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42 Memorandum from United Kingdom Government to Australian Government

London, March 1950

Sydney Conference


1. It may be convenient, before the Sydney Conference, for United Kingdom Government to set out tentatively lines along which we think this problem of economic development in South and South-East Asia might be handled.

2. At Colombo, we all agreed that problem of economic development of under-developed countries in this area was an urgent one, and that we should make a combined Commonwealth attack upon it, seeking to bring in at right time other non-Commonwealth countries in the area, and, if necessary, enlisting assistance of countries outside Commonwealth interested in the area.

3. The economic development of each country is responsibility of the country itself. What we are now looking for is most effective means of helping each other.

4. Experience shows us that problem of international co-operation in this type of work is difficult one. Much thought has been given to it in various United Nations agencies. But it cannot be said that any real impact has yet been made on the problem. We consider that this new Commonwealth attack on the problem�the turning of Colombo resolutions1 into a Colombo Plan�should from start be highly practical and realistic.

5. Firstly, we must recognise that we cannot hope for immediate results. The process of development must be a continuous one extending over many years if it is going to lead to really fundamental improvement in economic position of countries concerned. The fact that results cannot accrue quickly is more reason for starting quickly�and above all for laying sound foundation.

6. Secondly, we must recognise that stability and maintenance of law and order are essential prerequisites of effective government and orderly development.

7. Thirdly, we must recognise that an increase in standard of living can come only from development and increased productivity. The purpose of the enterprise is to increase productive power of under-developed countries, for this is [the] only way to effect permanent increase in their standard of living.

8. Fourthly, we must recognise that sterling area already faces economic problems of great gravity. The economic structure of almost every sterling area country is dependent upon Marshall Aid.2 Amount of Marshall Aid is falling and it will come to an end altogether in two years. The first task of whole sterling area must be to balance its dollar accounts and to restore the reserves to a level at which it can hope to weather future world depressions. The solution of dollar problem must be first charge upon all our resources, and the economic structures of all sterling area countries should develop in a way which contributes to this end.

9. Fifthly, we must recognise that much depends upon course of world economic situation. I f there is stable demand for the exports of primary products from underdeveloped countries they will be able to proceed with development at an orderly rate and make effective progress. If, on the other hand, these countries have to contend with periodic impoverishment of primary producers and loss of export income, their problems are very much more difficult.

10. The main conclusion to be drawn is that development problem cannot be solved on Commonwealth basis alone, and that in order to make any effective progress we shall have to enlist co-operation of United States of America as well as of other non-Commonwealth countries in the area.

11. In our view pursuant to A(v) and B(v) of Colombo Resolutions, right way to tackle the problem is for each of under-developed countries to draw up long-term development programme expressing a feasible and realistic rate of development over period of years. Some of countries concerned are, of course, working on such programmes already; others are at less advanced stage of preparation. The existence of a realistic development programme for each country, which could be carried out if specific conditions prevailed, is in our view an indispensable first step. We would emphasise that preparation of such a programme is responsibility of countries concerned.

12. These programmes will reveal gaps which cannot be filled from the individual countries' own resources. We think it most likely from our own general knowledge of problem that these gaps will be of three kinds:–

(i) External finance. The carrying out of the programme would involve a current balance of payments deficit.

(ii) Internal finance. The programme would involve greater Governmental expenditure than could be financed by taxation and savings.

(iii) Technical assistance. The programme would involve all sorts of requirements of skilled man-power which would not, in early stages, be available from the countries' own resources.

13. We do not think it is likely that over period of a long-term programme progress would be limited by physical shortages of particular kinds of commodities or equipment. Throughout field of raw materials and capital goods the world supply situation is becoming easier and, although there may be difficulty in placing orders for certain highly specialised products, we consider that it would be very mistaken to work on assumption that these difficulties will continue and be an effective limitation upon progress of development. The problem is not so much shortage of supplies as shortage of 'know-how' and of finance, both internal and external.

14. When the Committee have before them realistic development programmes of this kind, showing where gaps are, it will be possible to consider how far they can be filled from Commonwealth resources. We are bound to say that we do not expect that it will be possible for United Kingdom to make a substantial contribution; with help of Marshall Aid, we have been able to support other sterling area countries' balance of payments deficits on very large scale in the past years but as Marshall Aid declines we clearly cannot afford to contribute on as great a scale in the future. We have heavy commitments for development of the Colonies and for developing other directly dollar-earning and dollarsaving investments overseas, which are of decisive importance for viability and stability of sterling area, but we shall, of course, do what we can when we see the scale and nature of the problem, and we hope that other members of the Committee will do the same.

15. When Committee have come to a conclusion on extent to which it is possible by area action alone to initiate an effective development programme in the area as a whole, it will be necessary to consider whether, and to what extent, it will be desirable to approach United States.

16. In our view this procedure is appropriate one for tackling this very difficult and farreaching series of problems. We shall be ready at Sydney to table, if Committee so desire, a questionnaire which would supplement information already available and enable development programmes to be summarised in form suitable for preparation of a report and effective subsequent action both within the Commonwealth and, if necessary, outside.

17. We consider that it would be unwise to concentrate all our discussions at Sydney Conference on short-term problems of assistance but we fully appreciate need to ensure that while long-term programme is taking shape the maximum short-term aid practicable is mobilised to assist those countries in the area in which need is greatest and danger of spread of Communism most acute. Thus although problem of development as we understand it is a long-term one and we should deprecate undue concentration on shortterm assistance which cannot in itself be effective in tackling fundamental problem of increasing the productive power, and thus standard of living, in the under-developed countries, we should equally not rule out consideration of whatever short-term aid it may be possible to continue to offer to meet urgent needs. So far as United Kingdom is concerned we have been giving, and are continuing to give, so far as our resources permit, short-term aid. It seems unlikely that in immediate future we shall be able to do much more. Indeed in the financial sphere it has been stated publicly that we must look for reduction in scale of sterling balance releases. Subject to these limitations we shall be ready to examine sympathetically at Sydney any practicable proposals for short-term aid, and will in any event continue to give such assistance as we can. Ends.

[NAA: A3320, 3/4/2/1 part 1]

1 See Document 19.

2 A reference to aid provided to Europe under the Economic Cooperation Act of 1948 (dubbed the 'Marshall Plan' after Secretary of State George C. Marshall).

Last Updated: 10 January 2017
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