With reference to the meeting of the Committee on Friday next at 10 a.m. in this Department to consider Australia's contribution to the Colombo Plan, it would be appreciated if the attached notes could be brought to the attention of your representative so that he will be able to examine them prior to the meeting.
for Acting Secretary2
INTER-DEPARTMENTAL MEETING—FRIDAY, 19TH JANUARY, 1951
COLOMBO PLAN FOR CO-OPERATIVE ECONOMIC DEVELOPMENT IN SOUTH AND SOUTH-EAST ASIA
AUSTRALIAN GOVERNMENT'S CONTRIBUTION
1. It is assumed that members of the Committee have studied the report on the Colombo Plan, particularly Chapter X 'The Need for Capital'.3
2. The following notes have been prepared solely for the purpose of raising certain questions for discussion, so that we may at least reach some tentative conclusions regarding the way in which the contribution of the Australian Government may best be made. Such conclusions will be of use to our delegation to the forthcoming meeting of the Consultative Committee in which the United States of America will be participating. It is doubtful whether we can at this stage, prior to discussions with the United States of America representatives, make any firm recommendations to the Minister on this subject.
3. Cabinet decided (Submission No. 37A)4 on 13th December, 1950,5
'that the Australian Government agree to contribute towards the (Colombo) Plan (for participating countries and non-Commonwealth countries yet to come in) over the period July 1951 to June 1957, a total amount of at least �25 million sterling with an initial contribution, for the first year (1951-52), of �7 million sterling. Details of financial arrangements, of the manner in which the aid is to be provided, whether by loans or grants, or both, or otherwise, and the terms and conditions, are to be jointly examined by the Departments of the Treasury, Commerce and Agriculture, Trade and Customs, National Development and External Affairs, and a further submission made on these details by the Minister for External Affairs.'
4. The countries in the region which it is hoped will eventually participate in the Colombo Plan are:—
Associate States of Indo-China (Viet-Nam, Cambodia, Laos)
* British Territories of South-East Asia (Malaya, Singapore, North Borneo, Brunei, Sarawak).
The countries marked with an asterisk are already participating.
5. In accordance with the Cabinet decision, and on the assumption that all the above countries agree to participate in the Plan, the Australian contribution of �25 million sterling or �A.31� million would need to be allocated in some way among these countries. However, with the agreement of the recipient and other donor countries, and of Cabinet, it might be considered desirable to limit our financial assistance to a few, or only one, of these countries. This would have the advantage of decreasing the administrative problems involved in making and supervising the contribution, though it would limit the political benefits to Australia. It is however clear that if the total amount of �A.31� million is divided among all these countries—no matter on what basis—the contribution to each will be very small relatively to their needs.
If a distribution were made, for example, on a population basis to these countries (excluding the British Territories for which the United Kingdom Government prefers to grant the necessary financial assistance alone) the result would be:—
Another approach to the question of equitable distribution might be made on the basis of estimated and stated requirements of external finance. This is shown (see Colombo Plan report page 58) for India, Pakistan and Ceylon (in addition to drawings on their sterling balances) as �607 million sterling, �129 million sterling, and �41 million sterling respectively for the 6 year period—a total of �777 million sterling for the three countries. The requirements of other countries of the area are likely in total to be substantially less than this amount (say at a rough guess �250 million sterling).
Allocated on the basis of estimated requirements the Australian contribution would be distributed as follows:—
|Requirements �m. stg.||Australian contribution �A m.|
|Other South-East Asian countries—say||250||7.60|
On this method, a working basis for allocation might be:—
|�A m.||Percentage of estimated requirements|
|Other South-East Asian countries—say||8||3.20|
It is interesting to note how close the distribution on a population basis (except for Ceylon) approximates that on a basis of estimated requirements of external finance.
6. Should it be considered that in making contributions to all countries on some such basis as suggested above the benefits to each would be too small in relation to requirements and the administrative problems too great relatively to the size of the individual contributions it might be necessary to consider:—
(a) restricting our contribution to fewer countries in the area, e.g. Indonesia, India, Pakistan, Ceylon only—leaving the Philippines, Burma, Thailand and Indo-China to other countries. Indo-China and even Burma might in any case be considered a doubtful risk. This requires a political decision, but it should be made before we finally decide on how our contribution is to be distributed.
(b) 'pooling' our contribution with those of other countries, e.g. the U.S.A., Canada, New Zealand and arranging for representation on any supervisory, administrative or consultative body concerned specifically with the contributions and their effective utilisation.
The main argument in favour of our 'adopting' one particular country is that such a procedure would probably ensure more effective co-ordination with other programmes of assistance and would reduce our administrative and supervisory functions to a minimum. The obvious case where such 'adoption' might be regarded as practicable is that of Ceylon whose external financial requirements are estimated at �41 million sterling (cf. our contribution of �25 million sterling) for the 6 years and with whom we have quite substantial commercial relations, and some outstanding problems in regard to trade in flour. On the other hand for political reasons we may wish to devote our attention and our assistance almost exclusively'to Indonesia, but this may prove difficult since India, Pakistan and Ceylon have already stated their requirements and are participating in the plan while Indonesia is not. There are also strong political and commercial reasons why we should contribute something towards the programmes of these three countries. On balance we may consider applying our contribution, so that it is not spread out too thinly, to India, Pakistan, Ceylon, Indonesia and possibly the Philippines (taking into account the views of the United States of America). Should the other South-East Asian Governments feel that we are neglecting their needs the answer is obvious, and we can point out that we have taken the initiative (of Commonwealth countries) in extending to them certain benefits and assistance under the Technical Co-operation Programme.
7. Type of assistance
The first major decision required is whether Australia's contribution should be by way of loan, or of grant, or a combination of both.
It is suggested that serious consideration should be given to making the total sum available as a grant. The amount we are giving is small—relatively to the requirements of the countries of the region to grants already given or expected to be given by the United States of America, and to our capacity, and it is felt that a contribution by way of loan of this order would appear to be insignificant.
A gift to India and Ceylon, for example, could possibly be made in such a manner as to negative the accumulated rancour that has developed in these countries in regard to the sales to them of wheat and flour at certain prices. Some possibilities are considered in a later section of these notes.
8. The Colombo Plan report and the London discussions took the 'balance of payments' rather than the 'project' approach in estimating external financial requirements and, at least by implication, the method which might be followed in giving assistance. The U.S.A. seem to prefer the 'project' approach for certain reasons (see attached note by Mr. Tange).6
If Australia were to follow the 'project' approach it would appear to have certain disadvantages, administrative and economic. It is doubtful if we could spare the personnel for necessary supervisory functions, or capital equipment and technicians for large-scale developmental projects. Further our contribution, if divided over a number of countries may not amount to enough in every case to cover any one important project. An alternative would be of course to 'pool' our contribution with another country able to provide the necessary supervision, delegate authority to their representatives and arrange that the contribution be in such a form that the necessary capital equipment could be obtained elsewhere, e.g. from the United Kingdom or Europe for example.
9. The countries' requirements, however, will not all be in the form of importation of capital goods. Loans or grants for the importation of foodstuffs or other consumer goods with resultant increase in internal revenue from their sale is expected to play a not unimportant part in financing the programmes and overcoming actual or prospective balance of payment difficulties. The possibility of making Australia's contribution fit this particular proposal should be considered.
It is relevant to note here that during the trade negotiations with Indonesia last year, although the Australian delegation was authorised to offer a credit of �A5 million, the Indonesian authorities did not wish to take advantage of it, as they were of the opinion that the balance of trade with Australia would be substantially in their favour.
It is clear that the requirements of the countries of the region will vary—external finance will be needed not only for imported materials and equipment for the development projects but also for imports of consumer goods to enable the Government to counteract inflationary pressure and to raise some of the funds for internal expenditure.
It is doubtful whether Australia is in a position now, or will be, over the next few years to provide the type of capital goods required by these countries. However it should not be assumed that all the equipment required will be beyond the capacity or the ability of Australian manufacturers to supply. The trade promotion angle of our aid to South and South-East Asia deserves careful examination.
10. Should our contribution be by way of loan the following could be considered:
(i) Loan through the International Bank of all or part of our local currency subscription (18% of $200 million i.e. about �A15 million). This would probably tie our assistance to the Bank's project approach, though this has been modified somewhat recently. This method might not have the same political advantages as a direct loan from Government to Government.
(ii) Loan of Australian currency from Government to Government. This might have the advantage of promoting Australian exports. It has the disadvantage of the 'tied' loan system which presumably we wish to avoid and discourage.
(iii) By loan of sterling. This might have the effect of placing a heavier strain on the United Kingdom or of pushing up prices of United Kingdom export goods which are in short supply and of which we also are in need. However the amount of our contribution vis-a-vis the proposed release of sterling balances in unlikely to make any substantial additional increase. A loan of sterling which could be spent in whatever way the country wished, whether in the United Kingdom, Australia or elsewhere would appear to have some advantages.
11. If the contribution is to be by way of grant, certain ways in which these grants could be made are suggested.
In regard to Ceylon, we could offer to:—
(i) make a gift of approximately V 25 of normal annual flour imports from Australia i.e. a gift of a total of 31,645 tons for 6 years. This would mean an approximate overall reduction of �A. 1.8.0 per ton on the Wheat Agreement price (assuming imports and prices remain constant), (total cost about �A. 1,250,000); or
(ii) offer enough flour as a gift to reduce over-all price of flour from Australia by—
(a) �2.10.0 per ton (cost to us �1,950,000), or
(b) �5.0.0 per ton (cost �A3,900,000 over 6 years).
(a) would mean giving about 50,000 tons of free flour over 6 years or 8,000 tons per year, i.e. V i.e 1/16 of their normal imports from Australia; (b) would mean giving 100,000 tons over 6 years or about 16,000 tons per year, i.e.1/8 Vs of their normal imports from Australia.
It should be noted that the Ceylonese authorities have made strong representations for a reduction in the price of flour of about �5 per ton, and that the subject of Australian flour and its price has received much publicity in Ceylon.
A gift of this type would not only be a direct contribution to Ceylon's development programme but would have obvious political advantages, and would also be beneficial to the Australian flour milling industry. Some variation of the above suggestions for discussion might be favourably considered. Action on our part to maintain and encourage flour imports by Ceylon would probably have advantages to Australia in the long run.
In regard to India, for reasons similar to those advanced in the case of flour for Ceylon, we might consider making a gift of wheat and flour. We could, for example, offer to make a gift somewhat similar to that suggested for Ceylon. We could offer:—
(i) to make a gift of enough wheat to reduce over all price by (a)1/16 or (b)1/8; this would mean giving India approximately (a) 1.7 million bushels or (b) 3.4 million bushels, per year for six years, at a cost to us of (a) �A.8.2 million or (b) �A.16.4 million over 6 years (cf. allocation of contribution to India of �A. 18 million).
(ii) offer quantities of both wheat and flour as a gift which would have the effect of reducing significantly the over all prices of these commodities. The inclusion of flour would of course have certain advantages for us.
(iii) a variation of the above, together with gifts of other commodities available from Australia, or together with a loan.
These proposals are made by way of suggestion only, and the Committee may wish to submit other proposals or to investigate other possibilities.
Similar proposals could be considered in regard to other countries.
The above proposals, or variations of them, appear to have certain advantages. They would have a publicity value, and a political effect, stronger than the making of a gift or loan of currency. They would help to neutralise or to counteract the past rather unpleasant attitudes and feelings which have been created in India and Ceylon by the Wheat Board's policy of selling wheat and flour at the highest price obtainable.
12. In any case whether our contribution is made by way of loan or gift of currency or by the granting of specific commodities, it is certain that some co-ordination of activities of donor countries must be ensured, and it is possible that the general pattern of contributions might need to be the same. In other words, since we expect that the U.S.A. will be the largest contributor we may have to (and indeed it may be advisable to) make our contribution fit the pattern set by the U.S.A. though reserving such rights and benefits(political and economic) to ourselves as we deem fit.
It is improbable that we can reach anything but tentative conclusions or recommendations until we have had further discussions with the U.S.A. and until we know what the total contributions of the United Kingdom, Canada and New Zealand as well as the U.S.A. will be.7
Some preliminary consideration of the questions raised in these notes will prove very
useful in regard to the forthcoming discussions of the Consultative Committee in which
U.S.A. representatives will participate.
[NAA: A9879, 2202/E 1 part 2]