314. Letter from Dutton to Rep. O’Hara, December 131
In your letter of December 1 to Secretary Rusk, you requested our comments on a recent newspaper editorial which raised the issue of whether this country can or should continue to support a large foreign aid program in the face of the balance of payments deficits of the past few years and of the decline in our gold holdings.
In considering the relationship between United States aid and the balance of payments, it is important to bear in mind that it is the form in which the aid is extended, rather than the amount provided, which is significant. A high proportion of our aid funds has been used by the recipient countries for the purchase of American goods and services, and such expenditures have no adverse impact on our balance of payments. The fact that our foreign assistance has, historically, been largely accompanied by an outflow of American exports has not been well understood by those who seek to cure our balance of payments deficit by curtailing foreign economic assistance.
The agencies responsible for aid administration have for some time been concerned to achieve the objectives of the aid program, with the minimum possible effect on the balance of payments. In this connection, they have sought to increase to the maximum extent possible the relationship of foreign aid to the purchase of American goods and services. This policy was referred to by the President in his message to Congress of February 6 on the balance of payments and gold and in his message of March 22 on foreign aid. Secretary Dillon, when he appeared before the House Appropriations Committee on July 24 to testify on the new aid legislation, said: “For as long as our international payments situation requires, in administering the Act for International Development, insofar as the procurement of goods and services is involved, our objective will be to reserve between 75 and 80 percent of the available funds for the procurement of United States goods and services.”
[Facsimile Page 2]Because of earlier commitments, this goal cannot be achieved immediately, but we expect that our efforts in this direction will have an increasingly favorable effect on our balance of payments. Under [Typeset Page 1401] plans for the fiscal year which began on July 1, we hope to be successful in assuring, that of approximately $2.3 billion in aid funds programmed by the Agency for International Development, at least 75 percent, or more than $1.7 billion, will be spent in the United States. If Food for Peace is included, of the total of $4.1 billion, our target will be to devote more than 85%, or about $3.5 billion, to purchases of American goods and services. I think these figures demonstrate that under this policy the effect of our aid program on the balance of payments is strictly limited, and that by eliminating foreign aid we would not thereby solve our payments problem.
The measures in the aid field have been an important part of the Government’s effort to decrease the immediate payments deficit through the taking of every possible step to lessen the balance of payments impact of our necessary foreign expenditures. Over the longer term, the more fundamental payments problem will have to be resolved by improving the performance and competitive ability of our domestic economy and by improving the functioning of the international monetary system. The basic objective of the United States remains the development of a free world economy in which economic growth and productivity are stimulated, and through which we can pursue a number of other constructive objectives, including the long-term solution of the payments problems of countries currently in deficit. The aid program is a weapon of primary importance in achieving these objectives in the less developed areas of the free world. If we are unsuccessful, the future economic and political security of the entire Western World will be seriously threatened.
I hope that the foregoing will be helpful to you and that you will advise me if I may be of further assistance.
Sincerely yours,
- Relationship between U.S. aid and the deficit. No classification marking. 2 pp. Department of State, Central Files, 811.10/12–161.↩