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133 Letter from Gaitskell to Menzies

London, 9 January 1951

Colombo Plan Finance

When we met on Friday night1 I promised to let you have a draft note on the finance of the Colombo Plan as we saw it at the moment.

I now enclose an aide-memoire which has been prepared by my officials for this purpose. I would emphasise that while the Plan is still in its present early stages it is very difficult indeed to be precise about figures. I sincerely hope, however, that you will give very careful consideration to the case which the note makes out for an increase in Australia's contribution. I am sure that if the Commonwealth Government could see its way to accepting our suggestion we could hope for a very substantial improvement in the atmosphere in which assistance towards the Plan will be examined in Washington during the next month or so.

If you cannot give a definite answer now I still hope that you could give me some assurance that �25 million is not Australia's last word and that your representatives who come to Colombo will be able to say that you are prepared to go, if need be, up to the sort of figures (�50-�60 million) mentioned in the aide-memoire.



Dimensions of external finance needed

The total cost of the Commonwealth countries' development programmes as defined in the Report of the Commonwealth Consultative Committee,2 is �1,868 million over the period 1951/57. In order to implement these programmes the Report estimates that external finance of the order of �1,084 million will be necessary.

2. This figure has been arrived at, broadly, in the following way. Countries started off with their government development programmes. They worked out how much they estimated they would be able to finance internally, by taxation and borrowing. The difference represented the external finance needed for the development programme alone, which they then added to their 'normal' balance of payments deficit (which they reckon to cover from sterling balance releases). They thus ended up with a total need for external finance, which represents the total balance of payments deficit that will be necessary if the programme is to be carried out without causing inflation. In short, 'external finance', as the phrase is used in the Report, means the total balance of payments deficit of the country, which will be covered partly by sterling releases (in the case of large holders of sterling), and partly by finance from the other external sources listed in Chapter X of the Report (i.e. private investment from abroad, international institutions and 'donor' Governments).

The U.K. contribution

3. As announced in the House of Commons on 28th November, the U.K. contribution is likely to be at least �300 million during the six-year period. This will be made up of releases from sterling balances, any external assistance needed by our own territories in the area (it will be remembered that the U.K. has undertaken to stand behind these territories to the full extent that external finance is required for their approved programmes) and such assistance as we give to non-Commonwealth countries that agree to participate. Taking the U.K. contribution to the Commonwealth countries in the area as �300 million for the purpose of illustration, it is likely to represent over a quarter of their total requirements of external finance.

U.S. assistance

4. While it is, of course, the hope of Commonwealth Governments that the U.S. Government will find itself able to make a substantial financial and economic contribution to the success of the Plan, we have as yet no authoritative information about the amount or form of the contribution that they have in mind. They have quite naturally hedged the expression of their willingness, if invited, to participate in future meetings of the Consultative Committee, with the reservation that such participation would not imply a commitment by the U.S. Government to provide financial aid for the development programmes.

5. The Gordon Gray Report on U.S. foreign economic policies,3 which was published at the beginning of November, suggested that, so far as under-developed areas are concerned, U.S. assistance should be annually of the order of $500-800 million of private loans, $600-800 million of public loans by the Internation[al]4 and Export-Import Banks, plus up to $500 million in Government grants. In other words, an annual total for development purposes over the next few years in the neighbourhood of $1,500-2,000 million. But it must be emphasised that these figures cover all the world's under-developed areas, South America and the Middle East as well as South and South-East Asia; and that it is very unlikely that, in the event, the U.S. Government will feel able to ask Congress for sums of this magnitude given the deterioration in the international situation and the acceleration of America's own rearmament programme since the Gordon Gray Report was published.

6. Reports from Washington all suggest that the Administration's foreign economic aid programme is likely to have a difficult time in Congress and it is almost certain that the ultimate decision as to how much America can afford to make available towards the Colombo Plan will be substantially affected by the efforts which Commonwealth countries are making. So far, apart from the U.K.'s announcement of 28th November, the only government to make any move has been Australia, with its offer of �25 million over the six-year period.

The Commonwealth target

7. As has been stated in para. 6 above, the Commonwealth must show its determined adherence to the principle of self-help if the U.S. effort is to be maximised. This being so, it is suggested that the Commonwealth ought to aim to put up not much less than half the external finance so far estimated to be necessary: this is especially important as the figure of �1,084 million relates solely to Commonwealth requirements. It might be reasonable to expect the U.S. Government to provide by far the major part of the requirements of any non-Commonwealth Governments which decide to come into the Plan. But what is essential now is that the Commonwealth should show publicly that, so far as its own sector is concerned, it is doing all that can reasonably be expected to fend for itself.

8. This being so, it is suggested that the U.K., Canada, Australia and New Zealand ought to aim, together, to provide external finance of the order of, say, �450 million for the Commonwealth programmes and be prepared to put up at least some further assistance to the non-Commonwealth Governments which decide to take part. The sum, so far, is:–

� million
Requirement of external finance 1,084
U.K. contribution, say .. 300
Australian contribution, say . . 25 325
Remaining gap 759

9. It is not, of course, possible at this early stage in the Plan to talk in terms of precise figures. Nevertheless, it can be seen that, on the basis of this rough estimate, the Commonwealth contribution will be some �125 million short of the figure of �450 million suggested in paragraph 8 above. Canada and New Zealand have still to announce their contribution but in view particularly of Canada's other commitments in the North Atlantic and elsewhere it would be unrealistic to expect that, between them, these two countries will be able to promise anything like the amount involved. In these circumstances it is suggested that, if we are not to fail in our objective and endanger the whole success of the Plan by giving American public opinion reason to believe that material support for it within the Commonwealth will prove inadequate, the Government of Australia should be asked to consider whether they could not increase their promised contribution from �25 million to something of the order of �50 – �60 million.

[NAA: A1209, 1957/5406]

1 Menzies was attending the British Commonwealth Prime Ministers' Conference in London from 4 to 12 January.

2 See Document 114.

3 In March 1950, Truman appointed Gordon Gray, former Secretary of the US Army, as Special Assistant to the President in order that he might head a study on US foreign economic policy. The purpose of Gray's study was to 'assure [the US Government] that [its] policies are those which will serve best to reinforce our economic strength and that of the other free nations of the world'. The report was published in November 1950. See Department of State Bulletin, vol. XXIII, pp. 842-52.

4 Editorial insert.

Last Updated: 10 January 2017
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