Foreign Relations of the United States, 1952–1954, United Nations Affairs, Volume III

A/MS files, lot 54 D 291 (V), “UNA/P master file”

Paper Prepared by the United Nations Planning Staff, Bureau of United Nations Affairs

restricted
VII–1

[Washington, undated.]

Economic Development

preface

Although the UN has considered at length a number of important matters in the economic field, such as increasing productivity of land, full employment, international trade and finance, transport and communications, emergency relief and rehabilitation, technical assistance, and financing economic development, only the last one has been a source of persistent stress and strain. However, both technical assistance and a new matter, “fair” prices for raw materials exported by underdeveloped countries, can not be ignored in a discussion of stress and strain; and the three matters are therefore treated together under the title “Economic Development” for the purpose of this study.

i. character of issue

With increasing vigor and a voting majority, underdeveloped Member States outside the Soviet bloc have urged that the UN establish both a program and the financial means to provide what they would consider adequate aid in their economic development. The US opposes assumption by the UN of responsibilities on such a scale, because it would both increase very considerably the total financial burden and might be expected to place the major part of it on the US. This opposition of interests has given rise in the UN to a stress and strain affecting the US, which is accentuated by the fact that the voting groups on questions of economic development in some cases resemble those on colonial and certain human rights matters.

ii. background

Ever since the first session of the GA in 1946, but particularly from 1948 onward, the underdeveloped countries have insistently urged institution by the UN of a program designed to assist their own efforts at economic development. They have warned eloquently of dangers in perpetuation of glaring contrasts between standards of living in underdeveloped and developed states, of a moral obligation as well as self interest of developed states to assist poorer ones, and of an integral connection between economic development and rearmament effort in strengthening the free world.

Because underdeveloped countries feel that, even with maximum feasible mobilization of their own financial resources, they still need external financial assistance for what they consider a satisfactory rate of development, debate has revolved around the question of both the sufficiency of financial resources provided by existing institutions, and the conditions under which these are made available. The debate tends to focus on the question or provision of additional assistance through governmental grants and loans whose terms would be more liberal than those of existing institutions. Since, except for Canada, the US has been the only country in a position to export large amounts of capital, the question is really how much financial assistance the US Government would make available. Most underdeveloped countries, particularly the Latin American states, point to the European Recovery Program as evidence both of US capabilities and of discriminatory treatment in favor of a group of countries whose standard of living even after the war substantially exceeded that in underdeveloped countries. Finally, the majority of underdeveloped countries not only urge that UN technical assistance programs be increased in size and otherwise liberalized,^* but also desire to see these programs “backed up” by more capital and equipment.

With debate tending to focus on sufficiency of external financial assistance, and particularly on provision of grants and long-term low-interest loans to underdeveloped countries, the UN is considering the following possible lines of action:

a) At behest of the GA, ECOSOC is considering what the UN, its individual members, and specialized agencies might do to stimulate international flow of private investment. ECOSOC also is about to consider the question of governmental tax incentives to foreign private investment.

b) At the request of ECOSOC, the IBRD has under study the establishment of an International Finance Corporation, first proposed in 1951 by the International Development Advisory (Rockefeller) Board. Such an organization would provide an internationally administered fund to encourage private enterprise through provision of equity capital and loans without government guarantee.

c) Establishment of an International Development Fund (now referred to as the Special United Nations Fund for Economic Development—SUNFED) to make grants and long-term, low-interest loans to governments. Practically every underdeveloped state supports SUNFED, and a group of experts has recently formulated a plan for organizing and operating such a fund to be considered by ECOSOC at its 16th session, this summer.

As to technical assistance, the questions are whether the US should: a) agree to a liberalization of existing restrictions and an increase in the size of UN programs, and b) make available a greater proportion of its total foreign economic assistance through UN channels rather than bilateral arrangements.

A corollary to attempts to obtain greater external assistance is the increasing insistence by the Latin American states, upon internationally assured “fair” prices for their principal exports, raw materials, as compared with prices of manufactured goods which they import. At the 7th GA insistence reached a peak, and the matter has since been raised in ECLA, ECAFE, IA–ECOSOC. This price ratio is related to the question of external assistance because it is regarded as affecting considerably the total amount of foreign exchange available for development projects.

iii. united states policies

By the late World War II years the US had decided that effective cooperation by the Allied Powers towards an expanding post-war world economy, depending in great measure upon economic development of underdeveloped states, would help guarantee the peace. To encourage such development the US took active part in convening the Conference at Bretton Woods in July 1944 and negotiating there the Articles of Agreement establishing the IBRD. The US desired that so far as possible economic development be achieved through private foreign investments, but felt that the IBRD should be in a position to finance important projects when private capital would be unavailable on reasonable terms.

Under stimulus of growing demand from Latin American and Arab-Asian states for measures to improve their standards of living in accordance with Article 55 of the Charter, the US at the 3rd GA (1948) agreed to two resolutions providing for technical assistance. This expression of policy was soon followed by the President’s Proclamation in January 1949 of the Point 4 program for technical assistance. Although a US-financed agency, the Institute of Inter-American Affairs, had already begun in war-time a modest program of bilateral technical assistance in Latin America, only after its re-incorporation in 1949 by Public Law 283 (81st Congress), did it expand its modest program to important proportions.^† Moreover, the US took the initiative in expanding the UN TA program in the summer of 1949.

The US has declared in the UN that much more can and should be done by underdeveloped states to mobilize domestic resources for financing their own economic development, and that external governmental assistance should play only a supplemental role. In this connection, we have repeatedly stressed the importance of encouraging the flow of private investment; and we spiritedly opposed the so-called “nationalization” resolution at the 7th GA, but were heavily outvoted (36–4(US)–20).

As regards governmental assistance for economic development, we have pointed to US support of international lending through the ExIm Bank and the IBRD, and to the fact that both institutions still have resources available to help finance sound development projects. Moreover, we have recognized that in some cases international grant assistance may be required to provide an initial impetus to the development process; but at the 14th ECOSOC session and 7th GA we strongly expressed reservations in principle to a multilateral fund for this purpose, as well as skepticism that other potential capital-exporting-states could contribute. The US has not yet determined its position on the proposal for an International Finance Corporation.

We have not yet developed a long-term policy on some of the basic issues involved in technical assistance. The new administration is reexamining the amounts of our contributions to UN programs, along with all of our other foreign commitments. By a self-imposed limitation we do not contribute more than 60% of the total, and in 1953 other countries were unable to contribute their full 40% share as counterpart of the full amount of our authorized contribution.

The US is considering also ways to make available a greater amount of equipment and supplies under the UN TA programs. This could be done by relaxing the present limitation of 25% of total cost which may be allocated to equipment. We could also provide equipment and supplies indirectly by making them available to the governments concerned through our bilateral programs. Such steps, could however, convert TA programs into supply programs, and too large a proportion of US materials could jeopardize the international nature of the program. Moreover, should the UN increase the proportion of its funds to be expended for equipment and supplies without also increasing the total size of the program, it might thereby severely limit the number of possible projects.

The US considers that even if manufacturing countries could overcome their objections to the Argentine proposal to finance economic development through establishment of “fair” international prices for primary commodities, the UN could not enforce such a measure for want of sufficient powers including that of taxation. On the other hand, if producing and purchasing countries are sufficiently interested in international agreements on individual commodities on a world-wide basis, the US is on record as willing to engage in appropriate negotiations.

iv. major difficulties for united states

The US emphasis in the UN on importance of encouraging the international flow of private investment for development is received by underdeveloped states with considerable reservation, reflecting such attitudes as: fear of exploitation by foreign interests; preference for governmental assistance, which states can channel and direct, over private enterprise; and a feeling that action by capital-exporting countries to make foreign investment attractive through tax incentives is required rather than action on the part of capital-importing countries.

Moreover, underdeveloped countries, while acknowledging assistance rendered by the Ex-Im Bank and the IBRD, feel that the rate of development which can be attained on the basis of present intergovernmental lending operations is insufficient. While acknowledging the US bilateral grant programs, most underdeveloped countries assert that even larger amounts of grant aid are necessary and that, for various reasons, such aid should be made available through an internationally administered fund.

Underdeveloped countries are apt to make very large requests, and the US position will remain difficult as long as the US remains by far the most important economic power in the UN. Moreover, the US has naturally found itself charged by certain underdeveloped states with having been unjustly generous in some of its aid arrangements with others. Finally, although the experts have recommended that SUNFED not be brought into existence until $250,000,000 shall have been pledged by a minimum of 30 contributing governments, the enthusiastic backers of the plan will make a considerable effort to collect the pledges necessary to put the plan into operation.

The Latin American and Asian producers of exportable raw materials are convinced that fluctuations in their foreign exchange earnings are excessive and harmful; and they see in the project to establish a “fair” ratio to import prices of manufactures a way to increase their supplies of foreign exchange, admittedly inadequate in most cases for economic development. Although the US has pointed out: 1) that raw material prices are now relatively higher than in any reasonable base period, 2) the impossibility of reaching any agreement on what would be a fair and equitable price relationship, and 3) the wholly unenforceable character of such an agreement, the US and other developed countries were in a persistent minority in UN debates on the issue until the early 1953 session of ECLA in Rio de Janeiro.

Although the US has usually found majority support on major issues connected with the technical assistance program, the US has been in the minority and in dogged opposition to the African-Arab-Asian and Latin American blocs on the SUNFED and price parity issues. Voting on these issues has tended to fall into a pattern of upwards of 30 to 17.^‡ These matters might have serious repercussions in our relations with Asia, where need for development is greater than in Latin America and Communism makes a greater competitive appeal.

In the 6th GA Plenary vote the only exceptions to the solid front of the African-Arab-Asian and Latin American blocs in favor of the special development fund were China, Thailand, and Liberia among the African-Arab-Asian states, and Brazil, Uruguay, Dominican Republic, Haiti, Nicaragua, and Peru among the Latin American states. In the 7th GA Plenary vote on the so-called “nationalization” resolution (VI), on the right to exploit freely natural wealth and resources, the only exceptions to the solid front of the two blocs in favor of the resolution, which the US opposed, were China and the Philippines among the African-Arab-Asian states, and Cuba, Haiti, Nicaragua, Peru, and Venezuela among the Latin American states. Moreover, on this issue many European states, that normally vote with the US on economic matters, abstained, partly because of their own nationalization programs, and partly because they found nothing in the resolution really unacceptable to them. They did not, as did the US, feel that they should oppose the resolution because of certain omissions from it. On the other hand, they apparently did not desire to join on this issue the underdeveloped states whose ideas about adequate safeguards for the rights of private investors are not usually in consonance with those prevailing in developed states. In the 7th GA Plenary voting on the Argentine resolution about financing economic development through “fair” export prices, the only exception to the solid front of the blocs against the US were China, Lebanon, and Pakistan among the African-Arab-Asian states and Haiti among the Latin American states.

The West European and Commonwealth states have voted as has the US on most economic development questions. Communist countries are on the defensive in the UN on these matters, as they do not contribute to any UN development program and as they are basically opposed to any economic development except on their own terms.

v. implications for united nations

Basically, UN success in channelling concrete assistance to the underdeveloped ⅔ of its Members (as the technical assistance program has begun to do), would greatly strengthen the prestige of the organization and should materially assist it in handling political disputes. Failure to establish substantial concrete assistance might intensify difficulties for the UN in, for example, the colonial and human rights fields.

vi. trend

Progress is possible in the fields of private financing and technical assistance; but failure to find an adequate solution to the problem of following up technical advice with supplies and capital might lead to diminished interest in the program in many cases. As to the question of public financing, it is not likely that a generally satisfactory solution will be found in the near future. There is little indication that there will be soon a decrease in pressure for “fair” prices for raw material exports.

1. The liberalization sought is principally that the UN: a) assume a larger share of local costs of operations, and b) increase the quantity of equipment and supplies made available. [Footnote in the source text.]
2. As Coordinator of Inter-American Affairs, Nelson Rockefeller conceived a program calling for use of substantial US budgeted funds for long-range projects to develop industry and transportation in certain Latin American countries. The Department of State and FEA blocked the projects as unwise excitations of expectations, because continuation of many activities in the “inevitable post-war retrenchment” would depend upon greater participation by responsible private interests and agencies. However, Rockefeller’s subsidiary, Institute of Inter-American Affairs, established a modest bilateral technical program for placement of a few US “servicios” in LA administrations and for training in the US of a few LA engineers and officials. [Footnote in the source text.]
3. The some 17 negative voting states are: first of all the US, UK, New Zealand and South Africa; usually joined by Australia, Belgium, Canada, Denmark, France, Iceland, Luxembourg, Netherlands, Norway, Sweden, Greece and Turkey; and sometimes by China and Israel. [Footnote in the source text.]