On September 7, 1958 Cabinet reviewed the matter of Colombo Plan aid to non-Commonwealth countries and agreed to an allocation of $2 million to these countries in 1958-59 on the understanding that this aid would be mainly in the form of surplus Canadian foodstuffs.

In accordance with this Cabinet directive, officials entered into discussions with Indonesia, Burma, Vietnam, Cambodia and Laos to determine the maximum amount of funds which these countries were likely to be able to absorb in the form of surplus Canadian foodstuffs. In res-ponse to enquiries, our missions in these countries were instructed to make it clear that we would not be prepared to discuss Canadian aid for development projects in 1958-59 until we were satisfied that the foodstuffs programme that was under negotiation would be on a scale to meet the terms of the Cabinet directive. The negotiations with non-Commonwealth countries have resulted in understandings with Indonesia, Burma and Vietnam who have agreed to take Canadian surplus foodstuffs in the following amounts, subject to the approval of Cabinet:

The preliminary discussions with Cambodia and Laos made it clear that these countries depend largely on domestically produced food to meet their consumer requirements, that storage space would have been inadequate to accommodate even a relatively modest grant of Canadian wheat or flour, and that there would have been difficulty in obtaining the agreement of these countries to pay shipping costs from their own resources.

The Australian authorities have been consulted about a foodstuffs programme on the lines set out above. While expressing concern about the apparent increase in Canada's disposals of wheat and flour in what they regard as traditional Australian markets, the Australian authori-ties did not object to these contemplated transactions. They did, however, ask us to make it clear that Canadian gifts of wheat and flour under the Colombo Plan should in no way be expected to affect the undertakings given by these countries to purchase stipulated quantities on commercial terms.

The grants now being proposed together with the $60,000 grant of wheat to Nepal, which Cabinet approved on August 8, 1958, bring the total level of the foodstuffs programme to $1,260,000. In addition, about $140,000 has been committed, with the approval of the Ministers concerned, to a number of small projects on which negotiations had reached an advanced stage when Cabinet decided that foodstuffs should represent the main element of our programme in non-Commonwealth countries during 1958-59. In practice, therefore, there is a balance of about $600,000 remaining from the 1958-59 allocation which has not yet been committed.

In approving Canadian participation in the Mekong River project on February 24, 1959, Cabinet directed that apart from this project only the provision of Canadian foodstuffs should be considered under the Colombo Plan outside the Commonwealth in the fiscal year 1959-60. Since the Mekong River project represents a substantial Canadian undertaking whose benefits will be shared by Thailand, Laos, Cambodia and Vietnam, it would not appear that any part of the balance of 1958-59 funds should be allocated to these countries. Instead, it is recommen-ded that this balance be allocated to Indonesia and Burma.

Indonesia and Burma are the most important among the non-Commonwealth members of the Colombo Plan. Political developments in both countries over the last year or so have been reasonably encouraging from the point of view of the free world. Not only our Commonwealth partners in Asia but also Australia and New Zealand have a clear interest in the political and economic stability of these countries. The Australian pattern of allocations under their Colombo Plan programme reflects this interest, particularly in relation to Indonesia. For a number of reasons Canada's Colombo Plan programme in these countries was slow to develop and so far only about $400,000 or less than one-fifth of one per cent of our aid has been made available to them; of this amount $399,000 went to Burma and just over $2,000 to Indonesia.

In summary, there are four reasons why it is recommended that the $600,000 remaining from the 1958-59 allocation should be set aside for projects in Indonesia and Burma. First, these countries have received only a very modest share of Canadian Colombo Plan funds in the past. Second, Cabinet has directed that in the fiscal year 1959-60 the only aid contemplated for these countries would be aid in the form of surplus Canadian foodstuffs. Third, over a number of years these countries have been putting forward proposals for assistance to their economic development in the form of Canadian equipment and services, and negotiations to this end have been carried on in good faith; it is fair to say that their expectations were focussed in particular on the $2 million appropriation for non-Commonwealth countries in 1958-59 and that for this reason they made a special effort to demonstrate that they were prepared to meet the Canadian position by undertaking to take reasonable quantities of surplus Canadian foodstuffs. Finally, it is the judgment of our missions in Indonesia and Burma that even a modest amount of Canadian assistance to development projects from the balance of 1958-59 funds would be regarded in these countries as a helpful political gesture on Canada's part.

The following are the projects in Indonesia and Burma, respectively, for which Canadian aid has been requested:

Indonesia: Otter Aircraft - $400,000

Indonesia purchased two Otter aircraft commercially from Canada in 1958. These aircraft were the subject of very favourable publicity in Indonesia and their performance impressed the Indonesians as well suited to local conditions. Arrangements are now under way for the sale of two additional Otters to Indonesia on a cash basis. Apart from cash sales, the Indonesian Foreign Minister enquired in January 1959 about the availability of credit facilities for the purchase of Otter aircraft to a value of $3.5 million and about the possibility of Canada's being willing to supply under the Colombo Plan a few additional Otters to be used in developing secondary lines of communications, for aerial survey and rescue operations, and for general developmental flying. On April 2, Cabinet authorized the Export Credits Insurance Corporation to insure the sale of twelve of these aircraft to Indonesia by De Havilland Aircraft of Canada Limited on the understanding that Australia did not object to this sale. Australia has been consulted and has, in fact, raised no objection.

In the light of Indonesia's limited foreign exchange resources and its urgent requirement of aircraft for developing a widely scattered island economy, the provision of a limited number of Otters on a grant basis would make a worthwhile contribution to economic development. It is, therefore, recommended that an amount of $400,000 be allocated out of Colombo Plan funds for 1958-59 for the provision of three Otters with spare parts to Indonesia. Because the airforce are largely responsible for developmental flying in Indonesia, operational control of any aircraft provided by Canada is likely to rest with them. It is intended, however, that before these aircraft are provided assurances should be sought from the Indonesian Government that their use will be confined to developmental purposes, not excluding the establishment of civil aviation links between the islands of the Indonesian archipelago.

Burma: Bridge to Link Rangoon with Thaketa - $200,000

The reconstruction and expansion of Burma's highway system, which was severely damaged in World War II and over the long period of insurrection that ensued, is one of the most important tasks facing Burma in the development of its economy. In recognition of this need, Canada provided the services of a team of engineers last year to carry out a detailed engineering and economic analysis of Burma's highway system. The report of this team was presented to the Burmese early this year and is regarded by them as a valuable contribution to improved highway planning. The Burmese have requested us to follow up this work by training a small group of highway engineers in Canada. They have also asked us to contribute Canadian material and services towards the construction of a bridge to link Rangoon with Thaketa, a rapidly developing satellite town. This project commends itself as a useful contribu-tion to the development of the Burmese highway system and in view of its central location in a densely populated area is likely to attract considerable publicity for Canada. Before a final decision is reached on whether to embark on this project, more information would have to be obtained on its technical implications and aggregate cost by sending a small team of Canadian engineers to carry out a preliminary survey. It would also be necessary to obtain assurances that, if Canada were to contribute a portion of the costs of the project within the funds availa-ble for this purpose, the Burmese Government would be prepared to put up the balance. Meanwhile it is recommended that an amount of $200,000 be set aside out of the balance of 1958-59 funds to meet the cost of a preliminary engineering survey of the project and at a later stage to provide assistance towards the construction of the bridge in the form of Canadian materials and services. It would be understood that Canadian participation in the construction stage would depend on the findings of the preliminary engineering survey and on specific Cabinet authority being sought in due course.

In summary it is recommended that Cabinet approve the following allocations from the total of $2 million which it agreed on September 7, 1958 to set aside for non-Commonwealth countries out of 1958-59 funds:

It is in accordance with normal practice that, in the case of all food grants, counterpart funds will be established in amounts equivalent to the Canadian grant to be used in due course for development projects agreed upon by Canada and the recipient government.⁵⁷³

[J.G. DIEFENBAKER]

⁵⁷³Approuvé par le Cabinet le 16 juin./Approved by Cabinet on June 16.