A462, 587/4]

Department officials had not yet been possible, but that one was possible within a few days.