Canberra, 27 March 1953
Because of the current serious food shortage in Pakistan and the severely adverse balance of payments, we have been under pressure from the Government of Pakistan to make available large quantities of wheat—amounting to 200,000 tons in all—as a Colombo Plan gift or under short-term loan.
The Government of Pakistan views the food position so seriously that the Pakistan Prime Minister1 has made personal representations to the Australian High Commissioner2 and has suggested the despatch of a special representative to Australia to seek supplies of wheat. More recently the Pakistan Minister of Foreign Affairs and Commonwealth Relations has written to me asking that Colombo Plan funds allocated to Pakistan be utilised for the purchase of wheat, since external resources are insufficient to buy the food supplies which, in the serious circumstances now existing, Pakistan must obtain from abroad. A copy of Sir Muhammad Zafrulla Khan’s letter of 17th March, 1953,3 is attached.
The evidence available suggests that Pakistan’s balance of payments position is critical. In the latter part of 1952, Pakistan ran a heavy deficit on commodity trade, as a result of a substantial decline in the value of her exports while the value of her imports continued to increase. Tightening of import controls and stimulation of exports—though they have helped the position to some extent—have not solved the problem. In presenting the Budget on 14th March last, the Pakistan Minister of Finance4 reported that Pakistan’s foreign exchange earnings fell from Rs. 288 crores in 1951 to Rs. 192 crores in 1952 and are likely to be of the order of Rs. 150 crores in 1953. He also pointed out that Pakistan’s economic position had been further aggravated by the need to spend a large proportion of the greatly reduced foreign-exchange earnings on food imports. Already, an amount of 1,300,000 bushels has been contracted for supply to Pakistan from Australia under normal commercial arrangements and terms of payment. Pakistan is asking for the additional 200,000 tons of wheat on the following terms:—
(i) Payment for the first 100,000 tons in four equal six-monthly instalments commencing 1st January, 1954.
(ii) Payment for the second 100,000 tons by sixty-days sight draft.
If we can supply only 100,000 tons, then the Pakistanis want it on the terms stated in (i) above. However, if we decline those terms, they are prepared to pay on sixty-day draft ‘as nothing should be allowed to hold up this shipment’. It must be remembered that, if Pakistan is unable to receive the second 100,000 tons from us—and it seems certain that she will be unable to do this—she will have to seek this quantity elsewhere, probably from the United States or Canada. If she fails to obtain credit for the first 100,000 tons from us, she may be unable to make this additional purchase unless she receives further short-term credits from the United States or Canada. Canada, it might be noted, has already made a Colombo Plan gift of $5 million worth of wheat and it may seem unreasonable for us to expect Canada to make further assistance available without making any gesture of assistance ourselves.
One point that must be stressed is that other countries, notably the United States and Canada, have already shown their willingness to assist by means of gift or loan. The Colombo Plan gift of $5 million by Canada has already been mentioned. The attached letter from Sir Muhammad Zafrulla Khan refers also to the $15 million received from the United States. On a previous occasion when there was a severe shortage of food in India, the United States made a special loan of $190 million to India for the purchase of wheat and flour and made additional supplies of food available under Mutual Security grants. For political reasons, it seems essential that we should show a similar response and especially it seems that we should demonstrate that Commonwealth countries can be relied upon to help one another when serious problems of this kind arise. The United States recently suggested to Pakistan that, before the United States gave more aid, it was up to other Commonwealth countries to give more assistance.
The quickest and most satisfactory way of giving aid to Pakistan for the purchase of wheat seems to be under the Colombo Plan. The amount of wheat which the Wheat Board can commit itself to supply at the present time is only 100,000 tons. Some additional quantity might be available later in the year, but the Board’s other commitments and shipping limitations do not permit an additional commitment beyond 100,000 tons at the present stage which, with freight and insurance, would cost approximately £A.4,500,000.
Aid of approximately £A.4,500,000 could be provided under the Colombo Plan by a combination of gift and short-term loan. The gift element could be fixed at £A. 1 million, which could be found out of the amount already included in the present year’s Budget for Colombo Plan expenditure. The remaining amount of approximately £A.3.5 million could be provided under short-term interest free loan, repayable in four six-monthly instalments commencing on 1st January 1954. In the case of the £A.1 million gift, the proceeds of local sale could be used to further economic development projects within Pakistan and thus would be completely in harmony with the objectives of the Colombo Plan. (You will note that Sir Muhammad Zafrulla Khan proposes that the proceeds of local sale be used in this way.) We would ask that the short-term loan of approximately £A.3.5 million be repaid in due course to Colombo Plan funds and then be applied to purchase gift supplies for Colombo Plan recipients in the normal way. It is proposed that any supplies of wheat additional to the 100,000 tons supplied from Colombo Plan funds should be purchased by Pakistan under normal commercial arrangements and terms of payment.
Subject to your concurrence, it is therefore proposed:
(i) to make a gift of £A.1 million to Pakistan from Colombo Plan funds for the purchase of wheat;
(ii) to offer a short-term interest free loan, also from Colombo Plan funds, sufficient to enable Pakistan (with the gift of £A.1 million) to purchase 100,000 tons of Australian wheat;
(iii) to obtain repayment of the loan (amounting to approximately £A.4,500,000) on the basis of 25% in January, 1954, 25% in July, 1954, 25% in January, 1955, and 25% in July, 1955;
(iv) to apply repayments of the loan to normal gift purchases under the Colombo Plan for aid to recipient governments, including Pakistan;
(v) to inform the Pakistan Government that we regard this as a special case and that we would not contemplate the loan establishing any precedent for similar aid on any regular basis in the future, either to Pakistan or to other Governments participating in the Colombo Plan;
(vi) to inform the Pakistan Government also that any additional purchases of Australian wheat will have to be made on a normal commercial basis.
I am bringing this matter to your personal attention because of your concern with maintaining Pakistan’s position in the Commonwealth and your own efforts to induce Pakistan to play a full role in defence and other arrangements of concern to us. On political grounds you will agree that the approach by the Pakistan Foreign Minister should be met with the most sympathetic efforts on our part to meet their needs in this difficult situation.
If you concur in these proposals, I propose to advise the Pakistan Government immediately of the terms of our assistance and to make final arrangements with the Wheat Board for shipment of the wheat.
[NAA: A 10299, C l3]
1 Liaquat Ali Khan.
2 Major General L.E. Beavis.
3 Document 246.
4 Ghulam Mohammed.