234 Memorandum by Department of External Affairs
Canberra, [August]1 1952
A General Appraisal of the Colombo Plan
PART 1. THE ANNUAL REPORT OF THE CONSULTATIVE COMMITTEE
The Annual Report of the Consultative Committee was prepared at Karachi less than a year after the Economic Development Programme officially began in July, 1951, and about eighteen months after the Committee's London Report of October, 1950,2 on which the Plan was based. Consequently, there had been insufficient time to form any final judgement on the value of the Plan. Rather, the Committee set out to review the needs of South and South-East Asian countries, the foreign aid likely to be forthcoming, and new or continuing problems associated with the Plan. In its Report, the Committee did not conduct this review as adequately as might have been hoped.
2. The following paragraphs summarise the Annual Report very briefly.
3. After covering the familiar ground of the early meetings of the Consultative Committee, the formation of the Council for Technical Co-operation, and the principles and assumptions underlying the Colombo Plan, the opening Chapter notes the increased membership of the Consultative Committee, which now includes the United States, Burma, Vietnam, Cambodia, and Laos, as well as the original Commonwealth countries. The Chapter recalls the original estimate that India, Pakistan, Ceylon, and the British Territories in South-East Asia would need ï¿½Stg.250 million in sterling releases and ï¿½834 million from other external sources for economic development over the six years of the Plan. For the first year (1951–52), the needs were ï¿½50 million from sterling releases and ï¿½156 million from other external sources
II–Economic andfinancial background
4. Chapter II traces the effect of the Korean conflict and rearmament on the export earnings and terms of trade of the South and South-East Asian countries, refers to the sterling crisis of 1951–52, and draws attention to shortages in supply of capital goods. On the first, note is taken of the very sharp rise in the prices of raw materials–and the consequent increase in export income of raw-materials exporters in 1950–51. However, account is also taken of the severe fall in export prices and the consequent severe deterioration in the terms of trade of South and South-East Asian countries from the second half of 1951.
5. Ceylon's balance of payments position and her terms of trade showed a spectacular improvement between January, 1950, and March 1951, but then fell away sharply and in November, 1951 her terms of trade were worse than in January, 1950, and substantially worse than in the pre-war period 1934 to 1938.
6. Ceylon's original estimate of Rs. 1,359 million for her six-year economic development programme has been revised to Rs. 3,200. Much of this increase is attributable to a changed method of computation and increased costs; but a substantial part is also due to the addition of further projects, including projects for rural development, transport and communications, and research in agriculture and industry. Unfortunately, Ceylon has not indicated how far the increase is due to the new basis of computation, how far to increased costs, and how far to the inclusion of new projects. In any event, the important thing is that, for 1952–53, Ceylon estimates that it will need Rs. 250 million from external sources to meet the anticipated deficit in its balance of payments, and, if this rate were maintained in subsequent years, Rs. 1,250 million (or about ï¿½A117 million) would be needed in foreign aid up to mid-1957.
7. The trend in the balance of payments and terms of trade of India is similar to that for Ceylon, except that the initial improvement in India's balance of payments was slightly less pronounced and the subsequent decline much more severe. By the end of 1951, India's terms of trade were 10% worse than in September, 1950, and were about the level of 1948–49.
8. India's economic development programme has been revised upwards from Rs. 18,395.4 million to Rs. 23,336.7 million. The increase derives principally from increased costs and from inclusion of some schemes, to be financed from current revenue, which were omitted from previous estimates. 'The bulk of the increased outlay is due mainly to a change of a bookkeeping nature and is, therefore, more apparent than real. ...Broadly speaking, the essential priorities remain'.
8. After substantial gains in 1950–51, Pakistan's exports, like those of India and Ceylon, suffered serious price declines from the second half of 1951, and the balance of payments prospects for the immediate future are not favourable. Pakistan has taken a series of measures to counter inflation and to mobilise domestic capital for developmental projects.
9. Pakistan's original six-year programme is being revised by a Planning Commission, which is still working on the programme. A Two-Year Priority Programme has been drawn up and is now being implemented. Central Government expenditure in 1951–52 was Rs. 577.6 million. For 1952–53, it is estimated at Rs. 593.9 million. Expenditure by Provincial Governments is Rs. 494 million and Rs. 521 million in 1951–52 and 1952–53 respectively.
VI–U.K. Territories in South and South-East Asia
10. The end of the boom in raw-materials prices has left the future financial position in the Territories uncertain. In addition, the Federation of Malaya continues in a state of military emergency. Broadly, however, the objectives of the Administration for economic development remain the same.
11. Most of the external aid for the Territories will come from the United Kingdom. This is expected to amount to ï¿½Stg. 60 million over six years, including War Damage grants to ï¿½21 million, War Damage loans (if required) of ï¿½19 million, Colonial Development Corporation investments of ï¿½8 million, and expenditure from Colonial Development and Welfare Funds of over ï¿½11 million. 'I f the price of rubber should fall still further, or if other conditions should become unfavourable, the territories may need considerably more external assistance if these revised programmes are to be fully carried out.'
12. Continuing war conditions have kept both agricultural and industrial production below pre-1939 levels. A preliminary six-year development programme has been drawn up. Much of the Government's attention and resources will have to be devoted to relief and rehabilitation but the hope is that it can return to the basic development programme with a minimum delay.
13. Viet Nam's six-year programme calls for the expenditure of about ï¿½Stg. 199 million, of which 15% will be devoted to agriculture, 5 8% to transport and communications, 5% to fuel and power, 10% to industry, and 12% to public health and social services. It was estimated that, of this total, approximately ï¿½Stg. 130 million would have to come from external sources (excluding French grant aid for 1951). In the two years ending July, 1952, United States aid to Viet Nam was expected to amount to ï¿½A15.7 million.
VIII–Other members of the Plan in the area
14. (a) Burma: Nothing useful is included in the Report.
15. (b) Cambodia: A preliminary programme of development, including especially a plan for increasing rice output costing over ï¿½Stg. 1 million between 1952 and 1956, has been drawn up by the Cambodian Government but no co-ordinated development programme has yet been produced. In the meantime, the emphasis will apparently be on extension of rice, rubber, pepper, maize, and tobacco cultivation, intensification of cattle breeding, and exploitation of the country's forests.
16. (c) Laos: The Government of Laos is understood to be engaged in working out a five year programme of economic development for the country.
17. (d) Nepal: Internal disorder, the extreme poverty of the people, inadequate administration, and the generally underdeveloped state of the economy operate heavily against effective action for economic advancement. Nepal is looking for external financial assistance and is already receiving some aid from the United States. Nepal also intends to submit shortly to the Council for Technical Co-operation in Colombo a memorandum outlining its needs for technical assistance.
IX–Contributions to economic development in South and South-East Asia
18. Tables 1 and 2 attached list the loans or grants to South and South-East Asian countries made by Australia, Canada, New Zealand, the United Kingdom, the United States, and the International Bank for Reconstruction and Development. In part, these figures are from the Karachi Report, filled out (especially in the case of the United States) from other sources.
19. The Report's conclusion may be summarised as follows:
(i) The Plan has' got off to a good start'.
(ii) Public investment has been stimulated in the recipient countries. (It is difficult to say how far the Colombo Plan has helped this trend, but it may have had some effect, for example, through the impetus it has given to planning by recipient governments).
PART 2. THE REPORT'S SIGNIFICANCE TO AUSTRALIA
1. By and large, the Report [raises no]3 new issues or major of major significance, either to Australia or to other countries participating in the Colombo Plan. Its main value lies in the exercise of review which it has imposed on participating governments. The underdeveloped countries have [re-examined] their development programmes, and have [made some revisions]. The contributing government also can now see clearly how far their efforts are likely to achieve the objectives [which the] Colombo meeting of Foreign Ministers [had in view] in January 1950. Unfortunately, the Report [lacks] many details which would have been useful in appraising the needs of South and South-East Asian countries. For example, the balance-of-payments position of the various countries and their balance-of-payments prospects receive [much] less detailed treatment than might reasonably have been expected in an exercise of this nature.
2. Within this broad appraisal of the Report, there are a number of detailed features which call for attention by Australia.
3. The Chapters dealing with the underdeveloped countries all begin with an account of the impact of price fluctuations on the development programmes as originally conceived. Export prices went up for a period and then slumped sharply. Import prices followed the same general trend but, since they contained a larger element of secondary commodities, they followed the traditional pattern of a slower initial rise and [the] tendency to [level] out or to fall [came much later]. The result has been that after a large improvement in the terms of trade in the initial period, there has been a substantial worsening of the terms of trade in recent months. This must mean, ceteris paribus, a considerable worsening of the balance of payments position and a much heavier [.. ,]4 of development plans on export resources.
4. In addition to this, however, the contributions of Colombo Plan countries have been decided, for the most part, at the peak of the boom. Even where (as in the case of Canada) contributions have been made annually, there will be a tendency for contributions to remain at the level originally decided. This means that the real value of contributions has fallen substantially as import prices have risen and, as these import prices tend to remain high while export prices fall sharply, the [gap between needs and available external assistance [tends to be widened].
5. [Taking] the Australian contribution as an example, [and using] the date of the Foreign Ministers Meeting of January 1950 as a base, [our commitment of f A31.25 million] had fallen [in real value] ï¿½31 million [by September 1950], to ï¿½28 million [by March 1951], and to ï¿½23.3 million [by September 1951], There had been a slight recovery to ï¿½23.8 million by November 1951, but our contribution was still, in real terms, about 25% below the level it would have been if January 1950 prices had been maintained. If, perhaps more justifiably, we take as base December 1950 when the contribution of ï¿½31.25 million was announced, the real value of the contribution had fallen to ï¿½27.8 million just before the official commencement of the Economic Development Programme in June 1951, reached a low point of ï¿½25.1 million in September 1951, and recovered slightly to ï¿½25.7 million by November 1951.
6. There is of course no certainty that the course of prices over the next two years–or up to 30th June 1957–will be the same as in the past two years. It may be that the dip in import prices shown since about last November will continue, perhaps at an accelerated rate. However, when a programme is undertaken over a period as long as six years, [there is a case for considering adjustment of contributions in the light of subsequent price fluctuations and consequent changes in the real value of the contributions initially pledged. The difficulty is that price fluctuations will affect contributing as well as recipient countries and may make fulfilment of existing pledges difficult, let alone their extension.]
7. While the nominal contributions of Australia and other countries have remained fixed and their real value has declined, the cost o f the developmental programmes o f the recipient countries has been considerably increased. As already indicated, this increased cost is partly a reflection of increased prices already discussed in relation to the decline in the real value of contributions. In part, also, the increase derives from a change in computation without any real change in the basis of the programme. Over and above these factors, however, most of the programmes [have a real addition] of new projects. In any event, as the change in the real value of our contribution illustrates, aid should be related to the current financial cost of the programmes, rather than [an] initial estimate which is no longer valid.
8. The following are the changes in the total cost of the development programme since the 1950 Report:
|Estimate in 1950 Report||Estimate in 1952 Report|
|ï¿½Stg. m.||ï¿½Stg. m.|
|Malaya & Brit. Borneo||107.0||144.0*|
|ï¿½Stg. 1868.0m||ï¿½Stg. 2510.6m|
* Rough estimate based on the percentage increase in Ceylon and India combined, which is probably too low for Pakistan and might be too high for Malaya and British Borneo.
9. If this table accurately reflects the new magnitude of the needs of the South and South- East Asian countries concerned and if the balance-of-payments problem has increased pari passu with the increase in total cost, then we should be contemplating a contribution at the rate of about ï¿½A42 million over six years, if we are to maintain [the] percentage contribution [formerly represented by our pledge of] ï¿½31.25 million.
The balance of payments position
10. As already noted, the Karachi Report unfortunately gives no clear picture of the current or prospective balance-of-payments position of the various countries. Yet the balance of payments must be one of the principal criteria in determining the amount of aid to be extended. If, despite, the development programmes already being implemented, some countries show a persistent [payments] surplus, the case for external aid must disappear, unless some radical change takes place, for example, in the [proposed] rate of justifiable economic development. The United Kingdom attitude to contributions to the Colombo Plan is illustrative. So long as India, Pakistan, and Ceylon had sterling balances in excess of their normal working needs, it could be argued that additional sterling aid was unnecessary and that it was sufficient to contribute by way of allowing the three countries to draw, up to agreed amounts, on their existing balances.
As already noted, the terms of trade of most countries in South and South-East Asia, after a sharp improvement in 1950–51, deteriorated seriously in the second half of last year. This is one indicator of the trend in the balance of payments.
Direct data available on the balance of payments position of the various countries over the past few years is incorporated in Table 3.5 This table shows that India has enjoyed a payments surplus–a small surplus of ï¿½A24 million–in only one year since 1947. In 1949, her deficit rose as high as ï¿½153 million, and her average annual deficit since 1947 has been about ï¿½83 million, after allowing for International Bank loans in 1949–50 and United States grain credits in 1951–52. This past average annual deficit compares with agreed sterling releases of about ï¿½A44 million a year between 1951 and 1957. On the crude assumption that India's payments deficits in the future will be of about the same magnitude [as] in the past, she would [need] about ï¿½A40 million aid a year to achieve a balance, after making her agreed drawings from sterling balances. (Past Bank loans and United States grain credits, unless repeated, would put this figure higher.)
Pakistan's balance of payments position is broadly similar to India's. She has had surpluses in two of the past five years, had a record deficit of ï¿½A73 million in 1949, and has been in deficit, on average, to the amount of ï¿½A14 million a year since 1948. The United Kingdom has agreed to sterling releases averaging ï¿½A5 million a year between 1951 and 1957, so that if Pakistan's payments experience in the past five years is repeated in the future, she would need to find ï¿½A9 million a year from other sources. (It is recognised of course that development programmes are likely to make payments deficits greater in the future than in the past.)
Ceylon, in the past six years, has had payments surpluses in three, a peak annual deficit ï¿½A27 million in 1947, and has had a deficit, on average, of ï¿½A4 million a year. The United Kingdom has agreed to sterling releases averaging about ï¿½A4 million a year, so that, if Ceylon's past payments experience is repeated between 1951 and 1957, sterling releases would just bring her into balance. On this basis, Ceylon's case for external aid is clearly much weaker than either India's or Pakistan's.
PART 3. THE POLITICAL OBJECTIVES OF THE COLOMBO PLAN
The political objectives of the Colombo Plan have never been clearly stated, no doubt for very good reasons. Obviously, they vary among the different members of the Consultative Committee. For some countries–the United Kingdom seems a clear example–support for the Colombo Plan is inspired more by economic interest than by foreign policy. For Australia, foreign policy supplies the mainspring for support of the Plan. The possibility of economic advantage has been acknowledged, but has been secondary.
In so far as the London Report of the Consultative Committee touched on political objectives at all, it seemed to regard the Colombo Plan primarily as counter to the spread of communism, though the aim was never expressed in those terms. The Report was concerned 'with the problem of promoting the economic improvement which is indispensable to social stability, and necessary to strengthen [the] free institutions' of South and South-East Asian Governments. The Report suggested that 'the improvement in the welfare of the South and South-East Asian peoples is a vast human endeavour, and the community of free nations stands to gain immensely by it'. If anything, the Karachi Report is even more nebulous in its treatment of political objectives.
For Australia, there seem to be three related political objectives:
(i) To halt communist encroachment;
(ii) To modify any resentments arising from differences between Australian and Asian living standards; and
(iii) To strengthen and develop amicable political relations.
These three objectives, taken separately, do not call for precisely the same policy approach in implementing the Colombo Plan.
A counter to communism
3. The Colombo Plan [may be] justified as a counter to communism in fairly simple terms. [On the assumption] that low living standards–or [even more so], declining living standards–provide [communism's] most fertile ground, [effective action to raise] living standards or at least [prevent standards] from falling, [will weaken the appeal which] communist agitators [are able to make]. The Colombo Plan does not interfere with the established governments or existing constitutions or political institutions or procedures. [There is] a tacit [understanding that no] assistance [will be given] to communist governments, but apart from that, [potential recipients have been encouraged to believe that they need] no political qualification for assistance.
4. [In these circumstances], every [non-communist] country in South and South-East Asia is [in principle], equally entitled to assistance and the actual assistance extended might be decided on fairly objective facts, such as the present and prospective balance-of-payments position, income [and trends in income] per capita, total external assistance available from all sources, [and so on]. [Trends in income per capita might be taken as a factor of special significance–] the actual level of per capita income would be less important than whether the level were rising or falling.
5. [Under this anti-communist approach, Australian aid might be expected to be well distributed among South and South-East Asian countries–provided of course] these countries were prepared to accept Australian aid. It would be logical to increase economic aid to those countries where the threat of communist disruption was especially acute. It would not seem logical however to treat Commonwealth countries, because they are members of the Commonwealth, on a preferred basis.
Obviously, a policy of this kind involves risks. Without any control of the domestic policy of recipient governments, the benefit of any external aid could be completely offset if the recipient government's domestic policies were reactionary or unimaginative. Even though 'average' per capita income in the underdeveloped countries may be rising, with national income increasing at a greater rate than population, effective internal policies of income distribution are essential to ensure that the benefit is passed on to those sections of the population most susceptible to communist propaganda. This is something to which the Colombo Plan, by virtue of the principles on which it has been based, pays very little attention.
A further point is that it by no means follows–especially in South and South-East Asia– that a non-communist government is also anti-communist and that a non-communist government will give unequivocal support to the Western Powers. Especially where anticommunism might be confused with imperialism, it is not inconsistent for a noncommunist government to adopt an attitude of neutrality or even passive hostility towards the West and a tolerant attitude towards the communist bloc, even where the groups which constitute or support the government stand to lose by communist successes. The Colombo Plan might prove completely unacceptable to such a government. Even if it accepted aid under the Plan, the extent to which its political attitudes would be changed by Colombo Plan aid (perhaps together with other external aid) is extremely doubtful. External aid might help to hold the line against communism but may do little or nothing, by itself, to win a further ally for the West.
The Australian policy of economic aid for Asia is a good deal older than the Colombo Plan itself. Originally, the policy had in it an element of economic appeasement, and, in some measure, that is no doubt still the case. The proximity between Australia, with its high living standards, and Asia, with its extreme poverty, easily arouses resentments which may become dangerous in conditions of political instability and extremism. Immigration restriction tends to crystallise and focus resentment against Australia. Economic aid presents itself as one means whereby Australia might make a gesture of sharing her wealth, and thus, it is hoped, take the edge off Asian resentment, build up living levels in Asia, and forestall extreme political movements.
Economic appeasement leads to much the same comprehensiveness in spread of economic aid as a policy inspired by defence against communism. Presumably the communist countries would be excluded on the grounds that they are in any event unresponsive to either political or economic appeasement from the non-communist world. Beyond that, however, there would presumably be no discrimination against any country for political reasons, but rather the contrary–where political relations were under special strain, economic aid could serve as a moderating influence. Where there existed no special need to moderate political tensions, economic aid could be distributed, without discrimination, according to need as shown by per capita income, balance of payments, and so on.
Since economic appeasement should entail paying more detailed regard to the fact or prospect of political conflict, a policy based upon it should be more realistic in the account taken of complex political factors than an unqualified anti-communist policy. Economic aid might be directed to fewer countries, more carefully chosen. Its disadvantage lies in the uncertain validity of its basic assumption that economic aid will moderate political conflict. In some measure and in certain circumstances, economic aid might do this. But a policy of economic appeasement may tend to place undue faith in the efficacy of economic aid and distract effort from more direct action to deal with political problems.
In the Colombo Plan and similar programmes, Australian policy has aimed at creating goodwill–in other words, at developing or strengthening friendly political relations with recipients of economic aid. In the case of Commonwealth Asian countries, the hope has been that economic aid would help keep them within the Commonwealth and thus help maintain their friendly political association with Australia. In the case of non-Commonwealth countries, the hope has been that an Australian gesture of economic cooperation might help infuse in Asian Governments a feeling for co-operation in wider fields.
In principle, Australian policy has had elements similar to United States policy under ERP6, MSP, and related programmes.7 However, the United States has had the economic power to exert pressure as well as persuasion to form a political bloc. Australia cannot do this. Nor has our policy been to encourage or join the United States in any policy to apply economic pressure.
To succeed fully, a policy of this kind needs to start with, and to maintain, harmonious political relations. If there is already some form of political alliance based on mutual interest, economic co-operation can strengthen and enlarge the popular acceptance of the alliance in both countries; and it should also strengthen the economic base for joint resistance in any future war. This approach seems valid for our relations with (for example) the United Kingdom and New Zealand.
On the assumption that membership of the Commonwealth provides an effective political link, it may also be valid for our relations with the countries of Commonwealth Asia. The effect of economic co-operation–and more particularly economic aid–may be largely negative, in that the Commonwealth link may not survive if Commonwealth countries outside Asia do not demonstrate their interest in Asia's economic problems. But it is none the less important because its effect is negative.
Outside Commonwealth Asia, economic co-operation and economic aid may build an attitude of virtual neutrality towards Australia into something more positive. By 'neutrality', it is assumed that there is no important point of conflict–territorial, ideological, or other–which economic co-operation would be expected to overcome. These conditions might obtain in the case of Indonesia, Indo-China, Thailand, the Philippines, and Burma, although, in one or two cases at least, it is very doubtful.
If political conflicts remain unresolved, or if potential conflicts are neglected, the effort to 'build bridges' by means of economic aid may be useless. Indonesia serves as an example. Her suspicions of the West make her suspect Western aid, even though her need is great. She has already accepted some aid from the United States and will probably accept more, as well as aid perhaps under the Colombo Plan. But all aid will be accepted with a firm determination to maintain a sturdy independence in her foreign policy. For Australia, Dutch New Guinea might provide a further point of difficulty. If that territory caused any serious conflict between the two countries, it does not seem likely that that conflict would to any important degree be offset by Colombo Plan aid.
A policy of economic alliance therefore seems to entail concentration on those countries with whom some close political association exists or seems most feasible. It may be possible to reduce the strategic significance of some countries with whom the prospects of a close political association are remote. For example, if Indonesia's political attitude were considered unresponsive to economic aid, that conclusion would cause less concern if the support of the circle of countries to her north were assured.
Mobilising international effort
Whatever may be Australia's objectives in South and South-East Asia, she cannot achieve them alone. The Colombo Plan has consequently been, in large measure, a bid to draw enlarged economic aid from the United States and other countries.
In this, the Colombo Plan has already succeeded to some extent. United Kingdom aid to her Territories in South and South-East Asia and sterling releases to India, Pakistan, and Ceylon are probably little different from what they would have been without the Plan. But Canada would probably not have contributed to Asian economic development without the Plan. Indeed, even when the Plan was already under active discussion, it seemed doubtful that Canada would contribute to either economic development or to technical assistance. Nevertheless, she has ultimately contributed to the Economic Development Programme at a high[er] rate than Australia in the first two years of the Programme and has made a useful contribution to the Technical Co-operation Programme. New Zealand's contribution also, though necessarily small, is an addition to Asian resources, arising directly from the Plan.
However, the Plan's principal target was the United States. It has always been clear that, without substantial United States aid, the prospects of reaching even the modest development goals in the London Report, were and are remote. In the earlier post-war years, the United States concentrated its aid on Europe and Latin America. Except for the Philippines, Asia received little direct dollar aid. In 1949, the United States began to provide substantial aid to Indonesia and Thailand, and, early in 1950, to Burma. In 1950–51, United States aid was much larger and much more widely spread. India, Pakistan, Ceylon, Burma, Indo-China, Indonesia, the Philippines, Thailand, and Formosa all received aid–in most cases substantial aid–from the United States. Assistance in 1951–52 was increased again, though largely by way of loans. In the current financial year, it seems that United States aid, although still substantial and widespread, will be lower than in the past two years, unless there is substantial American lending of which there is no clear prospect at the moment.
The Colombo Plan can hardly be credited with winning all the American aid extended in the past two years, but the Colombo Plan has no doubt provided some encouragement and has made it easier for the United States to obtain appropriations for aid to Asia. The United States has consistently wanted to see the burdens of economic development–in Asia as elsewhere–shared by other countries, even though it is clear from the outset that most of the burden must be borne by the United States itself. The Colombo Plan meets this desire. Even though American aid to Asia shows yearly fluctuations and has not yet reached the level that Asian countries and Australia have hoped for, aid to Asia now seems to have been established as a regular part of the American aid programme and this in itself is a big forward step.
Apart from the United States, the aim has been to interest the International Bank more fully in South and South-East Asia. As shown elsewhere, there has been a gradual increase in Bank interests but the Bank does not yet contribute significantly to the development of the area. The Colombo Plan should however, not only have drawn Bank attention more strongly to Asia but also should have assisted the formulation of well-based development projects to which the Bank can confidently extend assistance. In other words, if Bank aid is still small, the Colombo Plan should have helped establish a [favourable] economic climate suitable for future increases.
PART 4. DIRECTION OF FUTURE AUSTRALIAN AID
Decisions on the direction future Australian aid should desirably take into account:
(i) Political objectives
(ii) Relative need
(iii) Aid from other sources
(iv) Commercial interest
(i) Political objectivesOn the basis of the political considerations outlined in part 3, potential recipients of Australian aid may be divided into three categories, as follows:
British Territories in South and South-East Asia
? Burma ?
|? Burma ?
Category 1 comprises those countries with close political associations with Australia, where economic aid is expected only to confirm and improve the existing position, rather than help build a new political relationship.
Category 2 comprises those countries which may be regarded as 'neutral' and whose political relationship with Australia may be built into something more positive through economic aid.
Category 3 comprises those countries where some hostility towards Western countries (and perhaps towards Australia specifically) already exists or where there is such internal instability that the prospect of political benefit from economic aid is, in existing circumstances, remote.
Since our contribution is small in relation to Asian needs, it might be wise to concentrate on Category 1 countries, although the policy already adopted of bringing in other South and South-East Asian countries seems to demand that some aid be given to non- Commonwealth countries as they join the Colombo Plan.
(ii) Relative need. Using data already set down in part 2, aid can be allocated among Asian countries according to either
(a) Relative living standards; or
(b) Balance-of-payments position.
Indo-China is dealt with separately elsewhere (see part 6) and the British Territories in South-East Asia will have their development needs met by the United Kingdom. Leaving these aside, relative living standards give an order of priority for extension of aid along the following lines:
In other words, allocation on an income basis almost exactly reverses the order suggested by political objectives.
The data on balance of payments are less clear but would place Thailand, and Ceylon at the bottom of the priority list, with India, Pakistan and the Philippines correspondingly nearer the top.
(iii) Aid from other sources. As already suggested, relative standards of living may be less important than the trend in living standards. If we can assume that living standards rise proportionately with external aid received, it is relevant to establish an order of priority for aid on the basis of the aid which the various countries have previously been receiving. Using per capita aid received in 1951–52, and giving highest priority to the country receiving lowest aid per capita, the following order of priority emerges:
7. The Philippines
This is a mixture of the 'political' and the 'needs' order, but the fact which stands out is that the Commonwealth countries again move towards the top of the list. It may be inferred that Commonwealth membership is a disadvantage for receipt of economic aid. It might be argued that the United States tends to pay them less attention than non- Commonwealth countries, and non-Asian Commonwealth countries cannot make up the difference. There may consequently be another reason for concentrating our aid on Commonwealth countries receiving comparatively little per capita aid and disregarding those countries receiving large amounts of aid from the United States.
(iv) Commercial interest. Although the Colombo Plan is essentially a foreign-policy operation, the possibility of deriving some commercial advantage from the Plan should be taken into account. On commercial grounds, Australia would presumably be interested in directing economic aid to those countries which have provided us with the best markets in the past and where future market prospects are brightest. Entry of Australian goods into Asian countries under the Colombo Plan might assist commercial entry on a continuing basis.
Using the average annual value of our exports to South and South-East Asian countries over the past seven years, the following is the market importance of the various countries:
2. British Territories in South-East Asia
8. The Philippines
Detailed figures are contained in table.
AUSTRALIAN EXPORTS TO COLOMBO PLAN COUNTRIES 1945–6 TO 1951–2
|ï¿½A m.||ï¿½A m.||ï¿½A m.||ï¿½A m.||ï¿½A m.||ï¿½A m.||ï¿½A m.||ï¿½A m.||ï¿½A m.|
|Federation of Malaya||6.5||18.4||7.8||6.1||5.6||8.2||8.6|
The record of past exports does not of course provide any final guide to the market potential of the various countries. One point to bear in mind is that internal disorder, for example in Indonesia and Burma, has reduced our trade with some countries. In the case of Indonesia, the export figure for 1951-52 may be a more valid indicator of the future magnitude of our exports to Indonesia than the annual average over the past seven years. If that is so, then only India and the combined British Territories in South-East Asia provide larger markets for Australian exports than Indonesia.
Since the United Kingdom has undertaken to meet the development needs of her territories, we may leave the British Territories in South-East Asia outside our allocation of aid. Similarly, since the Philippines is a special responsibility of the United States and has been receiving substantial aid from the latter, we can presumably exclude that country also. The possibility of extending aid to Indo-China is dealt with separately elsewhere and that country can also be left out of account for the moment.
Taking the remaining countries in the Colombo Plan area, and applying the four sets of criteria which have been used here for allocation of aid, the following seems to be a reasonable order of priority:
PART 7. JAPANESE PARTICIPATION
There are obvious reasons why Japan may be expected to contribute to the Colombo Plan. She has the technical knowledge and experience needed by the underdeveloped Asian countries. She also has the industrial capacity to provide the technical equipment and capital goods needed throughout South and South-East Asia.
Whether she can finance assistance to the underdeveloped countries is another question; and her participation in the Colombo Plan may be justified only–or in any event mainly–by her capacity and willingness to extend aid. On one or two occasions, Japanese representatives have declared Japan's readiness to make some contribution, but these declarations have been only in vague, general terms, involving no firm, precise commitment.
Her capacity to extend aid will be determined principally by her balance-of-payments position. Except in the comparatively short term, her balance-of-payments position seems to be somewhat precarious, because its strength is dependent on the continuance of factors which are essentially impermanent. For the moment, she has accumulated very large holdings of sterling and exceptional dollar earnings arising especially from the Korean War have distorted what would seem to be the normal, long-term pattern of her trade. This, at any rate, is the current view of United Kingdom experts in Japan. The British Embassy Economic Report No. 6 of 9th July 19528 stated that, since the United Kingdom Sterling Payments Agreement with Japan was signed on 31st August 1951,
'. . . Japan's sterling balances have increased from ï¿½38,000,000 to ï¿½125,000,000, the latter figure being the amount on 20th June 1952. There has so far been no sign of a reversal of the tendency of Japan to export more to the sterling area than she imports from that area ... Broadly speaking, Japan is trying to buy in the dollar area and sell in the sterling area and that she has been able to do so without running into a serious dollar deficit is due to the temporary and fortuitous circumstance of the war in Korea. Supplies and services to the U.S. troops engaged in the campaign and the heavy dollar expenditure in Japan of U.S. troops has served to cover Japan's trading deficits with the dollar area, with the result that Japan has made no serious effort to switch her purchases to the sterling area. Until she does so, there can be no real health in her economy'.
One of the arguments which the United Kingdom puts forward in favour of Japanese participation is that Japanese aid under the Colombo Plan would help ease the pressure on sterling. In the short term, this may be so–provided of course Japan did not (as we propose to do) add to her exports by means of the Colombo Plan, instead of substituting Colombo Plan gifts for commercial exports. In the longer term, if Japan derives some commercial advantage from the Colombo Plan, the pressure on sterling is likely to be increased.
It is impossible to say conclusively that Japan would be able to make substantial financial
contributions to the Colombo Plan between now and 1957. It seems however that she could make some contribution in the immediate future. Moreover, if she sees the prospect of political and commercial advantage from making a contribution, it is likely that she will make special efforts to do so.
Attitude of other countries
Except for Australia, it seems that there may by no real opposition to Japanese participation. That seems to be the conclusion to be drawn from the informal discussions on the subject at the Karachi meeting.
Especially if Japan can offer Asian countries substantial economic and/or technical aid, there seems little doubt that Asian countries would welcome her participation and that Australia would find it extremely difficult to oppose them. [Clearly Asian countries already favour Japanese participation and the fact that they have not so far pressed their view may be due only to uncertainty about the material aid which will be forthcoming from Japan.]
Apart from the Asian countries, the United Kingdom would also support Japanese participation, apparently on the following three grounds:
(i) It would increase the flow of scarce capital good and raw materials to Colombo Plan recipients.
(ii) It would reduce the pressure on sterling, since otherwise some Japanese capital goods and technical assistance would be paid for in sterling by Asian members of the Sterling Area.
(iii) It would increase the attractiveness of the Colombo Plan to Asian recipient governments, at a time when their interest in the Plan may be diminishing.
The United States, although apparently believing that Japanese participation should not be rushed, would favour bringing Japan in at the right moment.
New Zealand's view–surprisingly–has not been made clear. However, so far as can be gathered from the informal discussions which have so far taken place, it seems that she would not actively oppose Japanese participation–unless perhaps she were provoked by us.
At the time of the Karachi Meeting, Australian policy was to oppose or at least delay Japanese participation along the following lines:
(i) There is a case for considering participation by France before Japan.(See comment on this point below.)
(ii) There might be justifiable protests from the Philippines and Indonesia at any move to encourage Japanese aid to other Asian countries while reparations claims are unsettled. (See comment on the reparations question below also.)
(iii) In the immediate future, there is no reason to suppose that Japan's balance-of-payments position would permit her to afford any tangible benefits to other participants.
(Some comment has already been given above on Japan's balance-of-payments position. It may be argued that it is for Japan to decide what aid she can extend. If she commits herself to extend a stated amount and type of aid, that is likely to be decisive. Indeed, it might be argued that Japan's balance of payments position at the present time offers a better prospect of substantial external aid than does Australia's.)
(iv) The question of Japanese participation might be kept under review in the twelve months up to March 1953, rather than take any firm and final decision at the Karachi meeting.
This attitude implied that Japanese participation could not be opposed by reference to anything fundamental in Australian policy. In theory, Australia might have opposed Japanese participation either on:
(a) Political grounds; or for
(b) Commercial reasons.
Our political attitude to Japan has changed considerably since 1945. Leaving aside for the moment the continuing public hostility towards Japan in Australia, the communist threat, the Japanese Peace Treaty and new Treaty relations among Japan, the United States, Australia, and New Zealand have moved Japan nearer to the category of ally than that of enemy. [See, for example, Articles IV and V9 of the Security Treaty between Australia, New Zealand and the United States, together with Article I10 of the Security Treaty between the United States and Japan.] Any political encroachment or attempted domination by Japan in South and South-East Asia would justify–and no doubt bring forth–a change in Australia's present attitude towards Japan. But co-operative political relations between Japan and the countries of South and South-East Asia would be consistent with recent Australian policy. Indeed, to exclude Japan from co-operative political relations with the area closest to her would, unless and until Japan shows some tendency to revert to her pre-war policies, operate directly against Australian policy to encourage Japan to become a useful and trusted member of the non-communist world.
Even if Australia considered that Japanese participation should be opposed on political grounds, it might be difficult openly to declare our opposition on those grounds. To imply that Japan could use the Colombo Plan to secure political domination might imply that existing contributing countries could do the same. In any event, it seems it must be for the South and South-East Asian countries themselves to decide whether to risk domination by Japanese participation and that we cannot presume to take decisions for them.
Especially in an exercise like the Colombo Plan, political and commercial considerations are closely linked. Japan must have a close commercial interest in South and South-East Asia and, unless and until there is evidence that she is employing unfair commercial practices, she could not reasonably be denied commercial entry into that area. If Japan decides to contribute to the Colombo Plan, she will almost certainly have commercial advantage in mind and that consideration might even be uppermost. If Australia opposed Japanese participation in the Colombo Plan for commercial reasons, the effect of such a policy might be to drive Japan into an association with communist countries which it has been the aim of our recent foreign policy to avoid. In a Despatch dated 28th July 1952,11 the Acting Australian Commissioner in Singapore12 reported the views of the United Kingdom Commissioner-General in South and South-East Asia13 as follows:
'In order to keep the support of Japan, Mr MacDonald believes it will be necessary to show that co-operation with the West is worthwhile economically. Japan needs markets for her products and sources of raw materials if her people are to be fully employed and enjoy decent living standards. In the past she has depended to a large extent on China but in future this trade will only be possible on communist terms. Mr MacDonald believes that although it is small at present, some Japanese trade with China is inevitable but he considers that this only emphasises the need to limit this exchange as much as possible so as to restrict communist influence in Japan.
In all these circumstances Japan's trade with South East Asia takes on a special significance. Mr MacDonald clearly believes that this trade must greatly expand. He also considers that this will be possible notwithstanding the importance of maintaining the established trade interests of the United Kingdom and other Commonwealth countries such as India and Australia. In this respect he mentioned rather vaguely the market created by Indonesia's seventy million people. No doubt as a result of a reminder received on his way back to Malaya, he also made special reference to the need to protect Hong Kong's infant industries.'
In any event, it is for South and South-East Asian countries themselves to decide to what extent Japan should be allowed entry into their markets. It is also for them to judge whether the Colombo Plan might give Japan some undesirable commercial advantage, and, if necessary, take steps to guard against such a development–in the same way as they might guard against undue commercial advantage for the United Kingdom or the United States or ourselves. Openly to oppose Japanese participation on commercial grounds might invite the conclusion that our opposition is in the interests of our own welfare and not the welfare of South and South-East Asia.
In these circumstances and in the light of continuing suspicion in Australia about Japan, the only useful policy towards Japanese participation in the Colombo Plan may be to adopt moderate delaying tactics, so far as any future pressure by Asian and other countries to bring Japan into the Plan allows.
Some time might be won by demanding that other countries–France and Holland, for example–be invited to participate as well as Japan. Already however there has been ample time to invite these other countries. Especially if Japan offers a large contribution, we could raise little objection to inviting her to join simultaneously with other countries considered to qualify for membership.
A greater opportunity for delay may be found by reference to Japan's obligations to pay reparations to countries whose territories were occupied and damaged by Japan during the war. Article 14 (a) 1 of the Japanese Peace Treaty reads:
'Japan will promptly enter into negotiations with Allied Powers so desiring, whose present territories were occupied by Japanese forces and damaged by Japan, with a view to assisting to compensate those countries for the cost of repairing the damage done, by making available the services of the Japanese people in production, salvaging and other work for the Allied Powers in question. Such arrangements shall avoid the imposition of additional liabilities on other Allied Powers, and, where the manufacturing of raw materials is called for, they shall be supplied by the Allied Powers in question, so as not to throw any exchange burden on Japan'.
The Peace Treaty has not yet been ratified by the Philippines and, although preliminary talks on reparations have been held between Indonesia and Japan, it cannot be estimated when those negotiations will be completed. The amount of Japan's reparations obligations and the time which will elapse before she is quit of them are impossible to estimate at this stage. However, if Australia took the line that Japan should not participate in the Colombo Plan until agreed reparations had been met in full, this might amount in effect to rejection of her proposed membership, at least for the present term of the Colombo Plan up to 30th June 1957.
The question is whether a Japanese contribution to the Colombo Plan would affect Japanese capacity to meet reparations claims. In the first place, it must be noted that reparations are not intended to place a foreign exchange burden on Japan. She is not to pay any sums in foreign currency, but to make available 'the services of the Japanese people'. It is possible that this will reduce the export earnings of Japan, but the amount of this reduction, if any, is impossible to estimate. We may assume that Japanese negotiations will be directed to ensure that it is as small as possible, and that this will have to be accepted by the Allied Powers receiving reparations as being in accord with the intention of Article 14.
Japan may therefore be able to make a case to show that reparations do not affect her capacity to contribute to the Colombo Plan, and, in turn, that any foreign exchange burden involved in contributing to the Colombo Plan will not reduce her capacity to make reparations deliveries, which do not call for any outlay of foreign exchange.
At the moment, however, this case has still to be made out and Australia could reasonably argue that Japanese participation in the Colombo Plan (with the corollary of contribution to the Plan) should be postponed until that is done.
One point to bear in mind however is that not all South and South-East Asian countries will be receiving reparations from Japan. India, for example, has waived all reparations claims, and may be loath to forego or postpone the possibility or receiving Colombo-Plan aid from Japan in order to ensure that other countries receive reparations.
It may finally be possible to delay Japanese participation by insisting that, before Japan is admitted as a participant, she should commit herself to a substantial contribution. The Colombo Plan is intended for the benefit of South and South-East Asia. Countries admitted from outside the area are assumed to be making, or to intend to make, some contribution to the economic development of the area. The United States does not contribute directly to the Colombo Plan, but her economic and technical aid under the Mutual Security Programme, for example, fully justifies her participation. It seems reasonable to insist that Japan give concrete evidence of her willingness to assist in a similar way before she is brought into the Plan.
In the end, however, it seems that the Asian attitude to Japanese participation must be decisive. If one or more Asian countries want to oppose or delay Japanese participation, Australia might be able to go along [comfortably] with them. If however the Asians are unanimous that Japan should be admitted immediately, Australia will find it extremely difficult to press any objections she may have.
PART VII. THE TECHNICAL CO-OPERATION PROGRAMME
Our aid under the Technical Co-operation Programme has been spread much more widely than our aid under the Economic Development Programme. In most countries, except India, Pakistan, and Ceylon, our Colombo-Plan aid is likely to be identified with the Technical Co-operation Programme, and, especially while some countries remain outside the Colombo Plan as a whole or while no Australian allocation of funds for economic development is made to countries which have formally joined"the Plan, token aid under the Technical Co-operation Programme takes on a special importance, if only as a token of our sincere intention to spread our aid beyond the Commonwealth countries.
Expenditure by categories of assistance
Expenditure under the Technical Co-operation Programme has fallen into four main categories, as follows:
(i) Training in Australia (fellowships, scholarships, seminars)
(ii) Provision of experts
(iii) Provision, of technical equipment
(iv) Administrative expenses associated with the Bureau for Technical Co-operation
The administrative expenses are a small, fixed annual cost which we need do no more than note. Among the other three categories, there has been no very careful allocation of available funds, although in making offers of fellowships and scholarships or in establishing a figure on which to work for offering technical equipment, the possible needs of the other categories has been taken into account.
Broadly speaking, it is probably undesirable to set any percentage of our total contribution to be devoted to each of the three categories. At the same time, it may be true that the entry of Asians to Australia (via fellowships, scholarships, and seminars) has a much greater political importance, especially in the long-term, than supply of technical equipment, whose origin is probably quickly forgotten, or the provision of Australian experts, whose reports, if they do not gather dust from the start, are quickly superseded and forgotten as projects are carried into their later stages. Factors which give entry of Asians into Australia a greater importance are (i) the body of people in Asian countries which is gradually built up with an intimate knowledge of Australia and, it may be hoped, some affection for this country, and (ii) the balm which we may suppose it provides to those who resent our immigration restriction policy.
In fact, the tendency has always been to emphasise the training part of the Technical Cooperation Programme. The following table shows the proportion of total expenditure devoted to the various categories of assistance since the Programme got under way:
|Training %||Experts %||Equipment %|
Although the percentage of total expenditure devoted to training is high and increasing, it is probably not disproportionate to the importance which might properly be attached to training in Australia. There are however some grounds for suggesting that the percentage of total expenditure devoted to training should not go above [a maximum] of 75%. The percentage for experts, though quite low, is probably not excessively low, and might reasonably be maintained at something between 10 and 15%. A percentage as low as this is suggested because (i) the benefit, either to recipient or donor countries, of short-term missions by experts is probably small in most instances and transitory, and (ii) the United Nations is already sending, or arranging to send, a flood of experts to the underdeveloped countries including those within the Colombo Plan area, and these may reasonably be expected to meet the great bulk of the real needs of Colombo-Plan countries.
On the other hand, the United Nations has only a restricted equipment programme. Supplies are, in all cases, linked with expert missions and there seems to be no provision for equipping, for example, technical high schools, polytechnics, universities, specialist research institutes and so on, although equipment for institutions of these kinds might be among the most urgent needs of Asian countries. It seems reasonable, therefore, that a little more emphasis might be given to supply of equipment under our part of the Technical Co-operation Programme, and that the percentage of total expenditure devoted to equipment might be set at 20, as a minimum. For the future, the division of expenditure among the three categories of assistance at which we might aim, might be as follows:
Distribution of aid among countries
Especially in the light of the heavy emphasis placed on training and the offer of fellowships, scholarships and seminars to all the South and South-East Asian countries, the pattern of Australian aid under the Technical Co-operation Programme might be expected to be much more complex and this in fact has been the case.
In the early months of the Programme, the distribution of Australian aid among the various countries (as revealed by expenditures actually made) seemed to be badly balanced. For example, by June 1951, Ceylon had received more than three times as much aid as India, and, by December 1951, about the same amount of aid had been given to Ceylon as to India. By June 1952, India had drawn well ahead and had then received about half as much aid again as had Ceylon, although India had still received substantially less aid than Pakistan.
Maintenance of a desirable balance in the aid given to various countries is something which should be borne in mind as the Programme progresses. There is something to be said for establishing some sort of working allocations, which need not be applied rigidly or made known to the recipient countries but which might guide us in entering into additional commitments in respect of any of them. Even with offers of scholarships–which are allocated among countries according to some reasonable criteria–the failure of some countries to take up the offers in full leads to imbalance. Further, the arrangement of special seminars which often assist one particular country much more than others leads to further imbalance. (The seminars in public administration for Pakistani officials is one example which might often be repeated.) Experts are sent from Australia as ad hoc requests find suitable persons in Australia and experience suggests that we might well find five men who will meet Pakistan's needs while we shall find difficulty in providing one for India. For technical equipment, we have made allocations between the main recipients, but this is unlikely to remedy the imbalance which has already appeared from the other categories of aid.
Outside the Commonwealth countries, aid had gone, in June 1952, to the following countries in the amounts indicated:
There might be a case for directing a greater proportion of technical assistance to these non-Commonwealth countries, because they do not participate in the Economic Development Programme. Nevertheless, there should be some distinction drawn among the various countries. For example, it does not seem necessary to enlarge our assistance to the Philippines, if only because of the substantial aid which that country already receives from the United States. There may on the other hand be a good case for increasing the proportion of aid which goes to Indonesia, if:
(i) It appears that some political benefit will accrue to us.
(ii) It seems that this assistance will not retard, but rather hasten, Indonesian co-operation on a much wider basis through full participation on the Technical Co-operation Programme and perhaps also the Economic Development Programme.
There might also be a strong case for trying to enlarge our aid to Burma which is now a full participant in the Colombo Plan but which has so far received no aid from any country under the Plan. Especially since the prospects of aid under the Economic Development Programme are not good in the immediate future at least, it seems entirely desirable that we should start the ball rolling with aid under the Technical Co-operation Programme. Our Legation in Rangoon might be asked to report in detail on the aid which we could best offer. One point to bear carefully in mind is that, if Burma receives nothing after joining the Plan, Indonesia might very logically argue that there is no point in her taking a similar step.
A reasonable start for making allocations among countries is provided through relative populations. Omitting the Philippines, the following round percentage allocations might be made on the basis of relative total population:
|British South-East Asian Territories||1|
On occasion, there will be reasons for departing from these percentages based solely on population. One example where departure would seem justified is provided by India, where there is apparently a surplus of professional men at the moment, while in Pakistan the opposite is true. India also is a relatively highly developed country so far as techniques are concerned and needs rather finance for economic development than the benefit of more highly advanced techniques. Especially since her percentage is so high, it might be reduced (somewhat arbitrarily) to 30%, and the other 30.5% spread proportionately among the other countries. Assuming then that the total Australian contribution to the Technical Co-operation Programme will be ï¿½3 million, the following might be the percentage allocations and allocation of funds among the various countries, which could be used as a working guide to keep expenditure among countries in balance:
|British South-East Asian Territories||2||(7)||60,000|
The figures in brackets indicate the percentage of total expenditure up to 30th June 1952 which had been directed to each of the countries listed. These figures add only to 96%, and to them should be added 3% for the Philippines (to whom it has been suggested above it is not necessary for Australia to direct any aid), and 1% for Nepal. The percentages for the first two years of the Programme show, as might have been expected, the very heavy emphasis on aid to Commonwealth countries, and, except for Indonesia, the negligible aid given to non-Commonwealth countries–none at all for Burma or Indo-China (who, except for Laos remaining outside the Technical Co-operation Programme, are both full participants in both Colombo Plan Programmes) and virtually nothing for Thailand.
[NAA: A4311, 145/1]
1 This document is undated but was mostly likely completed in August 1952.
2 See Document 114.
3 Words in square brackets in this document added by hand.
4 A word or words appear to be missing here.
5 Table not published.
6 The European Recovery Program–often referred to as the Marshall Plan.
7 The Mutual Security Program was established under the Mutual Security Act of October 1951 which combined into a single measure all military, economic and technical United States foreign aid, while establishing the Mutual Security Agency, and allocating funds on a regional basis for the financial year ending in June 1952.
8 Not published.
9 Article IV of the Treaty states that each party will 'act to meet the common danger in accordance with its constitutional processes' in the event of an armed attack by one of the parties in the Pacific. Article V defines armed attack as including both the metropolitan territory of any of the parties or on island territories under its jurisdiction or on its armed forces, public vessels or aircraft in the Pacific. (See Appendix IV, Documents on Australian Foreign Policy, The ANZUS Treaty 1951)
10 Under Article 1 of the Treaty, Japan granted and the United States accepted the right to dispose US land, air and sea forces in and about Japan to contribute to the security of Japan against armed attack.
11 Not published.
12 T.K. Critchley.
13 Malcolm MacDonald.