Canberra, 31 January 1950

SECRET

Commonwealth Meeting on Foreign Affairs, Colombo January 8th to 14th, 1950

REPORT ON ECONOMIC ASPECTS

Meeting of officials on sterling�dollar relations

The discussions on sterling-dollar relations, which were the second in the series inaugurated by the Finance Ministers' Conference in London in July 1949, were conducted separately from the meeting of Ministers, it being understood that any questions arising from the meeting of officials could be raised in the discussions among Ministers.

2. Messrs. Wheeler¹ and Nimmo² attended the meeting of officials regularly. Mr. Tange attended occasionally. There is on file in the Department a full set of the minutes of the discussions and a copy of the telegrams sent from Colombo to Canberra. It is not felt necessary to elaborate further on the results of the talks which were largely confined to a recalculation of former estimates of dollar earnings and expenditure, some discussion of the results of the United States – United Kingdom – Canadian talks in Washington in September,³ and an examination of miscellaneous questions arising out of current sterling– dollar policy.

European economic integration

3. This question arose incidentally in the discussions initiated by Mr. Bevin on the general international situation and the situation in Europe. As will be seen from the minutes Mr. Bevin paid some attention to the current movement towards integration in one form or another, and pointed out that the United Kingdom was somewhat on the defensive in preventing the imposition of ill-conceived schemes for integration. The Americans are pressing this objective, having used it on two occasions as an incentive for Congress to vote E.R.P. funds.

4. Mr. Bevin pointed out that the United Kingdom has had to take something of a stand against precipitate action, bearing in mind particularly the necessity for preservation of traditional economic relations with the rest of the Commonwealth. (It will be recalled that Sir Stafford Cripps had poured cold water on the project during his last visit to Paris for
O.E.E.C. discussions and the previous Australian Government had pressed upon the United Kingdom Government the necessity to preserve the interests of the Commonwealth.)

5. Mr. Spender spoke briefly on the subject and pointed out that Western Europe could not survive unless she could unify her policies as a single whole, including the policies of Germany. The United Kingdom could play an important part and it should not be difficult for her to reconcile new interests in Europe with maintenance of the interests of the Commonwealth. This change in emphasis of Australian policy was noted by United Kingdom officials in private discussions. The only other significant comment on this subject came from Mr. Doidge of New Zealand, who showed himself to be totally opposed to any moves under which the United Kingdom integrated its economy with 'cheap labour' economies of Western Europe, and strongly advocated the reversal of recent trends away from Commonwealth preferences and a closed Commonwealth trading system.

Australian proposals for economic policy in South and South East Asia

6. Following his press statement prior to leaving Australia,⁴ and the review made in Djakarta of the possibilities of Australian economic assistance to Indonesia,⁵ the Minister decided that Australia should submit to the Conference an appreciation of the economic position of South East Asia and its bearing on the current drift in political stability; and submit concrete suggestions for an active policy by Commonwealth Governments concerned in the area. The submission of such a proposal came particularly timely as the discussion in the Conference proceeded, as it became apparent that the main focus of attention would be upon Asia.

7. It will be seen from the minutes that the view was generally accepted that Indo-China was in considerable danger of infection from Communist China; that if Indo-China fell within the Communist Chinese orbit, penetration through Siam was not likely to be strongly resisted by the Siamese Government. Continuance of the present instability in Burma, and in particular the dispute between the Government and the Karens,⁶ would thereupon make that country susceptible to Communist infiltration. At that point Communist influence would have reached the borders of India and Malaya and presumably would have been at work in Indonesia. There was some debate as to whether or not the Chinese Government would, in fact, embark on external enterprises of this kind. But given the possibility that it might do so, there was general agreement that not much could be done about it except through economic measures organised by the powers which were interested in counteracting the Communists. By its nature Communist penetration could not be met by military means.

8. The Australian Paper was presented in this context. It was foreshadowed early in the meeting by a statement made by the Minister. That evening Sir Percivale Leisching (Permanent Secretary, Commonwealth Relations Office) and Sir Roger Makins (Deputy Under Secretary in charge of Economic Affairs, Foreign Office) called on the Australian Delegation. They explained that Bevin's ill health prevented him coming, but they wantedto give their support to the Australian proposals. We showed them a copy of our draft paper and they suggested some useful amendments. The Australian Paper was submitted to the Conference in the form in which it now appears in Document F.M.M. (50)4.⁷ In the meantime the Finance Minister of Ceylon (Jayewardene) had made a speech stressing the necessity for economic aid to South and South East Asia and submitted his own brief recommendation. (Document F.M.M. (50)5)⁸

9. As will be seen, this Ceylonese proposal was somewhat grandiose. It recommended that a committee prepare a 10-year plan for the area; that the plan be examined by a committee of experts which would visit all the countries concerned; and that the Governments should thereupon accept the plan and establish an organisation 'similar to the economic co-operation administration which extends American aid to Europe'.

10. It was therefore necessary to bring the proposals down to a basis of reality, and the Australian and Ceylonese delegations met together with the New Zealand delegation whose representative had expressed support for the general conception in the Australian proposal. The New Zealand representative took little part in the discussion, indicating that the New Zealand delegation was unable to commit its Government to take any extensive part in a programme of aid for the region and that New Zealand might have to confine itself, because of its balance of payments and other difficulties, to supplying training facilities in New Zealand.

11. The Ceylonese representative was persuaded that it was impossible to expect Commonwealth M inisters to recommend the establishment of any system of economic aid comparable with the United States E.C.A. activities. The Australian representative sought to eliminate from any substantive part of the recommendation any reference either to a 'plan' or to the creation of a new 'administration', both of which words connoted something much more extensive than is envisaged in the Australian proposal for a consultative committee. We suggested that the conception of a definitive plan, and of an organisation to administer it, might be worked into the terms of reference of the proposed consultative committee as a subject for enquiry by that committee.

12. An additional idea which the Ceylon Government was anxious to work into the proposal was the creation of guaranteed prices for primary commodities and stable marketing arrangements. Here again the Australian delegation pointed out that this involved a recommendation on a particular form of commercial policy which was controversial and would be unlikely to be accepted by all the Governments of the C.mmonwealth whose interests in this field were at considerable variance.

13. The next step was the submission by the Secretariat to the meeting of Ministers of a Paper (F.M.M. (50)6)⁹ which contained the main recommendations in the Australian paper and a revised edition of the Ceylon proposals. This paper was prepared by the Ceylon delegation but it will be noted that it was submitted as a 'Joint Memorandum by the Australian, New Zealand and Ceylon Delegations'. The procedure was somewhat arbitrary but, since we had no objection to New Zealand being committed and felt confident that the objectionable residues of the Ceylon proposal could be adequately disposed of at a subsequent committee stage, we did not make a point of dissociating ourselves from joint sponsorship.

14. It was discussed in the meeting of Ministers with the suggestion that it be referred to a committee of officials to redraft the proposal in the light of the discussions and in the light of any technical questions which the officials themselves might wish to raise. During the discussion by Ministers some doubt was raised by Pandit Nehru as to the actual stages involved. It was made clear that the document would go forward as a recommendation to Governments and that the proposed consultative committee itself would not be established until Governments had agreed. Pandit Nehru made rather a point of the necessity to undertake considerable exploratory work into the economic situation in South East Asia and to co-ordinate the views of Governments on the desirable field of activity of the consultative committee, before that committee was called together at its meeting in Australia.

15. In the subsequent meeting of officials, which was conducted under the Chairmanship of Sir Roger Makins (United Kingdom) various amendments were made, none of which affected to any great degree the original proposals made by Australia. There was resistance by the United Kingdom, Canada and South Africa to the reference to the 'priority' to be given, by the International Bank and by the United Nations organisation conducting the technical assistance programme, to requests from countries in South and South East Asia. India and South Africa were reluctant to have any reference to the International Bank at all, on the grounds that the Bank was highly sensitive to Governments meeting together to discuss its policies and agreeing in advance on how those policies should be conducted. As against these arguments the Australian representative took the position that it was open to the members of the Bank to agree on the broad lines that its policies should follow, particularly when the application of that policy had to take place in the Bank itself and to be rediscussed in the Bank in the light of all other considerations. So far as the question of priority was concerned, the Australian representative suggested that Commonwealth Governments had to decide whether or not they were prepared to make a real effort to mobilise international resources in this area, and that the discussions among Ministers had suggested that there was common agreement that the political deterioration in the area fully justified such a policy on technical economic questions. Eventually a text was agreed upon which adequately maintained the Australian argument.

16. The redrafting had the effect of underlining three of the main features of the Australian proposals:–

(a) That the purpose was to establish consultative machinery which could be used to review the progress of Governments in making assistance available to the area and the progress achieved by international organisations which operated in the area;

(b) To emphasise the necessity of obtaining the full co-operation of other non- Commonwealth Governments, more particularly the United States Government;

(c) To avoid the creation of unnecessary machinery and undesirable overlapping with existing international organisations.

17. It will be noted that the points advocated by Ceylon have been disposed of by making them subject to study by the consultative committee and that the reference to stable prices has been eliminated in favour of a more general reference to international commodity agreements which 'could be recommended for consideration under the Havana Charter'. The United Kingdom was especially anxious to have this reference to the Havana Charter for the obvious reason that the Havana Charter will only accommodate agreements which are drafted with an eye to the interests of consumer as well as producer countries. The Australian delegation saw no reason to object to this limitation on the scope of the consultative committee, which in any case is unlikely to be an effective instrument in the examination of questions of this kind which are essentially of an international rather than a regional character. Similarly, the Ceylon references to a 'plan' and new 'machinery' have been disposed of by making them the subject of study by the committee.

18. When the draft in¹⁰ F.M.M. (50)8 (attached)¹¹ was resubmitted to the Conference of Ministers there was some further general discussion. At the request of Canada, supported by the United Kingdom, the phrase 'in this area' was deleted from paragraph A(i), it being pointed out that a country's capacity to contribute is affected by its overall commitments rather than by its commitments to this particular area.

19. Mr. Pearson questioned the wisdom of the paragraph referring to the International Bank, but withdrew after Mr. Noel-Baker vehemently stated the necessity for Commonwealth countries to recognise how disappointing the International Bank had been in its work in under-developed areas and to use their influence to give 'as high a priority as possible to South and South East Asia'. The Canadian Minister also suggested that the phrase 'in the first instance' might be inserted where the resolution invited the membership of all Commonwealth Governments, his argument being that the choice of such language might prevent the Americans feeling that they were being presented with a fait accompli so far as the machinery was concerned when the text of the resolution was shown to them. After some discussion it was felt that it was unnecessary to make any change in the text.

20. It was apparent from the discussion that South Africa and Canada were unlikely to make any contribution to the area, although it is perhaps possible that Canada, at least, will participate in the consultative committee. Similarly the United Kingdom made a special point of stressing the contribution they had already made in this area (including withdrawals from sterling balances) and their commitments in other areas of strategic interest to them, such as the Middle East and Africa, where they have in addition obligations to their dependent territories.

21. New Zealand made no formal reservations about their capacity to make a contribution, but other officials felt that it would be unlikely that the Government could give much beyond technical training facilities.

22. One of the interesting features of the private discussions which took place was the emphasis by United Kingdom officials on the possibilities of mutual aid programmes among those countries of the area itself who might, in addition, expect some assistance from outside. Clearly India and Pakistan fall into this category, and the consultative committee may be the avenue through which it can be brought home to them that aid from outside can scarcely be expected while they are destroying each other by irreconcilable economic policies and by the maintenance of large military establishments.

23. Throughout the discussion the Minister stressed that it must necessarily be open to each country to choose the country or countries in which its tangible aid will produce the greatest effect. We pointed out our special interest in Indonesia and reaffirmed this at the time that the Minister offered to recommend to his Government that Australia share in the proposed loan to Burma. It will thus be open to Australia to take the position in the consultative committee that our limited resources do not permit our making a contribution to more than one or two selected countries.

24. During and after the discussion on the resolution there was a flood of press speculation and press comment based, one believes, on information released by the Ceylon Administration. One high official of the Ceylon Government was quite frank in saying that the Minister of Finance had a special local political reason for inflating the recommendation and having it publicised as a plan for economic development of South and South East Asia.

25. Before he left for the United Kingdom Mr. Bevin made a statement in which he suggested that the representation in the consultative committee would be at the level of Ministers. Makins commented that this statement was made unprompted by his delegation which accepted the Australian conception that representation should be kept at a level commensurate with the fairly limited functions of reviewing the economic progress of the area and consulting about the action which Governments had taken in the light of the recommendations. In private conversations we had suggested that possibly High Commissioners or the expert advisers might provide the representation for their consultative committee.

26. The Australian Paper and the final recommendations of the Ministers to their Governments on this question remain secret. The press communique dealt with the subject in a very guarded way (see extract attached).¹² It was recognised that the actual resolution would be shown in due course to various non-Commonwealth Governments interested in the area, including, more particularly, the United States. There was no formal discussion as to which Government would take the initiative but the United Kingdom assumes that Australia will discuss the question with the United States. The Minister had a discussion with the United States Ambassador in Ceylon.

Burma

27. Mr. Bevin proposed a joint loan of �7.5 million to Burma, of which the United Kingdom would contribute �3.75 million. The loan would be made in blocked sterling to the Burmese Currency Board for currency backing, and would be on short terms.

28. Ministers offered to recommend to their own Governments that they accept the following respective shares in the loan:–

United Kingdom		�3.75	million
India	...	�1.0	"
Australia	...	�0.5	"
Pakistan	...	�0.5	"
Ceylon	...	subject to further consideration

29. Canada and South Africa said they were not interested and New Zealand could undertake no commitments.

[NAA: A10617, 1950/3]

1 F.H. Wheeler, First Assistant Secretary, Treasury.

2 J.F. Nimmo, Treasury official, Australian High Commission, London.

3 See footnote 10, Document 10.

4 Document 14.

5 Not published.

6 Following the independence of Burma in 1948, the Karen minority of that country, who had enjoyed significant influence under British rule, rebelled against the Burmese majority that controlled the Government.

7 Document 16.

8 Not published.

9 Not published.

10 The word 'in' should presumably read 'of'.

11 The cabled text of 'report by drafting committee of officials' F.M.M. (50)8, dated 13 January, is given in Document 19.

12 See footnote 1, Document 19.