The attached memorandum has been prepared in this Division and approved by Commonwealth, Far Eastern, Defence Liaison (1) and Information Divisions. I regret that it has not been possible to state the case at less length. In view of the fact that Mr. Harris does not have much familiarity with the subject (although officials in Finance are briefing him now), it seemed desirable that Mr. Pearson should be supplied with a fairly full memorandum for the purpose of his consultations with the Minister of Finance and others. I think you will agree that it will be desirable for the Minister to have a memorandum on this subject as soon as possible in view of the imminence of the Colombo Plan meeting and of the need for guidance in connection with our programming of aid for next year. ²³

A.E. Ritchie

Confidential
[Ottawa], August 10, 1954

It would seem desirable to have some early decisions, at least in principle, concerning the future of our Colombo Plan activities, especially as the meeting of the Consultative Committee is to open in Ottawa some five weeks from now. Ministerial guidance at this stage would be helpful to the officials concerned both in enabling them to prepare the briefs for our delegation and in providing them with some assumptions on which to base the planning for next year's programme of assistance. You might, therefore, wish to discuss these matters with the Prime Minister and Mr. Sinclair, particularly in view of their recent visits to Asia, as well as with Mr. Harris and Mr. Howe at an early date in order to ascertain their views. We might then prepare a memorandum for consideration by Cabinet. ²⁴

2. Ideally, it might be hoped that Ministers would be willing to express views not only regarding the size of next year's contribution but also regarding the length of the future period during which Canada might be prepared to contribute. As you know, there has in the past been general agreement among the governments participating in the Plan that programmes would be considered which would involve the allocations of funds extending over a six-year period ending about June 30, 1957. Although this has been publicly described as the period of the Colombo Plan - and although some results will be expected during that period - we doubt that anyone has regarded this as more than a timetable for planning purposes. It can scarcely have been imagined that the serious problems which originally gave rise to the Plan would all have been resolved within that time and that private investment would be flowing in such volume that special aid from outside would no longer be necessary. Undoubtedly, it has been realised that it would be politically unsound, if not disastrous, to envisage the cutting off of Colombo Plan aid in 1957 with all the implications which that would have for future relations between Asia and the West at a time when those relations are likely to be in a fairly delicate state. While it might be desirable to remove the uncertainty concerning the duration of the Plan, it would appear impracticable to determine now for just how much longer the Plan should continue. For the present, it might be sufficient for Canadian Ministers to arrive at an understanding that June 30, 1957 is not to be regarded as a firm terminal date and that they would be willing to examine at an appropriate stage with other members of the Consultative Committee (but not at the Ottawa meeting) the length of time for which the Colombo Plan - or its next phase - should run. ²⁵ If the question of extending the period of the Colombo Plan arises at the forthcoming meeting, the Canadian delegation might then take the position that next year would be a better time to make a formal decision since by that time more will be known about the position which is likely to be reached at the end of the present life of the plan.

3. On the immediate question of the proper size of our contribution for 1955-56, a more precise decision would appear to be desirable both for the purpose of enabling planning on our aid programme to go forward and for the guidance of the delegation to the forthcoming meetings. Even if it were to be considered inadvisable to make a specific announcement in the course of the September/October meetings, it would be useful for the delegation to be able to say something on the subject and for the members of the delegation to be aware of what the Government would be prepared to do in order that they might know what attitude to adopt towards the numerous requests which will doubtless be made of them by the various visiting delegations. The question of whether or not it would be advisable at this stage to seek such a decision from Cabinet could perhaps be decided after you have consulted the other Ministers most directly interested. ²⁶

4. In discussing this question with your Ministerial colleagues, you may wish to review certain aspects of the Plan with which some of them may not be too familiar.

5. You might consider it particularly desirable to counter any impression that our Colombo Plan activities represent little more than a superficial and futile relief operation which will be submerged by the inexorable growth of population. The following paragraphs bear on this point.

6. To the extent that we have provided wheat and other commodities, our object has been not so much the meeting of the pressing needs of consumers as the creation of local capital ("counterpart funds") to assist the national Governments in financing productive development projects. While a good deal of emphasis has naturally been given to increasing the production of food, it has been appreciated that if real and lasting progress is to be made other parts of the economy must be developed simultaneously. We have tried to ensure that our aid (whether in the form of equipment, or commodities, or technical advice) will foster economic development on as broad a basis as possible. We feel that we have been reasonably successful and that the projects we are supporting under the Colombo Plan will yield widespread and durable benefits. Improvements which we are helping to bring about in the transport and power systems of the countries which we are assisting will have pervasive effects in those parts of the countries where they are located. So too, will the irrigation works which we are aiding. The survey which we are conducting of natural resources can be expected to influence the future development of a whole economy. The cement plant which we are building and the experimental fisheries work which we are doing will also have lasting effects. The technical training which we are providing should bring about some increase in agricultural and industrial efficiency and productivity.

7. An example of the kind of return which carefully selected projects can yield is provided by the Mayurakshi irrigation and power development in India, which we are helping substantially with equipment, counterpart funds and engineering advice. The increased food production resulting from this project every two years after its completion is expected to be equivalent to its total cost. In addition to the effect which it will have on the size and dependability of food supplies in this area which has so often been afflicted by famine, this project will help to bring about an increase in employment and income (not only on the part of labourers involved in the initial construction work but also of the food producers who will be able to take advantage of the permanently increased productive capacity of the land.) It will, thus, have a stimulating effect on the rest of the economy of that part of India and will provide an incentive for the development of secondary industries to satisfy the new demands.

8. While our Colombo Plan contribution is not in the nature of a temporary relief operation, it is also not intended to be a substitute for - or a competitor with - private investment. Generally it would be accurate to say that we conscientiously try to avoid projects which, on the one hand, appear shaky and unsound or which, on the other, seem to be within the capabilities of the receiving countries themselves or which might be taken on by foreign investors. We concentrate on the "in-between" projects and, within the priorities set by the Asian Government itself, try to select those which will contribute most effectively to the general strengthening of the economy.

9. Although one would not wish to exaggerate how much difference our contribution will make to the improvement of economic conditions in Asia, it seems evident that Canadian aid, reasonably well managed, can have beneficial effects over the years out of proportion to the amount of money involved. In relation to the massive problems of the Asian countries, anything that we might do must almost inevitably appear small. This does not mean, however, that our effort - or an increase in that effort - is not worthwhile. This is particularly true in relation to political stability. The cumulative effect of the programmes which we are able to assist may contribute substantially to the countering of unrest in the Asian countries. Moreover, the spending of our money in aid of these countries in a spirit of cooperative partnership does a great deal to strengthen goodwill toward Canada.

10. In the present situation, and on the basis of our experience of the past three or four years, it would seem reasonable to suggest that it would be in Canada's interest to envisage a significant increase in our Colombo Plan contribution for the coming year. Even if our present standards are rigorously held to (e.g. insistence on sound projects, requirement that the bulk of the goods be of Canadian origin, etc.), and if there is no thought of attempting to dispose of "surpluses" in this area as the U.S. is now doing, there would appear to be a very strong case for a larger contribution. Briefly, the following would seem to be among the considerations which might appropriately be put forward by this Department in support of an increase: ²⁷

(a) The Asian countries themselves will have to spend more on development in the coming year if progress is not to be retarded. Apart from any increases in costs, and aside from any new projects which it may be essential to undertake, many projects already under way will have advanced to the stage at which heavy outlays will be required. These heavier expenditures will have to be made without any significant increase in their own local resources, since few of the development projects so far undertaken will have reached the point at which substantial returns will have started to come in. There are economic and political limitations to what these countries can do for themselves in this situation. There are both economic and political risks - for us as well as for them - if their development programmes fail to move forward rapidly enough;

(b) On the basis of proposals already made to us, it would seem clear that, with only the same amount of money as last year, we would have to turn down many projects capable of contributing effectively to the improvement of the longer-term prospects for the economies of India, Pakistan and Ceylon, even though those projects are of a kind which could efficiently absorb the kinds of aid available from Canada. In fact, in the case of Pakistan, we would be unable to take on virtually any new project;

(c) Present indications are that, apart from Canadian equipment (which could readily absorb the whole of an appropriation on the present scale), it will be found desirable to provide some suitable commodity aid (e.g. aluminum and copper) to these three countries (and particularly to Pakistan), in order to ensure that enough local funds will be available to carry on sound projects in which we are directly involved;

(d) In the light of recent reports, it would appear that it may well be possible within the next year for Canada, by a judicious application of aid to specific projects, to make an effective contribution to a solution of the canal waters dispute between India and Pakistan which has been embittering political relations between the two countries, has been aggravating the difficulties over Kashmir, has been raising questions in Pakistan concerning the Commonwealth connection, and has been interfering with the economic development of both countries;

(e) In view of the fact that the inclusion of non-Commonwealth countries in the Colombo Plan accounts in part for its significance as a factor in the Asian situation, it might be advisable for Canada to provide a limited amount of capital assistance to some of these countries (as Australia and New Zealand, as well as the U.S., are now doing). Indonesia, Burma and Nepal have very substantial needs and would seem likely to be able to use any aid from us to good effect;

(f) Since a South East Asian Defence Organization is being created in which we may not wish to take part, that might make it all the more important for us to increase in other ways our contribution to the stability of South and Southeast Asia;

(g) In the particular case of the Associated States of Indo-China, we might wish (especially in the light of our participation in the Supervisory Commissions) to do something to help in improving conditions in the remnant of Vietnam, and also in Laos and Cambodia; all of which have been members of the Colombo Plan for some years but have received no capital aid from Canada; ²⁸

(h) It would seem clear that, especially in view of the commitments to be carried forward from the current year, more money will be necessary for the technical assistance part of our Colombo Plan operation if even the present scale of those activities is not to be curtailed next year;

(i) A larger Colombo Plan contribution, with whatever tax consequences that might imply, would seem to be in keeping with the increasingly active support which the Canadian public is showing for the Colombo Plan. (If the proposal which has been made for general cultural and educational exchanges with the Asian countries were to be brought within the Colombo Plan, that would be an additional reason for increasing the vote. The question of whether any such exchanges should be handled in this manner or should be dealt with separately from the Colombo Plan is one which may require further consideration.)

11. Some of these considerations are discussed in rather greater detail in an annex? to this memorandum.

12. In the light of these factors, you might wish to suggest that the Canadian contribution for next year should be increased by $10 million, or preferably $15 million. If it is argued that the budgetary position is likely to be extremely tight in the next fiscal year, you might wish to consider whether you would be prepared to acquiesce in a corresponding, or even slightly more than corresponding, reduction in the Mutual Aid programme (which is, of course, covered by a Department of National Defence vote, but which has been championed mainly by this Department in the past). ²⁹ It would seem that, even with such a reduction, we would be left with a Mutual Aid programme which would be of a respectable size in comparison with that of other countries and one which would be tolerable from the point of view of this Department. While no doubt you would not wish to advocate such a curtailment of our Mutual Aid (and while some other Departments may now be at the point where they would wish to maintain the size of that programme), you may feel that a reduction would be warranted if it was necessary in order to enable Canada to provide aid to South and Southeast Asia on an adequate scale.

13. Even an increase of the order suggested above would not permit of much assistance to Indo-China if other high priority claims are to be met. If it were to be decided that very substantial aid should be given to the Associated States, it would be necessary to increase our Colombo Plan contribution still further or to seek a special vote. You may wish to make it clear that the suggestion of an increase of $10 or $15 million is based on the assumption of only fairly modest aid for Indo-China (say $1 or $2 million). This assumption - which is the best that can be made now - might have to be reviewed later when the situation is clearer.

R.A. M[ACKAY]