Foreign Relations of the United States, 1952–1954, Africa and South Asia, Volume XI, Part 1

700.5 MSP/12–352

Memorandum of Conversation, by David E. Longanecker of the Office of African Affairs

restricted

[Washington,] December 3, 1952.

Subject:

• Survey of British Government Development Programs for the DOT’s with a View to Determining the Need for U.S. Government Financial Assistance.

Participants:¹

• MSA—Mr. William E. Moran, Jr.
• AF—Mr. Longanecker
• Mr. Feld
• Mr. McBride
• DRN—Mr. Brown
• Mr. Gordon
• Mr. Desdier
• BNA—Mr. Lewis
• ED—Mr. Smith

The meeting was held to discuss the subject about which Mr. Moran had sent Mr. Utter a memorandum under date of November 25.²

Mr. Moran was asked to open the meeting with a statement summarizing his views with respect to the scope and objectives of the proposed study. He stated that as the ECA, now MSA, program for the DOT’s has progressed it has become increasingly desirable and necessary to examine the economies of recipient areas with regard to their relation to the metropole economy with a view to more clearly demonstrating the need for and determining the most effective application of U.S. Government assistance. Definition of the current role of the DOT’s in achieving the objectives of the Mutual Security Program is important and requires a study of the financial and economic relations between them and the metropoles. It is even more important, however, to endeavor to project the future role the DOT’s can be reasonably expected to play as reservoirs of economic and political strength for the Mother Countries and the Western World, and the long range plans of the Mother Countries for achieving a well-balanced development of the human and economic resources essential to achieving this objective. Under the impact of World events in recent years, the DOT’s have grown tremendously in importance not only as reservoirs of critically needed raw materials for the Western World’s defense program but also as peripheral bastions of military operations. Africa is referred to as the last great natural resources “Frontier”, and the DOT’s embrace most of the continent. Furthermore, as economic recovery has taken place in the Mother Countries and approaches full employment of their human and economic resources without achieving either a favorable trade balance or the financial ability to meet their defense as well as ordinary budget needs, the Metropoles must look more and more to the DOT’s to help achieve national solvency. By developing in their DOT’s the production or exportable products the Metropoles can both save and earn needed foreign exchange, the first by importing more and more of their own needs from the DOT’s and the second by exporting such products to other countries.

Up to the present time, we have been concerned mainly with accelerating the production of basic materials and foodstuffs needed by the Western World. Unfortunately, this concentration on developing the output of export items has used up generally the marginal elasticity of the basic sectors of the relatively underdeveloped DOT economies. More attention must now be given to planning and carrying out a balanced development. Agricultural productivity, particularly of foodstuffs for local consumption, must be improved in order to overcome the chronic shortage of native labor which can be diverted to mining and other non-agricultural productive enterprises. More attention must also be paid to the other basic facilities essential to economic growth, including power, highways, railways, river transportation, ports, etc. The basic Government services must be given equal attention, especially those relating to health, education and housing which are essential to improving the productivity and well-being of the people and the political as well as economic progress and stability of the DOT’s.

Under the stimulus of their need for the economic contributions of the DOT’s and realization of the political ferment going on in them, the metropolitan governments have been giving greater and greater attention to long range and well-rounded development programs for the overseas territories. In general, they have been handicapped in carrying them out through lack of resources in both money and technically qualified manpower. U.S. assistance in the DOT’s must be meshed into the long range development plans of the metropolitan governments in the amounts and of the nature required to enable the governments to fully implement them to the extent that these are programs which the U.S. can support. Such assistance is conceived as a composite of loan aid, grant aid, and technical assistance, with major emphasis on the first and third types. Prior to 1952, MSA assistance to the DOT’s was confined primarily to (1) grant aid funds allocated to the metropoles, some of which were re-allocated (mainly by France) to the African DOT’s; (2) the use of counterpart funds; (3) loan funds for developing the output of strategic materials and for general economic development; and (4) a small amount of technical assistance. Beginning with 1952, the strategic materials activities were taken over by the DMPA. MSA has, however, not been able to set up a fund to support general economic development but has a small fund to be used to develop increased production of basic materials in short supply in countries receiving U.S. assistance. The public services are taken care of by the ordinary budgets established by the governments involved. Development in the economic sectors, however, must be taken care of in the long range plans with which the MSA is concerned.

Tentative consideration was given some months ago to requesting the establishment of a fund of $1 billion to finance basic materials development in the underdeveloped areas over a four year period. A second tentative proposal involved in the neighborhood of $110 million for world wide Basic Materials development as a loan fund for fiscal year 1954. This would be supplemented by a $75 million dollar fund for general economic development in the DOT’s; this fund would be used partially for loans and partially for grants. These proposals are in the MSP budget for FY 1954. In considering these proposals, exceptions were taken to the fact that while it was characterized as a loan fund qualifications were made to the effect that it may be illogical to expect repayment in dollars, that it might be possible to obtain permission to accept repayment in local currencies, and finally, even in this case, that the repayments probably ought to be used as a revolving fund. Some agencies felt that calling this a loan program would be misleading. Furthermore, the illustrative projects presented in support of establishment of such a fund were said by some agencies to be of a bankable character which could be taken care of by existing institutions such as the Export–Import Bank and the IBRD.

MSA has clarified the repayment feature and has explained the relation of these proposed programs to the operations of the Banks. In collaboration with the appropriate governments, the MSA would prepare and/or consider projects for assistance from the proposed fund. These projects would be screened first with the Ex-Im Bank and the IBRD to determine which, if any, of these agencies would consider financing. The MSA would then consider the remaining projects for financing from the proposed MSA fund. In preparing to carry out such a program in the DOT’s the MSA considers that it should have a survey of the financial and economic relations between the metropoles and the DOT’s, and of the long range development programs of the metropoles. The first survey is to be made of the U.K. and its DOT’s, dividing the latter into British East Africa, British West Africa and British Central Africa (and if possible Malaya and the Carribean territories) in order to deal with the subject on a regional basis. The study would deal primarily with an examination of the ordinary budgets, as well as the funds proposed for the long range development programs in relation to the needs of the DOT’s, the balance of trade with the Mother Country and with the World, the current and potential production of not only strategic materials but also foodstuffs and other commodities essential not only to meet the expanding local requirements but also to contributing items important in the export to the U.K. and other western nations, and finally to an analysis of the long range development programs in relation to a sound pattern of social and economic development in the DOT’s with a view to determining whether the programs are adequate, and the types and amounts of assistance, if any, needed from the U.S. and other external sources.

After some discussion it developed that Mr. Brown’s office in DRN has been doing some work with MSA on various aspects of this subject and has fairly complete files of available information. It was felt that in view of this circumstance, Mr. Brown and his staff are in the best position to assume primary responsibility for undertaking the proposed study. In view of the time element involved, Mr. Moran having stated that it would be necessary to have such a paper by the middle of January, Mr. Brown expressed the opinion that it would be possible to have only a rough draft prepared by that time. It was agreed that both Mr. Longanecker and Mr. McBride would be glad to cooperate with Mr. Brown’s staff and assist in the preparation of the study.³

1. Officers from the Division of Research for the Near East, South Asia, and Africa (DRN) were William O. Brown, Robert L. Gordon, and Desdier (who cannot be further identified); James H. Lewis represented BNA; Douglas B. Smith represented Investment and Economic Development Staff (ED).
2. Moran’s memorandum to Utter under reference here has not been found.
3. No further documentation has been found on the study discussed here.