SEAC Files: Lot 53D255
Report Prepared by the Economic Cooperation Administration
SEAC D–33
Economic Cooperation Administration
STEM Status Report as of December 4, 1950
general
After returning from visits to Formosa and Southeast Asia, Mr. William C. Foster, ECA Administrator, has stressed the importance of the ECA Far East program and has directed that efforts be made to expedite all phases of program implementation related to that area.1 Mr. R. Allen Griffin, Director of the ECA Far East Program Division, is currently making a second circuit trip to discuss [Page 177] major program developments and problems with each Southeast Asia STEM and the China Mission.2
major developments
In part because higher priorities are now placed upon the Far East program within ECA/Washington, and in part because Southeast Asia program operations in the field have been moving from the planning stage to the implementation stage, procurement of commodities and materials for the Far East program have reached a new high. Procurement authorizations issued during the week ending December 8 were the highest, both in number and dollar value, for any week to date.
The China Mission has made firm requests for additional commodity aid, to arrive in January and early February. The arrival of these commodities is considered of great importance due to the continued difficulty of the Chinese Government in raising local currency to meet budget requirements. A minor factor in early arrival is the desire to build up some food stocks in time for the Chinese New Year (February 5, 1951). The China Mission has also forwarded to ECA/W for consideration a series of proposed recommendations to the Chinese Government which, if implemented, would achieve major reforms in exchange control, taxation, central banking, and budgeting. These measures, it is believed, would better qualify the Chinese Government to receive and use additional ECA aid, which it needs during FY 1951.
The Indochina STEM has submitted a firm program of specific projects for FY 1951 which will involve the expenditure of approximately $16 million for Vietnam ($7.9 million for material and equipment to be used by the Vietnamese in ECA approved projects and $8.1 million for a commodity program to produce local currency counterpart funds); programs aggregating $4 million for Cambodia and $2 million for Laos are expected to be sent to ECA/W shortly. Implementation of many of the projects in this program is now under way in Vietnam, and considerable progress has been made by the Vietnamese Government in establishing local organization to carry out the projects. Procurement providing supplies is being pushed by ECA/W, and in particular completion of negotiations for four prefabricated hospitals will speed up the public health program. Authority has been given to STEM to expend 14 million piastres out of the counterpart fund to finance local currency expenses of programs during FY 1951 in North Vietnam; these funds will be used principally for the North Vietnam relief program.
[Page 178]The Thailand STEM has made progress toward getting tentative programs in shape, and it has formulated definite procedures for screening and presentation of firm project requests from the Thai Government. Recruitment of medical personnel, due to arrive in Thailand by the end of this year, and procurement of needed medical supplies will speed up the Thai public health program, and ECA/W is in contact with engineers who may be sent to Bangkok in response to a Thai request for assistance in constructing freezing and cold-storage facilities to benefit the sea fishing industries.
The Burma STEM has formulated a general outline of program philosophy and criteria to serve as a guide for development of definite projects; this outline indicates that rural health work will be a principal feature of the program, and that health work will be first initiated by mobile units moving between the larger villages in the Kachin State. A request for medical technical assistance is now being processed by ECA/W. ECA/W is also expediting procurement of cotton requested by Burma. Meanwhile, the Burma STEM is urging the Economic Aid Council of the Burmese Government to formulate and present a full program so that advance planning and project implementation can move more rapidly.
The Indonesia STEM is still hampered by staff shortages and lack of adequate housing, but it continues to develop its program and has submitted to ECA/W a preliminary outline for a malaria control project. ECA/W is pushing procurement of agricultural implements, super-phosphate for control of the “mentek” rice disease, and fishing vessels and diesel engines for the fishery project. In Washington, conversations have been carried out between ECA representatives and the Indonesian Finance Minister concerning the best use of 500 million rupiahs ($44 million equivalent) of local currency counterpart funds; these negotiations will be continued in Djakarta. NAC has approved the transfer of obligations related to the Indonesian counterpart and $17.2 million of Export-Import loans from the Netherlands to Indonesia.
The Special Representative of ECA in the Philippines has outlined the aims of a three-phase program: (1) until January 1951: to persuade the Philippine Government to act upon the Foster–Quirino Agreement;3 this requires passage of tax and minimum wage legislation and endorsement of the objectives and methods of the Bell Report; (2) January 1 to June 30, 1951: to take action reinforcing public morale and confidence; this should include tax enforcement measures [Page 179] by the Philippine Government, U.S. assistance for selected development and rehabilitation projects, well-publicized measures to aid the farm population, and modifications of Philippine policies on remittances and import controls; (3) longer-term phase; to place large numbers of technicians in the Philippine Government, implement social and agrarian reform, and push major development projects proposed in the Bell Report. Phase (1) is being pushed, and tentative estimates of the dollar requirements for Phase (2) have been forwarded to ECA/W.
major problems
The rate of expenditure for Formosa and Southeast Asia countries has increased markedly. By December 15, approximately $32 million will have been obligated for the China program, leaving only $8 million available for the remaining 6½ months of FY 1951. The need for funds for the new Philippine program is obvious. These facts clearly indicate the need for additional funds for the Far East program for FY 1951, and the means for providing such funds are being explored. A great deal of work has already been done, and more will continue to be done, toward preparation and justification of budget figures both for 1951 and for 1952; Mr. Griffin is now working on budget problems with the STEMs in Southeast Asia and is gathering firm data.
Personnel recruitment is a serious problem affecting all the Far East missions. Formosa needs the recruitment of top-flight financial, central banking and tax specialists to help strengthen the economy of Formosa. Health personnel is the top priority need in Burma and Thailand. The lack of a mission chief and other key personnel is still hampering development of the Indonesian program. The difficulty of recruiting needed personnel for Indochina has been increased by deterioration of the military situation in North Vietnam. Recruitment of the large number of technicians contemplated for the Philippine program will present major difficulties. In addition, recent developments in Korea affecting the entire Far East and world situations have made personnel recruitment even more difficult than heretofore.
Procurement of requested commodities and supplies has also presented many problems. Procedural difficulties in ECA/W in procurement for the Far East have been lessened by steps recently taken, but the deteriorating world supply situation of many commodities and supplies may create new problems. Steps are now being taken to obtain forward estimates of probable needs of critical goods in short supply [Page 180] to facilitate procurement and, where procurement becomes impossible, necessary program modifications.
Negotiations of contracts for engineering advisory services between the J. G. White Company and the Chinese and the Indonesians continue, but progress is slow. The major hold-up is determination of means whereby the White Company may meet costs in the event of war internment. The Indonesia contract is important for development of the entire program in that country, and the Formosa contract has taken a new importance with the increased emphasis placed upon industrial growth in Formosa during recent months.
A number of counterpart problems have arisen in all of the Far East countries, and careful analysis is being made of the best solutions. The shortage of needed counterpart funds both for administrative costs and for program expenditures is a serious problem in Indochina. The French five percent counterpart fund can be used for some administrative costs and can be borrowed for program costs. However, a commercial import program is being studied, and consideration is being given to whether or not some of the French dollar costs in Indochina might be taken over to alleviate the problem. It is estimated that peso costs of the Philippine program, may be two to three times the dollar costs, and the serious problem of raising the necessary local currency is now being studied.
One overall problem, related to the entire Far East program, which is of particular concern, is the problem of adjusting the economic aid program to the military aid program in Southeast Asia. The economies of many countries in the area cannot support greatly increased military aid without additional economic assistance. The necessity of coordinating economic and military assistance is clear and needs recognition, particularly on the part of local governments.
Efforts to get the Philippine program underway have encountered considerable opposition to the tax program called for by the Foster–Quirino Agreement, and some leading Filipinos, as well as U.S. business interests in Manila, have come out in favor of raising revenue by improved tax collection rather than by enacting a new tax program. Some difficulty may be encountered also in forthcoming negotiation of a bilateral agreement, a rough preliminary draft of which has been drawn up by the General Counsel of ECA/W. An additional problem, currently being studied, is the ratio which should be established between loans and grants in the Philippine program.
The military situation in Vietnam presents a problem of uncertainty for the future. Although the Indochina program is continuing without major reorientation to date, further deterioration of the military situation in North Vietnam may necessitate modification of the program.
[Page 181]- Foster visited the Philippines, Indochina, Indonesia, Burma, Thailand, Formosa, Japan, and Korea during November. For the White House press release announcing the Foster trip, see Department of State Bulletin, November 13, 1950, p. 777.↩
- Griffin accompanied Foster on his Far Eastern tour.↩
- For the text of the Foster–Quirino Agreement, November 14, 1950, see p. 1521.↩
- In addition to the above figure, $1,270,000 was allotted to the Budget Division for Administrative Expenses and $8,000,000 is held in the Voluntary Aid Fund, which leaves $24,500,000 of the total $92,270,000 to be allotted for the Far East Aid Program for the remainder of Fiscal Year 1951. [Footnote in the source text.]↩