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230 Note by Pakistan Department of Commerce

Karachi, 10 May 1952

Colombo Plan: Report of the Consultative Committee

The report on the progress of the Colombo Plan prepared at the Karachi meeting of its Consultative Committee held towards the end of March, 1952, says that the Plan had a 'good start'. The meeting at Karachi was attended by Ministers and senior officials of the countries of South and South-East Asia, the Commonwealth and the U.S.A., and representatives of the International Bank for Reconstruction and Development and the Economic Commission for Asia and the Far East. Mr. Fazlur Rahman, Pakistan Minister for Economic Affairs presided over the meeting.

The Report, released today simultaneously in the capitals of the fourteen member countries contains ten chapters and deals with the origin, the present pattern and the future outlook for the Colombo Plan which comprised the six-year (1951–57) economic development programmes of under-developed countries in South and South-East Asia.

The Report brings out not only the extent of assistance rendered by aid-giving countries and the role of the Plan's Technical Co-operation Scheme in providing technical know-how, but also the measures taken by the under-developed countries themselves to raise internal finance for their development programmes. It also describes the physical progress made during the first year in the various fields of development, e.g. agriculture, communications, industry and social services.

Financial and economic background

In an analysis of the financial and economic conditions prevailing in the under-developed countries since the publications of the Plan in September, 1950, the Report underlines the initial favourable effect of the Korean War on the prices of raw materials, e.g. cotton, jute, tea, rubber and tin, and consequently on the revenue and balance of payments position of these countries. This enabled the countries to be less dependent on external aid during the first year than was originally expected. However, the countries could not make the fullest use of this improvement in their resources because of shortage of capital goods and technical skill and the fact that schemes of development take time to be planned and started. Nevertheless, the actual expenditure on development in 1951–52 was much higher than in 1950–51. The Report points out that hand in hand with this improvement in economic conditions, the cost of development went up both on account of the rise in prices of capital goods imported from abroad and the inflationary tendencies created within under-developed countries themselves.

Favourable effect shortlived

The Report goes on to say that the favourable effect of the Korean War did not last beyond the middle of 1951. Since then there has been a decline in export prices of raw materials and the present position is that most of the countries are little better off than they were when then Colombo Plan was prepared. The recent crisis in the position of Sterling has also been dealt with in the Report, which indicates that for some time to come developing countries will need to rely in varying degrees on investment from outside the Sterling areas.

Situation in Pakistan

Economic conditions in Pakistan followed the same general pattern. There was a rise in the price of her exportable commodities which improved her balance of payments and to internal budgetary position, and enabled greater expenditure on development than would have been possible otherwise. However, from about June, 1951, the prices of cotton and jute began to fall worsening the terms of trade, and much more external aid would now be needed to go through with the development programme at the scheduled pace.

Revision of Plan

The Report points out that the Six-Year Programme of Pakistan was prepared hurriedly after the first meeting of the Consultative Committee in May, 1950, and later examination revealed inadequacies and omissions. The Government of Pakistan have set up a Planning Commission and a number of sub-Commissions for different sections of development, to review resources available, to prepare detailed schemes covering the entire range of development needs and to co-ordinate all development schemes and recommend priorities. They have not yet completed their tasks and a revised assessment of total requirements over six years is, therefore, not at present possible. Modifications in the existing Six-Year Plan would, however, appear necessary. For example, actual expenditure for power development has already absorbed a major part of the present provision, and three major hydro-electric projects estimated to cost over Rs.600 million have yet to be provided for. In the field of agriculture a single project in East Bengal now being planned by a United Nations expert might cost Rs. 1,500 million. No provision has been made for inland water transport which is very important in the economy of East Bengal, nor for shipping and civil aviation, the evelopment of which is essential in a country which has two separate wings one thousand miles apart. A larger investment in tools and equipment is necessary for the mobilisation of the under-employed rural population. For social capital a provision of only Rs.290 million was made for the entire period, whereas in the first year alone a sum of Rs.230 million had to be provided for the rehabilitation of refugees, and for health and education services.

In order to speed up the pace of industrialisation and in an effort to ease the difficult supply situation which followed the war in Korea, the total development needs were carefully reviewed and a number of priority projects were selected which were incorporated in the Two-Year Priority Programme for whose implementation special measures have been taken.

Pakistan's progress

The Report records the progress of development projects in Pakistan in the field of thermal power, agriculture and irrigation. On the industrial side, substantial progress has been made in the development of the textile industry—jute, cotton and wool. Two thousand jute looms are expected to be in production by the end of 1953 and 600,000 cotton spindles. A paper mill with a capacity of 30,000 tons per annum is being installed in East Pakistan and is expected to begin production in 1953. Other industries being set up are cotton seed oil mills, cement plants, a fertiliser factory and cardboard factories.

External assistance

Economic assistance has been given to Pakistan by Canada $10 million, Australia �(A) 2 million, New Zealand �250,000 and U.S.A. $10 million. In addition, the Ford Foundation of the U.S.A. gave $1.6 million for setting up training institutions.

Financing of Pakistan's development programme

For the year 1951–52 the total expenditure on development by Central Government amounted to Rs.577.6 million. For 1952–53 it is estimated at Rs.593.9 million. In addition expenditure on development by Provincial Governments for these two years is estimated at Rs.494 million and Rs.512 million respectively. During the year 1952–53 provision has been made for the flotation of new loans to the amount of Rs.100 million and a special drive has been undertaken to popularise the Small Saving Scheme which offers the man with average means attractive terms of investment.

An Industrial Finance Corporation has been set up, the scope of which is being enlarged. A Bill for the setting up of an Agricultural Finance Corporation was passed recently. The Industries Development Corporation which is charged with the task of promoting large industries which private enterprise cannot finance wholly has also begun operating.

The question of private foreign capital is engaging the Government's attention. The remittance of profit is permitted without restriction and tax exemptions and depreciation allowances also act as an inducement to private investments. In addition import duties on capital goods, cement and iron and steel in certain forms have been removed completely to encourage industrialisation.

During 1952–53, it is envisaged that the development programme estimated to cost a total of Rs. 1,06.7 million, will need about Rs.500 million worth of imports. While it is hoped to mobilise the internal finance required, external assistance will be necessary to finance imports, particularly in view of the reduced prices of the country's export and other commitments. Some assistance is expected from the International Bank for Reconstruction and Development with which a Loan Agreement for Railway Rehabilitation has been signed recently.

COLOMBO PLAN AND FOREIGN AID

Effect on our development

The first annual report of the Consultative Committee on economic development of S. & S.E.A. has just been released. The report is the outcome of the deliberations which were held at Karachi during the month of March when the Consultative Committee met here and it describes the progress which the Colombo Plan has made since the idea of the Plan first originated at Colombo in January 1950 when the Commonwealth Foreign Ministers met in a Conference to exchange views on world problems.

Before we attempt an examination of the claim that the Plan has made a good start, which prima facie appears to be untenable, it may be useful to remind ourselves that the idea of the Plan originated at a time when the United Kingdom found herself faced with a serious economic crisis and she had to devalue her currency. This happened in September 1949. U.K. also found herself heavily indebted to Commonwealth countries and its dependencies in the shape of a huge amount of sterling balances which she owed to them. It was difficult in the normal course to wipe off these sterling balances and naturally she had to think of other methods so as to stimulate her industries, enlarge her exports and generally to build up better future prospects for her trade. It is not surprising if, in these circumstances, she advised the under-developed countries of South and South-East Asia, which included countries who had been found too ready to follow her advice to accept her lead. Every one of these countries needed development in one sphere or another. Besides, the partition of the Indian sub-continent had created new and difficult problems for both India and Pakistan and they were exactly in the mood and mental condition to listen to such advice which become doubly attractive when it was reinforced with a generous offer of financial assistance.

It would have been absurd for countries who laid an emphasis on industrialisation to expect that the United Kingdom, or for that matter any other industrialised country who sold its industrial products in this region, could feel interested or enthusiastic about giving a helping hand in such undertaking. This would have amounted to committing suicide and destroying those very markets where their manufactured products were sold. The industrialised countries could no doubt assist us in the development of our irrigation schemes for this brightened the prospects of larger and therefore cheaper supplies of raw materials, plans about roads, railway and communications, for these were likely to help in rapid transportation of raw materials and the movement of those manufactured goods which came from industrial countries. They could also feel interested in food because this helped the problem of food shortages in certain industrialised countries and even if these food supplies were consumed locally, provided they were plentiful and cheap, this was likely to help in diverting a larger ratio of income to the consumption of industrial products from these countries.

We need not blame them if industrial countries approached the problem of economic development of the under-developed countries in this region from such an angle. For this is part of the ethical code which economic necessities enjoin upon all units of world economy; everyone has to view from his own economic angle which necessarily differs. This in fact provides the real background to the Colombo Plan.

When the idea of greater development in the region was mooted at Colombo every country desired to develop but their needs differed and had they been left to their own choice they might have been inclined to place greater emphasis upon some of their needs and less emphasis upon others. They might have felt an urge to expedite certain undertakings which were of immediate importance to them and postpone certain others which were not so important and which could be taken up later when funds were available. For example, Pakistan with a large exodus of uprooted millions from the neighbouring country might have felt inclined to attach greater importance to rehabilitation of her refugees and their rapid absorption in the economic life of the country. She might have argued that unless they were properly and economically rehabilitated the building up of an economic edifice might amount to raising an economic structure on foundations with tons of gunpowder thickly sprinkled or a mine of dynamite laid out underneath which might explode at any moment and destroy not only the structure so raised but also those who raised it. Since her resources were limited and large mechanical plants could not be set up overnight, except in urgent and most desirable cases, Pakistan might have considered that the safest course for her lay through a phase of industrialisation on the lines of Japan where a network of cottage industries had been harnessed to the same end. Her surplus manpower and unemployed millions demanded a short-term course and could not live till a long-term programme had had its full run. As things, however, transpired we accepted the lead at Colombo and joined the Colombo Plan hereby earmarking all our financial resources, entrusting all questions of priority, initiative and lead to those who came to us with an offer of financial assistance. Let us examine how this thing has worked and what assistance has been received by countries of the South and South-East Asia. This is detailed in the report of the Consultative Committee and makes interesting reading.

The cost of the development projects details in the Colombo Plan was estimated at �1,868 million (Rs.17,435 m). While the countries within the area were expected to find �784 million (Rs.7,317 m) the rest was to come from outside. Naturally, when more than half the amount, to be precise �1,084 million (Rs. 10,119 m) was to come from outside the countries within the area with their poverty, low productivity and small national income per head naturally welcomed the proposal. Out of these �1,084 million �250 million (Rs.2335 m) were to come from the United Kingdom in the shape of releases of the sterling balances and although this could not be classed under foreign assistance the fact that the United Kingdom in this manner agreed to the release of a large amount of these balances which, somehow or the other, had become blocked was certainly welcome. Actually, immediately after the idea of the Plan was mooted at Colombo, things happened which very gravely modified the prospects of this foreign help.

The very first thing which happened and which created great concern was that the United States who, it was hoped, will show an interest in the Plan showed little interest. Obviously, with all their goodwill the other Commonwealth countries which were more developed and richer in resources such as Australia, Canada and New Zealand could not be expected to provide the finance for the Plan on any very large scale. This development of the United States indifference and her apparent inclination to follow her own plans for the financing of the Eastern countries naturally came as a great disappointment and it would be correct to say that the fate of the Colombo Plan hung in the balance for fully one year since its inception and it was only when the Government of the United States had intimated her willingness towards the end of 1950 and her delegates attended the third meeting of the Consultative Committee at Colombo in the month of February 1951 that hopes were revived that the Plan might yet be successful.

Another thing which happened was that U.K. was faced with a new crisis during the middle of 1951. She began to run into serious deficit in her overseas trade balance and gold and dollar reserves also began to decline at a dangerously rapid rate. This unexpected development in the fortunes of the United Kingdom has a serious effect also on the chances of the Colombo Plan, of which she was the chief organiser, working smoothly and according to programme. It became very much doubtful whether, seriously embarrassed in her finances, U.K. will be in a position to release sterling balances for the development projects undertaken in the Plan with as much liberality as it had been promised. Her financial embarrassment also affected her ability to supply the countries of the South and South-East Asia capital equipment.

Conditions which originated from the current Cold War also made it difficult for us to secure the desired quantities of capital goods and this at a time when under the Technical Co-operation Scheme experts had been appointed and were being appointed on salaries and allowances not only generous but which appeared to many to be extravagantly high but which we were asked to agree to pay because these experts had exceptional qualifications and would not agree to work for us unless they were properly and adequately compensated for all the hardships to which they and their families would be put by accepting the offer to work for us. Money was thus being spent on blue-prints and planning while one large source for the supply of capital equipment had almost dried up and the other sources for the supply of capital equipment namely the U.S. was blocked for want of adequate dollar exchange.

[NAA: A9879, 2202/El part 4]

Last Updated: 10 January 2017

Category: International relations

Topic: History