In order that preparations may proceed for the September - October meeting of the Colombo Plan Consultative Committee in Singapore and in order to assist our officials in planning programmes of assistance to the Asian countries for the period ahead, it would be desirable for the Canadian Government to determine at an early date:

(a) its attitude towards continuation of the Colombo Plan after June 30, 1957, the end of the present planning period;

(b) its intentions with respect to a contribution in the fiscal year 1956-57; and

(c) the composition of the Canadian Delegation to the Singapore meeting.¹⁸

A. Continuation of the Plan Beyond 1957

When the Colombo Plan for cooperative economic development in South and Southeast Asia was started in late 1950, it was arbitrarily related to a planning period of six years ending June 30, 1957. As the various countries, for the purpose of their own programming, will need to know at least a year in advance what the prospects are for the future, the members of the Consultative Committee will be expected to indicate at the forthcoming meeting whether they are agreeable to the continuation of the Plan and, if so, for what length of time.

There would appear to be very good reasons why Canada should support continued cooperation through the Colombo Plan. The Plan, loosely organized as it has been, has proven to be a useful instrument for encouraging considerable progress in the development programmes of the Asian countries and has assisted in creating a wholesome relationship among the countries of South and Southeast Asia and between them and the other member countries (including Japan as well as countries of the West). The Plan could scarcely be brought to an end in 1957 without serious economic consequences for the Asian countries concerned and substantial political damage to those countries and to our relations with them.

The Colombo Plan has gone very well so far. It has facilitated consultation among the Asian countries concerned on the problems encountered in developing their economies and has resulted in a certain amount of assistance from one country to another within South and Southeast Asia. The countries in the region have undoubtedly been encouraged to undertake development programmes on a scale more nearly adequate to the requirements of the situation than would have happened if this means of cooperation had not been available. Expenditures by these countries on their own development have been steadily increasing (27% higher in 1953-54 than in 1952-53 and 31% higher in 1954-55 than in the preceding year). Although some 80% of the costs involved have been met by those countries themselves, external aid has had an important (and, in many cases, a decisive) role to play in connection with particular projects. The response of other countries to these needs has almost certainly been greater and the outside assistance has been put to better use than would have been the case if the Colombo Plan arrangements had not existed.

The activities carried out under the Colombo Plan over the past few years have received widespread support from the people of both the Asian countries and the countries of the West. In addition to the evidence of active interest in Canada, the fact that in the presentation of its latest aid programme to Congress the U.S. Administration saw fit to emphasize the role of the Colombo Plan is illustrative of the regard in which the Plan has come to be held in the Western countries.

The habit of cooperation with the West which has been developed and strengthened by the experience which the Asian countries have had through the Colombo Plan has probably influenced the attitudes of those governments in such widely separate fields as recent international discussions on broad economic and commercial questions and the important Bandung Conference of African and Asian powers and has probably also been reflected in the national policies of the different countries individually. In particular, the Asian members would appear to have been less inclined to adopt a narrow or regional approach to these matters than they might have been if they had not been associated with other countries of Asia and the West in the Colombo Plan.

The need for cooperation through the Colombo Plan can hardly be expected to disappear by the middle of 1957. The development programmes of the Asian countries will still be under way. For example, India will be in the second year of its new five-year plan and Ceylon will only be half way through its second six-year investment programme. All of the countries in the area will be endeavouring to raise their living standards moderately or at least to prevent serious declines. There is considerable evidence that, in the light of the progress of the past few years, this objective is attainable, within a democratic social and political framework. There are strong indications that in the last two or three years the area of South and Southeast Asia as a whole - perhaps with the exception of Indonesia - has moved off "dead center" and has achieved a sustained increase in income in excess of population growth. The advances made since 1951, (together with the consideration that a relatively low level of investment "pays off" well in terms of additional output under Asian conditions, and that in many of the Asian countries monetary stability has been maintained throughout the postwar period) have led recent studies to the conclusion that in the next few years an even more satisfactory rate of growth of output and income can be expected.

If the programmes of the Asian countries are to be carried out with reasonable efficiency and without imposing a politically intolerable burden on the limited resources available to their people, those governments will need the cooperation of other countries in the region and such outside help as can be mobilized through the Colombo Plan. In this connection, it will be appreciated that by mid-1957 comparisons will undoubtedly be made, even more sharply than at present, between the rate of progress in those countries and in the underdeveloped countries within the Sino-Soviet bloc.

It might also be noted, that if the Colombo Plan were to be terminated in 1957, the pressure for aid would not necessarily be reduced as a result but might in fact be increased since the underdeveloped countries in Asia might behave much less responsibly if these matters could no longer be examined with the moderation and restraint which have characterized Colombo Plan discussions. It would appear quite likely that any indication of an intention to wind up the Colombo Plan in the near future would intensify the pressure for precipitate action on proposals for various kinds of international development funds which might be considerably less satisfactory from a Canadian point of view.

Although other countries have not yet had an occasion to indicate formally their views on the continuation of the Plan, it would seem reasonable to assume that most, and probably all, of the members will support a prolongation of its life.

Recommendations

In the light of our experience so far and of the situation which can be anticipated in 1957, I would recommend that:

(a) the Canadian representatives at the Singapore meeting should favour the continuation of the Colombo Plan beyond 1957;

(b) the Canadian representatives should suggest that the next planning period might coincide more or less with the completion of some of the major development plans, say the middle of 1961 or thereabouts; and

(c) in order to give substance to our position, the Canadian representatives should be authorized to indicate that, subject to a review of the situation from year to year and to the voting of funds by Parliament, the Canadian Government would expect to continue to make appropriate contributions throughout this period.

B. Canadian Contribution for 1956-57

It is appreciated that there are difficulties in determining at this stage the size of the contribution which Canada should make next year especially as we cannot know at this time exactly what our own financial position will be in 1956-57. Nevertheless, it is desirable that a decision be reached now in order that the advance preparations for next year's programme can be started and in order to provide guidance for the Canadian Delegation to the Singapore meeting.

Undoubtedly, many people in Canada, as in the Asian countries, have rather high expectations regarding the amount of assistance which might be provided in the new international atmosphere which they detect. It might be questioned, however, whether now is the time to make a really substantial increase. It might be sufficient and prudent to consider rather an increase which though significant in size would be clearly within our capabilities and well justified by the evident needs of the Asian members of the Plan.

From a recent review of Canada's Colombo Plan operations, it is apparent that there would be almost no scope for undertaking new projects next year if the total of that contribution were to be left at the present figure of $26.4 million. This is the case even if expenditures on projects already under way or contemplated in the current year's programme are assumed to be spread over the full length of time required for their execution and are not charged entirely against the funds so far appropriated.

In the case of India, acceptance of either the fertilizer project or one of the three hydro-electric projects proposed earlier this year would absorb virtually all of the funds available to India out of this year's vote and from a vote of the same size next year.

The situation with respect to Pakistan is even tighter. With certain increases in costs of projects now under way (referred to in a separate memorandum submitted to Cabinet today regarding Warsak)¹⁹ and with allowance for only those other projects which Cabinet has already approved and on which we have given undertakings to the Pakistan Government, all of the funds available to Pakistan from votes of the present size would be used up not only for the current year and for the next year but also for the year following.

In short, additional projects which have been put forward by India and Pakistan and which Canada appears to be particularly well placed to carry out (including one thermal power station in Pakistan which could be supplied almost immediately) would have to be turned down or at least seriously delayed if the amounts available for allocation to those countries are not increased next year. Furthermore, no new suggestions from either country could be entertained until after the next year or two.

With respect to Ceylon, while no significant expansion in Canadian aid would seem called for, it would be desirable to avoid going below the minimum-sized annual programme which has been accepted in each of the past four years.

In the case of the other countries in the Plan, to which Canada has not so far provided much aid, a modest beginning is being made this year with the limited funds available, but it would not be possible to start next year on the more significant projects which have been under consideration unless a somewhat larger total vote is secured. Among the possible projects in these mainly non-Commonwealth countries are such things as instructors and equipment for technical training institutions in Indonesia and elsewhere; assistance with fish processing facilities in Cambodia; contributions to the improvement of internal land or air transport in Laos, Indonesia and possibly other countries; the undertaking of aerial or resources surveys which have been requested by Indonesia and Malaya; the provision of several Canadian cobalt-beam therapy units to medical institutions in the area; and the possible supply of small scale electric power generating stations to support village industries in a number of these countries.

The requirement for funds to provide technical assistance to supplement our capital aid is greater than the amount available for such purposes this year. The need for technicians and training facilities will undoubtedly be higher next year.

In brief, if we are to go ahead with the atomic reactor; if even one or two small projects in India and Pakistan and a limited number of small-sized projects in the non-Commonwealth countries are to be contemplated for next year; and if the present modest scale of the Ceylonese programme is maintained more money than was provided this year will be required.

The intentions of the other members of the Colombo Plan are not yet definitely known. The United States will be allotting about $700 million to economic assistance to the Asian members of the Colombo Plan in the year ending July 1, 1956 (apart from any surplus commodities which may be provided to those countries under the Agricultural Trade and Development Act and apart also from direct military support). It is understood that Australia and New Zealand intend to announce at the Singapore meeting some increases in their contributions. The plans of the United Kingdom are believed to be under review in the light of the deterioration which is taking place in their balance-of-payments position. A large part of the United Kingdom's contribution in the past has consisted of accelerated releases of sterling balances resulting mainly from the heavy expenditures made by the United Kingdom in that part of the world on behalf of the allied war effort. These releases, and the increase in their rate which the United Kingdom accepted when the Colombo Plan started, impose of course as great a sacrifice of current income as would be involved if assistance were being provided on a grant basis. It is not clear whether in the present situation the United Kingdom will find itself able to increase its contribution.

In all these circumstances I think it is appropriate to increase Canada's Colombo Plan vote next year by ten million dollars which would include any amount which may have to be spent within that year in connection with the atomic reactor project. Such a moderate increase would seem well within the capacity of a country which has experienced an almost continuous rise in income since the original figure for the Canadian contribution was selected.²⁰ It would also seem to be particularly appropriate in view of the decline in total foreign aid provided by Canada as a result of the reduction of over $100 million which was made in the Mutual Aid Programme this year and the further reduction which seems likely next year. In this connection, it might be noted that U.S. foreign aid as a whole has not been allowed to fall significantly in the present year and their contribution to the economic development of the Asian countries in the Colombo Plan in the current year will be more than twenty times the figure suggested for Canada's contribution next year. An increase of this order in Canadian Colombo Plan assistance would seem a reasonable response to the increased efforts which the Asian members of the Plan have been making over the past several years to develop their economies.

This increase in next year's contribution would not be of such proportions as to give the impression that Canada is planning to indulge in lavish aid programmes in the new international situation which is foreseen by many people here and abroad but would be large enough to help significantly in keeping up the momentum of development activities in the Asian countries. With any real or apparent relaxation in international tensions, it is probably even more important than before that improvements in living conditions and in the prospects for the future should be achieved by those Asian countries which are associated with the Colombo Plan. A contribution of the kind proposed, including the constructive project which is to be undertaken in the atomic energy field, would be a token of Canada's genuine interest in the welfare and progress of those countries. This tangible evidence of sympathy and concern for them in the present situation could have substantial political and economic consequences far in excess of the amount of money involved.

Recommendations

For the reasons indicated above, I would recommend that:

(a) Parliament be asked to approve a Canadian contribution under the Colombo Plan in 1956-57 amounting to $36.4 million including any expenditures required in that year in connection with the reactor project; and

(b) the Canadian representatives at the Singapore meeting be authorized to indicate that, subject to the appropriation of funds by Parliament, Canada will make a contribution of this amount.

C. Canadian Delegation to the Singapore Meeting

In the light of the importance of this meeting and of the interests of the various Departments in the matters to be discussed there, I would recommend that the Canadian Delegation should consist of:

The Honourable L.B. Pearson,
Secretary of State for External Affairs;

Mr. J.F. Parkinson,
Department of Finance;

Mr. A.E. Ritchie,
Department of External Affairs;

Mr. J.H. English,
Department of Trade and Commerce;

Mr. R. Crépault,
Department of External Affairs;

Mr. J.G. Hadwen,
Department of External Affairs;

Mr. D.S. Armstrong,
Trade Commissioner in Singapore.²¹

L.B. PEARSON