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107 Cablegram from Spender to Menzies

London, 27 September 1950

4671. IMMEDIATE

Your 414 to New York1

Consultative Committee

I am grateful for your message and I shall attempt to give my views on the points which you raise, all of which I agree are relevant to consideration of what Australia can afford as part of a process of mobilising international economic assistance in South and South East Asia.

2. Four main considerations weigh most with me. The first is the vital importance for Australia's long-term security of a United States commitment to sustain the economic (and indirectly the political) stability of this area. The second is the fact that Asia will not accept United States aid in the same terms and with the same readiness to identify itself with the West in the global political dispute as was the case in Europe. In consequence we should use the great potential Asian influence of the Commonwealth as a cohesive force progressively to bind Asia to the West in a way which has so far been impossible by direct political pressure in a region whose nationalism is founded on reaction against the West. Australia can, in my opinion, best use the resources she has as a stimulus to the potential power of the Commonwealth as a whole; this is a major reason for the initiative that Australia has already taken in Colombo. Thirdly, while I do not underrate the value of the accumulated experience of the United Kingdom in the Far East, the conviction borne in on me is that fundamentally she is anxious to be quit of responsibilities there except so far as her economic interests (net dollar earnings) and responsibilities for preparing for selfgovernment are directly engaged in Malaya. Fourthly, we must regard this plan as part of foreign policy designed to deny this important part of the world to Soviet Russian influence. It is accordingly a plan which is intended to contribute to peace within the area and so needs to be paid for.

3. Only the United States can fill the political and economic gap. It would be rash to predict that she will and that she will do it in a way that will win Asian sympathy for Western democracy. I count it a good chance, however, that the United States and the Commonwealth together could ultimately carry Asia with them if we have enough time. On the other hand deliberate Australian isolation from Asia while we are achieving our small population increase seems to me to lose us the opportunity of using foreign policy effectively in our long-term defence.

4. I am no more able to predict the final decision of Congress than were the European countries when they embarked upon the European programme in response to Marshall's statement.2 The Administration has, however, been as encouraging as could be expected. They have indicated that they are thinking of 90 to 100 million [Pounds]3 sterling a year for the Commonwealth countries whose present programmes would call for external credit of about 135 million a year in addition to drawings on reserves (sterling balances) of about 38 million a year. I would not hope for any better encouragement although in prudence it might be considered advisable that any Australian contribution should be dependent on ultimate United States participation at a reasonable level. Furthermore, it would be open to us, if this course were forced upon us for financial or political reasons, not to pledge a contribution beyond the first year, namely 1951/52. Should a decision be taken not to make any pledge beyond one year, it would be necessary nevertheless for me to indicate, in some reasonably clear manner, what Australia's attitude would be in subsequent years since the Plan rests upon a six-year programme. United States will be approached to support a six-year plan. The United Kingdom is approaching it on the same basis and necessarily some indication of attitude will be required of other countries.

5. As I see it at the moment, the ways in which Australia could contribute would include credit or grants in the following forms:—

(a) specific commodities such as flour and wheat (the first being, I understand, in ample supply) which may be of interest to Malaya, Ceylon and India (wheat);

(b) permitting International Bank to make loans from Australia's local currency subscription;

(c) sterling from London funds.

6. I would appreciate an immediate comment from the Treasury on the practicability of course (b) which Canadians have already said they would contemplate. United Kingdom officials have also suggested Australia explore possibility of Asian Governments borrowing (with Australian Government guarantee) direct on the Australian market, a course which Canada says she is prepared to contemplate [in Canada], I take it that this form of assistance by Australia is likely to be impracticable but I should like comments.

7. I feel that our physical contribution should be greater than your telegram might suggest. We could increase what are already substantial food exports to the area, while there are other lines such as light machinery, pharmaceutical [goods], hand tools [etc] which it would be to our advantage to supply.

8. Nevertheless, it is going to be difficult to provide assistance in a way which throws the direct burden on Australia. To this extent I would have thought that transfer to other governments of sterling which they spend outside Australia need not be included in the budget immediately and that the transaction would not be inflationary. In spite of what you say about London funds, I would be surprised if this season's wool clip did not leave Australia with balances adequate to provide some finance for Asian countries in 1951/52 and possibly some subsequent years.

9. The countries you mention are counting upon running down their sterling balances further [during the currency of the plan] (India by about 200 million from a level which is expected to be about 500 million by the beginning of the programme, and the others by proportionately much less since they are closer to minimum reserves). It might be argued that India could provide finance from a heavier rate of drawings but I should think it unlikely that they would start their programme on this basis because they don't want to increase their present rate of drawings which will, at the end of six years, bring their international reserves down to what they regard as a safe minimum.

10. I would appreciate an assurance from you that I may assume an Australian contribution because it will help me to press the United Kingdom to offer more than merely the release of sterling balances at the level to which they would have been forced under normal negotiations in the absence of the economic development programme. In support of this we can, if necessary, reasonably argue also that by building up balances in the past Australia has in real terms facilitated the release of sterling by the United Kingdom. (This indirect support of sterling would not be acceptable as the sole or main Australian contribution to the scheme in the future). It is difficult, however, to fix upon a rate of release of sterling by the United Kingdom which, from our point of view, represents an 'adequate' contribution to the programme and I should be glad to have any comments which Departmental advisers may have in the light of their knowledge of the history of the sterling balance position.

11. Other questions such as the relative needs of the countries require further consideration but at a subsequent stage. Ceylon and Malaya's proposals seem less justified than those of India and Pakistan. Malaya's claim is based almost entirely on the shortage of internal finance.

12. I am pressing for non-Commonwealth countries to be brought in for political reasons related to the area itself and [because of] the probable reactions of the United States to a plan which is confined solely to the Commonwealth. This might increase total obligations to some extent [at a later stage] but I am hopeful that United States will absorb by far the greater proportion, bearing in mind that she is already contributing most of the aid being currently received by the non-Commonwealth countries.

13. In considering this question you will remember that prior to the Sydney meeting I received the authority of Cabinet to negotiate within limits of 10 million Australian so far as credits were concerned during 1950/51. The negotiations of the Consultative Committee have, in effect, deferred the inauguration of a programme until 1951/52. Having carried negotiations to this point it would be most embarrassing if Australia were not in a position to make a substantial contribution to the programme as now presented.

14. I am grateful for your agreeing with me that these discussions must be made a success. I recommend that Australia offer a contribution in the following form:—

Australia would undertake to consider providing finance, possibly partly related to Australian supplies of flour or other commodities, up to a total of 10 million sterling in 1951/52 subject to—

(a) a contribution by United Kingdom beyond the release of sterling balances at the normal rate (perhaps a supplementary credit or grant);

(b) a substantial United States contribution;

(c) subsequent decision by Australia, after consultations, as to which countries should receive direct Australian assistance;

(d) the specification that Australian assistance would probably be in the form of credit (but leaving open the possibility that a small proportion might be in the form of grants e.g. of flour to reduce the average price);

(e) the report being subject to approval by the Government.

15. I believe that an early indication of Australia's willingness to contribute along the foregoing lines is essential if we are to carry to success the initiative we have taken. Indeed, I should like you to authorise me, while I am still in London (i.e. before Sunday) to indicate to other Delegations the general order of size of the contribution which I am recommending to the Government. Otherwise it will be impossible for each Government to be apprised of the limits to which others may decide to go. The Canadians, e.g., [say they] are hopeful that their Government will make a contribution related as always to the size of the United States contribution but they want from us a lead as to what we intend to do.

16. I believe that the prospects of inducing and assisting the United States Administration to make a substantial contribution with all the ensuing economic and political advantages fully justify the recommendation I have made and I should be most grateful if you would consider it with other Ministers as soon as possible.

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

1 Document 104.

2 On 5 June 1947, Marshall delivered a speech at Harvard University outlining a proposal for a plan to rehabilitate and reconstruct Europe and inviting European countries to assess the 'requirements of the situation and the part those countries themselves will take in order to give proper effect to whatever action might be taken by [the US] Government'. See Department of State, Bulletin, vol. XVI, 1947, pp. 1159.

3 Words in square brackets and those following are inserted by hand.

Last Updated: 10 January 2017

Category: International relations

Topic: History