The establishment of an International Development Association, (I.D.A.), as an affiliate of the International Bank for Reconstruction and Development, has been proposed by the United States and will be discussed at the following meetings:

(a) The meeting of the Commonwealth Economic Consultative Council in London on September 22-23;

(b) The annual meeting of the Governors of the International Bank in Washington from September 28 to October 2.

2. On July 10 Cabinet gave preliminary consideration to a memorandum on this subject dated July 7 (copy attached).? At that time the decision was as follows:

"The Cabinet agreed that Canada would be represented at a meeting of Commonwealth officials in London, in July, to consider the proposal for an International Development Association; the Canadian officials attending to ascertain the views of other Commonwealth countries on the proposal but to make no commitments on the part of the Canadian government."

3. Since that time the following developments have occurred.

Meeting of Commonwealth Officials in London

4. At the meeting in London in July Canadian officials gained the strong impression that, following the lead of the United Kingdom, most Commonwealth Governments would be prepared to give conditional support to the U.S. proposals. It was agreed that these proposals were far from complete especially in regard to the nature of the operations (as opposed to the constitutional arrangements) of the proposed Association. Nevertheless most Commonwealth representatives indicated a sympathetic approach. The Canadian and Australian representatives were in the position of resisting proposals of other representatives for a report which, by making positive recommendations on many particular points, would have seemed, by implication, to accept the U.S. proposal as a whole and might have impaired the negotiating flexibility of Canada and other individual Commonwealth countries.

5. The same group of Commonwealth officials reviewed proposals for a Commonwealth financial institution. On this subject the final paragraph of their report read as follows:

"The Group were agreed that, having regard to the recent augmentation of the resources of the International Bank, the Commonwealth Development Finance Company, and the Colonial Development Corporation, and the proposed establishment of an International Development Association, the less developed Commonwealth countries might reasonably count on an increased flow of capital for development from these sources. In regard to the proposal for a new Commonwealth financial institution, different representatives naturally attached different weights to the considerations advanced. There was a strong preponderance of view that the creation of such an institution is unlikely to increase the amount of finance available to Commonwealth countries for development, and that in present circumstances the Commonwealth should not proceed with it."

6. The "strong preponderance of view" was made up as follows. The following representtatives were definitely against establishment of a Commonwealth financial institution: United Kingdom, Colonies, Australia, New Zealand, South Africa, Rhodesia-Nyasaland. The following were against it, at any rate pending experience with the I.D.A.: India, Pakistan and Ceylon. The following was definitely in favour: Malaya. The position of Ghana was not quite as positive as that of Malaya but rather more so than India, Pakistan and Ceylon.

Visit of Canadian Officials to Washington

7. The Canadian officials who attended the meetings in London subsequently went to Washington in response to the U.S. invitation for informal bilateral talks on the subject of I.D.A. They had discussions both in the International Bank for Reconstruction and Develop-ment (which according to the U.S. proposal would manage the I.D.A.) and also in the U.S. Treasury.

8. In all their discussions our officials emphasized that the Canadian Government had not yet formed a view on the U.S. proposal.

9. Secretary Anderson of the U.S. Treasury spent some three-quarters of an hour expounding to our officials his very strong support of the I.D.A. proposal. It is clear that he takes a deep personal interest in it. He warned that, if something like I.D.A. is not established under the Bank's management, it will become impossible to resist pressures to set up SUNFED under U.N. auspices and that the USSR will use SUNFED as a propaganda machine. He urged international coordination of non-Communist aid operations. An important purpose of I.D.A. is to enlist European contributions; if European countries do not play their proper part in the provision of aid, the U.S. could not continue. Secretary Anderson went on to emphasize that, in his view, I.D.A. should receive contributions which might not be fully usable. "Counterpart funds," generated in connection with U.S. surplus disposal operations, should also be contributed to I.D.A.; political pressures in U.S.A. were such that, despite the best efforts of the Administration, agricultural surpluses would continue to accumulate and these "could not be thrown into the ocean." Soft loans ("repayable" in local currency) were the answer, although he could not see the end of the continuous accumulation of local blocked currencies. The administration of local currency loans by the U.S. Government has not been too satisfactory to Congress; he hoped that his friend Eugene Black, President of the International Bank, would be more successful.

10. From this and other discussions in the Treasury our officials gained the impression that, as far as that branch of the U.S. Government is concerned, the main preoccupations are with the following Congressional attitudes: concern over competition between U.S.A. and the USSR for the support of underdeveloped countries; dissatisfaction with the amount of aid provided by other Western countries, particularly Germany; and a desire to accelerate disposal of farm surpluses in a manner which appears to avoid gifts. Our officials did not call on State Department. However in discussions in the International Bank they found a much greater preoccupation with the positive economic values to be obtained from the accelerated economic development which I.D.A. might permit. Bank officials have given a good deal of thought to the ways in which I.D.A. funds may usefully supplement International Bank loans and also to the difficulties and dangers involved in massive accumulations of local currencies - whether from the initial contributions of some member countries, or from repayment of "soft loans," or from contributions of counterpart funds by the U.S.A. and possibly other countries.

11. While in the Treasury our officials confirmed that Germany, like the U.K., was taking a positive position in support of I.D.A., probably with some qualifications or reservations (which are not known). There are indications that France may be taking a similar position.

Communication from the International Bank

12. As Canadian Governor of the International Bank I have received a communication from the President, Mr. Black, dated August 3, forwarding, with general approval but without specific commitments, a communication which he has received from Secretary Anderson. This communication includes a new outline of the U.S. proposal which is, however, in all material respects the same as the earlier outline received last May (and attached to my memorandum to Cabinet of July 7).

13. Secretary Anderson's communication states that, at the meeting of the International Bank later this month, he intends to invite the Governors to approve a resolution requesting the Executive Directors "to study carefully the question of establishing an International Development Association and, if feasible, to formulate articles of agreement for appropriate submission to the member governments." He further expresses the hope that the matter can be acted on by member governments early in 1960 allowing for action by the United States Congress during its 1960 Session.

Meeting of Commonwealth Ministers in London

14. Commonwealth Ministers are to meet in London on September 22-23. This will constitute the first meeting, at the ministerial level, of the "Commonwealth Economic Consultative Council." The Agenda is to include discussion of the proposed International Development Association, and also of the report by Commonwealth officials on the proposal for a Commonwealth financial institution.

Conclusions

15. Guidance is accordingly required regarding the Canadian position. I would propose that Cabinet should now accept the recommendations put forward in paragraph 22 of my memorandum of July 7 reading as follows:

"While the form of aid involved in the U.S. proposals for IDA does not conform closely to the pattern which Canadian aid has, for good reasons, followed in the past, the Canadian Government would nevertheless be willing, subject to Parliamentary approval, to agree to participate in arrangements along the lines proposed, provided that:

(i) an appropriate degree of support is forthcoming from the United States and also from other "creditor" countries including the United Kingdom and Germany;

(ii) the "underdeveloped" countries of the Commonwealth indicate that they would, in all the circumstances, give priority at this time to the establishment of IDA as a channel through which to receive aid;

(iii) the detailed arrangements for IDA provide for efficient administration and effective use of the funds for purposes of economic development;

(iv) an initial subscription by Canada to IDA should not be taken to imply any commitment to contribute to subsequent replenishments."⁹⁴

[DONALD FLEMING]

⁹⁴Approuvé par le Cabinet le 17 septembre 1959./Approved by Cabinet on September 17, 1959.