34. PRIORITY SECRET
The Committee has practically finished drafting of all the Chapters set out in the synopsis1 except—
(a) Chapter 15, Sources of Finance.
(b) Chapter 16, Relations with non-Commonwealth countries, liaison with United Nations, etc.
2. Uncertainty about the response of non-Commonwealth countries to invitations has made drafting difficult.2 There was agreement in discussion today that the least that should be done is to describe generally the nature of the problems which face all countries in the area while at the same time estimating the needs for external financial assistance only for the countries which submitted development programmes, i.e. the Commonwealth countries. Canadian officials agree with us that bringing non-Commonwealth countries into the picture will assist in getting United States support by helping to remove implications that programme is designed solely to assist United Kingdom sterling balance problem. But at same time Canadians seem to think that it may not be practicable to push non-Commonwealth to point of full association contemplated at Sydney since they have already begun dealing bilaterally with the Americans. Indian officials say privately that inclusion of non-Commonwealth countries would help them politically at home. At the meeting they advocated that we now aim at report from London meeting by Commonwealth countries only but that efforts be made to get agreement of non-Commonwealth for statement in text of report:—
(a) that they approve general principles;
(b) that there will be subsequent consultation with them to explore possibilities of cooperative action (dependent on United States attitude)
3. As we see it main complication is the difficulty of stimulating non-Commonwealth countries to join in the collective Commonwealth approach when they are already depending on the United States which has its own process for providing assistance for projects currently being worked out with the governments.
4. We suggested today that London meeting aim at objectives similar to those attributed to India above. Delegation had in mind that report should do as much as possible to develop an association which would demonstrate co-operation and mutual help among the Commonwealth, United States and the countries of the area. For Australia this would presumably be our political objective. The extent of attendant economic advantages would depend on whether United States would, through this process, be more likely to supply free dollars rather than tied supplies to the area. There may be possibilities of convincing the Americans of the political advantages of bringing the countries together on what would be outwardly an economic basis. Partly for tactical reasons we argued today that attempt should be made to go one stage further and to get non-Commonwealth actually to join in issuing report from London meeting.
5. United Kingdom's attitude was to stress all the practical difficulties of getting South East Asia into the programme. It is apparent that the earning of dollars supplied by the Americans to the countries of the area is the overriding objective with United Kingdom officials and this explains their disinterest in having South East Asian governments associated since American aid to these countries is on a tied basis. United Kingdom rightly points to possibility of delay if report hads to be cleared in South East Asian capitals. Ministers will be asked to consider question of non-Commonwealth countries at the beginning of their meeting.
6. So far the report fails to meet the consideration stressed by the Americans [as]3 indicated in various reports from Washington and in report of Minister's discussion with Thorpe:4—
(a) Programmes are not confined to what the Commonwealth can do alone.
(b) Intention in a provisional United Kingdom draft being circulated for private discussion is that the Commonwealth would indicate financial support to be given as part of a world plan, (the part would presumably be small but no figures have been canvassed here yet).
(c) The text would make oblique reference to the United States [in several contexts—e.g.] by stressing the need for capital from creditor countries of a kind which would restore multi-lateral trade.
(d) Attention is not focussed on release of sterling balances but this is not far from the surface and throughout the report the United Kingdom has made a feature of describing sterling releases as a form of external assistance. There is the implication that United Kingdom alone of Commonwealth countries has made any real contribution to the area and that future releases will be a similar contribution to the plan. India has however presented [its] plan for finance (608 million sterling) separate from expected drawings on balances [(210 million over six years)]
(e) There is no project approach but the possibility that the report will have considerable illustrative detail indicating its build-up from projects has been discussed and a decision deferred.
(f) Text would argue against tying purchases to particular sources of supply as at present practised by the United States.
7. The Delegation faces the difficulty that any initiative proposing a draft confined to what the Commonwealth can do would imply an intention to contribute and require an indication now of Australia's contribution.
8. Even more difficult is the United States request for a project approach (Minister's telegram 32 to London)5 United Kingdom Treasury officials are strongly opposed to this and for reasons in paragraph 5 will not accept that such aid is better than nothing even for the countries concerned.
9. The disadvantages of the project approach as seen by the Delegation are—
(a) United States would be tied to United States supplies.
(b) India's needs are predominantly not for assistance with projects but for financial support for food imports, which will enable her to finance internal development without inflation. The project approach would also be limiting in other countries.
(c) It involves the risk of criticisms of interference in the internal policies of the countries.
10. A useful compromise in the report would be to explain the advantages of the financial approach but to stress the illustrative details attached to the report and the opportunities which would be given any government making a contribution to examine the projects making up the programmes and regularly review balance of payment management, etc.
11. So far the general feeling has been to leave it to the countries presenting the programmes to state the limits of internal finance and the amount of external finance required, etc. [so] that the Commonwealth [would] collectively commit itself only to the general reasonableness of the scale of the plans. We have pressed successfully to have more ample treatment of balance of payments in report since discussion earlier was inclined to assume that deficiencies in internal finance alone were sufficient justification for external assistance.
12. It is now apparent that India can make a strong case for assistance. Pakistan possibly has an equally strong case but it will not be self-evident from the rather sketchy information [they have] submitted. The claims of the Colonies and Ceylon are much weaker [on the basis of] their own case and certainly do not justify financial grants as distinct from loans.
13. We should appreciate instructions if you consider it necessary for officials to reserve position on section of report proposing precise definition of amount of Commonwealth aid or for any of the reasons stated in paragraph ...6 above. We will of course reserve position on any figures which may be produced. It is generally recognised that Conference Report will be referred to Governments for decision after the London meeting.
14. Discussion on the question of finance will be held on Tuesday.7
[NAA: A3320, 3/4/2/1 part 2]