MSA–FOA Director’s files, FRC 56 A 632, box 1, “Bureau of the Budget, 1953”
The Director of Mutual Security (Stassen) to the Director of the Bureau of the Budget (Dodge)1
Dear Mr. Dodge: This will refer to your letter of February 3, 19532 relative to a review of (1) current programs and (2) proposed FY 1954 programs, with a view toward progressive reductions in new obligations and in expenditure levels under the Mutual Security Program. It now seems appropriate to give you a summary report on the actions which have been taken pursuant to the foregoing letter and to advise you of further actions which are still contemplated. Before doing so, it will be useful to recall that immediately before the dispatch of the foregoing letter, and again subsequent to its formal transmittal, this office informally brought to your personal attention, and to the attention of members of your staff, the impracticability of a literal application to the FY 1953 Mutual Security Program of many of the specific criteria or ground rules which your letter suggested. In this respect, as we noted, our situation is similar to that of the Department of Defense in relation to certain of the military programs. We review this situation below.
I—The Relation of the February 3d letter to the Mutual Security Program
A. As to personnel—
While personnel costs represent a minor fraction of the total costs of the Mutual Security Program, it is nonetheless of the utmost importance, for the reasons hereinafter set forth, to draw a sharp distinction between “ administrative personnel” and “program personnel”—between personnel who are the overhead engaged in the administration and execution of the program on the one hand, and personnel who constitute a part of the program itself on the other hand. Thus, although something like four percent of the total cost of the Mutual Security Program is directly attributable to the cost of personnel, as indicated in Appendix A hereto,3 about seven-tenths of this amount represents what we commonly call “program costs”; and reductions in “program costs” reflect, for the most part, not administrative savings resultant from improved efficiency and the elimination of executive waste or duplication, but actual cutback in the real resources provided our [Page 606] friends as foreign aid. This distinction is so important that the principal illustrations of “program personnel” deserve specific mention.
In the first place, there are the technical assistance personnel who constitute, in the under-developed countries, the most crucial, or at least an indispensable, part of the entire program and, in the developed areas, a vital, if much smaller, portion of our aid. Without such technicians, there can be no TCA program, for the supplies and equipment which are also provided, no matter how large in amount, are in general either incidental to, or dependent for their effectiveness upon, such technicians. Therefore, any restriction on the planned recruitment of, or any cutback in the present levels of, this type of personnel is tantamount to a reduction in, or the abandonment of, the program itself. Personnel, military and civilian, employed by the Armed Forces to provide training to foreign nationals fall in the same category.
In the second place, there are the large numbers of individuals who are employed by the Department of Defense in arsenals and rehabilitation centers and who are engaged in the manufacture or repair of military equipment designed for shipment to our allies. Reductions in these categories are, unless the same production is transferred to private facilities under contract, the equivalent of reductions in physical volume of end-items made available as foreign aid.
Finally, there are the workers in depots, ports, etc., who are engaged in the physical processing of MDAP equipment—its inspection, packing, crating and transportation. Obviously, cutbacks here mean a decrease in shipments of available equipment—a program reduction.
I labor the foregoing distinction, not to prejudge the question of whether reductions in actual, or planned increases in program personnel are desirable, but rather to emphasize that this question is a program, and not a personnel, question; that it must be handled as part of the issue of the kind and level of foreign aid programs which the U.S. is committed to and/or should conduct, and not by the automatic application of the kind of criteria and standards set forth under the personnel category of your February 3 letter. We have followed this distinction in the actions taken pursuant to your letter, as my summary report thereof below will indicate.
Two other special points relating to what can properly be described as administrative personnel warrant brief, passing mention. First, a large number of the individuals who are employed overseas in an administrative capacity are paid in local currency which is either contributed by the host government or accrues to the United States as counterpart. Thus, at least in FY 1953, an important [Page 607] share of employment expenses is met from sources other than appropriated funds, and their elimination would not represent any net saving in appropriated funds. Moreover, although it can be said that counterpart represents an asset of the United States Government that might be used for other purposes, now or in the future, thereby eliminating the need for certain dollar appropriations which would otherwise be required, this is not the case with contributed currency. To the extent that an expense covered by contributed currency is eliminated, the currency contribution is reduced, providing the U.S. with no net saving. Second, it should be observed that the Mutual Security Program is administered under a Congressionally imposed personnel ceiling, a ceiling that has been progressively reduced in successive sessions of the Congress. In other words, Congress has, by law, already effected two substantial cutbacks in personnel allowed for the administration of the program. I emphasize that I cite these special points, not to prejudge the question of the extent to which overhead savings may be accomplished without program damage, but rather to place the problem of MSP personnel in proper perspective.
B. As to construction—
Since it is my understanding that your instructions with respect to construction have no specific application to construction currently being, or proposed to be, carried out under the control of foreign governments and/or international organizations, even though U.S. local currency and/or dollar aid is directly or indirectly involved in its financing, compliance with such instructions creates no special problems for the Mutual Security program, and the standards and criteria suggested by you can be, and have been, applied literally to the minor U.S. construction projects with which the Program is occasionally concerned.
C. As to programs—
The essential feature of your instructions with respect to FY 1953 programs, apart from the general injunction “to eliminate unnecessary programs and to hold the remainder to minimum levels,” was the direction to “permit no increases over the January rate of obligations except on complete justification and specific approval unless such increases are clearly necessary to meet requirements fixed by law.” Although, because of the specific escape clause, literal compliance with this direction has not presented, and does not now present, any problem, it is nonetheless important to bring out, as I know you recognize, that the standard employed—“no increases over the January rate of obligations”—bears no mechanical relation to the nature of the Mutual Security Program and is not the kind of yardstick that is helpful in endeavoring to effect an intelligent retrenchment in that program. It can only be applied in [Page 608] the kind of program (a) that has a reasonably definite monthly pattern of obligations and expenditures (whether that pattern be one of increasing, decreasing or level obligations and expenditures), and (b) in which the month of January is reasonably typical. In the case of most components of the Mutual Security Program neither of these conditions apply and, in addition, the situation is complicated by the existence, with respect to a large portion of unobligated Mutual Security funds, of international commitments. Obligations are not incurred at a relatively even monthly rate, as in the case of agencies where the principal expenditures are for personnel, recurrent supplies of a standard nature, and the furnishing of continuing services of a relatively static character; they fluctuate, and must in the nature of the program fluctuate, from month to month as will be illustrated below. It is almost pure happenstance as to whether the rate of obligations in any particular month will be many times more, or much less, than the average rate of monthly obligations for the year as a whole. January 1953 was, in fact, because of large deobligations, less typical than even the very untypical usual month, although Appendix B, which shows the obligations for the major program components in January, nevertheless illustrates the general point. The following paragraphs indicate, program by program, why the foregoing situation obtains.
(1) Military Assistance—In the military assistance program, most obligations, except relatively small ones for training, fall into two major categories—procurement (including rehabilitation and repair); and accessorial (packing, handling, crating and transportation). The second of these is entirely determined by the volume of goods which, in any given month, are being prepared for, or are in the process of, shipment. This volume is in turn fixed by the rate of production under material contracts placed many months, and often years, previously, and by the system of allocation. Thus, except as decisions are made not to deliver finished goods or to cancel existing procurement contracts, actions taken now, or during the remainder of this fiscal year, can have no significant effect on the predetermined rate of obligation in this category until 18 to 24 months hence.
It is, therefore, obligations under the first category, i.e., for procurement, which represent the key factor. The volume of such obligations in any given month is affected, in the same manner as procurement obligations for our own military departments, by the general pattern of service procurement, a pattern which traditionally, whether necessarily and wisely or not, finds obligations peaking in the latter months of a fiscal year as funds made available by the Congress are gradually translated into contracts. Obligations in the summer and fall are small, and in the spring large; in a winter month, such as January, their rate may or may not, depending on the chance placement in that month of a number of large contracts, represent a theoretical average monthly rate adequate to obligate the total annual appropriation. Even if, by coincidence, it [Page 609] should approximate this theoretical average, it has no meaning as a sensible norm to measure or control actual obligations in subsequent months since, by hypothesis, the greatest portion of the annual appropriation will still remain unobligated on February 1. For example, if January had in fact produced an obligation rate equal to approximately one-twelfth of the annual appropriation, or slightly under $400 million, a continuation of such rate through the remaining 5 months would have resulted in a June 30 unobligated balance of over a billion dollars.
(2) Contributions to International Organizations—Approximately $100,000,000 in FY 1953 MSP funds were earmarked for contributions to various international organizations—UNKA [UNTA?], UNKRA, [illegible], PICMME [illegible], UNICEF, NATO. These contributions represent the fulfillment of pledges previously made by the Executive branch of this Government subject only to (a) the appropriation of funds by the Congress and (b) certain special conditions such as demonstrated operating requirements of the international agency and matching contributions by other nations. Such contributions are not normally prorated evenly on a monthly basis over the whole fiscal year; on the contrary, their timing is most uneven and almost wholly determined by factors which are beyond the control of the United States, principally the phasing of the requirements of the international organization and of matching contributions by others. Hence the rate of obligation (and the act of contribution usually is the act of obligation) in a particular month, such as January, constitutes no intelligent standard whatsoever for determining an appropriate level for the annual program or the rate of obligation which is proper in succeeding months. Moreover, even if the contrary were the case, the fact of the matter is that previously planned contributions represent, to the extent that (1) they are covered by pledges and (2) the conditions attached to those pledges are not, international commitments of the U.S. Government.
(3) The MSA Program—Under the MSA programs, it is the customary procedure to inform other nations of the approximate level of aid (new obligational authority) which they can anticipate will be made available during the course of a fiscal year. Sometimes this advice is conveyed at the outset of the year, but more normally each nation is first informed of an initial base figure and then, subsequently, if this base figure is to be increased, of one or more increments thereto which bring the total up to the annual level finally determined to be proper by the U.S. Government. While advice as to a base figure and increments thereto does not constitute an obligation in the technical sense, it does represent a kind of international commitment and, in addition, becomes an important basis for planning and budgeting by the prospective recipient. Subsequently, allotments are made and procurement authorizations are issued against these allotments. The procurement authorization normally constitutes the obligating document. The timing of allotments and of procurement authorizations for any country is affected by a great variety of considerations, the most important being related to the general foreign exchange requirements or foreign exchange program of the country in question. They are not evenly [Page 610] spread among the twelve months of the year, and no single month can be taken as an appropriate base against which to determine the level during succeeding months. To say that obligations should not exceed the level in a particular month might, therefore, depending on the accidents surrounding that level, require the repudiation of international commitments, or, conversely, establish a rate for future monthly obligation in excess of available appropriations. This statement is borne out by reference to Appendix B. Although, on January 31, 1953, nearly $1 billion of the total defense support appropriation for Title 1 of $1.28 billion had been made the subject of international commitments, only $480 million had been obligated. Maintenance of the January rate of obligation during the succeeding five months would therefore have entailed, to mention the least of the consequences, the repudiation of international commitments of perhaps $330 million, and a failure to take care of other urgent requirements which, for one reason or another, had not then yet become firm international commitments.
(4) The TCA Program—Under TCA programs, obligations are made in a number of different ways, none of which (except those for certain types of personnel or training in countries where programs have stabilized) reflect themselves in even monthly rates of obligation. On the contrary, a very substantial portion of all obligations are made through program or project agreements with foreign governments, or by contributions to joint funds, and these acts of obligation are not spread uniformly throughout the year. Such obligations result in large measure from international negotiations, the timing of which is [illegible], and the January level, or the level for any other month, may be very high or very low in terms of a rate which, if projected evenly throughout the year, would utilize the full amount appropriated. It therefore represents a meaningless norm against which to make judgments about the appropriate total of obligations during the balance of the fiscal year or about the desirable monthly level of obligations during each [such?] period. It should also be noted, in the case of TCA programs, that in certain countries a program is newly authorized, or in any event is newly getting under way, and, as such, unless the very nature of the program itself were to be revised, must necessarily be the subject of somewhat increased obligations.
I believe the foregoing analysis of the major MSA operations indicates two things which have been of overriding importance in the review by this office and the participating agencies of the FY 1953 program: first, that many of our obligations result from prior international commitments, and that failure to make such obligations would represent a violation of those commitments and have the most profound political and economic consequences abroad; and, second, that the nature of the component programs is such that the obligation level in any given month often bears little relation to the annual program level and cannot be used intelligently as a norm against which to determine the proper yearly total or the subsequent monthly level of obligations. The real question has had [Page 611] to be whether it made sense, and whether it was possible, given the history of commitments and obligations during the fiscal year to February 3, to reduce a total annual program from the level previously planned. This is the approach which we have taken. If, as to any component of the program, the decision to reduce can be made, then the obligation pattern for that program must be tailored to such reduction and not artificially [pegged?] by reference to a January rate that in no way relates to the problem.
II—Actions taken with respect to FY 1953 Programs
A. As to personnel—
By letters dated February 17, 1953,4 the Departments of Defense and State and the Mutual Security Agency were given common standards and criteria by which to carry out, as to administrative personnel employed in the Mutual Security Program, the spirit of the instructions contained in your letter of February 3, 1953. These letters also (1) dealt with improved management as a key to greater efficiency and savings; (2) required, even as to “program personnel”, the application of the criteria contained in your instructions in all cases where this would not require, pending a program review, a change in the level of program execution; and (3) established reporting procedures covering the implementation of the new policies wherever existing procedures appeared inadequate. Since I believe these letters speak for themselves, I attach copies thereof as Appendix C without further detailed description. Your office will of course periodically receive information relating to compliance with the instructions as and when such information is received from the participating agencies.
In this general connection, I believe I should mention at least two other significant actions which have been taken or are now in process. In the first place, we plan to move rapidly, once we have fully digested their reports, to make those reductions in personnel, and those savings from improved administration and operating procedures which have been suggested as possible by the Evaluation Teams which have recently returned from overseas. As you know, I have always felt that a major reduction in force in our missions abroad could only be intelligently effected after, and in accordance with the findings of, a thorough on-the-spot survey by a really competent group of experts. We will now decide, based upon the surveys already made, the extent to which the same or similar techniques should be employed to review the situation in countries which were not covered by the recent evaluation. In the second place, we have been intensively reviewing, in conjunction with Ambassador [Page 612] Draper, the possibility of major personnel reductions in the Office of the Special Representative in Paris, and some such reductions have already been accomplished.
B. As to programs—
Immediately upon receipt of your letter, each participating agency was requested:
- (1)
- to review, and report upon, the status of its respective programs, indicating specifically (a) the extent to which its appropriations therefor had been obligated and/or internationally committed, and (b) the degree to which the previously planned level of annual obligation could, within established national security policies, be reduced; and
- (2)
- to submit, in conjunction with their FY 1954 program submissions, the completed forms that were asked for in your letter.
We have now received the required information and forms from all of the participating agencies except the Department of Defense. Since we have no reliable estimate as to when submissions from the latter department may be forthcoming, we are making, as I understand you desire, a partial report covering the balance of the program.
Attached hereto, as Appendix D, is a copy of a memorandum, dated February 6, 1953, covering the status of programs of the Mutual Security Agency as of February 3, 1953. I concur in the conclusions set forth therein as to those items which are indicated as constituting firm international commitments, the abrogation of which has, after review, appeared in most instances to be contrary to fundamental U.S. security interests. Moreover, since the date of that memorandum, it has become also apparent that the minimum requirements of MSA programs will probably dictate the complete, or substantially complete, obligation of all available funds before the end of this fiscal year, except (a) those tentatively planned for one country, the Philippines, where it will be possible, unless emergency requirements elsewhere intervene, to carry over at least $5 million, and perhaps more, of the new obligational authority which had previously been planned for utilization there by June 30, 1953, and, (b) possibly, a portion of those funds currently earmarked for basic materials development in Title III. While it is true, insofar as Title I is concerned, (1) that a few programs are not yet entirely firm (Section 118(k) programs for France, Italy and Austria, as examples), (2) that full utilization of funds presently reserved for a number of special activities, such as basic materials, may not occur, and (3) that a small amount has not yet been distributed among a number of competing demands, we face a situation in which the urgency of meeting certain as yet unfilled and unprogrammed requirements may prove to be so great (drought relief in [Page 613] Yugoslavia and additional aid to France, as examples) that not only would any possible savings resulting from the foregoing three sources be absorbed but, in addition, U.S. security interests would necessitate the transfer of some MDAP funds for defense support. Moreover, it has been assumed that the [$.15?] million which must, under the law, be reserved for Spain out of the total MDAP-defense support appropriation for FY 1953, would be funded, if FY 1953 funding is required, from MDAP appropriations. As a matter of current interest, since the figures on this subject have been constantly fluctuating, I attach hereto, as Appendix E, the latest summary of planned utilization of the Title I MSA appropriation.
Attached hereto as Appendix F is a memorandum from the Department of State, dated February 11, 1953, covering the status, as of February 1, 1953, of programs conducted under the supervision of the Department of State, exclusive of TCA programs. This memorandum indicates that, as of that date, because of either international commitments or requirements, reductions in previously planned FY 1953 programs did not appear possible except tentatively as follows: (1) UNKRA—$44 million, an amount which it would be necessary to carry forward into FY 1954 to meet commitments undertaken in FY 1953; (2) [illegible]—$.7 million; and (3) Ocean Freight subsidies—$.26 million. This office concurred in that conclusion, and believes that subsequent developments have not materially altered this picture or indicated that further savings might be effected. You should note, moreover, the statement contained in Appendix F with respect to requirements (subsequently adjusted downward in one case) for supplemental funds to cover amounts authorized, but not appropriated, for [UNTA?] and UNICEF.
Attached hereto as Appendix G, is an analysis (prepared in this office on the basis of materials submitted by TCA) of the status of TCA programs, other than the program for Israel, as of the beginning of February, 1953. Since each one of the TCA programs represents a different type of problem, the details of which are inappropriate for discussion in this letter, my staff would be glad to inform your representatives of the premises on which this analysis was based, as well as to explain the factors which, even at the end of January, made the status of certain funds in the “balance” columns very uncertain. Today, some eight weeks since this analysis was prepared, it seems probable, due to certain lags in the planned hiring of technicians, that, without violating international commitments, it may be possible to save, and carry over into FY 1954, several million dollars of the total amount shown in the “balance” column on the summary sheet. In the case of Israel it is clear, as [Page 614] you have been advised by separate memorandum, that the entire amount appropriated is required for obligation in this fiscal year.
There are also attached, as Appendix H, the forms, as prepared by the Mutual Security Agency and the Department of State, which your letter requested. While, in general, insofar as FY 1953 is concerned, the figures contained therein are reconcilable with those available to this office and, in addition, consistent with the statements contained in the previous paragraphs, certain minor discrepancies will be noted. These discrepancies result from small differences in judgment as to the amounts which can effectively be obligated, and should be obligated, for several programs during the balance of FY 1953.
In concluding this section I should state that this office, as well as the participating agencies, have been governed in our review by a number of considerations that cannot be stressed too often and which have made inadvisable decisions which, under other circumstances, might have been entirely practical.
In the first place, we have been faced, as previously indicated, by the existence of international commitments which, on February 3, 1953, covered the great bulk of funds available for defense support and economic aid and, in a less precise fashion, most of our military assistance money as well. In my opinion, the abrogation of any of these commitments would have been, and still remains, unwise, and I reach this judgment irrespective of whether one should conclude, in retrospect, and I think would seldom be the case, that the commitments should not have been made in the first instance.
In the second place, and probably of paramount importance, has been the fact that pending a review of all our national security policies and objectives, and of the priorities to be accorded each, there have been no standards which could serve as guideposts in redirecting or sharply reducing programs which were, at least when they were formulated, directly responsive to national security policies and objectives which then existed. Therefore, except where increased efficiency or operating and personnel savings have been involved, we have been confronted with the dilemma posed by two alternative courses of action; first, to run the risk of creating a future expenditure level and pattern which might be slightly more difficult to cope with from a fiscal standpoint than the level and pattern of expenditures which may ultimately emerge as an objective from the current NSC review; or, second, to incur the grave dangers implicit in the premature cutback of any program which, as a result of such review, it is decided should have been continued at previous levels. The first course has seemed far wiser in most cases since choice of the second course could result in irreparable damage to our national security. Certainly, there has appeared to [Page 615] be no possible justification, in advance of new policies, for taking any action which would forfeit or slow the painfully achieved momentum of going programs or for accepting unnecessarily if previous policies and objectives should later be reaffirmed, the very serious political and economic consequences which might result from severe program retrenchments and from the apparent changes in U.S. foreign policy that such retrenchments would be likely to imply. The acceptance of consequences of this character must represent a conscious decision at the highest level of government and is, in fact, the very issue with which the National Security Council is seized today.
III—Actions taken with respect to the FY 1954 Program—
There have heretofore been transmitted to you, in accordance with the provisions of your February 3rd letter, new submissions prepared by the several participating agencies which cover all phases of a proposed Mutual Security Program for FY 1954. Each of these submissions is now complete with one major exception—the final recommendations of the Secretary of Defense—and several minor exceptions concerning which your staff is already fully familiar. We also believe that substantially all supplemental information requested by your staff has now been provided or will be within a few days. There only remains, therefore, with the foregoing exceptions, the submission of my own recommendations covering the Mutual Security Program in its entirety. These will be forthcoming as soon as I have received, and had the opportunity to study, the final views of the Secretary of Defense on the military assistance program, and been able to relate all of the submissions to the current review of the National Security Council.
Sincerely yours,