Report to Congress on the mutual security program

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Report to Congress

on the

Mutual Security Program

June 30, 1955

ton Public Lil rary
Superintendent of Documents

SEP 12 1955

PRESIDENT'S LETTER OF TRANSMITTAL

To the Congress of the United States :

I am transmitting herewith the Eighth Semiannual Report on the Mutual
Security Program, covering operations from January 1, 1955-June 30, 1955, in
furtherance of the purposes of the Mutual Security Act of 1954.

During this period, there was a marked increase in the free world's
economic well-being and defensive strength.

Working in partnership together, the nations of the free world have indi-
vidually and collectively benefited from the mutual security program. Their
peoples are better fed and better clothed than ever before in this century, and
their governments and their boundaries are better protected from external
aggression or internal subversion.

In the current world situation, the dollars invested in the mutual security
program have brought greater security to the people of the United States than
could the same amount of dollars used in any other manner.

/_) tJL^y

The White House,
August 24, 1955.

in

CONTENTS

Page

President's Letter of Transmittal iii

Chapter I. Plus-Signs of Progress 1

II. Free Asia 7

III. Near East and Africa 24

IV. Latin America 34

V. Europe 43

VI. Other Parts of the Program 55

CHAPTER I

Plus-Signs of Progress

AS THE MUTUAL security program moved
. into a new fiscal year of operation in mid-
1955, there was increasing evidence of solid gains
achieved through joint efforts with some 70 coun-
tries and territories throughout the free world.
The contribution of a portion of our military,
economic, and technical resources to buttress the
undertakings of other free nations has made it
possible for them to carry out specific measures
for preparing stiffer defenses against aggression
and for building stronger economies. Added to-
gether, these measures have brought the free world
as a whole to a position of measurably greater
security and have made the ground firmer for
further forward movement.

Events of the past six months, particularly in
Europe, but also in Asia and other parts of the
free world, have given additional demonstration
that the United States investment in cooperative
programs abroad is paying worthwhile dividends
in stronger and more self-reliant partner nations
and a lessening of international tensions. Today's
greater opportunities for peaceful economic
growth flow in great measure from our steadfast
policy of a partnership approach in solving the
difficult problems of our time.

Stronger Military Posture
of the Free World

The bulk of mutual security funds has been used
to help put the free world into a stronger position
to discourage armed aggression as a means of
gaining world power. Through June 30, 1955, the
United States had shipped $11.4 billion worth of
military equipment to bolster the defense efforts
of more than 35 friendly countries. These ship-
ments included 7,575 planes, 38,400 tanks and com-
bat vehicles, and 1,079 Navy vessels; they also in-
cluded artillery pieces, small arms, machine guns,
electronic equipment, and other military supplies.

The United States has placed about $2.8 billion
worth of contracts in friendly countries for pro-
curement of certain types of military items to be
used by recipient governments for mutual security
purposes. Such contracts overseas have helped
our allies to develop their own capabilities for
military production, reduce their dependence on
this country for replacements and spare parts, and
provide a close-in supply line in case of war.

In Europe. — The most powerful concentration
of free world strength outside of the United
States has been established in Western Europe.
The free nations of Europe, linked with the.
United States and Canada through the North At-
lantic Treaty Organization, have continued to
move ahead in creating a strong deterrent force
and in building their military capabilities to the
point where they will be able to meet successfully
any attempt to seize their lands and resources by
armed force. The addition in May of a sovereign
Germany to the free world community and to
NATO opened up new avenues to increased unity
and strength on the European continent.

European NATO nations (excluding Greece
and Turkey) are spending about $12.3 billion a
year on military production and maintenance of
their armed forces. These outlays for defense,
which are double what they were in 1950, are be-
ing made on an increasingly self-supporting basis.
No new economic dollar aid to these European
NATO countries is planned after June 30, 1955.
Economic aid expenditures from previous appro-
priations are also declining rapidly.

Europe's invigorated defense effort, reinforced
by our assistance, has been reflected in the im-
pressive increase in NATO capabilities. The
armed forces committed to the defense of the
North Atlantic Treaty area today number about
100 divisions, active and in mobilizable reserves,
as compared to NATO's total manpower comple-

The U.S. Has Shipped Over $11 Billion Worth
Of Military Items To Free World Countries

Value of Military Aid Shipments

Through June 30, 1955
1%

Lotin America

$11.4 Billion

ment of 12 divisions in 1949. There are now more
than 6,000 planes available for defense of the
NATO area.

The quality of weapons for the NATO arsenal
has steadily improved. The latest types of jet
planes, guided missiles, and atomic artillery are
available in increased quantity for NATO defense.
The basis has been laid for consideration of atomic
capabilities in NATO planning. Hundreds of
joint training exercises have developed more
effective fighting power and promoted smoother
operational coordination among the land, air,
and sea forces committed to NATO.

Mutual security funds have been used for the
United States contribution to a military construc-
tion program financed jointly by all the NATO
nations and designed to provide NATO with more
effective logistic support. Through this program,
NATO now has 142 airfields which could be used
in an emergency. Communications and transpor-
tation networks have been modernized and ex-
tended, and construction on a 3,800-mile inland
distribution pipeline for fuel is well advanced.

Elsewhere in the Free World. — Heartening
progress toward a stronger defense posture also
has been made in other areas of the free world.
In underpinning defense efforts outside Europe,

the mutual security program not only has helped
build greater defense capabilities in individual
countries ; it also has been effective in developing
an atmosphere for better cooperation in working
toward regional defense arrangements.

New links have strengthened and lengthened
our security chain in Asia and the Pacific. The
latest link, the Southeast Asia Collective Defense
Treaty, rounds out our mutual defense treaties
with Korea, Japan, and the Republic of China or.
Formosa.

The Republic of Korea now has a strong force
of 21 ground divisions on active duty. The free
Chinese forces on Formosa are better trained and
better equipped today, in great part because of
United States military aid. Pakistan's defense
establishment has received its first shipments of
army equipment as a result of a military assistance
agreement signed with this country in early 1954.
The Philippines and Thailand have also substan-
tially raised their defense capabilities because of
our mutual security programs. Cambodia con-
cluded a military assistance agreement with the
United States in May 1955.

All these Asian countries are heavily committed
to safeguard themselves against internal and ex-
ternal aggression. Large portions of their budg-
etary expenditures are being channeled into de-
fense. In planning mutual security activities in
Asia, we have taken into consideration new coun-
try responsibilities growing out of defense
arrangements under the Southeast Asia Collec-
tive Defense Treaty.

In the Middle East, good progress has been made
in forming a "Northern Tier" as a defensive bul-
wark in the region. In the past two years, mutual
protective arrangements have been furthered by
agreements between Turkey and Iraq. There
is also the Balkan alliance of Greece, Yugoslavia,
and Trukey. All the foregoing countries are
building their security with the help of our mili-
tary assistance.

In our own hemisphere, the Rio Pact forms a
strong defensive bond with our Latin American
neighbors. Twelve American republics have con-
cluded military assistance agreements with the
United States. Appropriations of previous years
when fully expended will substantially complete
the equipping phase of the military assistance pro-
gram in Latin America. New funds will be used
primarily for maintenance and training purposes. '

UNITED STATES COLLECTIVE DEFENSE ARRANGEMENTS

U.S. and countries with which
it has mutual defense treaties
Efl£& Communist bloc

NORTH ATLANTIC TREATY

RIO TREATY

UNITED STATES

CANADA

ICELAND

NORWAY

UNITED

KINGDOM
NETHERLANDS
DENMARK
BELGIUM

LUXEMBOURG

PORTUGAL

FRANCE

ITALY

GREECE

TURKEY

FEDERAL

REPUBLIC OF
GERMANY

UNITED STATES
MEXICO
CUBA
HAITI

DOMINICAN
REPUBLIC
HONDURAS
GUATEMALA
EL SALVADOR
NICARAGUA
COSTA RICA

PANAMA

COLOMBIA

VENEZUELA

ECUADOR

PERU

BRAZIL

BOLIVIA

PARAGUAY

CHILE

ARGENTINA

URUGUAY

ANZUS

UNITED STATES
NEW ZEALAND
AUSTRALIA

PHILIPPINE
TREATY

UNITED STATES

PHILIPPINES

JAPANESE
TREATY

UNITED STATES
JAPAN

REPUBLIC
OF KOREA

(Souih Korea)

TREATY

UNITED STATES
REPUBLIC
OF KOREA

SOUTHEAST
ASIA TREATY

UNITED STATES

UNITED KINGDOM

FRANCE

NEW ZEALAND

AUSTRALIA

PHILIPPINES

THAILAND

PAKISTAN

REPUBLIC

OF CHINA

(Formosa)

TREATY

UNITED STATES
REPUBLIC OF

CHINA

(Formosa)

The military assistance we have furnished in the
form of end-items and training, our contributions
to jointly financed construction projects, and our
offshore procurement programs are enabling our
friends and allies to raise and maintain the equiv-
alent of more than 180 divisions, about 280 air
squadrons, and over 550 combat vessels. These
forces, together with the strategic overseas mili-
tary bases which our allies make available to us,
give this nation security which it could not other-
wise obtain.

Our allies are fully aware of the dangers of ag-
gression and are determined to resist it. Even
without United States support, it is certain that
many of these nations would carry on sizeable de-
fense efforts within the limits of their resources.
But it is equally certain that United States contri-
butions and joint participation have made it pos-
sible for these efforts to be many times greater and
more effective. By supplying certain indispensa-
ble elements which allied nations could not pro-

vide for themselves, our support has enabled these
nations to build and maintain better integrated,
better balanced, and far more powerful military
forces than would otherwise have been possible.

General Economic Advance
and Greater Initiative

At this point, mid-way in 1955, the free world as
a whole is in a better economic position than ever
before.

In Western Europe, all economic indicators-
industrial and agricultural production, trade, ex-
change reserves — are at high levels. Europe's
gross national product in 1954, in terms of con-
stant prices, was more than 35 percent above 1918,
the start of the Marshall Plan. Although Western
Europe's external payments position with the
dollar area is delicately balanced and still some-
what dependent upon special United States mili-
tary expenditures, the original Marshall Plan

354136 55

countries of the area no longer require dollar
grants for economic aid.

In the underdeveloped areas, notable gains in
economic development have been scored, despite
the fact that the rate of progress lags far behind
population needs. Particularly good advances
have been made in food production, and the out-
look is brighter for further forward movement in
other vital sectors of the economy.

Most encouraging is the growing evidence that
the countries in the underdeveloped areas are
steadily gaining greater understanding of what
they must undertake and what they can do to open
the way to a better future. With broadened
knowledge of their growth needs and growth
potential has come increased enterprise for push-
ing ahead with developmental measures. In
South and Southeast Asia, for example, it is esti-
mated that public expenditures for development
are currently more than double what they were
in 1951-52.

In all parts of the economically underdeveloped
areas, governments are mapping out basic plans
which set forth key projects to be given priority
attention in meeting the individual needs of their
countries. Thus, Chile is accenting transporta-
tion and agriculture to correct its economic im-
balance. Brazil, hampered by inadequate public
utilities, has its plans centered on electric power
and transportation projects. On the other side of
the world, Egypt is pinning its efforts on the High
Aswan Dam which could add 2 million acres to its
presently narrow cultivable land area. Lebanon's
plans encompass the development of the Litani
River for irrigation and power. In the Far East,
Thailand is pushing plans to expand its highway
and railroad systems ; the Philippines is dividing
its major developmental measures equally be-
tween rural improvement and industry.

World attention has been focused on India, the
largest free world nation striving to work out a
better future for its 377 million people through
representative government. Under India's cur-
rent 5-Year Plan, per capita income has been
raised by over 8 percent. Production is well ahead
of schedule in food grains and cotton cloth, and
is moving forward in other fields.

The processes which underlie India's economic
gains contrast sharply with the methods used in
Communist China, where production increases are
planned with the most callous indifference to the
needs of the individual and are forced into actu-

ality by the harshest sort of human regimentation.

The mutual security program has played a key
role in catalyzing and making more productive the
determined efforts that participating countries
have put into their own programs for economic de-
velopment. Through defense support and de-
velopment assistance measures, the program has
financed the importation of vitally needed raw ma-
terials, equipment and commodities, and assisted
in the execution of essential developmental proj-
ects. Through joint technical cooperation pro-
grams, it has shared with economically less ad-
vanced peoples all over the world the technical
knowledge and skills which have played so great
a part in our own national growth. The number
of American technicians at work in the underde-
veloped areas has increased over one-third since
January 1953. The number of American univer-
sity contracts for technical cooperation activities
had increased to 67 at the end of June 1955, as
compared with 14 in January 1953.

In a number of countries — Greece, Turkey, Iran,
Korea, Formosa, the Philippines, to name only a
few — economic aid has also performed a dual func-
tion in enabling friendly nations to undertake and
sustain a substantial military effort while at the
same time carrying forward measures for internal
development.

The stimulating impact of the economic and
technical aspects of the mutual security program
has been felt in every part of the globe. Direct
gains have been produced in terms of more food
and clothing, more adequate basic facilities, im-
proved health and housing, higher output and in-
creased productivity, and better educated children.
As these gains have multiplied, participating gov-
ernments have substantially enlarged their share
of funds, facilities, and personnel to the joint
programs under way.

Use of Funds in FY 1955

During fiscal year 1955, obligations and reser-
vations under the military assistance program
accounted for $3.3 billion of mutual security
funds. In addition, $523 million was allotted for
direct forces support in the form of soft goods
consumed by the military, such as petroleum and
cloth for uniforms. A total of $795 million was
allotted for defense support to reinforce the econ-
omies of those nations joined with us in programs
of military assistance so that they could sustain
their military contributions to free world defense;

$125 million was allotted for joint technical coop-
eration projects, and $256 million for development
assistance. The remainder was used for activities
such as the United States share of international
programs of technical assistance and children's
welfare, the escapee and refugee programs, and
aid to West Berlin.

During the fiscal year, agreements were made
with 11 countries which provided for $214.5 mil-
lion of mutual security assistance to be furnished
on a loan basis. Collections from all countries
on previous loans made under mutual security
programs amounted to about $150 million as of
the end of June 1955. These were mainly interest
payments, since under the terms of the original
loans repayments of principal generally do not
begin to fall due until 1956.

The Bulk Of Nonmilitary Funds Was Used For
Defense Support And Direct Forces Support
In FY 1955 . . .

(Millions of Dollars)

1,731

Defense
Support

Direct Forces
Support

Development
Assistance

Technical
Cooperation

Other
Programs

795

523

256

125

32

63 Percent Was Used For Asia

Lotin
America 3%

Other Programs
3%

'Allotted by FOA, encludlng military assistance (MDAP)
and allocations to other agencies

By far the largest portion of expenditures made
under the mutual security program has been for
goods and services procured in the United States.
In fiscal year 1955, over 75 percent of all program
expenditures were paid to American suppliers.

During the 1955 fiscal year also, over $467 mil-
lion worth of United States surplus agricultural
commodities were sold to friendly countries which
have contracted to pay in their own currencies.
These surplus sales were concluded in accordance
with the provisions of Section 402 of the Mutual
Security Act of 1954, and the sales proceeds have
been earmarked for use in mutual security oper-
ations. Together with transactions made in the
previous fiscal year under a similar provision, over
$700 million of our agricultural surpluses have
been sold to friendly countries in direct connection
with mutual security activities. Such sales were
in addition to the surplus commodity sales carried
out under Title I of the Agricultural Trade Devel-
opment and Assistance Act of 1954.

The New International Cooperation
Administration

In compliance with the Congressional provi-
sion that the Foreign Operations Administration
be terminated as an independent agency by the end
of June 1955, Executive Order 10610 was issued
on May 9, 1955, which transferred FOA activities
to the Department of State. Certain military
aspects of the mutual security program were trans-
ferred for administration to the Department of
Defense.

Under the Executive Order, which took effect
at the close of June 30, the International Cooper-
ation Administration was established as a semi-
autonomous organization in the State Department,
and the President directed that the mutual se-
curity program be carried out by and under ICA.
The Institute of Inter- American Affairs, the In-
ternational Development Advisory Board, and the
Office of Small Business, all of which formerly
were under the Foreign Operations Administra-
tion, were attached to or made part of ICA.

The President selected John B. Hollister as the
Director of the International Cooperation Admin-
istration. Mr. Hollister took office on July 1, and
Harold E. Stassen, former Director of the Foreign
Operations Administration, became Special As-
sistant to the President to help develop basic policy
on disarmament. As Director of the new organi-

zation, Mr. Hollister will report directly to the
Secretary of State and will supervise and direct
the nonmilitary mutual security operations. He
also has the responsibility for coordinating the en-
tire program, although the Department of Defense
will continue to administer United States assist-
ance furnished directly to the armed forces of other
nations. Such military assistance now includes
"direct forces support", previously administered
by the Foreign Operations Administration.

The International Cooperation Administration
was established within the State Department in
conformance with the wide recognition that the
development of military and economic strength

through our mutual security program is an in-
tegral part of United States foreign policy. In
working out arrangements for the new organiza-
tion, however, care had to be taken to maintain
the central planning and the coherent direction
necessary to insure coordinated and effective pro-
gram action. To effect this, the Executive Order
specified that the International Cooperation Ad-
ministration be made semiautonomous, with its
own supporting staff and program personnel both
in Washington and in the field. Within guide
lines established by the Secretary of State, the Di-
rector of the ICA will perform the operations nec-
essary to carry out our national policy objectives.

CHAPTER II

Free Asia

OVER 770 MILLION people, 45 percent of the
free world population, live in the broad span
of free nations that stretches from Afghanistan in
South Asia to Japan in the Far East. In the
whole history of the world, perhaps never before
have so many people been involved in such deep
and rapid changes in their way of life.

Most of the people of free Asia are attempting
for the first time to run their own affairs. They
are understandably jealous of their new independ-
ence. Their leaders, eager and devoted men but
generally inexperienced in the complexities of
modern self-government, are charged with the
tremendous task of taking living conditions that
have remained static for generations and bringing
them in line with twentieth century aspirations.

Picture of the Asian Problem

The broad dimensions of the problems which the
Asian governments face are highlighted by these
basic facts :

^ The value of their combined output of goods and
services is only about $80 billion. This compares
with "Western Europe's gross national product of
$200 billion, and our own gross national product of
over $370 billion.

k Their economic structures are unbalanced, for
the most part heavily weighted in favor of agri-
culture in relation to the need for industrial and
minerals development. Pakistan depends on jute
for nearly half of its foreign exchange earnings.
Thailand and Burma depend heavily on rice and
rubber; Formosa on rice and sugar; the Philip-
pines on abaca, copra, and sugar.
y They lack the public services — transportation,
communications, power — which are basic to eco-
nomic expansion and prime requisites for attract-
ing needed private capital.

k Food production, although improved in recent
years, is still insufficient to provide an adequate,
balanced diet for the majority of Asians.

^ Diseases, such as malaria, trachoma, and yaws,
chronically sap the energies of millions of their
people and cut them down in the prime of their
productive life. In India, Indonesia, Pakistan,
and Cambodia, average life expectancy is less than
35 years.

^ Rudimentary and often non-existent educational
facilities limit the spread of needed knowledge and
thus deprive their people of a major requisite for
self-improvement.

Japan is the only country in free Asia to which
most of the foregoing characteristics do not apply.
Japan's problems are of a different nature and
flow from a heavy pressure of population on land
and from an acute dependence on two-way inter-
national trade : imports of food and raw materials
and exports of finished goods.

If the people of free Asia had only to concen-
trate their efforts and resources on measures for
self-development, that would be task enough. But
today, much of their energies must also be devoted
to extraordinary measures for self-defense. Most
of Asia's independent countries border on Com-
munist China. They must not only maintain
armed forces which can guard against military en-
croachment ; they must also be ever on the alert to
the Communist form of colonialism which works
subtty and ceaselessly to infiltrate the mechanisms
of a country's government and exploit its condi-
tions of poverty and want, all the while nibbling at
the foundations of freedom.

This insidious new form of colonialism, as man-
ifested in the subversion of men's minds and the
complete suppression of free expression, was ar-
raigned before the bar of world opinion at the
Afro-Asian Conference of nations held during
March in Bandung, Indonesia.

It should be realized also that the proximity of
Communist China presents an economic challenge
as well as a military and political threat to Asia's
independent governments. It is the challenge of

Asia's Basic Problems

Low Notional Product

Undiversified Economies

Poor Basic Facilities

GNP Per Capita
(Dollars)

$1,215

Asia More Developed
Areas

Percent of Total Exports
1950-1954

Pakistan

Jute OS Ills ::•!;!:•£; Cotton :j::;l 85

Burma

Rubber i; 74

: Oil 1:1= 62

Philippines

Copra

Sugar 62

Electric Power
Per Capita
KWH Per Year

2,070

117

Asia More Developed
Areas

Low Diets

Calories Per Day

3,000

2,035

Asia More Developed
Areas

Short Life Spans

Widespread Illiteracy

LifeE

<pectancy

67 Years

35 Years

Asia More Developed
Areas

Percent Literate

95%

32%

Asia

More Developed
Areas

competition in the race toward specific economic
goals. On the outcome may hinge, in great meas-
ure, the continued support of the bulk of the Asian
people for democratic processes and democratic
government.

Recent Economic Progress:
Gains and Gaps

The Asian countries as a whole have made
progress recently in both agriculture and industry.
In agriculture, production gains have been espe-
cially significant in food grains; output in the
1953-54 crop year was 10 percent higher than
prewar. It should be noted, however, that al-

though the general food situation has improved
throughout most of Asia, normal population
growth has eaten into production increases. On
a per capita basis, food production is still below
the prewar level.

Increases during 1954 in the export prices of
non-food agricultural products — tea, jute, and
cotton — alleviated to some extent the problems
of such exporting countries as Ceylon, India,
and Pakistan. On the other hand, world prices
of rice and copra declined, affecting in particular
Burma, Indonesia, the Philippines, and Thailand.

On the industrial side, the greater use of exist-
ing capacity and the addition of new production
lines expanded output of many basic items. Good

advances were made in production of cotton goods,
cement, chemical fertilizers, and electric power.
Most of these gains took place in the more in-
dustrialized countries, Japan and India.

The bulk of the increased production was con-
sumed domestically and did not materially im-
prove Asia's aggregate earnings of foreign ex-
change from exports. Gold and foreign exchange
assets in many countries — Burma and the Philip-
pines, in particular — have fallen in comparison
with previous years. Other countries were able
to maintain a manageable payments position only
because of external financial assistance. The
continued shortage of foreign exchange resources
has led to harsher restraints on imports although
the demand for imports remains high. Asia's
imports in 1954 were cut about five percent below
1953 levels.

Even with the substantial gains in various
economic sectors, most of the Asian countries have
not been able to raise living standards appreciably
above the prewar level in terms of real per capita
income. Thus, while postwar economic progress
on the whole has been encouraging, it has not
moved fast enough.

The determination of the free Asian govern-
ments to quicken the pace of their economic ad-
vance is revealed in their planned and actual
expenditures for development purposes. The
area is a-boil with developmental activity. Nearly
all countries have formulated priority projects
and have outlined the total investment resources
needed to carry them out. India, Ceylon, Burma,
Korea, the Philippines, and the Republic of China
on Formosa have mapped out comprehensive
programs extending over a definite period of
years. Other countries are proceeding on an indi-
vidual project basis, rather than a coordinated
long-term approach. But in all cases, there is a
definite attempt to channel increasing amounts
of private capital and governmental appropri-
ations into self-development measures.

Governmental expenditures for economic devel-
opment have steadily increased. In Pakistan,
capital expenditures were the equivalent of $139
million in the 1955 fiscal year, compared with $83
million in fiscal year 1953 and $25 million in
fiscal year 1951. In the Philippines, capital out-
lays budgeted for fiscal year 1955 were more than
double those in fiscal year 1953. In recent years,
new financial institutions, such as the privately
run credit and investment corporations in India

and Pakistan, have been established. Many
countries also have taken specific steps to improve
the climate for private foreign investment. They
have liberalized their investment laws and have
actively enlisted tne participation of foreign
capital in joint ventures.

The lack of capital is one important factor that
retards further economic movement in Asia.
Perhaps equally important is the lack of trained
manpower and technical skills needed to formu-
late realistic development programs and carry
out the specific projects included in them. The
member countries of the U. N. Economic Commis-
sion for Asia and the Far East, at their Eleventh
Session held in Tokyo during March and April
1955, laid heavy stress on the need for technical
assistance. Specific acknowledgment was made of
the importance of United States technical coopera-
tion programs in speeding country development
efforts.

Steps to Stronger Defense

The necessity for keeping continually prepared
against possible assault drains off a large portion
of financial and productive resources in Asia which
could otherwise be put into projects for economic
growth. Pakistan and Thailand, for example,
spend over 30 percent of their total budgets for
security purposes. Defense expenditures of For-
mosa and Korea are even larger, running as high
as 67 percent,

With the intensification of Communist activity
in Asia, it has become imperative to be militarily
strong and on the alert. At Bangkok, Thailand,
in March 1955, the Manila Pact nations appraised
current military factors and concluded that the
mobile, retaliatory power available gave solid hope
of discouraging open armed aggression in the
treaty area. The member nations are working to
increase the effectiveness of that power. Steps
have been taken to exchange information on mili-
tary forces that could be drawn upon in case of
need, and on strategies to be used. Out of present
actions may also come plans for combined mili-
tary exercises.

In keeping with the objective of having strong
treaty partners for Far East defense, the United
States continued to provide the armed forces of
Thailand and the Philippines with essential mili-
tary equipment during the first part of 1955. Also
in the Far East area in the 6-month period, pri-

ority was placed on the delivery of military equip-
ment to the Republic of China on Formosa. AdT
ditional United States equipment was also trans-
ferred to Japan to aid in equipping the new Japa-
nese self-defense forces.

On the other side of the Asian land mass, Pak-
istan in February 1955 signed a formal agreement
with Turkey for cooperation and consultation on
problems of mutual interest, including defense
against unprovoked attack. Under the recently
concluded military assistance agreement, the
United States is already furnishing Pakistan with
certain needed weapons and other military equip-
ment to be used in strengthening the Pakistani
contribution to free world defense.

Program Accent on Asia

Nearly $1.1 billion of mutual security funds
was allotted for the free countries of Asia
during the fiscal year ended June 30, 1955. This
amount did not include allotments for military
end-items and training. In the 12-month period
of the 1955 fiscal year, military shipments to the
Asian area (excluding Pakistan) totaled $510 mil-
lion in value. Cumulative military shipments to
date have totaled $2.1 billion.

Of the $1.1 billion of nonmilitary funds, $540
million was allotted for defense support pur-
poses— that is, economic assistance designed pri-
marily to make possible the maintenance of an
adequate defense effort without disrupting the
normal economy. Financing of consumer-type
items channeled directly to the military forces,
termed direct forces support, totaled $414 million.
The United States share of joint technical cooper-
ation programs for the 12-month period totaled
$58 million. Assistance keyed to specific develop-
mental projects totaled $72 million : 63 percent of
this development assistance, primarily to India,
was on a loan basis.

The heavy program emphasis on Asia is in ac-
cord with current requirements and opportunities
on the international scene. There is much at stake
in this vast and vital area of the world. With
conditions improved in Europe, we are putting
more attention on the free countries of Asia. We
are seeing more clearly the complex problems their

people face and responding with greater effective-
ness to mesh our efforts with theirs. In fiscal year
1955, roughly 63 percent of all nonmilitary funds
for mutual security was programmed for Asian
countries.

In a new measure to reinforce and accelerate
Asian undertakings for self-development, a spe-
cial President's Asian Development Fund is being
established. The President will be able to use the
Fund at his discretion over a 3-year period, pri- ,
marily for developmental projects which would
benefit more than one country, thus promoting
economic progress in the Asian region as a whole.

The fact that it is in the enlightened self-in-
terest of the United States to support the Asian
people in their actions for a more secure and bet-
ter life needs no repetition. We know how closely
their progress is bound in with our own. From the
standpoint of having strong partners and valuable
bases in the fight against aggression, or of assur-
ing availability of the raw materials needed for
our continued growth, or of developing new and
expanded markets for world trade — looked at
from any angle, our objectives are mutual and
inseparable.

One important point should be kept in mind in
considering various approaches to Asia's prob-
lems of economic development. Most of the Asian
countries are starting from rockbottom. It is not
a question of making a once full-blown economy
bloom again, as in Western Europe, or of embark-
ing on an emergency reconstruction program
marked by definable time limits. The task in Asia
is of an entirely different nature. It involves
building up from a very low base, of establishing
new economic mechanisms, of creating skills where
none existed before. It involves long-range poli-
cies and planning.

The primary responsibility for economic de-
velopment in Asia is that of the Asian countries
themselves. It is they who must exercise the initi-
ative and carry the central part of the load. Sup-
plemental help through the mutual security pro-
gram, together with the assistance extended by
other free nations wherever possible, can do much
to make the Asian endeavor effective and suc-
cessful.

10

Free Asia Has 30 Percent Of The World's Population

TOTAL •• 771 Million

Million People

Ceylon

Indonesia

Northeast Asia and Formosa

The Korean Program—
A Major Effort in Asia

The United States provided about $700 million
in fiscal year 1955 to help the Eepublic of Korea
strengthen its economic and defense capabilities.
Of this total, $420 million was channeled for assist-
ance to the Korean military forces; most of these
military aid funds were drawn from appropria-
tions made directly to the Department of Defense.

United States shipments of weapons and equip-
ment, as well as food, fuel, and other supplies
destined exclusively for troop use, continued to
support the Korean military establishment. This
aid has helped Korea maintain a powerful army of
20 divisions, a marine corps of 1 division, a navy of
49 vessels, and an air force of 1 fighter wing and
miscellaneous supporting aircraft. Korea has in
addition, two para-military forces — the National
Police Force, and the Korean Service Corps. In
the first part of 1955, emphasis of our military

assistance measures was placed on training in com-
mand functions and delivery of jet aircraft and
transportation equipment. The Korean Second
Army was being trained to take over the logistic
support activities formerly carried out by the
United States armed forces in Korea.

Coordinated programs carried out by the For-
eign Operations Administration, the Department
of the Army, and the United Nations Korean Re-
construction Agency have materially assisted
Korea in moving toward a more balanced economy.
Since 1951, industrial production has more than
doubled and stands 50 percent above the level
achieved before the Communist invasion. Agri-
cultural production in the same period has risen by
about one-third, although it is still below the aver-
age level of 1935-39. Inflationary pressures, how-
ever, remain a serious economic problem. In the
first half of 1955, wholesale prices rose by about
one-third. Korea's heavy outlay for national de-
fense, which constitutes over one-half of total ex-
penditure reflected in the n:ii ionaJ budget, has been

35413(5— So-

il

250

200

150

(Index, 1953=100)

>

/

Money Supply f

V

/

/ -

J.

y

\

Wholesale Prices (Seoul)

i 1 i

, 1 ■

1

50

1953 1954

'Money supply data for 1955 are estimates

1955

a major factor contributing to this precipitous
price rise.

Under the mutual security program, emphasis
has been placed on expanding basic industries so
that the Korean economy will be less dependent
on outside support. In fiscal year 1955, FOA made
available almost $100 million for industrial devel-
opment— $66 million for transportation, $13 mil-
lion for manufacturing, $11 million for power,
and $6 million for communications.

Many of the projects initiated under previous
programs are now in an advanced stage. FOA
had provided $30 million to finance construction of
three thermal-power plants with a total capacity of
100,000 kilowatts. Construction of one plant is
now about 25 percent completed. The foundation
and steel work on the second and third plants is
progressing rapidly.

In railroad transportation, construction of a
vital rail link between the east and the west coast
has moved ahead on schedule. The United States
has assisted by financing necessary supplies and
equipment and by providing competent engineer-
ing services. In communications, the engineering
work has been completed on a project to provide
the capital city of Seoul with a modern telephone

system and to build exchanges in other major
cities.

Korea lost a major part of its warehousing and
storage facilities in the struggle against the Com-
munist invaders. To replace these vital facilities,
funds have been provided to build 750 new ware-
houses ; 250 already are under construction. In ad-
dition, FOA made available to Korea 300 ware-
houses which had been erected by the United
States Army for its own use.

FOA also provided about $9 million to finance
imports of machinery and equipment needed by
Korean businessmen to establish 36 small indus-
trial plants. These plants will increase Korea's
ability to meet domestic consumption requirements,
and at the same time accelerate the output of goods
for export. One plant will produce lime for use
in stepping up agricultural production; another
plant is scheduled to turn out agar-agar for ex-
port; a third will increase Korea's capacity to
manufacture clothing for its armed forces. Con-
struction of such plants will ultimately bring con-
siderable reductions in imports presently financed
by the United States.

Two major projects, financed by the United Na-
tions Korean Reconstruction Agency (UNKRA),
are being built: a flat-glass plant which will
provide one-half of Korea's glass requirements,
and a cement plant with a capacity of 100,000
tons annually. UNKRA is also training Korean
miners and mine managers and helping to rehabili-
tate mine buildings and tunnels. UNKRA techni-
cians are helping the Koreans to carry forward
several projects in agriculture, particularly in
irrigation and flood control.

The United States Army in Korea is assisting
in refugee resettlement. Almost $2 million worth
of supplies and equipment for erecting houses and
farm buildings is under procurement. These sup-
plies will make possible the resettlement of some
35,000 refugee families. As relief activities de-
creased, the United States Army transferred
many of its assistance functions to the Foreign
Operations Administration. The full transfer of
functions is scheduled to be completed by March
1956. UNKRA also is closing out its activities;
upon completion of existing projects, its functions
will be terminated.

Emphasis on Productivity in Japan

A technical cooperation program was formally
initiated in Japan with the signing of the neces-

12

sary basic agreement in April 1955. Projects un-
der the joint program will concentrate on stepping
up Japanese productivity. Japan faces an urgent
task of increasing her foreign exchange receipts
in order to compensate for the decline in special
dollar earnings derived from United States pro-
curement and troop expenditures in the country.
At the same time, the country must provide for a
growing population which is expected to reach
93.5 million in the next five years.

During the first half of 1955, the Japan Pro-
ductivity Center was established. It is operating
as a non-governmental Japanese organization,
with management and labor scheduled to partici-
pate. Management representatives have already
been selected ; it is anticipated that the labor rep-
resentatives will be added in the near future. The
Center is set up to coordinate the various aspects of
the productivity drive, such as technical exchange
projects, the dissemination of technical informa-
tion, and the provision of technical services.

The United States Operations Mission in Japan,
working with the Productivity Center, has de-
veloped several priority projects which will bring
Japanese participants to the United States for
research and study in fields basic to the Japanese
economy — steel, automotive, cement, management,
and market research. Participants in the steel
study had already arrived by the end of June.
American specialists will also be sent to Japan to
assist in the development of better procedures in
management, marketing, and industrial training.
Other projects dealing with agricultural admin-
istration and research also are planned.

A Regional Training Center established in
Tokyo last j-ear in cooperation with the Japanese
Government is helping to place nationals of other
Asian countries in specific Japanese industrial and
agricultural plants in order to train them in ad-
vanced production techniques which are readily
adaptable to their needs. To date, some 300 per-
sons from other nations of free Asia have par-
ticipated in such training activities. The coun-
tries which send participants to the Regional
Training Center pay the costs involved with funds
derived from the local sale of commodities im-
ported under the mutual security program.

In May 1955, negotiations were concluded for
the purchase by Japan of up to $85 million of
United States surplus agricultural products under
Title I of the Agricultural Trade Development
and Assistance Act of 1954. Under the agree-

ment, Japan will pay for the products in its own
currency. The equivalent of $59.5 million in yen
derived from the sale will be loaned to Japan
to help the country promote development of its
industry and agriculture. The remainder of the
yen will be used in Japan by agencies of the United
States Government, primarily for the construction
of housing for military dependents, procurement
of Japanese commodities for third countries, and
exchange of students.

Aid to Formosa Increased

During the first half of 1955, United States
nonmilitary assistance to the Republic of China
on Formosa was augmented by $18 million. The
additional funds were made available to help
strengthen the Chinese military establishment
through a program to retire and replace over-age
personnel and build an effective reserve. For the
full fiscal year 1955, $138 million was made avail-
able to the Republic of China for direct forces
support, defense support, and technical coopera-
tion activities.

Deliveries of military items to the Chinese
armed forces have been accelerated. Under the
mutual security program, major items of army,
navy, and air force weapons and equipment have
been provided. Currently, emphasis is being
placed on delivery of jet aircraft as replacements
for propeller-driven planes.

Economic conditions on Formosa during the
first half of 1955 remained generally favorable.
Sales contracts for exports of sugar were sub-
stantially higher than in the corresponding period
of 1954. A new trade agreement with Japan in
April called for a $19-million increase in For-
mosa-Japanese trade. For a while, these favor-
able developments were overshadowed by a heavy
drought which cut sharply into the first rice crop
of the current year, and also brought on a short-
age of hydroelectric power that limited produc-
tion in certain industries. But improved weather
for the second rice crop and the increased availa-
bility of electric power from a newly completed
thermal plant offset, in part, these adverse factors.

Mutual security funds allotted for direct forces
support are used to construct defense facilities
and to finance imports of consumer goods Used
solely by the military forces. Imports financed
under the defense support category are used to
help the Republic of China maintain economic
equilibrium in carrying out its heavy military

13

program and to expand Formosa's productive
capacity for eventual self-support.

About half of the funds allocated for defense
support in the 1955 fiscal year were used for
purchasing industrial raw materials and consumer
goods. Most of the remainder helped to provide
capital equipment for industrial and agricultural
development. Particular emphasis was given to
increasing power facilities, and manufacturing
of fertilizer and metals. Proceeds from the sale
of $20 million worth of United States surplus agri-
cultural commodities will be loaned primarily for
developmental purposes. Increased attention has
also been devoted to programming machinery and
equipment for small-scale industrial enterprises
on Formosa.

In April, completion of the Peipu power unit
increased the island's thermal-power capacity by
two-thirds by adding 40,000 kilowatts to its power
output potential. Construction of a hydro-power
station at Tung Myen was also completed in the
January-June period and provided another 12,500
kilowatts.

Progress is being made in exploiting the coastal
and deep-sea fishing resources of the island. By
April 1955, 23 fishing vessels had been added to
the deep-sea fishing fleet, constituting a 20-per-
cent increase in the fleet's size. The vessels were
constructed locally and used imported engines
financed with mutual security funds. A fisheries
development fund is being set up to enable men
discharged from the Chinese armed forces to es-
tablish themselves in self-supporting work.

Southeast Asia

Gambodia, Laos, and Viet Nam

The three newly independent states of Cam-
bodia, Laos, and Viet Nam remain confronted
with complex economic and political problems,
although they have taken several measures which
have he^ed to ease some of their difficulties.
Agreements have been worked out for the com-
mon use of the Mekong River — the main inland
trade artery — and the Port of Saigon. Each state

Control room of the new Peipu thermoeleotric power plant in Formosa. The power plant was com
pleted in April 1955 to add 40,000 KW to the island's generating capacity.

14

lias established its own central bank, and arrange-
ments have been made for partitioning the assets
and liabilities of the Institute of Issue, the former
central bank which had previously served all
three countries. As a result, there has been a mini-
mum of interruption to normal trade and com-
mercial activities.

The internal threat posed by strong pockets of
Communist insurgents and armed dissident groups
is complicated by the fact that in all three states
normal budgetary revenues can cover little, if any,
of the costs of the armed forces needed to carry
out effective security measures.

United States assistance under the mutual secu-
rity program has been reoriented to help Cam
bodia, Laos, and Viet Nam meet urgent problems
of survival and self-government. For fiscal year
1955, about $400 million of mutual security
funds was allotted by FOA to the three states.
The bulk of these funds is being used, directly
or indirectly, to support the military forces. Dol-
lars are being provided to finance payments for
army rations, pay, and local supplies. Civilian-
type items — such as petroleum products, cloth-
ing, and medical supplies — will be imported for
use of the national defense forces.

Dollar funds also finance the import of com-
modities essential to the stability of the civilian
economy — motor vehicles, industrial machinery,
cement, textiles, chemicals, and fertilizer. Pro-
ceeds realized from the sale of these commodities
on the local market are being used for further
support of the defense forces, and in addition for
financing projects to improve transportation and
communication, to advance agricultural reform
measures, and to expand agricultural credit and
production.

About $56 million was made available to assist
in the evacuation, relief, and resettlement of the
hundreds of thousands of Vietnamese who took
advantage of the opportunity to escape from Com-
munist-controlled North Viet Nam.

American technicians in the three states are
working on joint technical cooperation projects in
which training activities predominate, particu-
larly in education, health, and public administra-
tion. Such measures are designed to meet the
critical existing deficiencies in public services, and
to enable the non-Communist governments better
to fulfill their responsibilities to their people.

Cambodia. — In May 1955, a military assistance
agreement was concluded with Cambodia. Under

this agreement, the United States will provide
equipment to Cambodia's military establishment.
The United States is also providing financial aid
to help support Cambodia's military budget, and
a small U. S. Military Assistance Advisory Group
is now in Cambodia studying the country's mili-
tary needs.

A United States Operations Mission was estab-
lished in Cambodia in January 1955 to administer
the nonmilitary activities carried forward under
the mutual security program. During the first
part of 1955, considerable progress was made in
getting a number of key projects under way. Par-
ticularly important was the agreement under
which Cambodia, with American financial aid,
will build a road connecting the capital city of
Plmom Penh with the new deep-water seaport
which France has agreed to construct on the Gulf
of Siam. The road and port will provide Cam-
bodia for the first time with its own means of
access to the sea. In the first half of the year also,
progress was made on rehabilitating the rail line
between the Cambodian capital and Thailand's
capital at Bangkok. With United States assist-
ance, Cambodia has repaired the western section
of the roadbed and is now constructing an inter-
national station at the Thai border.

A serious failure in Cambodia's normally abun-
dant rice crop has caused widespread food short-
ages and complicated the country's economic dif-
ficulties. In response to this critical situation, the
United States is prepared to finance Cambodian
imports of rice, and in addition has provided some
3000 tons of seed-rice to help insure the success of
the next crop.

American technicians are working in Cambodia
on various technical cooperation projects designed
to develop local skills and speed up progress in key
sectors of the economy. American financial ex-
perts, for example, have helped in the establish-
ment of the new National Bank and Exchange
Office. Other technicians are helping to instruct
Cambodians in effective irrigation and flood-con-
trol methods.

Laos. — -The northern borders of Laos form a
common frontier with Communist China and
North Viet Nam. The country's two northern
provinces are now occupied by Communist-led in-
surgents, and Communist agitators continue to
operate in other areas. To help the Lao people
in their efforts to protect their independence, the

15

United States is giving direct financial support
to the Lao army.

The Lao Government is inexperienced in the
management of the fiscal institutions and trade
operations which form the backbone of the
country's economic structure. FOA therefore as-
sisted in the establishment of the Natioaal Bank
of Laos and arranged to provide an expert advisor
in central banking methods. It also undertook to
assist the government and private traders in work-
ing out more efficient procurement and marketing
methods.

In another step to facilitate trade operations, a
ferry service was initiated between the river port
of Thadua in Laos and the city of Nongkhai in
Thailand. These ports, on the Mekong Eiver, con-
nect with Vientiane and Bangkok and make pos-
sible the movement of heavy cargo between the two
capitals. This new trade link will greatly reduce
the cost of imported commodities in Laos and will
strengthen commercial ties between Laos and
Thailand.

American technicians are helping Lao villagers
to raise their living standards through better
health and sanitation practices, more efficient agri-
cultural production, and improved elementary and
adult education. International Voluntary Serv-
ices, Inc., a philanthropic service organization, is
assisting in the development and operation of this
village program.

Due to adverse weather conditions, the current
rice crop in Laos is much smaller than normal. As
a result, Laotians in certain areas of the country
are now facing famine. In order to prevent wide-
spread suffering, the United States is making
available 25,000 tons of rice to the Lao people.
Of this, 5,000 tons will be distributed free within
Laos, while the remaining 20,000 tons will be sold
for local currency to help meet the costs of pro-
grams jointly agreed upon.

South Viet Nam- — South Viet Nam's task of
consolidating its newly won independence and ex-
tending the authority of the central government
was made more difficult in the early months of
1955 by internal disturbances as certain of the
armed religious sects resorted to open violence to
force their demands upon the government of Pre-
mier Diem. By mid-year, however, it appeared
that the government forces had succeeded in bring-
ing these local outbreaks under control. The
rapid progress made by the regular Vietnamese
troops in moving against these internal dissident

groups indicated that with reorganization and
more training; the Vietnamese army can be formed
into a strong force to combat external aggression
as well.

In February 1955, an agreement was reached
with the Governments of France and Viet Nam
under which the U. S. Military Assistance Advis-
ory Group, within the framework of the Franco-
Vietnamese high command, undertook the reorgan-
ization and training of the Vietnamese army.
The first group of Vietnamese military students
is already receiving training in the United States.

The terms of the cease-fire agreement in the
Indochina region prohibited the introduction into
Viet Nam of any reinforcements of war materiel,
but permitted the replacement of such materiel on
a piece-by-piece basis. Consequently, the flow of
new United States military equipment to the coun-
try has been suspended. By mid-May, nearly
700,000 tons of supplies and equipment had been
removed from North Viet Nam. This comprised
virtually all removable French and Vietnamese
military materiel, private property, and govern-
ment property originally furnished through
United States aid.

The Vietnamese Government carried out a num-
ber of important fiscal and economic measures in
the first half of 1955. It set up a National Bank,
put new foreign exchange regulations into effect,
and negotiated a trade agreement with France.
Commerce began to flow under the arrangements
concluded with its neighbors, Cambodia and Laos,
concerning the use of the Port of Saigon.

The mass movement of refugees fleeing from
the Communists in the north continued into the
first half of 1955. The United States Navy,
working with French naval and air units, con-
tinued to support this "passage-to-freedom" op-
eration. By May 15, 1955, almost 800,000 per-
sons, military and civilian, had been helped to
locate southward in free Vietnam. Through
June 30, FOA had allotted $56 million to assist'
the Vietnamese Government in taking adequate
measures to care for incoming refugees and to re-
settle them in permanent sites where they could
become useful and self-reliant members of the
community.

United States assistance in 1955 has centered,
more and more on the resettlement phase of the
refugee problem. Close to 500,000 persons have
been moved to resettlement sites, and some 40,000
family housing units have been completed. As

16

Vietnamese civilians escaping from Communist-held North Viet Nam. Through mid-1955, nearly
500,000 Vietnamese refugees have teen moved to resettlement sites where they can become self-reliant
members of the community.

the Vietnamese move into their new locations,
they are being provided with needed hand tools
and construction materials. Seeds and simple
farm implements are also being furnished so that
they can begin to make provision for their own
food needs.

In other phases of the program in Viet Nam,
American technicians are helping the Vietnamese
carry out needed measures of land reform. Proj-
ect activity in the field of agriculture emphasizes
irrigation and drainage to increase the cultivable
acreage available for refugees and displaced per-
sons. Steps are being taken to provide agri-
cultural credit at low interest rates to ease the
economic plight of the small farmer. To improve
public administration, American experts are help-
ing to set up an Institute of Public Administra-
tion through which police training and in-service
training for civil servants will be provided.

Technical Cooperation in Indonesia

Indonesia continues to have insufficient foreign
exchange earnings to cover urgently needed im-
port requirements. Import controls designed to
check the serious drain on foreign exchange re-
serves have contributed to a scarcity of raw ma-
terials needed in the domestic market. Food
costs, particularly in urban areas, are rising
steadily. Government borrowing to finance re-
curring large-scale budgetary deficits is the prin-
cipal reason for the considerable inflationary
movement. Despite Indonesia's need and desire
for economic development, limited financial re-
sources have prevented the country from increas-
ing its rate of capital investment.

The technical cooperation program in Indonesia
emphasizes joint activities to diversify and in-
crease agricultural and fisheries production, im-

17

prove public health services, and expand facilities
for technical training. Totaling $7.2 million in
fiscal year 1955, the program provided $5.7 mil-
lion for technical cooperation projects, $1.3 mil-
lion for malaria-control measures, and $200,000
for supplies for a special project in public admin-
istration.

In the first half of 1955, the program being car-
ried out by the University of California to reor-
ganize the medical school at the University of
Indonesia was enlarged to provide for more train-
ing equipment and an increase in the number of
Indonesians to receive advanced training in the
United States. An interim agreement designed
to expand and improve training facilities in engi-
neering and the sciences was signed by the Univer-
sity of California and Gadjah Mada University.
A similar arrangement is being made with the
University of Indonesia.

Early in 1955, 12 technicians from Tuskegee
Institute began activities in vocational training in
Indonesia. Four are now stationed at Semarang
where they are helping to install new equipment
in a vocational institute and where they will
shortly begin instruction in various trades. Addi-
tional instructors are scheduled to work in Medan
and other vocational educational centers.

Philippine Development Advances

The Philippine Government has made progress
in establishing a sound foundation for economic
development, particularly in improving govern-
ment services in agriculture, public health, and
education. During the 1955 regular legislative
session, the Philippine Congress enacted legisla-
tion providing for the establishment of agrarian
courts to arbitrate disputes between landlords and
tenants. It also passed a bill which establishes an
agency for coordinating all economic development
activities.

Progress toward economic development has been
made in the face of a number of difficulties which
handicap the government program. Although
production indexes are at peak levels, there is still
substantial unemployment and underemployment.
Foreign exchange earnings continue vulnerable
to fluctuations in world prices of Philippine ex-
ports. Foreign exchange reserves in the first half
of 1955 fell to the lowest point since the beginning
of exchange controls in 1949. These reserves are
being further strained by the necessity of financing
imports of essential industrial equipment.

Philippine Production At Peak Levels

75

(Index, 1951 = 100)

/'

^

A-

Agriculture'

A

* Manufacturing

1 1 1 1 1 1

1949 1950

1951

1952 1953 1954

'Crop year beginning in year staled.

To help the Philippines meet more effectively
the increased responsibilities and requirements
arising from its role in the Southeast Asia defense
arrangements, the mutual security program for
fiscal year 1955 was expanded from $19.7 million
to $29.2 million. The $29.2 million program com-
prised allotments of $12.4 million for defense sup-
port, $7.3 million for technical cooperation, and
$9.5 million for direct forces support.

A fund of $5 million has been established to
make needed foreign exchange available for im-
porting industrial items. The fund has been used
to purchase equipment needed for a cement mill,
a textile plant, and certain road construction
activities. FOA helped to establish an Industrial
Development Center at Manila in January 1955
to provide technical advice to private investors
who wish to establish small-scale enterprises.
Training facilities in the Philippines, already
used extensively by other countries in the Far East
area, are being expanded to provide for addi-
tional numbers of incoming trainees.

During the January-June period of 1955, joint
programs designed to improve living conditions in
the rural areas registered further progress. In-
stallation of 28 irrigation pumps was begun ; when
completed these pumps will bring water to more
than 13,000 acres of farmland.

18

To service the needs of their members, Philip-
pine farmers' cooperatives erected 70 warehouses
capable of storing 3.7 million bushels of rice. Ad-
ditional measures were taken to expand farm
credit facilities. The Philippine Agricultural
Credit and Financing Administration loaned
farmers $14 million in fiscal year 1955; this was
about seven times the amount of credit made avail-
able in the previous year.

Technical assistance was provided to the Philip-
pine College of Agriculture at Los Baiios under a
contract with Cornell University. Educational
facilities at the University of the Philippines were
improved through FOA-ftnanced assistance to its
Institute of Public Administration under a con-
tract with the University of Michigan ; to its La-
bor Education Center under a contract with the
University of Connecticut ; and to its Faculties of
Business Administration, Engineering, and Edu-
cation under a contract with Stanford University.

Thailand Faces Economic Problems

Thailand's official gold and foreign exchange
holdings, which declined $29 million in 1954, be-
gan to improve somewhat in the first part of 1955,
primarily as a result of a moderate increase in
rice exports. The country's economy, however,
remains in a seriously weakened position. Gov-
ernment revenues are insufficient to cover the in-
crease in costs of the military effort which Thai-
land's geographic position necessitates, and at the
same time provide for the minimum public serv-
ices essential for economic and political stability.

The Thai Government has taken a number of
firm measures to reduce some of its economic ills.
It has established drastic controls on imports, re-
stricted the use of preferential exchange rates, and
greatly liberalized rice export regulations. It has
substantially curtailed expenditures for develop-
ment purposes in order to avoid a much larger
increase in deficit spending. Some of these meas-
ures, however, aggravate the budgetary problem
by reducing government income from foreign ex-
change transactions.

A total of $46.6 million was made available
under the mutual security program in fiscal year
1955 to help Thailand build up its defense capa-
bilities and strengthen its economic base. This
was in addition to the military weapons and equip-
ment supplied to Thailand under the military as-
sistance program. The $46.6 million included

$29.7 million for defense support activities, $4.7
million for technical cooperation, and $12.2 million
for purposes of direct forces support. Funds for
direct forces support are being used primarily to
provide petroleum products for military use, to
construct defense installations, such as military
training centers, and to improve naval instal-
lations.

Substantial amounts of local currency are re-
quired for the construction to be undertaken in
connection with projects for defense support and
direct forces support. To provide the needed
additional funds, which cannot be supplied from
Thai budgetary revenues, $24.7 million has been
earmarked to finance the import of essential com-
modities, the domestic sale of which will generate
the necessary local currency.

On the basis of a survey undertaken during the
fall of 1954, contracts were entered into with
American engineering and construction firms for
an all-weather road between the city of Saraburi,
near Bangkok, and the isolated Northeast prov-
inces. During the first half of this year, assistance
was also provided for improving eight Thai air-
fields and for extending the rail line from Udorn
to a point on the Mekong River a few miles below
the Lao capital of Vientiane.

To strengthen regional ties and promote plan-
ning on a regional basis, exchanges of technicians
have been arranged between Thailand and the new
governments in Laos and Cambodia. Technicians
from Laos and Cambodia are being brought to
Thailand for additional practical training. Sev-
eral projects are being considered for joint action,
notably those concerned with rinderpest and ma-
laria control and improvement of highways, rail-
ways, and telecommunications. A cooperative
survey of the development potentialities of the
Mekong River will be jointly sponsored, with
United States assistance, by Thailand, Laos, Cam-
bodia, and Viet Nam.

The Thai Government has taken several con-
crete steps to improve the climate for foreign
investment. It recently has enacted the Industry
Promotion Act and signed an Investment Guar-
anty Agreement with the United States. Thai of-
ficials are being sent abroad in an effort to attract
outside investments. The first application by an
American firm for an investment guaranty, one to
enable the establishment of a modern tapioca fac-
tory, was approved in June.

354136—55-

19

Thai army maintenance men check an M-21). tank furnished under the mutual security program. Amer-
ican military advisors are helping to train Thai armed forces in the operation and maintenance of
U. S.-furnished military equipment.

In May 1955, a 3-year contract in the field of
public administration was negotiated between the
University of Indiana and Thammasat Uni-
versity. The University of Indiana will send nine
full-time members to Thailand and train about
60 Thai students and officials in the United States.
Under similar contracts previously negotiated,
Thai institutions are working with American uni-
versities in agricultural education, teacher train-
ing, and engineering.

South Asia

Support for Pakistan Strengthened

Pakistan has taken a firm stand on the side of the
free world. United States military assistance to
the Pakistani armed services will enable Pakistan
to increase the effectiveness of its army, navy, and

air forces and substantially strengthen its defenses
against possible external aggression.

The United States aid program carried out in
fiscal year 1955 was based on the findings of a
special economic mission sent to Pakistan in the
summer of 1954. A political and economic crisis
had developed at that time, brought on by a com-
bination of natural disasters and unfavorable de-
velopments in Pakistan's export markets. As a
result of Pakistan's urgent need for aid, United
States assistance for the 1955 fiscal year was pro-
grammed at $71.8 million. This included $40
million for commodity imports. Funds realized
from the sale of these imported commodities on
the local market will be used mainly for long-
range developmental projects to broaden the
country's economic base. Part of these funds will
also be used to help defray the costs of maintain-
ing the military establishment. The program

20

also included $20 million for equipment and sup-
plies for projects in the defense support category ;
$5.5 million for flood relief ; $5.3 million for tech-
nical cooperation projects; and $1.0 million for
freight costs involved in the ocean transport of
surplus agricultural commodities. Of the total
amount, $20 million was made available on a loan
basis.

The technical cooperation program was broad-
ened this year to include projects directed toward
improvement of Pakistan's transportation and in-
dustrial facilities. A contract between Pan-
American World Airways and Pakistan Interna-
tional Airlines, financed in part out of mutual se-
curity funds, was signed in May 1955. Under the
terms of this contract, American technicians will
help Pakistan expand its air transport system. A
team of experts from Pan-American will work
with Pakistani personnel in the various phases of
airline operations.

Joint technical cooperation activities are con-
tinuing in agricultural production, land reclama-
tion, vocational education, and public health.
American universities are helping to modernize
Pakistani institutions of higher education. Amer-
ican technicians are assisting in the nationwide
community development program through which
villagers are pooling their efforts to build progres-
sive and well-integrated rural communities.

The United States is helping the Government
of Pakistan in designing a multipurpose dam to
be built on the Karnafuli River in East Pakistan.
Electric power from this dam will greatly acceler-
ate the development of industry in East Pakistan.
The dam will also be used for irrigation during
the dry season, as well as for flood control.

The United States and Pakistan signed an agree-
ment in May which makes possible the guaranty
of American private investments in Pakistan.
Such guaranties, which are designed to encourage
private enterprise to contribute to the economic
strength of countries participating in the mutual
security program, provide protection to Ameri-
can investors against loss by expropriation or
from inconvertibility of foreign currency into
dollars.

India's Economy Expanding

The current situation in India gives encour-
agement for continued economic development.
Food and raw materials are more adequate than
at any time in recent years. National income and

government revenues are rising, and industrial
production is climbing. The rise in agricultural
and industrial output has brought about an ex-
pansion in foreign trade.

These favorable developments reflect in part
the achievements of the first 5-Year Plan. The
percentage increases planned in production of
food grains and in cotton cloth for the 5-year
period were substantially exceeded within the first
three years. Output of cement, ammonium sul-
phate, and cotton was also running ahead of sched-
ule. Road building, locomotive production, elec-
tric power output, and hospital construction, how-
ever, were lagging behind the planned rate.

The gains in food production, while substan-
tial, have been confined mainly to food grains.
They have been brought about by a combination
of good crop seasons and newly instituted im-
provements in agricultural methods. Because of
population increases, however, agricultural pro-
duction on a per capita basis is still below prewar.
It is increasingly evident that the ultimate solu-
tion of the agricultural problem in India rests
on more than increased production alone.
Greater attention must be paid to other factors,
such as storage facilities, credit arrangements, and
effective marketing mechanisms.

A second 5- Year Plan is in the initial draft-
ing stage. Its primary objectives are a sizeable
increase in national income in order to raise the
standard of living, and a more rapid industrial-
ization with particular attention to the develop-
ment of basic industries. The plan also envisions
several programs for reducing unemployment and
underemployment, factors which have become ma-
jor problems in both the urban and rural parts
of India.

The new plan aims at an increased new invest-
ment of $11.2 billion, of which $6.8 billion would
bo made by the Government and $4.4 billion would
be made by the private sector. It would provide
for total increases of 20 percent in consumer
goods and 150 to 175 percent in producer goods.
A proposed new increase of 20 percent in agri-
cultural output includes a 15-percent rise in the
production of food grains and a 25-percent rise
in other foodstuffs and commercial crops. Trans-
portation facilities, particularly the railroads, as
well as power facilities would be considerably
improved. Investment in industries and mining
would account for 25 percent of the total planned
expenditure.

21

During fiscal year 1955, the United States al-
lotted $84.3 million for India, of which $45 mil-
lion was made available on a loan basis. Of the
$69.1 million of development assistance funds
either loaned or granted to India in fiscal year
1955, $30 million was programmed for the pur-
chase of cotton and wheat from the United States.
The rupees acquired by the United States from
the sale of those commodities are part of the $45-
million loan, and will be utilized by India for
development of power, multipurpose river- valley
projects, and other joint undertakings in the Indo-
American program.

The technical cooperation program has contin-
ued to emphasize projects of community develop-
ment, designed to increase agricultural production
and improve conditions in rural communities,
where 70 percent of the Indian population live.
Contracts are being negotiated with five Ameri-
can land grant colleges to provide technical
support to a number of Indian states and agri-
cultural institutions. A water supply and sani-
tation program for villages is getting under way,
and more attention is being given to small-scale
irrigation, soil conservation, and better farm man-
agement. The University of Tennessee, under
contract, will assist Indian women's colleges in
home economics. Under another contract, the
University of Texas will help in the establishment
of teacher training institutions for the improve-
ment of secondary education.

U. S. Universities Aiding Afghanistan

Major emphasis in the technical cooperation
program of approximately $2 million in Afghanis-
tan has been directed to the multipurpose Hel-
mand Valley project in the southern part of the
country. A group of United States experts is
assisting the Helmand Valley Authority on a wide
range of technical matters — engineering, agricul-
ture, health and sanitation, community develop-
ment, and public administration. The Afghan
Government is enlarging the irrigated land areas
in the Valley and is settling its nomadic popula-
tion in permanent agricultural communities.
With the assistance of United States experts, a
training school for community development as
well as a number of demonstration farms have
been established in the Valley. Two American
forestry experts are assisting the Authority in
reforestation projects.

Under contracts made with FOA, Columbia
University Teachers College has a team of four
specialists in Kabul, and the University of Wyo-
ming has 23 specialists in the same area. Teachers
College is assisting the Afghan Ministry of Edu-
cation in the field of teacher training and general
education. Wyoming University is assisting in
technical education and agriculture. With tech-
nical guidance from Wyoming, an Afghan Insti-
tute of Applied Science has been established with
two subsidiary schools — the Afghan Institute of
Technology and the Vocational Agricultural
School.

Wyoming University is also assisting the
Afghan Ministry of Agriculture in agricultural
research and demonstration. A demonstration
farm and a training center for agricultural re-
search and demonstration have been established
near Kabul.

The Near East Foundation, under a contract
with FOA, is cooperating with the Afghan Gov-
ernment in a program for training people for com-
munity development work in Afghan villages.

Rehabilitation in Nepal

The development effort of the Government of
Nepal in the first half of 1955 was directed chiefly
toward rehabilitation work to repair the destruc-
tion caused by last year's severe floods. The
United States Government has assisted the Nepa-
lese, primarily by sending supplies and equipment
necessary for the recovery of inundated farm
lands and the reconstruction of washed-out roads.

A project for the reclamation of the Rapti Val-
ley has been undertaken. An area of about 130,000
acres will be opened up for resettlement of farmers
whose lands were destroyed by the recent floods.
Survey work has begun for a road connecting the
Rapti Valley with the Valley of Kathmandu in
order to bring additional food supplies to the
heavily populated and food-deficient Kathmandu
area. Malaria control measures will be an in-
tegral part of the Rapti Valley project since the
presently high incidence of malaria limits further
settlement and development. The plan also in-
cludes simple irrigation by diverting water from
the Rapti River into local irrigation ditches.

The village improvement program in Nepal is
progressing steadily. There are now six develop-
ment centers, including a new one started in the

22

January-June period of 1955. These centers have
trained more than 175 Nepalese who are now
working in the villages demonstrating more effec-
tive methods of using insecticides, fertilizers, and
improved farm implements. They are also dem-
onstrating how simple measures of public health
can reduce the hisrh rate of village diseases.

The Nepalese have been taking steps to raise
the low literacy rate that holds back progress in
the country, and with the help of the University
of Oregon they are making gradual progress.
Under this program more than 100 young vil-
lagers are being trained to work as teachers in
various school districts throughout the country.

23

CHAPTER III

Near East and Africa

THROUGH the mutual security program, the
United States is working with the countx'ies of
the Near East and Africa on measures designed to
bring to that important region a greater degree of
political stability, a larger capacity for defense,
and a more rapid rate of economic development.

In the fiscal year just ended, program opera-
tions continued to concentrate heavily on Greece,
Turkey, and Iran. These three countries re-
ceived most of the military weapons and equip-
ment we furnished to the region under the United
States military assistance programs. They also
accounted for nearly half of the funds used for
purposes other than direct aid to their military
establishments.

Program activities in other parts of the region
were focused on the economic and technical de-
velopment efforts in the Arab States and Israel
and in a number of countries in Africa — Ethiopia,
Liberia, Libya, and several of the dependent ter-
ritories. During the first half of 1955, FOA car-
ried out additional program actions to support
priority developmental projects in Egypt, Jordan,
and Lebanon. Technical cooperation programs
in nearly all countries continued to grow in im-
portance. In the 6-month period, another univer-
sity contract was signed so that by June 30, 16
American universities were working in 9 Near
Eastern or African countries in response to re-
quests for United States technical assistance in
specific fields of development.

Programming of Funds.— Approximately $317
million of United States funds was allotted for
mutual security purposes in the Near East and
Africa during fiscal year 1955. This excludes
amounts provided for direct military assistance,
but includes $35 million for direct forces support.
Military shipments to the area (including Pakis-
tan) during the 12-month period were valued at

$238 million. The nonmilitary funds were al-
lotted as follows: defense support, $90 million,
including $62 million on a loan basis ; development
assistance, $160 million, including $27.5 million
on a loan basis ; and $32 million for technical co-
operation. In addition, $17 million was allocated
to the Department of State for the United States
contribution to the U. N. Relief and Works
Agency for Palestine Refugees.

Approximately $230 million of the total amount
was allocated for purchase of supplies and equip-
ment, mostly in the United States. Included were
large quantities of surplus agricultural products.
Contractual services performed by American busi-
ness and engineering firms and universities ac-
counted for an additional $13 million.

The Program For The Near East And Africa
In FY 1955

Development
Assistance

Defense
Support

Direct Forces
Support

Technical
Cooperation

( Millions of Dollars) '

^■"■:WWXW<i «■

160

90

35

32

Total: $317 Million
Grants: $227 Million
Loans: $ 90 Million

Excludes direct military assistance in the form of
materiel and training

1 Excludes $ 16.7 million allocated to UNRWA
for Palestine refugees

24

Greece, Turkey, and Iran

Greek Recovery Continues

Greece, along with Turkey, is a strong bulwark
in the defense perimeter along the southern flank
of the North Atlantic Treaty area. The armed
forces which Greece maintains in this strategic
area constitute an essential element in the de-
fense of the West.

United States military supplies and training
have helped Greece to mould its army into a hard
hitting force with trained units that know how
to use and maintain their equipment. Progress
made by the Greek Air Force also is impressive;
it is now more than four times its original size
and includes a number of jet fighter-bomber
squadrons.

The cost of the military buildup has placed a
heavy burden on the Greek economy. Necessary
defense expenditures compete directly with the
economic development measures which are essen-
tial to improve Greece's low living standards. In
working for better conditions for its people, the
Greek Government has had. to cope with handicaps
of limited natural resources, considerable unem-
ployment, and inefficient agricultural and indus-
trial methods. Despite these handicaps, Greece
has made substantial advances toward a stronger
and more self-supporting economy.

Among the more noteworthy of the various pro-
grams designed to combat Greece's basic economic
problems has been the electric power program.
With United States assistance, Greece now has for
the first time a unified electric power generating
and grid system which has more than doubled the
prewar power output. United States direct par-
ticipation in this successful effort will be termi-
nated on July 15, 1955, when the Greek Govern-
ment will take over full management of the power
system.

The Greek economy has made a strong recovery,
with both agricultural and industrial production
considerably above prewar levels. Government
revenue collections have increased as a result of
accelerated economic activity, improved taxation
laws, and more efficient collection procedures.
The Government's economic stabilization program
has been generally effective. In recent months,
however, this program has been pursued under
increasingly adverse conditions. Greece's third
series of major earthquakes in two years struck

the Aegean coastal city of Volos in April and
May 1955. The Greek Government immediately
introduced a series of tax increase measures to
raise funds for relief and reconstruction.

In recognition of the difficult budgetary situ-
ation confronting the Greek Government, stem-
ming largely from heavy military expenditures
and large reconstruction costs in earthquake areas,
United States aid in fiscal year 1955, other than
for military assistance and $10 million for certain
civilian-type items which go directly to the armed
forces, was increased from $16.2 million to $24.1
million. This additional support will finance im-
ports of needed housing materials for the recon-
struction of Volos. Moreover, under the Agri-
cultural Trade and Development Assistance Act
of 1954, agreements were signed in June 1955
which provided for the sale to Greece of $14.3
million worth of United States surplus commodi-
ties. The equivalent of $11.7 million of the sales
proceeds will be used for economic development;
of this amount, $4.2 million is on a loan basis, and
$7.5 million is a grant.

Turkish Economy Affected by
Crop Failure

Initial supply of Turkey's navy and air forces,
scaled to NATO goals, was in large part com-
pleted during the first half of 1955, making it
possible to concentrate on improving equipment
and training of the Turkish army. This period
also saw Turkey's successful conclusion of a pact
with Iraq which provides for cooperation in
strengthening mutual defense. This pact, to-
gether with the Turkish-Pakistan pact concluded
earlier, indicates Turkish initiative in the develop-
ment of Middle Eastern security arrangements.

Under an agreement signed in November 1954
and supplemented in April 1955, $29 million worth
of United States surplus agricultural commodities
will be shipped to Turkey. These shipments will
help meet the shortage of grain resulting from
drought as well as supply needed cottonseed
oil. The shipments are in addition to the $7.8
million worth of wheat sold to Turkey under
Section 402 of the Mutual Security Act of 1954.

The full effect of diminished foreign exchange
earnings, aggravated by the failure of the 1954
wheat crop, was felt dui'ing the first half of 1955
when Turkey's international payments position
worsened considerably. This situation again em-

25

phasized the sensitivity of the Turkish economy
and the need for the Turkish Government to take
financial stabilization measures which would make
it less susceptible to recurring emergencies. In
order not to jeopardize the military security pro-
gram or the achievements made in the develop-
ment program during the past five years, the
United States agreed in June to increase the fiscal
year 1955 defense support program from $70 mil-
lion to $100 million. The additional $30 million
grant was designed to assist Turkey in its emer-
gency period and provide for those essential im-
ports of raw materials, basic commodities, and
spare parts required to keep its industrial plant
moving.

Iran Becomes More Self-Reliant

The Government of Iran during the first six
months of 1955 was engaged in analyzing the
country's economic needs in relation to its avail-
able resources. The oil settlement, achieved in
October 1954, started the flow of substantial gov-
ernmental oil revenues which had been cut off
for more than three years. The new oil revenues
were not adequate, however, to finance all urgent
needs during the first six months of 1955. Ac-
cordingly, United States financial aid was re-
quired, although largely on a loan basis. This
aid has made it possible for the Government of
Iran to launch needed activities in the field of
economic development. The Iranian Govern-
ment has drawn up a comprehensive development
program, based upon the use of oil revenues, which
has many sound aspects.

Since the Iranian Government's revenues were
not sufficient to meet defense expenditures, gov-
ernment employe payrolls, and other current op-
erating expenses, FOA continued budgetary sup-
port by lending Iran $32 million. The use of
these dollars to purchase essential imports helped
slow down the rate of rise in prices, but inflation-
ary pressures in Iran continued to exist.

There is increasing evidence of the success of
technical cooperation activities in Iran. Projects
which were instituted early in the program have
been turned over to appropriate agencies of the
Iranian Government which have incorporated
them as a permanent part of their own activities.
During the last two years, for example, Ameri-
can technicians have taught the techniques of live-
stock cross-breeding and artificial insemination to
Ministry of Agriculture employes. They, in turn,

Iran's Oil Production Is Rising Rapidly

(Mil

1 1

ions of Metric Tons)
Annual Quarterly at Annua

Rate

'

_

m

1

mm

i i

1

'50 '51 '52 '53 1954

'Based on April and May output

1955

with the guidance of the American specialists,
have spread the knowledge of these techniques in
the rural areas. The Ministry of Agriculture has
taken over the operational responsibility for a na-
tion-wide demonstration program.

Four years ago, United States health technicians
planned and carried out the operation of the ma-
laria control program in several regions of Iran,
and at the same time conducted a training pro-
gram for Health Ministry personnel. Today, the
Iranians themselves carry on the bulk of the
malaria control work that has produced such
dramatic results in reducing one of Iran's most
serious health menaces.

A teacher training program developed by United
States specialists is now being carried on by the
Ministry of Education on a permanent basis.
This program has reached 12,000 teachers, about
40 percent of the entire teaching staff of the
country.

Considerable progress has been made in the field
of public administration. United States techni-
cians have been advising the Government of Iran
in various phases of municipal administration,
census activities, and statistics. The Institute of
Administrative Affairs of the University of Teh-
ran was opened in January 1955 to provide in-

26

Teacher training in I ran. Homemaking instructor at a training school in Shiraz demonstrates hyyi< nic
practices to Iranian tent school teachers. This is one example of how the United States technical
cooperation program is helping the Iranian Ministry of Education plan abroad educational program for
the country's two million nomads.

service training in public administration for
government officials and employes.

During the period under review, as a part of the
military assistance program, several teams were
sent to Iran to carry out special training pro-
grams. In this way, the United States is helping
the Iranian armed forces develop some of the more
specialized skills needed to increase their defense
potential.

Arab States and Israel

Egypt Embarking on Development
Program

A comprehensive economic development pro-
gram, covering an initial 10-year period, has been
initiated by the Egyptian Government. The pro-
gram provides for expansion of Egypt's basic
transportation and communication facilities, a
greater measure of industrialization, land reclama-
tion, and resettlement of landless fanners.

United States development assistance totaling
$40 million was made available under the mutual
security program in fiscal year 1955 to help Egypt
move ahead with its development effort. In addi-
tion, $2.9 million was allotted for technical coop-
eration activities. Emphasis of the development
assistance program was placed on improvement
of railways and highways, major components of
Egypt's 10-year development program. A loan
agreement provides for repayment to the United
States of $7.5 million of the total $40 million. As
its share of the cost of the projects, Egypt intends
to spend the equivalent of $43.3 million from its
own resources.

New forward steps were made in a number
of the joint technical cooperation projects under
way. With FOA assistance, the Ministry of Agri-
culture produced 56,000 bushels of a productive
and hardy hybrid corn seed. An improved
chicken feed is now in production and being mar-
keted by six private concerns. Aerial maps were
completed for the High Aswan Dam site. As a

3 5 4i. •!!•,- -r>r,

27

Development Assistance For Egypt In FY 1955
Accented Transportation

(Millions of Dollars)

Totol, Development Assistance

IMfL,

Wm

m

m

Pies

I I 40.0

MM

Transportation Equipment

27.0

Equipment tor Other Projects

Consumer Goods Imports.

8.9

4.1

result of groundwater tests, the Government of
Egypt has started operations to tap new water
sources.

Agricultural extension work has become a pri-
mary element in the agricultural program, and
three field centers were established during the first
half of the year. Also in agriculture, construc-
tion of a milk pasteurization plant was started,
and three installations for artificial insemination
were set up for improvement of dairy cattle. In
industry and mining, two field parties were en-
gaged in mapping mineral sites. Possibilities for
Egyptian manufacture of animal feeds and expan-
sion of its caustic soda production are under study.

In health, control operations were extended for
ridding Egypt of bilharzia — a blood disease which
attacks the internal organs and robs the energies
of a large part of the Egyptian population. The
Egyptian Government assigned a number of new
workers to demonstrate the effectiveness of sodium
pentachlorophenate in killing the snails which
act as intermediate carriers of the disease.

In public administration, the Egyptian Gov-
ernment has introduced new techniques and more
efficient methods in its customs procedures as a
result of a technical cooperation study recently
completed.

Iraq Initiates New Military and
Developmental Measures

Iraq has assumed increased defense importance
in the Near East as the result of its pact with
Turkey and the United Kingdom. Iraq has a con-
siderable military potential and at present is de-
voting more than one-fourth of its total budget to
defense. The first shipment of United States mil-
itary equipment, sent to Iraq under the recently
concluded military assistance agreement, consisted
mainly of transport vehicles and signal and engi-
neering supplies.

The Iraqi Development Board has drawn up a
broad program of economic development, to be
financed from government oil revenues. The
main elements of the program include dam con-
struction, road building, and land reclamation and
settlement. On April 1, 1955, the second 5-Year
Plan of the Iraqi Government was initiated. The
Development Board is proposing that the equiva-
lent of about $800 million be made available from
oil royalties to finance the new program. Much
of the emphasis of Iraq's second 5-Year Plan will
be on projects designed to raise the general living
standards of the people in the immediate future.
National income per capita in Iraq is only about
$120 a year.

A main key to Iraq's development lies in har-
nessing the waters of the two large rivers which
run through the country, the Tigris and the
Euphrates. Construction work for this purpose
is under way on a number of dams. Completion
of the dam construction phase of Iraq's program
will help speed progress on the large Miri Sirf
land development project, which is designed to
reclaim large agricultural areas for the landless
peasants and the nomadic Bedouin tribes.

Good progress has been made in the technical co-
operation program in Iraq. An agricultural col-
lege has been established at Abu Ghraib with the
assistance of technicians from the University of
Arizona, and the Baghdad Technical Institute has
been established with the assistance of technicians
from Bradley Institute of Technology. Tech-
nicians from International Voluntary Services are
continuing work on the model community develop-
ment project at Shaqlawa. Work is also moving
ahead satisfactorily on the maternal and child
health center at Samawa, and on the nurse and
sanitarian training project at Basra.

28

Jordan Attacking Its
Economic Problems

With extremely limited resources and with
nearly 500,000 destitute Arab refugees within its
borders, Jordan is confronted with serious eco-
nomic problems. The Government of Jordan has
recently drawn up a broad plan of development.
Projects include use of the mineral resources of
the Dead Sea, increasing phosphate production,
exploration for additional minerals and oil, de-
velopment of the Jordan Valley, improvement of
agriculture, more attention to small industries,
and a better transportation and communications
network. The Jordanian Parliament recently
passed two laws which it is hoped will have a
favorable effect on economic development ; one law
liberalizes existing statutes on private foreign
investment, and the other is designed to encourage
needed industrialization.

The United States made $5 million available in
fiscal year 1955 to assist Jordan in its development
program. Of this amount, $2.5 million was in the
form of local currency purchased with pound
sterling generated from the sale of United States
coal to the United Kingdom. Most of the local
currency, which is deposited in a joint fund, is
being utilized to pay Jordanians and refugees
who have been put to work on road construction,
afforestation, and water-spreading activities.
Under this program, more than 60 miles of road
have been completed ; 5,000 acres of formerly un-
productive land have been brought under cultiva-
tion ; and hundreds of thousands of new trees have
been planted. In support of these activities, $1.4
million worth of equipment is being imported.
In addition, local currency loans are being made
to small industrial undertakings in an effort to
reduce Jordan's present heavy dependence upon
imports. Loans are also being made to groups

£■""""4''.' - . L .' 7 » l * .A

y. v>. *T'' ": /»' ' •

mat; .%■ *\. £ ■ I . -• r j ' . .

Jordanians at work on construction of an east-west high/way system. Under the development assistance
program, the United States is helping Jordan build more adequate road facilities to further the country's
development as well as to give employment to thousands of Jordanians, including Arab refugei s.

29

of individuals in the rural villages as part of the
community development program.

United States assistance amounting to $2.2 mil-
lion was provided for the technical cooperation
program in fiscal year 1955, with projects in agri-
culture, natural resources, health, and education.
Many projects under this program have already
been taken over by agencies of the Jordanian Gov-
ernment which will continue to operate them.

Nineteen agricultural centers serving 300 vil-
lages are now in operation in Jordan. Reservoirs
have been renovated, and local villagers trained
to maintain them. Joint Jordanian-United States
committees have developed a number of courses
of study for the teacher training schools. These
courses have been designed to meet the special
needs of Jordan by giving relatively greater em-
phasis to functional training. A program ini-
tiated for the education of the children of the
nomadic tribesmen has been enthusiastically sup-
ported by the Bedouins. Approximately 100
Jordanian trainees in education have been sent
abroad, while about an equal number have re-
turned and been placed in positions where their
acquired knowledge will be of the utmost value
to Jordan.

New Measures for Lebanese
Development

The economic development of Lebanon depends
in large part upon improved communication fa-
cilities, since much of its income is derived from
tourism and commerce. In the first six months of
1955, a program was initiated to assist Lebanon
in improving its road system. As a part of this
program, an agreement was signed in June which
provides for United States assistance in the
amount of $5.7 million to help finance construc-
tion of a modern highway from Beirut to the
Syrian border, where it will then connect with a
road to Damascus, the capital of Syria. The road
between the two cities is one of the most impor-
tant trade routes in the Middle East. The Leban-
ese Government will pay the major part of the
construction cost from its highway budget. Of
the amount to be supplied by the United States,
$5 million will be in the form of a 15-year loan
bearing interest at 3 percent; the remaining
$700,000 will be used to purchase American road
building equipment, and to finance a $200,000 en-
gineering survey by an American firm.

Lebanon's climate is ideal for growing fruits,
vegetables, and other crops. In fiscal year 1955,
development assistance measures were instituted
which provided $1.1 million for improved equip-
ment for agricultural development. Much of the
agricultural land in Lebanon needs irrigation, and
an irrigation development program has been
started to increase arable acreage. A project to
supply pure water to the villages has also been
initiated. Pipe and other equipment arrived in
June, and construction of pipelines was begun.

Under the guidance of United States extension
specialists in Lebanon, an agricultural extension
service has been instituted with 30 offices through-
out the country. The Terbol Experimental Farm,
which has proved so successful that the local de-
mand for quality cows and bulls far exceeds the
supply, will be turned over to the Lebanese Gov-
ernment in the fall of 1955 to be operated by
Lebanese personnel who were previously trained
by American technicians. Prevention of wind
erosion by windbreak planting has been demon-
strated by an American forestry expert, and it is
ex2)eeted that farmers will soon apply the lessons
of this new technique to their own lands.

The development of light industry is important
to the economic growth of Lebanon. The Lebanon
Industry Institute was established to aid this
development with the help of American techni-
cians from the Battelle Memorial Institute of
Columbus, Ohio. Ground was broken in January
1955 for the Industry Institute's new buildings
and construction is now in process. Technicians
from Battelle experienced in business adminis-
tration, production management, and marketing
have arrived and have started a number of pro-
ductivity projects.

The Litani River surveys, completed in 1954,
resulted in the establishment of a National Litani
Board. The development of the Litani River will
provide water for irrigation and electricity for
industry and contribute immeasurably to the eco-
nomic development and welfare of Lebanon.
Water reconnaissance studies are now being made
on ten other Lebanese rivers.

Efforts to Help Palestine Refugees

The United States continued to support the
United Nations Relief and Works Agency for
Palestine Refugees (UNRWA) in its efforts to
improve the living conditions of the Arab refugees

30

and to develop projects to help them become self-
supporting.

Of the 900,000 Arab refugees from Palestine,
about one-third are completely supported by
UNRWA in camps; the remainder are receiving
a food ration and basic medical services. The
average cost for relief per refugee is approxi-
mately $28 a year.

Educational opportunities for refugee children
of school age, who constitute about one-quarter of
the total refugee population, are also being pro-
vided by UNRWA. While UNRWA's greatest
educational effort in the past has been concen-
trated on elementary education, an expanded sec-
ondary school educational program resulted in im-
portant increases in the number of pupils during
the first half of 1955.

The program for improved housing in the
camps, undertaken on the basis of the budget ap-
proved by the U. N. Eighth General Assembly,
has been largely completed. The camp facilities
originally were intended to be of a temporary
nature, but it has been necessary to provide for
prolonged occupancy in view of the tremendous
problems faced in creating permanent homes and
jobs in an arid area which historically has been
able to provide no more than a bare subsistence
for the former population. Plans have been vir-
tually completed, after long and detailed study,
for a major project which would resettle more
than 50,000 refugees in the Sinai Peninsula. These
plans, which are now receiving the final review
of the Egyptian Government and UNRWA, pro-
vide for the perennial irrigation of some 50,000
acres with water conveyed across eastern Egypt
and siphoned under the Suez Canal to western
Sinai. Twenty farming villages, two district cen-
ters and a capital town are to be constructed on
land which is now empty desert.

Negotiations with Lebanon, Syria, Jordan, and
Israel have continued in an effort to arrive at a
division of the waters of the Jordan River Valley
and an agreed program for the Valley's develop-
ment. Ambassador Eric Johnston, the special
representative of the President, resumed his dis-
cussions in the Near East during January and
February, and was successful in bringing the par-
ties closer to a mutually acceptable program.
Technical discussions and the compilation of ad-
ditional data have been continued in Washing-
ton, looking to definitive negotiations in the Near
East during the latter half of the year.

It is estimated that the development of the
Jordan River system would permit the irrigation
of 225,000 acres of land in the four states con-
cerned. This would make possible the eventual
settlement of perhaps 200,000 refugees, as well as
provide important benefits for the other peoples
of the area.

Israel Turns to Industry

Marked progress has been made in Israel's
management of its financial problems. A good
measure of economic stability has replaced the
rampant inflation of earlier years, and the short-
term external debt has been satisfactorily re-
funded. Greater attention is now being paid to
programs for orderly economic development,
especially in the industrial sector.

United States assistance to Israel under the
mutual security program is placing greater empha-
sis on industrial development projects designed to
make maximum use of local raw materials. An
increasing share of the local currency generated
by the sale of imports under the program is being
placed at the disposal of industry in the form of
loans to expand output and build new capacity.

Much of Israel's industry will necessarily be on
an import- for-export basis, thereby placing a pre-
mium on the country's efforts to compete in inter-
national markets. New technical cooperation
projects have therefore been initiated, in coopera-
tion with the Government of Israel and various
public and private institutions, for management
training in order to increase industrial produc-
tivity. In addition, vocational training is being
intensified to provide personnel with the requisite
technical skills for achieving the planned expan-
sion in industrial fields. Improvement and ex-
tension of rail and highway facilities are also
being fostered in order to increase the output
potential of the nation and to lower costs.

Agricultural production, an important feature
of Israel's development program, must continue
to expand. Lack of water is the principal limiting
factor on Israel's agricultural output, and a major
share of technical assistance is therefore being
devoted to helping Israeli farmers expand arable
land area by additional irrigation. Considerable
emphasis is also being given to range management
in order to increase the meat supply without over-
grazing. Agricultural extension and demonstra-
tion methods are being used on a widening scale

31

so that farmers and ranchers can put the latest
research knowledge to practical use in improving
crops and livestock.

Africa

Assistance to the Independent Countries

Ethiopia. — Under the technical cooperation pro-
gram in Ethiopia, a thoroughgoing examination of
the educational needs of the country has been made
by a joint commission of educators from Ethiopia
and the United States. Plans have been devel-
oped to improve elementary and secondary educa-
tion and to strengthen the administrative proce-
dures of the Ministry of Education.

The program for education in agriculture and
mechanical arts is already having a noticeable im-
pact on the country. The Jimma Agricultural
Secondary School, currently in its third year of
operation, and the Handicraft School in Addis
Ababa are now being financed entirely by the
Ethiopian Government, except for the cost of
United States technicians. Facilities to house the
agricultural college being established in Harar
province are expected to be completed by the com-
ing winter. A trade school for apprentices is
being set up in Addis Ababa by technicians from
Oklahoma A&M College who are in charge of the
program for developing agricultural and mechani-
cal training. Assistance provided by United
States technicians has resulted in a rapidly de-
veloping extension program, concentrating on im-
provements in crop production and animal hus-
bandry practices.

Since May 1953, when Ethiopia was declared
eligible to receive grant military aid, the Ethiopian
armed services have made substantial progress
toward standardization of equipment and supply
procedures along American military lines. Train-
ing guidance and the limited quantities of materiel
shipped to Ethiopia under the military assistance
program have helped the Ethiopian Army to move
ahead in its capabilities.

Libya. — The Libyan-American Reconstruction
Commission has been established to manage the
economic aid made available from United States
sources. Allocations have been made by it for
projects essential to Libya's economic progress.
An American has been appointed Executive Direc-
tor of the Commission, and basic procedures for
the Commission's work have been drawn up and

put into effect. Some of the projects are exten-
sions of existing demonstration work under the
technical cooperation program, thus maximizing
the services of the United States technicians in
such fields as irrigation and water development,
provision of water supplies, and health facilities.

Under a revised agreement, technical coopera-
tion projects are being integrated within Libyan
governmental departments to prepare the way for
Libyans to assume full responsibility for project
activities. For example, the Libyan-American
Joint Service in Public Health is introducing pre-
ventive and other public health services which will
operate as a unit within the Libyan Ministry of
Health. New project agreements provide for joint
management with Libyan and American co-
directors.

The Libyan Government wishes to provide edu-
cational facilities which will enable its students to
qualify for entrance in universities abroad. In
response to its request, arrangements were made by
FOA to send two college officials abroad to ap-
praise Libya's needs and make recommendations
for facilities which would approximate those of a
United States junior college.

In June, a severe infestation of locusts required
an all-out effort at harvest season to reduce insofar
as possible the damage to the already subnormal
crop. The United States provided experts in
locust control, furnished insecticides and planes
for spraying, and mobilized its agricultural tech-
nicians in the field to aid in the emergency. Al-
though it has not yet been possible to estimate the
full extent of the damage, it is known that as a
result of the third year of drought and other poor
crop conditions, this year's harvest will be well
below normal. In response to the Libyan Govern-
ment's request for aid in this crucial period, the
United States has approved an additional grant
of 6,800 tons of wheat to be distributed free to
Libyans in the distressed areas of the Province of
Tripolitania.

Liberia. — Construction of a new school building
for the Booker T. Washington Institute is now
under way, and classes are expected to start in
August. This pro j ect is being undertaken through
a contract with Prairie View A&M College which
provides for the assistance of its staff in the im-
provement of Liberia's teaching methods, the
planning of an educational curriculum, and re-
lated matters.

32

A project has been successfully completed for
the demonstration of techniques of growing
swamp rice. The results of this demonstration are
being applied in many remote parts of Liberia
through the agricultural extension system organ-
ized with United States assistance.

An agreement has been reached to use the
services of a voluntary aid society in organizing
and staffing a rural public health demonstration
center in the Western Province.

During the first half of 1955, four of the five
commercial fishing units now operating in the
Monrovia area were assisted in getting established
by an American fishery expert.

Dependent Overseas Territories

In response to a request from the Kenya Gov-
ernment and the United Kingdom to investigate
the possibility of expanding the Kenya technical
cooperation program, FOA sent a survey team to
Kenya in March lOSS1. This team reviewed a
number of possible activities and recommended
several projects in agriculture, health, education,
and community development. All the projects are
part of a broad Kenya plan for the expansion of
the economy and improvement of living conditions
of the native population. They include the opera-

tion of a medical training school in Nairobi ; the
broadening of a mass literacy campaign in western
Kenya ; the acceleration of technical, clerical, and
commercial education for natives in central
Kenya; and the surveying of land units in the
Kikuyu reserve.

A number of projects have been instituted in
West Africa. Arrangements have been made for
sending American technicians to study cattle
blood diseases in the Gold Coast ; bovine pneumo-
nia and poultry diseases in Nigeria; expansion of
technical and vocational education in Sierra
Leone ; establishment of a trade training center in
Gambia; and a large agricultural development
program in the Western Region of Nigeria. The
West African territories recognize that the United
States can offer assistance by providing special
technical skills in agriculture and education un-
available in the United Kingdom and Western
Europe. They are therefore eager to cooperate
with the United States in carrying out local pro-
grams in those fields.

An agreement was signed with the Italian Gov-
ernment for the institution of an agricultural pro-
gram in Somalia designed to help solve some of
that area's most pressing problems and to train
Somalis to participate increasingly in their own
development plans in the future.

33

CHAPTER IV

Latin America

THE LATIN AMEEICAN governments are
demonstrating a growing initiative in working
out practical plans for their economic develop-
ment. The knotty problems involved in formu-
lating country development programs have been
examined at great length in various inter-Ameri-
can economic consultations, particularly within
the Organization of American States and the Eco-
nomic Commission for Latin America of the
United Nations. The technical cooperation proj-
ects being carried out jointly by the United States
and Latin American countries and territories have
often stimulated developmental measures on the
part of the participating governments.

Plans for country development have grown in
number and scope. In the early part of 1955,
Honduras announced that it had drawn up a 5-
year program of broad economic development
which envisions, in addition to rehabilitation of
the flood-damaged Sula Valley, wide improve-
ments in agriculture, road construction, power,
and education. Guatemala has established a Na-
tional Economic Planning Council to work out a
feasible long-term development plan to expand
the Guatemalan economy. Ecuador has set up a
similar planning board. Cuba is another country
which has recently mapped out a comprehensive
program of economic improvement.

Moving such plans out of the blueprint stage
means that the Latin American countries must
apply modern methods on a vastly increased scale.
It means also that the acquisition of the neces-
sary technical knowledge and skills must be
speeded up. In response to these urgent and ex-
panded needs, the United States and participating
Latin American governments have strengthened
their joint efforts under the technical cooperation
program.

Technical Cooperation
Progress

During the fiscal year ended June 30, 1955, the
United States made available about $28 million
in direct support of joint technical cooperation
programs in Latin America. The United States
is engaged in such programs with each of the Latin
American republics, except Argentina, and with a
number of the dependent territories located in the
Western Hemisphere. As in past years, the pri-
mary objective of these mutual programs is to
share our technical knowledge and skills with the
people and institutions of Latin America so that
they can speed their own efforts for economic
development in their countries. All of the pro-
grams continue to be jointly financed, jointly
planned and jointly operated by the United States
and .the participating country. In June, agree-
ments were signed for new technical cooperation
programs in Jamaica and British Honduras.

The technical cooperation program in Latin
America is being gradually diversified as a nat-
ural outgrowth of the growing requests by host
countries for technical assistance in fields other
than agriculture, health, and education. These
three basic fields of activity continue to be the
major components of the program, comprising 73
percent of total funds used for technical coopera-
tion in Latin America during fiscal year 1955.
A larger proportion of the program, however, was
spread among other important activities, such as
transportation, industry and mining, public ad-
ministration, labor, community development, and
housing.

United States colleges and universities ex-
panded their participation in the technical co-
operation program during the first half of 1955.

34

Latin Americans Are Acquiring Valuable
Knowledge In The United States

Participants in FY 1955.
by Major Field of Study

Industry
and Mining

Agriculture
and Natural
Resources

Education

Public
Administration

Health and
Sanitation

Labor

Transportation

Community
Services

Other

275

247

177

175

'

136

389

103 TOTAL:

1,545 Participants'

130
I 13

I

■In addition, 47 Latin Americans are studying in countries
other than the U.S. and their own country.

The progress attained in the participant pro-
gram is reflected in the fact that the great ma-
jority of these trainees, upon their return to their
own countries, obtain positions which make it pos-
sible for them to utilize the full benefits of their
training. They are also reaching, within their
governments, the senior positions which enable
them to have an important impact on the planning
and implementation of the development efforts of
their countries. In one country, for example, par-
ticipants who studied in the United States now
hold such positions as Director General of Agri-
culture ; Chief of Public Health Education ; Chief
of International Affairs of the Department of
Health; and the directorship of a large trade
school in the capital city. Returning participants
also fill many high-level positions in servicios, the
joint U.S. -host country operating organizations
established within appropriate ministries of the
host governments to carry on technical coopera-
tion programs.

One of the most concrete measurements of pro-
gram progress in Latin America is the degree to
which host countries contribute to joint operating
funds. Each year, contributions of participating
governments to these joint funds have increased,
and in fiscal year 1955, they reached a total of
about $40.6 million in cash alone, or over five

By June, a total of 15 United States educational
institutions were under contract to work in 12
countries of Latin America. In addition, increas-
ing reliance was placed on the use of private or-
ganizations to meet highly specialized technical
assistance needs.

Furnishing United States technical experts to
work in the host country is a primary means of
sharing our planning and productive techniques
with other people. By mid-1955, there were about
635 United States technicians on duty in Latin
America as compared to 523 at the beginning of
the fiscal year.

Another major way in which technical knowl-
edge is imparted is through the participant pro-
gram in which grants are made available for the
training of Latin American personnel outside of
their own countries, primarily in the continental
United States. The participant program has
been considerably strengthened; in fiscal year
1955, about 1600 training grants were made avail-
able, nearly double the number of such grants in
the previous year.

Latin American Countries Have Increased Their
Contributions To Joint Programs

( Millions of Dotlors ond
Dollar Equivalents)!

63.3

Materials ond Services
44.7

28.0

22.0

FY 1954 FY 1955

United States

FY 1954 FY 1955

Host Countries

35

times the United States cash contributions of about
$7.4 million.

Host governments are, to an increased degree,
taking over full responsibility for projects ini-
tiated under the joint technical cooperation pro-
gram. The Latin American governments are be-
coming increasingly capable of accepting both
administrative and financial responsibility for
individual projects and, in certain instances, for
entire programs embracing a complete field of
activity.

These are some of the more noteworthy activity
trends and project developments which took place
in recent months :

Agriculture. — Initiation of agricultural credit
operations in Bolivia and Guatemala during the
first six months of 1955 represented an important
new trend for the well-established program of
agricultural activities in Latin America. In both
countries, authorities were faced with difficult
problems of land settlement and ownership arising
from earlier land reform programs. Under the
new program for better credit facilities, arrange-
ments are being worked out for the local govern-
ment to provide loans for land purchase, for per-
manent improvements, and for working capital.
The local governments are also planning to pro-
vide expert supervision to assist farmers in follow-
ing sound farm plans to facilitate repayment of
loans.

Technical assistance for these supervised credit
programs is being supplied through contracts with
a non-profit organization having broad experience
in this field. Principal responsibilities under
these contracts are to supply competent advisors
to credit institutions and ministries of agriculture
and to train field representatives of credit banks.

Further progress was made in agricultural re-
search and extension activities being carried for-
ward in most Latin American countries. New
university contracts were signed to strengthen the
programs in Costa Rica and Chile. In Costa Rica,
technicians from the University of Florida are
advising on the development of a national agri-
cultural research program. In Chile, technicians
from the University of California are advising on
the improvement of curricula, and research and
extension work of agricultural colleges in Santi-
ago and Chilian.

Health and Sanitation. — Joint public health
programs have been in operation in Latin America
for more than thirteen years. The increasing

competence of the various ministries of health in
Latin America is bringing about a progressive
change in the way health programs are being car-
ried on. United States technical personnel are
gradually withdrawing from the operational
phases of the work and limiting their functions
more and more to consultation. Greater empha-
sis is being placed on training activities and on
community development in public health. For
example, the Ministry of Health of Uruguay has
recently requested assistance in the reorganization
of the Ministry and in the extension of local com-
munity health services throughout the country.
This request appears to be a direct outgrowth of a
demonstration program of local health services
carried out as part of the joint health program over
the years in five health centers in Uruguay. Ac-
tivity in professional education has also been)
stepped up in a number of countries, and the serv-
ices of United States technicians are being re-
quested to furnish guidance to medical and nurs-
ing schools.

The American Hospital Association has ini-
tiated a series of seminars in hospital administra-
tion to be held in Brazil, Peru, and Colombia. The
University of North Carolina is providing services
to Peru's National School of Engineering in the
field of sanitary engineering. The work on nutri-
tion under the contract with the Harvard School
of Public Health is moving ahead. At the fiscal
year's end, there were requests from three addi-
tional countries for university contracts in
medical education.

In the past year, the Public Health Division of
FOA has developed closer working relations with
the World Health Organization and its Regional
Office, the Pan American Sanitary Bureau. WHO
has asked FOA to collaborate with them and with
the countries of Latin America to control malaria
in the Western Hemisphere, particularly in the
malaria-infested regions of Mexico, Colombia, and
Haiti.

Education. — Technical cooperation programs in
education in Latin America continue to stress the
training of teachers. Newly trained teachers are
reaching thousands with a type of education that
is geared to help solve everyday problems, and that
emphasizes the role of the individual within his
society. Teachers are not only being trained for
work in the elementary schools in the rural areas ;
they are also being shown how to develop skilled
and semi-skilled labor for industry. Latin Amer-

36

Students at the San Andres vocational agricultural school in El Salvador learning how to operate and
maintain farm machinery. United States technicians are working with the teaching staffs of Latin
American agricultural schools to improve instruction in modern farming techniques designed to raise
-productivity and living standards.

ican teachers are being instructed in mechanical
operations so that they can pass on the techniques
for operating and maintaining simple farm equip-
ment. Their training also includes courses in
agricultural improvement so that they can demon-
strate how crops can be improved with better seeds,
fertilizers, and insecticides. Reform of outdated
school laws and improvement of the economic
status of teachers are other facets of these educa-
tion programs.

The assistance of United States colleges and
universities has been enlisted to help raise the
levels of vocational education in various countries
of Latin America. In Mexico, for example, dur-
ing the first half of 1955 some of the best educators
from Teachers College of Columbia University
have been working with Mexican leaders in a study
to determine the needs for technical education in
that country. The Mexican staff has been pro-
vided by the Bank of Mexico, and Mexicans will

participate fully in all phases of the study. Proce-
dures and forms have been developed jointly.
Teachers College has sent engineers to Mexico to
act as consultants in four major fields of the study :
chemistry, foods, metals, and textiles. Under their
guidance, Mexican teams are now gathering the
necessary information.

During the period covered by this report, new
technical cooperation programs in education were
inaugurated in Costa Rica, Jamaica, and British
Honduras. At the request of the Governments of
Cuba and Colombia, studies are now in process to
determine how United States technical help could
best serve these countries in attacking their basic
educational problems.

Industry. — Several new industrial programs
were begun in Latin America during the first half
of 1955. The Mexican Industrial Productivity
Center was formally established in May. The El
Salvador Industrial Productivity Center, which

37

was established in January, had initiated several
cooperative undertakings by the end of June. A
formal technical cooperation agreement for indus-
trial productivity was signed with Uruguay in the
latter part of June.

Studies on the development of joint programs
in industry in Cuba, Panama, and Peru were car-
ried forward during the period. Continued prog-
ress was reported from Chile, where a joint
program in industrial development is concen-
trating on training at both managerial and worker
levels, especially in smaller enterprises.

Public Administration. — Interest in improve-
ment of public administration continues to grow
among the Latin American republics as they be-
come increasingly aware of its importance in indi-
vidual country programs for economic develop-
ment. Fifteen countries have requested United
States technical assistance in improving govern-
mental operations.

In Guatemala, the new government sought
United States assistance in strengthening public
administration procedures. FOA arranged to
provide this service through a contract with a
management firm with extensive experience in
Latin America. The primary problem was identi-
fied as public finance, and experts were sent to
Guatemala to work with the government on im-
proving its tax structure and national budget
system.

The Getulio Vargas Foundation School of Busi-
ness Administration in Sao Paulo, Brazil,
launched its 4-year undergraduate program in
March 1955. This program, developed with the
assistance of Michigan State University, has pro-
vided a number of short-term courses to help meet
the need in Brazil for trained business and gov-
ernmental leaders. The school now has started
on its long-range program, with 57 undergradu-
ates enrolled. As an important feature of this
joint program, six Brazilian professors have been
sent to Michigan State College for a year of train-
ing ; when they return, they will be used as Bra-
zilian replacements for the American professors of
business administration.

Housing. — In Chile, the United States has fur-
nished technical guidance and a limited amount of
equipment to help the Chilean Government and
people in their efforts to meet their acute housing
needs. The Chilean Government has authorized
expenditures of the equivalent of $900,000 for pur-
chase of building materials and for administrative

and technical supervision of the program. Chile
also authorized an additional $900,000 for housing
sites and construction work involving 1,000 fami-
lies. The United States provided $100,000 for
tools, cement, earth-moving equipment, and other
construction material that had to be imported.

In Colombia, the Small Homes Council of the
University of Illinois has contracted to study the
country's housing needs in order to assist the Co-
lombian Institute of Territorial Credit in adopt-
ing modern housing methods which will improve
Colombia's housing program.

Working on a regional basis, United States
technicians in the Caribbean area have stimulated
local self-help programs for home construction
in Surinam, British Guiana, Barbados, Trinidad,
St. Lucia, Granada, and Jamaica. The objective
has been to show the people in these regions how
to develop low-cost methods of construction, uti-
lizing local materials whenever possible, and en-
listing family labor on a cooperative basis.

In areas where the construction phase of the
housing program is well under way, more atten-
tion is being given to the development and
training of group leaders who can disseminate the
knowledge and experience obtained, and thereby
multiply the considerable achievements already
made.

Regional Assistance Through OAS. — During
the first half of 1955, seven regional training proj-
ects continued in operation under the technical co-
operation program of the Organization of Aneri-
can States. These training projects were in the
fields of economic and financial statistics, housing,
training of teachers for rural normal schools, eval-
uation of natural resources, child welfare, im-
provement of agricultural methods and rural life,
and animal husbandry.

Such projects are limited to fields in which pres-
ent facilities in Latin America are inadequate or
nonexistent. Constant care is exercised to assure
that OAS projects do not duplicate activities of
other technical assistance programs. Under the
OAS program, no assistance is given to individual
countries. The objective is for all participating
countries to benefit from each project.

In the first half of the year, the United States
contracted for the use of training facilities devel-
oped under OAS programs in Turrialba, Costa
Kica. The facilities will be used to train agri-
cultural participants, particularly in the fields of

38

coffee and cacao research, under United States bi-
lateral programs.

The United States continues its support of OAS
projects. It has offered to contribute up to $1.5
million, but not more than 70 percent of the total
contributions to the 1955 program. As of June
30, 1955, 19 Latin American countries had made
pledges totaling approximately $500,000 to the
1955 program.

Technical Support to
Territories

Surinam

The first year's operation of the technical co-
operation program in Surinam concerned coop-
erative projects in agriculture, education, health
and sanitation, and housing. Under the extension
program, a Surinam staff has been trained in
United States extension methods and practices.
United States technicians are carrying out dem-
onstration projects to determine the possibilities
for introducing new varieties of vegetable crops
suitable for cultivation in Surinam.

A large vocational school is now being con-
structed by the local government on the outskirts
of Paramaribo. A United States technician has
been helping in the development of a curriculum
and training methods and in supervising installa-
tion of U. S. -furnished equipment in school shops.

In the self-help housing program in Surinam,
in which United States housing specialists are pro-
viding technical assistance, 400 houses have been
completed. United States technicians are assist-
ing the Department of Social Affairs in the or-
ganization of its housing office and in the planning
of an expanded program. About 500 units are
scheduled for immediate construction. In addi-
tion, designs for rural houses are being provided
for use throughout the country, and a self-help
project for a fishery village of 150 units is ready
to begin operations.

In April 1955, a sudden outbreak of rabies
among cattle infected by vampire bats threatened
to destroy large numbers of livestock. FOA tech-
nicians helped the Surinam Department of Agri-
culture carry out a mass inoculation program
which successfully stamped out the disease and
saved Surinam's farmers from large-scale cattle
losses.

British Guiana

The 2-year development program launched by
British Guiana in 1954 is well under way. The
program is devoted largely to agriculture, land
reclamation, health, transportation, and housing
projects. The U. S. Operations Mission and field
parties from the University of Maryland are co-
operating in providing technical assistance for
specific project activities. The University of
Maryland supplied additional technicians during
May and June to assist with soil analysis, resettle-
ment and reclamation work, rural youth activities,
and poultry and hog raising. Arrangements have
been made with a voluntary agency for a project
designed to promote health, vocational training,
and the handicraft industry for the Indian popu-
lation of the interior.

Development Assistance

The United States has provided development
assistance to Bolivia, Brazil, Guatemala, and
Haiti. Dollar funds amounting to nearly $18.3
million were made available for these activities,
and additional amounts of local currency for de-
velopmental projects were obtained through the
sale of surplus agricultural commodities provided
under the Agricultural Trade Development and
Assistance Act of 1954.

Bolivia

Economic diversification is the key to continued
recovery and stability in Bolivia. The Bolivian
Government and people, with United States aid
under the mutual security program, are making a
concerted effort to overcome their heavy depend-
ence on a single export commodity — tin. Bolivia
continues to suffer from an unfavorable balance
of payments, a severe shortage of foreign ex-
change, and a spiraling inflation. Bolivia does
not at present grow enough food nor does it have
the financial resources to impoi-t the supplemental
food commodities necessary to feed its people, or
to pay for certain items of equipment needed for
diversifying its production base.

Despite the many remaining obstacles to its eco-
nomic stability, Bolivia has made progress in a
number of fields. Recent developments in the pe-
troleum industry have already made the country
self-sufficient in gasoline and certain light oils.
Petroleum and petroleum products are beginning

39

Bolivian farmers watching to see how well a modem tractor will replace oxen. This is a practical
demonstration at the Warisata school in the Bolivian highlands, where joint technical cooperation
programs are helping to make rural schools more influential in the lives of the people.

to count as exports. Construction of a pipeline
to Argentina and plans for a pipeline to the
Pacific Coast reinforce the expectation that oil will
become a major earner of foreign exchange. The
United States is assisting the Bolivian Govern-
ment in the rewriting of its petroleum code so as
to make additional foreign private investment in
this field more attractive. Bolivian efforts to cre-
ate a favorable climate for foreign investors are
beginning to draw the attention of United States
mining interests.

The completion of the Santa Cruz-Cochabamba
Highway has opened a vast new agricultural area
in the country. A U. S.-Bolivian cooperative road
program has stimulated construction of farm-to-
market roads, and work is in progress to clear and
put into production additional farm land in the
newly opened areas.

Continued United States assistance has been a
major factor in helping Bolivia meet its critical

problems. During fiscal year 1955, $2.1 million
worth of agricultural surplus commodities were
sold to Bolivia under Section 402 of the Mutual
Security Act of 1954. Moreover, about $1.6 mil-
lion of mutual security funds was used to pay
ocean freight costs of additional surplus agricul-
tural commodities supplied under Title II of the
Agricultural Trade Development and Assistance
Act of 1954. A total of $6.4 million was used for
agricultural equipment and other supplies and
machinery to help Bolivia become more self-suffi-
cient in some of its basic food crops and to improve
its transportation and industry.

Normal marketing channels have been used in
the sale of commodities supplied to Bolivia.
Local currency generated from the sale of these
commodities is being used in development plans
jointly approved by Bolivia and the United States,
primarily for road building, land clearing, and
agricultural improvement.

40

Guatemala

The United States has assisted the new Guate-
malan Government in maintaining economic sta-
bility during its transition period to permit it to
mobilize its resources more effectively. In sup-
port of this objective, the technical cooperation
program was broadened in fiscal year 1955, and a
new program of development assistance was in-
stituted.

The principal project under the development
assistance program in Guatemala is completion
of a 97-mile section of the Pacific Slope Highway.
Construction of the two-lane road was about half
completed at the end of June, and is expected to
be finished by the end of 1955. Allocation of $3.7
million to the project by the United States will
be matched by not less than the equivalent of $1.1
million in services, materials, or local currency
contributed by the Guatemalan Government.

Development assistance funds amounting to
$960,000 were made available to help complete

construction and equipment of the Roosevelt Hos-
pital. This sum was matched by an equal con-
tribution in local currency by the Guatemalan
Government. At the end of the fiscal year, a team
of consultants in medical and hospital administra-
tion was on its way to Guatemala to explore pos-
sibilities for using the hospital as a base for a
regional program of medical education in Cen-
tral America.

Under Title II of the Agricultural Trade De-
velopment and Assistance Act of 1954, 27,000
metric tons of corn are being authorized for ship-
ment to Guatemala as emergency relief to alleviate
an acute corn shortage. Approximately 3,000
tons were delivered in June; the balance was
scheduled for delivery in July and August. The
first project to be financed with counterpart funds
obtained from local sale of the corn is a highway
from Cocales to Santa Ana Mixtan. This road
will give access to a large agricultural resettle-
ment area known as Tiquisate, part of which was

Foundations being prepared for a Pacific Slope Highway bridge across the Bio Bravo in Guatemala.
The United States has earmarked $3.7 million to help complete this highway ivhich will open coastal
agricultural regions for development and help improve economic conditions in the country.

41

donated to Guatemala by the United Fruit Com-
pany.

Haiti and Brazil

In May and June, $750,000 of development as-
sistance funds was made available to Haiti for re-
habilitation of irrigation systems, farm lands, and
farm-to-market roads damaged by Hurricane
Hazel. Much of the reconstruction will be done
by the Haiti-United States Agricultural Service
and the Haiti Ministry of Public Works.

In June, $1.5 million of development assistance
funds was allotted for highly specialized air nav-
igation equipment for Brazil's two largest air-
ports, at Sao Paulo and Rio de Janeiro. The
equipment will be installed by Brazilian labor
with technical advice by United States experts.
Local materials and land needed for installation
will be provided by Brazil.

Hemisphere Defense

Bilateral military assistance agreements with
the Government of Haiti and with the Govern-
ment of Guatemala were concluded in January and

June, respectively, of this year. These agree-
ments are consistent with the Inter- American
Treaty of Reciprocal Assistance and the planning
of the Inter-American Defense Board. Twelve
Latin American Republics have now undertaken
specific military roles and missions for the mutual
defense of the Western Hemisphere. In addition
to Guatemala and Haiti these countries are : Bra-
zil, Chile, Colombia, Cuba, the Dominican Re-
public, Ecuador, Honduras, Nicaragua, Pern, and
Uruguay.

Funds provided from appropriations through
fiscal year 1954, when fully expended, will sub-
stantially complete the equipment of those units
presently designated for Western Hemisphere de-
fense. Fiscal year 1955 and later funds will be
used primarily for maintenance, replacement, and
training.

United States military personnel are helping
to train the members of the armed forces of the
Latin American countries in the use and main-
tenance of the equipment provided under the mili-
tary assistance program. As of May 31, 1955,
nearly 1300 courses of instruction were completed
by military students from the American republics.

42

CHAPTER V

Europe

IVfUTUAL security objectives in Europe were
-'-"-'- brought much closer in the first half of 1955
when the Federal Kepublic of Germany in May be-
came a sovereign member of the Atlantic family of
free nations. The addition of Germany to the
Atlantic community on a basis of full and equal
partnership was a most important event not only
because it makes possible, a more powerful NATO
deterrent force; even more, it establishes the
framework for a new unity so that nations long
separated by ancient rivalries can work together
for a durable peace. Realization of final accord on
Germany opens the way for the additional unifica-
tion measures necessary for long-term European
security and further economic expansion.

The high levels of economic activity reached by
most European nations during 1954 have been
maintained and, in some instances, surpassed in
1955. Industrial production for Europe as a
whole set a new record in the first half of the year.
Certain financial strains were in evidence in par-
ticular countries, but on the whole, the European
economic boom was still flourishing.

The rate of nonmilitary program expenditures
for Europe made from mutual security funds has
been falling steadily. In fiscal year 1955, such
expenditures from funds made available in pre-
vious years were about half of what they were in
fiscal year 1954. No new economic dollar aid to
the European countries originally included in the
Marshall Plan is contemplated for fiscal year 1956.

Difficult problems, both economic and military,
lie ahead in Europe — problems of trade restric-
tions, convertibility, dependence on United States
special dollar expenditures, making the new West-
ern European Union into an effective operating
organization, to cite a few. But never in postwar
years has there been a more solid foundation in
Europe upon which to work toward the solution
of these difficulties.

Security of Free Europe

NATO's 15th Member

Under the Paris Agreements which came into
force early in May 1955, the Federal Republic of
Germany became an equal partner in the Atlantic
Community and the 15th member of the North
Atlantic Treaty Organization. By this act, the
people of West Germany crowned their postwar
development as a democratic nation firmly bound
to the West.

The Paris Agreements also brought into effect
the arrangements for the accession of Italy and
the Federal Republic of Germany to the Brussels
Treaty of 1948. The Western European Union
(WEU) — the name given to the revised Brussels
Treaty Organization — is empowered to limit and
control the force levels and armaments of the
WEU member countries. A WEU Arms Control
Agency was established for this purpose in the
Paris Agreements themselves. In addition, the
Council of WEU in May formed a Standing Arm-
aments Committee to foster standardization and
closer cooperation in armaments production among
WEU members. The work of this Committee will
be carried out in coordination with similar work
under way in various NATO agencies.

The new relationship in Europe confers cer-
tain rights and responsibilities upon both the
United States and the Federal Republic of Ger-
many. The United States, in line with the pol-
icies expressed during the negotiations of the Paris
Agreements, renewed its assurances that it would
continue to participate actively in NATO pro-
grams and would keep in Europe a fair share of
the forces required for the common defense. We
also pledged that our military assistance programs
for the WEU countries would be carried out in
consonance with the provisions laid down in the
Paris Agreements with respect to control over the

43

forces and armaments of the WEU countries. The
United States will carry out its aid programs in
consultation with both the North Atlantic Coun-
cil and the WEU Council.

The Federal Eepublic of Germany at the end
of June was in process of taking the first legis-
lative and executive steps required to carry out
its pledge to create an effective military establish-
ment as an integral part of the common defense
effort. These steps were being carried out in
consultation with the other NATO countries, and
in particular with the United States. In support
of Germany's effort to contribute to Western
strength, the United States has reaffirmed its will-
ingness to turn over to the Federal Republic cer-
tain military equipment needed for the initial
stages of its defense buildup. This equipment in
large part has already been programmed from mu-
tual security appropriations of previous years.
Delivery is scheduled to start after Germany en-
acts the legislation required for the creation of
its armed forces, and after it ratifies the military
assistance agreement with this country signed on
June 30, 1955.

It will be some time before Germany will be
mnking its full contribution to the NATO effort,
but the very fact of German participation in the
North Atlantic Alliance makes possible plans for
broader and more effective security measures in
free Europe.

NATO Defense Operations

This past spring marked the sixth anniversary
of the founding of what has been called "a revolu-
tionary and constructive experiment in interna-
tional relations." The North Atlantic Treaty Or-
ganization has been welded into a real force for
peace in Europe. With its first objective that of
avoiding war, NATO has created an effective de-
terrent to would-be aggressors. Today, NATO
forces in being could not be overwhelmed without
prior major preparations on the part of an at-
tacking enemy land force. Such advance prepara-
tions would alert the entire retaliatory capabilities
of NATO.

One of the most significant developments has
been the use of the North Atlantic Council for
frank political discussions by the member govern-
ments. Such discussions are evidence of the con-
tinuing solidarity of the Alliance and are par-
ticularly useful in a period when the Soviets have
been showing a more flexible approach toward the

Western countries. The May meeting of NATO
Foreign Ministers in Paris was a striking example
of such consultation. The discussions at that
meeting covered not only matters of concern
within the NATO area but also the impending
Four Power negotiations at the summit and a
review of the situation in the Middle East and
the Far East.

Since early 1951, NATO's military strength has
increased from 15 to some 100 divisions, in vary-
ing states of combat readiness. In the air, there
has been an increase from less than 1,000 opera-
tional aircraft to more than 6,000 modern fighting
planes. Naval forces have also improved greatly.
The number of additional naval ships available
has increased by over 30 percent since 1951. Men
on active duty in the European NATO countries
have increased from 2.5 million to 3.1 million.

Our NATO allies are using a substantial part
of their available resources for defense purposes.
Outlays of European NATO countries (excluding
Greece and Turkey) for defense in the year ended
June 30, 1955, are estimated at $12.3 billion, about
double the pre-Korea rate; they are expected to
rise still further as a result of the German de-
fense effort. Expenditures for military hard-
goods have increased more than threefold, and
now stand at over $2.8 billion annually.

European Defense Spending Is At A High Level;
U.S. Nonmilitary Aid Expenditures Virtually Ended

15 i — — — 1

15

12

(Billions of Dollars)

Total, European NATO Countries'

1950 1951

'Includes Germany,- excludes Greece and Turkey

1952 1953
U.S. Fisco! Years

1954 1955

44

During the first six months of 1955, there was
a continued qualitative improvement in the effec-
tiveness of European NATO forces as a result of
additional military shipments from the United
States, increased European production of equip-
ment, modernized organizations, and enlarged
training programs. More attention was being
given to development of plans for coordinating
military and civilian actions in the event of a
wartime emergency. These included studies on
wartime commodity problems, defense production,
use of transportation facilities, civil defense, and
manpower mobilization.

Following through on the decision of Congress
as expressed in the United States Atomic Energy
Act of 1954, the United States proposed an agree-
ment with NATO countries for coordination re-
garding the communication of atomic information
to NATO. In March 1955, the North Atlantic
Council approved the United States draft of this
agreement, and on June 22 the final agreement was
signed in Paris by representatives of each of the
NATO governments. The agreement will enter
into force as soon as all signatories notify the
United States that they are boimd by its terms.
The information we provide is to be used exclu-
sively in the preparation and implementation of
NATO defense plans, in training personnel in the
use of and defense against atomic weapons, and
in evaluating the capabilities of potential enemies
in the employment of such weapons. Atomic in-
formation furnished by the United States will
assist the NATO military experts who are now
re-examining current military plans and organi-
zation with a view to adapting them to nuclear
capabilities. NATO planning is therefore in a
transitional period as allied strategists assess the
impact of modern weapons development, espe-
cially in the atomic and guided missiles fields. [Re-
sults of experiments in France, the United King-
dom, and the United States will provide valuable
guidance on the respective roles of land, sea, and
air forces in the atomic era, and on future budget-
ing of funds for more conventional types of weap-
ons and military units.

Air defense has been perhaps the major area of
weakness of NATO. A special staff has been set
up at NATO headquarters to study the problem
of defending Western Europe from air attack.
The SHAPE Air Defense Technical Center in
The Hague began operations in April with a staff

of highly skilled scientific personnel selected from
various NATO countries.

During the first half of 1955, a number of new
maneuvers were carried out in Europe in a con-
tinuing effort to improve the combat and operating
efficiency of NATO forces, especially in the use
of atomic weapons. At the end of February,
NATO's Southern Command carried out exercise
BLUE TRIDENT I in which 20 units of the U. S.
Sixth Fleet and a Canberra squadron of the Royal
Air Force took part in simulated atomic air strikes
against targets in Italy and France. In the same
month, other atomic maneuvers were held in Den-
mark and Norway.

In mid-March, combined exercises were held to
test defenses against a simulated invasion of West-
ern Turkey by amphibious and airborne troops.
Participants included elements of the U. S. Fleet,
the Royal Air Force, and the Turkish Army. In
another exercise, SHORT LOP, maneuvers were
carried out to improve operations of ships and
naval aircraft under varying situations, with spe-
cial attention to air-sea cooperation during anti-
submarine actions. French and Portuguese naval
aircraft participated.

Late in June, large NATO atomic air maneuvers
were held in Central Europe, involving 3,000 air-
craft and 11 nations. Such NATO exercises have
made it possible to forge dissimilar international
forces into coordinated combat teams. They have
helped to develop common training methods, inte-
gration of headquarters and units, and a large
measure of standardization of equipment and
organization.

Joint Facilities for NATO Use

"Common infrastructure" denotes fixed military
installations necessary for the maintenance and
training of NATO international forces in time of
peace, and for their effective operation in time of
war. Infrastructure installations are paid for
collectively by member governments. They in-
clude such facilities for the effective support of
modern armed forces as airfields, fuel distribution
facilities, naval fleet bases, telecommunications,
and electronic warning systems.

As of June 30, 1955, agreed NATO programs for
infrastructure construction through the end of
calendar year 1956 amounted to the equivalent of
approximately $2 billion. The United States
share of these costs which the Congress has author-

45

ized the President to contribute to this program
amounted to about $780 million, less than 38 per-
cent of the total. Of this amount, $614 million
was appropriated through mid-1955. Planning
for the long-term permits NATO commanders to
program requirements for construction more effi-
ciently, prevents arbitrary cuts in military proj-
ects, and enables governments to make adequate
budgetary provision for infrastructure expendi-
tures.

Every effort is being made to eliminate waste
and duplication through intensive screening pro-
cedures carried out by expert committees of the
Council and by civilian and military inspectors.
These control procedures assure that essential
military requirements are met with minimum ex-
pense. The cooperation of member governments,
in turn, assures that standards established through
the NATO mechanism are met.

The majority of infrastructure contracts are
open to international competitive bidding. This
has tended to reduce cost and improve quality.
Many American firms have been successful bidders
and are engaged in infrastructure construction
work in almost every NATO country, either as
contractors or suppliers of equipment.

A few examples will help to illustrate the nature
and progress of the infrastructure program. Over
half of the $2-billion program is being used to con-
struct 174 tactical airfields. By mid-1955, there
were about 142 airfields in a sufficiently advanced
state of construction to permit use in an emer-
gency by modern jet aircraft. By the end of 1955,
it is expected that 152 airfields will meet minimum
military requirements under wartime conditions.
These figures compare with the approximately 15
airfields which were capable of handling jet air-
craft in 1951.

A fuel distribution system, being built under the
program, contemplates the construction of about
3,800 miles of pipeline and nearly 450 million gal-
lons of storage capacity essential for the support
of modern jet air forces in forward areas. This
project will provide a central European network
of fuel pipelines, with ports on the Channel and
Mediterranean coasts that can be supplied by the
tanker fleets of NATO countries. By June 30,
1955, construction work on about one-half of the
pipeline and one-third of the storage facilities was
under contract. This work was progressing satis-
factorily, and major portions of the system will be
ready for use this year.

The telecommunications program now in prog-
ress will reinforce existing facilities by the addi-
tion of about 4,000 miles of land lines, 3,700 miles
of radio relay circuits, and over 700 miles of sub-
marine cables. These facilities will provide for
the immediate and full contact of forces essential
to the effective exercise of command. Approxi-
mately 90 percent of this $400-million communica-
tions program has been contracted for, with about
65 percent already completed. Steady progress
on construction of air training bases, fleet facili-
ties, and radar warning stations is also helping to
develop a more coordinated and effective NATO
combat potential.

U. S. Support to European
Defense

During the first half of 1955, shipment of mili-
tary items to our European allies amounted to
$578 million. This brought the value of weapons
and equipment shipped as grant aid to Europe
(excluding Greece and Turkey) for fiscal year
1955 to $1.3 billion, and the cumulative value of
such shipments since the start of the military as-
sistance program in fiscal year 1950 to about $8
billion.

Part of the materiel made available under the
military assistance program is procured overseas.
Through the end of June, a cumulative total of
$2.6 billion in offshore procurement contracts had
been placed in Europe (excluding Greece and
Turkey), with $141 million placed in fiscal year
1955. These countries have delivered to the
United States for further delivery to recipient
governments equipment valued at $1.1 billion
through June 1955; $190 million was delivered in
the first six months of this year.

Hy mid-1955, over 375 aircraft manufactured
in the United Kingdom, consisting of Canberra
light bombers, Valiant medium bombers, and
Hunter day fighters and reconnaissance planes,
had been delivered to the Royal Air Force as the
first installment of a special aircraft assistance
program concluded in June 1954. The United
States had paid the agreed total of $85 million
toward the cost of their manufacture.

In May 1955, the United States signed a memo-
randum of understanding with the British Gov-
ernment whereby $35 million is being provided as
the second installment of this program. The en-
tire $35 million is being made available in the form

46

$8 Billion Worth Of Military Weapons and Equipment
Has Been Shipped To European Countries

8.000

6,000

4,000

2,000

(Millions of Dollars)

The Trend By Fiscal Years

(Millions of Dollars)

Monthly Averages

1951 '52 '53 '54 '55

J_

Cumulative Shipments '

1950 1951 1952

Includes value of excess slocks; excludes Greece and Turkey.

1953
U.S. Fiscol Years

1954

1955

of U. S. surplus agricultural commodities; the
sterling proceeds from the sale of these commod-
ities will be used to help finance the manufacture
in the United Kingdom of some 70 Valiant
medium bombers and Canberra light bombers of
more recent design for the use of the KAF in de-
fense of the NATO area.

In June 1954, the United States signed an agree-
ment with the French Government whereby $85
million is being provided to France to finance the
manufacture of artillery, ammunition, and small
arms for the French NATO forces. This pro-
gram is moving ahead, and by June 30, 1955, al-
most 25 percent of the scheduled production had
been completed.

During fiscal year 1955, allotments to Europe
of funds for other than direct military assistance
amounted to $232 million. This amount included
$152.5 million to finance the sales of surplus agri-
cultural commodities under Section 402 of the
Mutual Security Act of 1954, the local currency
proceeds of which are to be used for direct forces
support and defense-support programs. The
major recipients of total allotments were: Spain,

$85 million; the United Kingdom, $55 million;
Yugoslavia, $44 million; Italy, $16 million; and
the Federal Republic of Germany for support of
West Berlin, $24 million.

Mutual Weapons Development

In an effort to increase mutual defense capa-
bilities, Congress in fiscal year 1954 authorized
a program to accelerate the research and develop-
ment in friendly countries of advanced types of
non-nuclear weapons. Through June 30, 1955, ap-
proximately $40 million had been obligated for
this purpose ; $22 million more had been author-
ized for approved projects now under negotiation.

The special weapons program is helping to speed
the completion of selected projects of European
countries which give promise of providing weap-
ons that meet specific operational requirements of
one or more NATO countries. Provision is also
made for transplanting some United States proj-
ects to certain countries at a stage prior to pro-
duction, where security considerations permit.
Thus, technical advice and limited financial as-
sistance are getting new types of advanced weap-

47

ons into service years before they would otherwise
be perfected. Weapons developed by friendly
countries will be easier for them to produce, main-
tain, and replace. Requirements for United States
support in this respect will consequently be re-
duced. As a by-product of such assistance, the
United States expects to receive the right to all
theoretical and technical knowledge and the use
of any weapons developed that may prove desirable
for defense purposes.

Projects thus far chosen for support are of a
classified nature and cannot be described in detail.
They cover such items as proximity fuses and anti-
tank, anti-aircraft and anti-submarine weapons,
including guided missiles. As a result of require-
ments specified by SHAPE for a light tactical sup-
port fighter for NATO forces, several models have
been selected for United States assistance under
the special weapons program.

Facilities Assistance for
Munitions Production

The foreign military facilities assistance pro-
gram is designed to help friendly countries ex-
pand their capacity for manufacture and mainte-
nance of armaments needed for defense. Pressures
on American facilities and supply line difficulties
in the event of hostilities make it essential that
indigenous sources be available to provide the
necessary production and maintenance support.

Since the beginning of the program two years
ago, emphasis has been placed on expanding
Europe's capacity to manufacture propellants and
explosives for ammunition. Facilities in Europe
for the manufacture of these chemical components
had been seriously damaged during World War II.
It is estimated that upon completion of projects
already planned, Europe's ability to produce am-
munition will have doubled.

In addition to ammunition production, the
facilities assistance program includes projects for
establishing major overhaul shops and mainte-
nance facilities needed overseas to protect our in-
vestment in armaments already delivered under
the military assistance program.

In fiscal year 1954, $26 million of mutual se-
curity funds was obligated for this program, all
in Europe. The United States contribution con-
stituted 48 percent of the total cost of the projects ;
the recipient countries contributed about $28 mil-
lion, or 52 percent of the total. During the fiscal

year ended June 30, 1955, $39 million was obli-
gated for 41 projects in Europe, making the
United States contribution 56 percent of the total
cost. In addition, $5 million was obligated for
one project in the Far East.

Aiding Spain's Defense Effort

Under agreements concluded in September 1953,
the United States is constructing military base
facilities in Spain for the use of our armed forces.
To strengthen Spain's capabilities for the com-
mon defense of the West, the United States is pro-
viding assistance under the mutual security
program.

The program for construction of military facili-
ties is now well under way. Construction con-
tracts totaling $55 million have been authorized
through June 30, 1955. Contract awards cover
work on the air bases at Torrejon, Zaragoza, and
Moron; the naval facilities at Rota; and the oil
pipeline from Cadiz to Madrid and Zaragoza.
Much of this work is already in progress.

The major effect of the military assistance pro-
gram has been to alert the Spanish armed forces
to deficiencies and inadequacies in their logistic,
personnel, and training systems. Materiel
shipped to the Spanish Army has consisted of
such items as tanks, anti-aircraft and anti-tank
weapons, and various types of communication
equipment. Some items have been placed into
temporary storage, pending completion of train-
ing, reorganization of army units, and develop-
ment of adequate support facilities to insure that
the delivered equipment will be efficiently utilized
and maintained. Other items, particularly tanks
and recoilless rifles, are being used by the Spanish
armed forces.

Although mine sweepers have been delivered
to the Spanish Navy, the military assistance pro-
gram is directed primarily toward the improve-
ment of existing vessels. Spanish shipyards have
not been modernized, and progress therefore will
necessarily be slow. During the first half of 1955,
the Spanish Air Force worked with the T-33
and T-6 training planes to enhance its capabili-
ties for using jet aircraft which have been sched-
uled for future delivery.

Through June 30, 1955, a total of $170 million
(excluding a $62.5 million loan in fiscal year 1951),
had been programmed for defense support and
technical exchange in Spain, $85 million of which

48

was allotted in fiscal year 1955. Of the $85
million, the equivalent of $55 million was made
available in the form of surplus cotton and cotton-
seed oil, sold to Spain for pesetas; $29.5 million
was earmarked for railway improvement, farm
mechanization, irrigation, electric power, and
similar purposes which will broaden Spain's eco-
nomic base. The remaining $500,000 is being used
to finance a technical exchange program. Of the
proceeds from the surplus sales, the equivalent
of $44 million will be returned to Spain to assist
in improving the Spanish economy; $20 million
will be on a long-term loan basis, and $24 million
will be a grant.

Economic conditions in Spain have substantially
improved since last year. Plentiful spring rains
have refilled reservoirs depleted in last fall's
drought, so that prospects are generally brighter
for crops and for production of hydroelectric
power. Industrial production is also encourag-
ing, especially in such key sectors as steel and
cement. These favorable developments, together
with the commodity shipments under the mutual
security program, have enabled Spain to
strengthen its foreign exchange position. Gold
and dollar reserves increased $83 million in fiscal
year 1955.

Strengthening Yugoslavia's Defense

The underlying objective of the mutual security
program in Yugoslavia has been the strengthening
of the country's capabilities for keeping free of
outside domination. The Balkan Alliance (Yu-
goslavia, Greece and Turkey) and improved rela-
tions with Italy after the Trieste settlement have
opened the way for Yugoslavia to associate more
closely with the Western European community.
Yugoslavia requested and was granted observer
status in the Organization for European Eco-
nomic Cooperation in January 1955.

Yugoslavia continues to maintain a high level
of defense preparedness, notwithstanding efforts
toward normalization of relations with the Soviet
Bloc. Because of its geographical situation and
despite its low national income, Yugoslavia spends
a higher proportion of its resources for defense
than any other country in Europe.

The United States military assistance program
is directed toward improving Yugoslavia's exist-
ing forces by providing modern weapons and
equipment. Deliveries of tanks, trucks, artillery,

radios, radar, and engineer items have converted
what was once a large guerrilla force into a mod-
ern army. Through our military assistance, Yu-
goslav coastal destroyers have been modernized,
small minesweepers have been provided with sweep
gear, and a number of patrol craft have been
placed in good operational condition. The Yugo-
slav Air Force has been provided with jet training
and jet fighter aircraft. Military students from
the Yugoslav armed services have been given
formal courses of instruction in United States
service schools in this country and overseas.

During fiscal year 1955, nonmilitary aid to
Yugoslavia totaled $43.7 million. Of this
amount, about $23 million was used to procure and
ship agricultural surplus commodities, primarily
wheat and cotton, for sale under Section 402
of the Mutual Security Act of 1954. Almost
$6 million was used to procure coking coal; $3
million to provide wool; and most of the re-
mainder for fertilizer, pharmaceuticals, fats and
oils, and transportation costs. It is expected that
the major part of the local currency sales
proceeds will be used for the building of vital roads
and agricultural development projects. Some
$340,000 was used for the technical exchange pro-
gram which includes agricultural projects to im-
prove production and distribution methods, and
industrial and industrial management projects in
critical defense sectors.

Additional amounts of wheat and cotton were
supplied to Yugoslavia under the provisions of
the Agricultural Trade Development and Assist-
ance Act of 1954. Under Title I, 525,000 tons of
wheat and 50,000 bales of cotton were sold to
Yugoslavia for local currency; under the emer-
gency provisions of Title II, 375,000 tons of wheat
were provided as a grant. In addition, 10,000 tons
of wheat and 750 tons of butter were granted under
the Danube Flood Belief Program.

Economic Developments

Economically, Western Europe continued to
make considerable progress. Its gross national
product for fiscal year 1955, adjusted for price
changes, rose over 4 percent. This growth was
due mainly to a substantial advance in industrial
production. For the first six months of 1955,
industrial output set a new record, almost 10 per-
cent above the comparable period of the year
before. Preliminary estimates indicate that al-

49

though unfavorable weather adversely affected the
output of crops in the agricultural year of 1954-55,
the output of livestock products expanded so that
on balance total agricultural production neared
the peak reached in the previous year. Economic
expansion has been supported by a level of em-
ployment probably higher than ever before and by
increased productivity. Trade is at record levels,
and exports to the dollar area, which had fallen
in 1954, were 8 percent higher in the first quarter of
1955 than in the comparable period of the
previous year. This vigorous European economic
activity was accompanied by general price sta-
bility, although in a few countries demand rose
faster than supply, creating mild inflationary
pressures.

Western Europe's gold and short-term dollar
holdings rose by an estimated $500 million in
the first half of 1955, reaching an all-time high
of $13.8 billion at the end of June. However,
the rate of increase in these reserves has slowed

steadily since 1953. In addition, the overall
foreign exchange position in a number of coun-
tries deteriorated as expanding internal demand
produced a steep rise in imports as against only
a moderate rise in exports.

The United Kingdom was one of the countries
most affected by financial pressures. Gold and
short-term dollar assets of the sterling area, which
are held in London, dipped by some $335 million
during fiscal year 1955 to reach $2.7 billion, the
lowest level in a year and a half. The decrease
resulted mainly from a larger trade deficit with
the dollar area. Britain's difficulties were ag-
gravated in some measure by the rail and dock
strikes of late May and June.

In its 1954 annual review, the Organization for
European Economic Cooperation (OEEC) found
that almost all the economic goals set forth in
1948 had been achieved, and in some cases, ex-
ceeded. Western Europe now enjoys greater pros-
perity, greater common military strength, and

Recent Economic Developments In Western Europe

Industrial Production 10% Above 1954

(Index, 1950 = 100)

126

III

H 80 I

1955

/^

S~^

^^^N

-A/

1954

j i i i_

Trade Deficit Widened

2.000

1,000

(Millions of Dollars)

Trade Wi

(Monthly

Exports

_1 I i_

1952 1953

'Includes Overseas Territories

'38 '48 '52 '54 10 2Q 3d 4Q

1954 "55

Prices Rose in Several Countries

(Index, 1950=100)

Netherlands

— ^> — 7

Germany

1951

1952 1953 1954 '55

Reserves Increased at Slower Rate

(Billions of Dollars)

Gold & Short-Term Dollar Assets

■;.";.' Germohy\''

j -'■ .ii. >i . United Kingdom
■i i I 1 ' £ I" 1 -' 1 t-J 1 j nt.J.ninn

1951 1952

'Includes Switzerland

1953

1954 '55

50

greater unity of purpose than ever before in peace-
time.

Some note should be made, however, of the fac-
tors that cloud an otherwise bright picture. A
portion of Europe's growing reserves flow from
extraordinary United States dollar expenditures
of about $2.5 billion a year in the form of troop
maintenance, offshore procurement orders, and aid
expenditures ; many of these payments will be pro-
gressively reduced. The extreme poverty and low
living standards in certain geographic areas con-
tinue to present serious economic and social prob-
lems and form important obstacles to further eco-
nomic growth. A hopeful factor in this respect
is the recent agreement by the OEEC countries
to make southern Italy an area of collective in-
terest; they are currently reviewing development
plans which Italy has put forward.

It also should be noted that the rise in indus-
trial output in Europe appears to have been gen-
erally achieved through fuller employment, while
productivity, though improved, has not increased
sufficiently to assure continued long-term economic
growth.

Use of $100-Million Loan to
Coal-Steel Community

One of the most important steps taken toward
the economic integration of Western Europe was
the formation of the European Coal and Steel
Community (CSC) as the first federal institution
in Europe within which national sovereignties
have been merged. The establishment of the CSC
as a supranational organization reflects European
aspirations for economic unification and political
federation which parallel the fundamental objec-
tives of the mutual security program.

In April 1954, the United States granted an in-
vestment loan of $100 million to the High Au-
thority of the CSC for modernizing and develop-
ing the natural resources of the Community and
thereby fostering European integration in a con-
crete and useful way. This loan is being admin-
istered by the Export-Import Bank with funds
provided under the Mutual Security Act, and is
to be repaid over 25 years with interest at 3%
percent.

As of June 30, 1955, the High Authority had
allocated the entire $100 million for long-term,
low-interest loans to enterprises in the Community
to improve the production and utilization of raw

materials. About $4G million is being used to con-
stiuct and modernize power stations at pitheads
which will enable low-grade coal to be used more
economically; $35 million is being used to help
develop other facilities for more efficient produc-
tion of coal and coke; and nearly $19 million is
being used to improve iron-ore mining.

The United States loan has facilitated the rais-
ing of additional investment funds in the Euro-
pean market required to meet the total cost of
$370 million represented by the planned industrial
projects. Funds for the High Authority's $25-
million program of loans for the construction of
miners' housing are also being raised in Europe.

Common markets for coal, iron ore, and steel
were established in 1953 and 1954, eliminating
trade restrictions across some 1,700 miles of land
frontier of the six member nations. Formation
of this single market in coal and steel has acted
to strengthen competition among producers, to
lower prices, and to increase intra-Community
trade in the two basic industrial commodities.
Despite higher demand, steel prices in May
and June 1955 were slightly lower than when the
common market was opened in May 1953.

Since Creation Of The Coal -Steel Community
Steel Trade Has Doubled . . .

(Millions ol

Steel Sh

Metric Tons)

ipments Within
munity

2.1

4.2

the Com

1952

1954

. And Coal Trade Has Increased 26 Percent

(Millions of Metric Tons)

Coal Shipments Within
the Community

24 3

30.6

|

1952

1954

Note; Common market established Coal-Feb. 1 953, Steel-May 1953.

51

During the first half of 1955, a number of im-
portant actions affecting transportation rates and
cartels were taken. High Authority decisions to
end discrimination in transport charges within
the Community already have resulted in as much
as a 25-percent saving in transportation costs for
many firms shipping goods across frontiers em-
braced by the single market.

At their conference in Messina, Italy, in June
1955, representatives of the six nations of the
Community agreed to sponsor further confer-
ences looking toward the enlargement of interna-
tional accords and treaties to accomplish the goal
of a united Europe. A committee of government
delegates is scheduled to report by October 1, 1955,
on the next steps which should be taken toward
European economic integration. The committee
will examine in particular the possibility of ex-
tending the common market concept to the fields of
transportation and energy.

Progress Toward Convertibility

Encouraging steps have been taken by Euro-
pean countries to chart and facilitate orderly
progress toward limited convertibility of their
currencies with the dollar. Impetus was given
to these developments by the favorable economic
climate in the first half of 1955 which produced
an increasing volume of intra-European and
extra-European trade, and saw Western Europe's
gold and dollar reserves continue to rise substan-
tially.

Since its establishment in 1950, the European
Payments Union has contributed to the ultimate
achievement of general convertibility of curren-
cies on a worldwide basis. The EPU has provided
automatic credit facilities to assist in settling trade
surpluses and deficits among OEEC countries.
Payments are settled on a multilateral basis
through a central clearing house so that currency
earned anywhere in the EPU area can be used
to pay a debt anywhere in the EPU area. Thus,
in effect, Western European currencies are con-
vertible among themselves. This limited convert-
ibility has been a most important factor in the
gradual removal of the various restrictions on the
flow of intra-European trade.

At their meeting in January 1955, the Council
of Ministers of the OEEC set a new target of 90
percent for intra-European trade liberalization —
that is, freeing of quantitative restrictions 90 per-

cent of the value of private intra-European im-
ports made in 1948.

In June 1955, the Ministers agreed upon renewal
of the EPU, and provided for settlement of defi-
cits and surpluses in fiscal year 1956 on a 75-
percent hard currency (gold or dollars) and 25-
percent credit basis, instead of the previous 50-
50 ratio. It was further agreed that the EPU
should continue until member countries which ac-
count for at least half of total intra-European
trade establish a limited convertibility of their
currencies with the dollar. These decisions were
predicated on completion of agreements concern-
ing a European Fund for extending loans, a new
system of multilateral settlements, and necessary
modifications in the Code of Liberalization for
intra-European trade, all of which are to be insti-
tuted upon establishment of limited convertibility
and the termination of the EPU.

In brief, the purpose of the proposed European
Fund, as envisaged, would be to provide credit to
member countries to help them more easily with-
stand temporary balance of payments difficulties,
and thus maintain a high level of trade and
liberalization. All OEEC members that accept
the intra-European Code of Liberalization for
trade would be eligible to borrow from the Fund.
Credits would be non-automatic and limited to two
years. The granting of credits will be based on
the overall balance of payments situation of an
applicant, and the interests of the OEEC. Re-
sources of the Fund, totaling $600 million, would
consist of the $271.6 million capital grant origi-
nally made by the United States to the EPU, and
$328.4 million in gold contributed by members.
In event of liquidation, the United States rights
over the EPU capital would be substantially
preserved.

Other Programs in Europe

Aiding the Efforts of West Berlin

Programs to restore the productive base of the
West Berlin economy and to reduce its high rate
of unemployment have been continued. Indus-
trial production by mid- 1955 was more than three
times that of 1950, and had reached the prewar
level. Employment had risen from 643,000 in
1950 to well over 800,000. Unemployment was
further reduced from about 18 percent of the labor
force at the end of 1954 to about 14 percent.

52

Agreements were concluded in March 1955 with
the Federal Republic of Germany and with West
Berlin authorities for the use of proceeds accruing
from sales of $23.6 million of United States wheat.
The bulk of the local currency funds made availa-
ble will be used to supplement existing investment
programs. The Federal Republic itself is pro-
viding from its own resources, directly and in-
directly, the equivalent of about $300 million a
year, and it is expected that this support to West
Berlin will be continued at the same level during
fiscal year 1956.

Technical Exchange For
Greater Productivity

The European technical exchange program is
basically a person-to-person program, specifically
designed to support mutual security objectives.
These objectives include economic expansion
through more competitive business practices, re-
duction of Communist strength in labor organiza-
tions through healthier labor relations, and greater
economic integration through the process of
tackling common problems on a multilateral basis.

Under the technical exchange program, Ameri-
can experts are sent to Europe to conduct seminars
and demonstrations in specific subjects such as re-
tail food merchandising, production planning and
control, marketing of fruits and vegetables, and
foreman training. Europeans, in turn, are
brought to this country to study our methods and
organizations in these fields. Technical exchange
funds finance the dollar costs of these projects,
while the Europeans pay the ocean travel and
other non-dollar costs. During fiscal year 1955,
approximately $5.6 million of new funds was ob-
ligated for this program. On June 30, some 600
Europeans were in the United States under tech-
nical exchange projects.

The emphasis of program activities has gradu-
ally shifted during the past year from technologi-
cal projects to other important aspects of produc-
tivity, such as management practices, marketing,
and training in public and private administration.
Western Europeans are becoming increasingly in-
terested in techniques which can yield higher pro-
duction, better wages, lower prices, and expanded
markets. What were once considered uniquely
American ideas and methods of work are begin-
ning to enter the mainstream of European eco-
nomic life. Trade unions are tending to empha-

size economic aims rather than political objectives,
and universities are becoming conscious of the
need to train management personnel.

Of major importance has been the establishment
of the European Productivity Agency (EPA) of
the OEEC as an international agency capable of
giving service and leadership to a cooperative
European effort in this field. EPA-sponsored
seminars and related projects have been enthusi-
astically received by a number of member coun-
tries; a capable staff has been assembled and is
giving its full support to EPA work.

A number of noteworthy steps have been taken
in the past six months. In May, the first issue
of the European Technical Digest was issued,
incorporating data from more than 1,000 Euro-
pean and American journals. In June, arrange-
ments were completed by EPA to continue inde-
pendently the technical question and answer serv-
ice formerly supported by FOA. The Trade
Union Information Bulletin was started in Janu-
ary to provide a means of exchange of informa-
tion on labor activities in the productivity
program.

The EPA has made considerable progress in
stimulating and supporting productivity activi-
ties of individual countries. There are now 10
national productivity centers in Europe. Through
local initiative and community efforts, local pro-
ductivity centers are also being established in in-
creasing number. France, for example, has 5 such
centers.

As one means of strengthening EPA's position
as a focal point in the European productivity
movement, the United States proposed to the
OEEC in January that programs for financing
dollar costs of technical exchange projects should
be coordinated by EPA. Thus, in addition to
planning and arranging for multicountry Euro-
pean technical exchange projects, the Agency
would review individual country programs for
such projects. By this means, projects in closely
related fields in several countries could be brought
together. At its April meeting, the OEEC Coun-
cil accepted this proposed procedure. The tech-
nical exchange program in the future will
therefore stress European action through EPA
coordination, and the development and strengthen-
ing of permanent institutions in Europe from
which productivity knowledge can be spread to
an ever-increasing number of persons.

53

ICEM Helps Resettle Another
53,000 People From Europe

The Intergovernmental Committee for Euro-
pean Migration (ICEM), originally on a provi-
sional basis, now has a more formal status pro-
vided by a constitution which came into force on
November 30, 1954. Two new members were
added to the Committee in the first half of 1955
when New Zealand and the Federation of Rho-
desia and Nyasaland joined ICEM in April.

During the first six months of 1955, ICEM
moved another 53,000 persons from the overpopu-
lated countries in Western Europe to new homes
overseas. From early 1952 through June 30, 1955,
ICEM had moved a total of nearly 340,000 persons,

most of whom had been resettled in Australia,
Canada, Latin America, and the United States.

ICEM plans to spend $48.2 million in 1955—
$45.6 million for operations, and $2.6 million for
administrative purposes. The United States con-
tributions to ICEM are contingent upon the con-
tributions of the other 25 member governments
and upon the volume of movement actually
achieved. The United States share appropriated
by Congress for calendar year 1955 amounted to
$10.5 million. During the first half of 1955, the
United States paid to the Committee $5.2 mil-
lion— $4.9 million for program operations, and
$317,263 for administrative expenses. A second
installment of $313,200 was also paid as part of
the United States contribution to ICEM's $3-mil-
lion cash reserve fund.

54

CHAPTER VI

Other Parts of the Program

A NUMBER of activities of the mutual security
-^*- program are global in scope and do not fit
readily into a regional grouping. A report on
these activities is given in this section.

Use Abroad of U. S.
Surplus Farm Products

Sales of $467 Million Worth Under the Mutual
Security Act. — Section 402 of the Mutual Security
Act of 1954 provided that a minimum of $350
million of mutual security funds be used to finance
the sale abroad, for foreign currencies, of our sur-
plus agricultural commodities. Sales made dur-
ing fiscal year 1955 under this provision totaled
$467 million, including $147 million in grains,
$250 million in cotton, and $24 million in fats
and oils. About $365 million of these sales were
concluded during the January-June period of
1955. The local currency proceeds derived from
such surplus sales become the property of the
United States. They are being used, in accord-
ance with agreements with each government, to
carry out the objectives of the mutual security
program — that is, for military assistance, defense
support, or development assistance.

The sales completed in fiscal year 1955 under
Section 402, added on to those completed under a
similar provision in force during fiscal year 1954
(Section 550), brought the total surplus sales
made by the Foreign Operations Administration
in the 24-month period to over $700 million .

The commodities financed for export and sale
in connection with the mutual security program
abroad were generally sold at prevailing United
States market prices, and private trade channels
were used to the maximum extent. Shipments
were subject to the statutory requirement that 50
percent be shipped in American vessels as far as
practicable. Commodities were considered eligi-

ble for sale in accordance with the recommenda-
tions of the Secretary of Agriculture.

Sales Proceeds under Title I of the Agricultural
Trade Development and Assistance Act. — FOA

participated in the development of policies and
sales programs under Title I of the Agricultural
Trade Development and Assistance Act of 1954
(Public Law 480) through its membership on the
interagency committees on agricultural surplus
use. Primary responsibility for sales of sur-
plus farm products for local currency was assigned
to the Secretary of Agriculture. FOA was given
responsibility for administering the use of sales
proceeds set aside for financing purchases of
goods or services for other friendly countries, and
for making loans or grants to promote economic
development and expanded trade.

As of June 30, 1955, 21 agreements for surplus
sales under Title I had been negotiated with 17 for-
eign governments and totaled $361 million at
United States export market prices. These sales
included $124 million worth of cotton, $135 million
worth of grain, and $40 million worth of tobacco.
The remainder covered other products and cost of
transportation. The uses of the foreign currency
realized from the sales are agreed upon by the
United States and the purchasing country.

Of the $361 million worth of sales, $99 million
will be used for payment of United States ex-
penses in the country, and $74 million will be used
to procure items for the common defense of the
United States and allied nations. A total of $161
million will be set aside for loans and grants to
promote multilateral trade and economic develop-
ment— $153 million for loans and $7.5 million for
grants. In addition, $13 million will be used for
purchases of goods or services for other friendly
countries. Deposits of local currency will be
made to the account of the United States Govern-
ment, and the United States will determine the

55

priority of expenditures for the purposes agreed
upon.

Emergency Shipments under Title II. — Title II
of the Agricultural Trade Development and As-
sistance Act provides that up to $300 million worth
of surplus commodities held by the Commodity
Credit Corporation (CCC) may be used over a
3-year period to provide assistance to friendly
peoples in meeting famine or other urgent relief
requirements. By the end of the 1955 fiscal year,
program commitments totaled about $150 million,
and authorizations had been issued for $109 mil-
lion worth of commodities, valued on the basis of
CCC cost and investment. Commodities author-
ized included $81 million worth of grains, $9 mil-
lion worth of fats and oils, $11 million worth of
dairy products (including butter and butter oil),
$5.5 million worth of cotton, and $3 million worth
of dry beans. Programs have been undertaken in
all parts of the world, as shown in the following
tabulation :

Region Value

(million dollars)

Europe 56. 0

Danube flood relief1 10.3

Italy 1. 2

Yugoslavia 44. 5

Near East and Africa 4. 2

Libya 472

Asia 11.0

Nepal 0. 2

Pakistan 10.0

Viet Nam 0.8

Latin America 21. 6

Bolivia 15.2

Guatemala 3. 0

Haiti j 3. 2

Honduras 0. 2

Worldwide (45 countries) 16.7

Pood packages 16. 7

Total 109. 5

1 Assisted countries were : Austria, Czechoslovakia, East Ger-
many, Federal Republic of Germany, Hungary, and Yugoslavia.

New programs in the first half of 1955 included
the following shipments: 15,000 tons of corn to
Italy to alleviate distress occasioned by severe
drought; 5,600 tons of flour to Viet Nam for relief
of destitute civilian refugees ; about 27,000 tons of
corn to Guatemala to relieve a serious crop short-
age ; and a number of different surplus commodi-
ties to Honduras for flood relief. Programs in

Nearly $110 Million Worth 0( Surplus Commodities
Was Used For Relief Purposes Abroad

FOA Transfers From CCC Stocks'

(Millions of Dollars)

Bread
Groins

Dairy
Products

Coarse
Grains

Fats 8
Oils

Rice

Raw
Cotton

Dry
Beans

Other

64.3

11.2

9.8

8.6

7.0

5.5

2.7

I 0.3

$ 109.5 Million2

'Under Title II of the Agricultural Trade Development and Assistance Act
-Excludes cost of ocean freight

Yugoslavia, Libya, Pakistan, Haiti, and Bolivia
were expanded to meet continued needs in those
countries. Costs of ocean transportation financed
from mutual security funds amounted to $12.4
million. In the first half of 1955 also, a commit-
ment was made to expand existing Italian school
lunch programs by supplying United States sur-
plus products to improve the diet of Italian school
children.

Freight Paid on Voluntary
Relief Shipments

For the fiscal year 1955, Congress appropriated
$4.4 million under the Mutual Security Act of
1954 for financing the ocean freight costs of relief
shipments of American voluntary non-profit re-
lief agencies registered with the Advisory Com-
mitteee on Voluntary Foreign Aid. Of this
amount, $1.5 million was obligated to pay for
ocean transportation of relief shipments, and $2.9
million for ocean transportation of surplus com-
modities made available to the registered agencies
by the Department of Agriculture under Public
Law 480.

The original appropriation of $4.4 million was
insufficient to cover ocean freight costs of all

56

agricultural surplus commodities made available
to the voluntary agencies during the fiscal year.
Therefore, under the authority of Section 409 (d)
of the Mutual Security Act of 1954, another $5.4
million was transferred for such ocean freight
costs. In addition, $1.4 million was allotted from
program funds to cover the cost of voluntary relief
and surplus agricultural commodities shipments
to Korea. Thus, a total of $11.2 million was made
available for ocean freight for the 1955 fiscal year.

From July 1, 1954 through June 30, 1955,
$6.6 million of the total obligations of $11.2 mil-
lion had been expended. This brought to $38.6
million the payments since July 1948 to defray
the cost of ocean transportation of voluntary
relief shipments.

During the fiscal year 1955, the ocean freight
subsidy was applied to shipments to eight addi-
tional countries : Jordan, Viet Nam, Egypt, Peru,
Bolivia, Afghanistan, Honduras, and Chile. The
other countries are Austria, France (including
Algeria, Morocco, and Tunisia) , Germany, Greece,
Hong Kong, Italy, Trieste, Yugoslavia, India,
Pakistan, Korea, Formosa, and Iran.

Transportation:

Over 50 percent in U. S. Ships

FOA-financed cargoes in the period July 1,
1954 through April 30, 1955, were being shipped
at a faster rate than in the previous fiscal year;
4.1 million tons were moved in the 10-month
period as compared with 3 million tons for all
of fiscal year 1954. This larger movement was
due to increased activity in shipment of dry-bulk
cargoes, particularly coal and grain. U. S.-flag
vessels carried more than 50 percent of nonmilitary
aid shipments in all categories and to all areas
for the first ten months of fiscal year 1955.

Preliminary figures for the 10-month period
show that the percentage of U. S.-flag vessels
carrying nonmilitary aid shipments from this
country to Europe were: dry-bulk carrier, 56
percent; liner, 59 percent; tanker, 89 percent.
For the Far East, the percentage recorded was
dry-bulk, 61 percent; and liner, 76 percent; for the
Near East and Africa, it was dry-bulk, 51 percent,
and liner, 63 percent. Shipments to Latin Amer-
ica were in the liner category only, with a U. S.-
flag participation of 94 percent. Total tanker
shipments outside the European area involved less
than 6,000 tons.

U. S.-flag liner vessels carried 80 percent of all
inbound strategic materials procured with United
States counterpart funds. Also, U. S.-flag vessels
carried 67 percent of all military items shipped
under grant aid programs through June 1955.

Public Law 664, passed in August 1954, re-
quired FOA to extend its administration of the
U. S.-flag preference provisions to nonmilitary aid
shipments originating in countries outside the
United States — that is, shipments from one foreign
port to another. Many of the participating coun-
tries already had commitments which covered the
period immediately following enactment of the
new law. It was therefore administratively de-
termined that the accounting period for aid ship-
ments originating offshore would begin with com-
mitments made in October 1954. There are not
enough data assembled on these offshore move-
ments to provide a basis for an adequate report
at this time.

Escapees from Communism
Helped to a New Life

The United States escapee program, established
to provide assistance to recent escapees from Com-
munist countries, has devoted increased efforts to
securing the permanent resettlement of escapees,
either locally in the country of asylum or over-
seas. In Europe, projects for care and mainte-
nance, supplementary to facilities provided by the
governments of the countries of asylum, are being
strengthened to insure that escapees are adequately
cared for while awaiting resettlement. Programs
of medical rehabilitation, language instruction,
and vocational training are earned out to prepare
escapees for resettlement opportunities and in-
crease their chances of measuring up to the criteria
set by national immigration authorities. Counsel-
ing and orientation programs are being reviewed
and reinforced with particular attention to those
activities which will serve to maintain the morale
of people facing a completely new life. By June
30, 1955, almost 28,000 escapees from the Com-
munist-controlled areas of Europe and the Far
East had been resettled through the escapee
program.

In the first half of the year, new steps were
taken to accelerate the movement of escapees regis-
tered for resettlement. The Foreign Operations
Administration, together with the Department of
State, established procedures under which proces-

57

sing of eligible escapees is given priority under
the Refugee Relief Act. Registered escapees are
now being processed for visas when it is probable
that the assurances necessary for acceptance under
the Act will be obtained, instead of waiting until
such assurances are actually in hand.

Several voluntary agencies have been engaged
under a contract to assist in securing such as-
surances for eligible escapees. Over 3,400 assur-
ances, covering more than 6,000 persons, have been
obtained to date ; 2,700 were obtained during the
first half of 1955.

The Foreign Operations Administration has as-
sisted several voluntary agencies and organiza-
tions which are carrying on projects to help anti-
Communist political refugees in the Far East,
including selected Chinese and European refugees
in the Hong Kong area. These projects include
the movement of refugees from Hong Kong to
regions where permanent resettlement is feasible.
They also include activities to integrate refugees
into local community life. Over 38,000 persons
in the Far East have been given direct assistance,
including over 7,800 resettled from Hong Kong.

In recent months, the Soviet and satellite coun-
tries have been conducting an intensified campaign
to persuade Eastern European emigres residing in
Western countries to return to their native land.
They have been using every device to pressure
these people into coming back behind the Iron
Curtain, promising sympathetic treatment, as-
suring rehabilitation, and taking full advantage
of a natural nostalgia for one's homeland.

In combating the Communist "come-home"
propaganda, the free nations have as their most
effective allies the emigres and refugees them-
selves. These people have been energetic and
successful in thwarting the Soviet purpose. The
efforts undertaken through the escapee program
and by the other organizations interested in the
welfare of refugees, reinforced by the support
of the people who have themselves experienced life
under Communist regimes, have acted as effec-
tive countermeasures against the Communist
campaign.

Guaranty Program Insures Private
Investment Overseas

The investment guaranty program is an impor-
tant means of carrying out United States policy
to encourage American private capital to move

into investments overseas. Through this pro-
gram, the United States Government makes avail-
able, for a fee, insurance to guaranty private
investors against the risks of inconvertibility of
foreign currency receipts and loss through expro-
priation or confiscation. This type of insurance
is offered to protect investments in any country
with which the United States has formally agreed
to institute the guaranty program.

Through our diplomatic and operations missions
abroad, and by various other means, continuing
efforts have been made to negotiate guaranty
agreements with countries in which investors have
expressed an interest. Intensification of these
efforts during the first half of 1955 produced such
agreements with six new countries: Costa Rica,
Guatemala, Peru, Ecuador, Honduras, and Pak-
istan. As of June 30, 1955, the guaranty program
covered 26 countries — 12 in Europe, 6 in Latin
America, 4 in the Far East, and 4 in the Near East.

Through June 30, 1955, insurance totaling $91.4
million had been issued to cover 91 separate invest-
ments. Of the total value of guaranties written,
$77.6 million was for insurance against inconvert-
ibility for foreign exchange reasons, and $13.8
million against loss through expropriation and
confiscation. Total fees collected by the United
States for this insurance service amounted to $1.3
million; no payments on the guaranty contracts
have as yet been required.

FOA made a number of policy and operational
changes in the latter part of 1954 to improve guar-
anty program procedures and provide better in-
surance at lower cost. In the first half of 1955,
the total value of guaranties written increased
from $48.6 million to $91.4 million, a rise of nearly
88 percent. These new guaranties covered for
the first time American private investment in proj-
ects in Formosa and the Philippines ; other guar-
anties issued in the six months were written to ]
protect investments in France, Italy, the Nether-
lands, Turkey, and the United Kingdom.

Opportunities for American
Small Business

FOA's Office of Small Business continued to>
serve the interest of American small business firms
by alerting them to procurement and service op-
portunities in connection with the mutual security
program. In the first half of 1955, the Office of j
Small Business circulated C50 advance notices on

58

FOA procurement to American suppliers. These
advance notices informed American smaller enter-
prises of the types of goods and services being
considered for FOA financing in order to enable
them to participate in procurement bidding.

In addition to the advance notices on procure-
ment, award notices were published during the
6-month period listing successful bidders on 4,000
specific FOA purchases. Such releases on
awarded contracts are issued for the benefit of
American organizations which specialize in serv-
ices, such as shippers and freight forwarders.

The Contact Clearing House Service is a mech-
anism through which direct contact is established
between American and foreign concerns interested
in mutually beneficial arrangements for invest-
ment or licensing. This Service was reorganized
in accordance with an Executive Order issued on
November 6, 1954. The reorganization took effect
on May 1, 1955. Under current procedures, the
Office of Small Business continues to be responsible
for finding investment and licensing opportunities
in foreign countries. The Department of Com-
merce takes over the responsibility of calling such
opportunities to the attention of firms in the
United States. Through May 1, 1955, the date
of the changeover in functions, the Office of Small
Business had publicized 2,300 foreign investment
opportunities in this country through the Contact
Clearing House Service.

The Office of Small Business continues the dis-
tribution abroad of American investment and li-
censing offers. Through the end of June 30, 1955,
452 specific proposals of this kind were publicized
in 15 countries of Western Europe. In addition,
106 proposals were published in IS areas outside
Europe. Of the total of 558 proposals, 54 were
circulated in the first half of 1955.

Sales of Military Equipment to
Friendly Free World Countries

An important part of the mutual security pro-
gram is the sale to friendly foreign governments
of military equipment, materials and services.
This program, referred to as the reimbursable
military assistance program, has been carried on
for the past five and one-half years at virtually
no cost to the United States. The purchasing
countries pay with their own dollar resources for
the items received. These payments generally
follow commercial practices and are made either

in cash or on short-term credit. Deliveries of
equipment and materials since the beginning of the
program in October 1949 have reached a total
value of almost $500 million.

Through May 1955, 61 countries and 3 inter-
national organizations were eligible to purchase
military equipment under this program. Of these,
52 countries have made military purchases from
the United States. The materiel procured has
included 6 light cruisers, 5 destroyer escorts, 6
coast guard utility vessels, 4 patrol frigates, 667
aircraft of all types, 487 tanks, 187 gun motor car-
riages, 425 armored cars, 61,232 rifles (including
automatic and recoilless), and 28,351 carbines.

Total purchases of military goods and services
were valued at $884 million (Army $281, Navy
$218, Air Force $3S5). The purchasing govern-
ments had paid $731 million toward the amount
purchased.

Legislation enacted by the Congress in 1954
makes it possible to provide equipment on extended
terms of payment. This has eased some of the
hardships previously encountered by certain
eligible countries under the requirement of cash
with order or within 60 days of delivery. As of
June 30, 1955, sales on credit have amounted to $17
million. These purchases consisted primarily of
aircraft.

In addition to sales made under the provisions
of Section 106 of the Mutual Security Act of 1954,
loan assistance under the provisions of Section
505 has been furnished in the amount of $15
million.

Participation in International
Organizations

United Nations Expanded Program for Techni-
cal Assistance. — The United States renewed its
support for the United Nations Expanded Pro-
gram of Technical Assistance (UNTA) by con-
tributing $6.5 million to the program for the first
half of calendar year 1955. At the UNTA pledg-
ing conference in November 1954, 56 governments
pledged the equivalent of approximately $13 mil-
lion to support the program for calendar year
1955. The United States made no pledge at that
time in view of the fact that funds had not been
appropriated for a contribution. The $6.5 million
was appropriated by Congress in April, and was
immediately made available to the UNTA pro-
era m.

59

The uncertainty of the total United States con-
tribution for calendar year 1955 created a number
of operating problems for the UNTA program,
particularly since the United States contribution
has constituted between 55 and 60 percent of the
central fund from which the program is financed.
It was not possible, therefore, to proceed on a firm
basis with long-range planning. The program in
the first six months of 1955 was primarily a con-
tinuation of projects which were in operation at
the end of 1954. During this period, there were
approximately 1,000 experts in the field from 60
countries. The projects were in all fields of ac-
tivity of the specialized agencies and the United
Nations, including health, agriculture, labor, edu-
cation, aviation, and public administration.

UNICEF Steps Up Its Programs.— The United
Nations Children's Fund (UNICEF) in 1955
reached more children in more countries than ever
before. During the first half of the year,
UNICEF was assisting 254 programs in 91 coun-
tries and territories, a marked increase over the
previous record set in 1954.

It is estimated that through these programs, and
others to be initiated later in 1955, 32 million chil-
dren and mothers will be benefited. This year is
expected to be a peak year for anti -tuberculosis
vaccinations. The target of 15 million children
to be vaccinated exceeds the previous peak in 1954
by 1.5 million. Similarly, 2 million children will
be treated for yaws, and nearly 9 million will be
protected against malaria and other insect-borne
diseases. UNICEF-aided programs for the con-
trol of trachoma will reach 1.4 million children,
or twice as many as in 1954. An estimated 2.6
million children will receive a daily ration under
the long-range feeding programs.

In addition, many children and nursing and
pregnant mothers will receive benefits from the
7,000 maternal and child welfare centers and clin-
ics for which UNICEF is furnishing the basic
equipment and supplies. In the development of
maternal and child health and welfare programs,
UNICEF is emphasizing the extension of basic
services to new areas to assure as wide a geo-
graphic coverage as possible. At the same time,

plans are being drawn up for training of mid-
wives, nurses, and other supervisory personnel in
areas where these services already exist.

Aid to Africa was increased substantially in the
first six months of 1955. UNICEF aid was ex-
tended for the first time to four new African ter-
ritories— British Somaliland, the Trust Territory
of Somaliland, Gambia and Sierra Leone. Aid
to Latin America was also increased, and a
UNICEF program was instituted in Barbados
Island. No new assistance was approved for
countries in Europe.

A significant development is the increasing suc-
cess which UNICEF is having in stimulating
self-help on the part of governments and assisted
peoples. Self-help is not only evidenced by the
increasingly large amounts of matching funds
which the governments are contributing toward
projects in their territories. It is also reflected
in actions such as the taking over by governments
of projects started with UNICEF aid; increased
public health budgets for child health programs;
encouragement given to the recruitment of com-
petent personnel for maternal and child health
work ; and in some instances, the creation of ma-
ternal and child health or welfare departments
within government ministries.

The United States contributed $4.2 million to-
ward the first half of the calendar year 1955 pro-
gram of UNICEF. This amount represents 60
percent of government contributions to the central
account of UNICEF, or a decrease in the United
State contribution of approximately 10 percent
during the 18-month period January 1, 1954
through June 30, 1955. In addition, the United
States supplied UNICEF, without cost, approxi-
mately 58 million pounds of surplus milk powder
for use in its child feeding programs.

The contributions of other governments to the
central account of UNICEF continued to increase.
As of June 30, 49 other governments, including 6
which had not previously contributed to UNICEF,
had pledged a total of $4.87 million for 1955, or
an increase of about 8 percent over the combined
pledges of these governments for 1954. A number
of pledges are still to be made.

For sale by the Superintendent of Documents, U. S. Government Printing Office
Washington 25, D. C. — Price 45 cents

60

U. S. GOVERNMENT PRINTING OFFICE: 19S5

fyjwftik (Jonqfiess

[fo/i the six months ended

31, f955

Report to Congress

on the

Mutual Security Program

December 31, 1955

PRESIDENT'S LETTER OF TRANSMITTAL

To the Congress of the United States:

I am transmitting herewith the Ninth Semiannual Report on the Mutual
Security Program, covering operations from July 1, 1955, to December 31, 1955,
in furtherance of the purposes of the Mutual Security Act of 195-1.

As the report records, continued progress has been made through joint
efforts in improving the economic growth and the military security of our own
nation and of our partners in the free world. Much, however, remains to be
done, for the threat continues.

Two conspicuous changes occurring during these six months were :

1. The efficient transfer of responsibility for the Mutual Security Program
to the newly created International Cooperation Administration.

2. A sharply increased activity by the Soviet Union in barter trade and
in economic and military assistance to nations outside the Communist
bloc.

In sending this six months' record of accomplishment to the Congress, I
would like to make special mention of the thousands of our fellow citizens who
are carrying forward this important work devotedly and voluntarily in almost
80 countries of the free world. They and their counterparts in the nations
where they are working have accomplished much to date, and will be called
upon for imaginative and productive efforts in the future.

/(_J (_jL^^/-JrZ^JCj-1Lu~. /vK^-N,

The White House,
May 3, 1956

CONTENTS

Page

President's Letter of Transmittal Hi

Chapter I. Progress and Program 1

II. Military Defenses for Freedom are Strengthened 6

III. Use of U. S. Economic Resources Abroad 14

IV. Sharing American Know-How 21

V. The Picture in Selected Countries 28

VI. Other Parts of the Mutual Security Program 36

CHAPTER I

Progress and Program

BUILDING on past progress, the United States
continued to help free people throughout the
world strengthen their individual and collective
efforts to safeguard their independence and at the
same time move ahead with effective measures for
economic self-improvement.

During the July-December period of 1955, fur-
ther actions were taken to maintain and improve
the military posture of friendly nations who stand
with us both through collective security arrange-
ments and through bilateral agreements. Addi-
tional equipment, including advanced types of
guided missiles, was sent to United States forces
in Western Europe to help insure the strongest
kind of defense capability for free world forces
there. Western Germany completed the parlia-
mentary process necessary to begin its contribution
of strength to the NATO alliance. NATO, itself,
undertook a careful reappraisal of its defense
plans in light of new thermonuclear potentiali-
ties. On the other side of the world, the SEATO
alliance of free Asian and Western nations
strengthened its organizational structure and took
concrete steps to coordinate available resources
for maximum effectiveness.

Mutual security programs for joining our efforts
with the efforts for economic improvement being
undertaken by newly developing countries also
went forward during the six-month period. Go-
ing developmental projects were being pushed
toward completion, and additional projects were
begun. Hydro and thermal power projects in
South Korea and Taiwan, for example, are putting
down the necessary foundations for the building of
essential industry and diversification of the
economy. Expansion of transportation facilities
under way in Cambodia and Thailand will open
up new roads to market outlets. Minerals devel-
opment in Bolivia and Pakistan is converting
latent resources into needed consumer and ex-
port items. In free Viet Nam, good progress is

being made toward permanently resettling thou-
sands of freedom-seeking refugees so that they can
become useful and self-supporting citizens in their
new homeland. These are but a few of the proj-
ects which are assisting free governments in their
endeavors to bring a greater measure of economic
well-being and security to their people.

During the period, agricultural products that
the United States has in abundance were used as
an integral part of specific programs and projects.
They were used also to furnish urgently needed
relief to flood victims in Pakistan and India and
to drought victims in Cambodia.

American technicians were working in virtually
every part of the world to advance the capabili-
ties of other people for helping themselves to a
better life. More balance between the various
activity fields has been achieved in the planning
of the current programs, and additional contracts
were concluded with American universities and
other non-governmental agencies for carrying out
certain field operations. Additional participants
were brought in from other countries to study
American techniques and see the American way of
doing things.

Soviet Shift in Tactics

The last six months of 1955 saw Soviet tactics
shift increasingly from threats and violence to
more subtle methods for extending Communist in-
fluence across new borders. The underlying pur-
pose of this shift requires careful study, especially
in light of the past Soviet policy of artful infiltra-
tion and subversion as a means of ultimate domi-
nation over the life of a country.

The United States is at present examining the
implications of the Soviet tactics as they bear on
the conduct of the mutual security program. In
this connection, the Executive Branch has come
to the conclusion that it is important to add
greater flexibility and continuity in the admin-

istration of this program so that, within limits,
the United States will be able to meet special
circumstances and make comparatively long-
range commitments without which it is imprac-
tical to assist in certain projects vital to countries
participating in the program.

Laying Out the Fiscal Year 1956 Program

For the fiscal year which will end on June 30,
1956, the Congress appropriated $2.7 billion in
new funds for mutual security purposes. With
funds available from previous appropriations, a
total of $2.9 billion was programmed for the 1956
fiscal year.2 About 45 percent of the total amount
was for items which go directly to the armed forces
of partner nations to reinforce total free world se-
curity. Approximately 35 percent was for pro-
grams which give additional support to the defense
efforts of these nations by providing economic
assistance; and some 20 percent was for develop-
ment aid, technical cooperation, and a number of
other purposes such as our contributions to United
Nations programs, funds for West Berlin, and
refugee programs.

The greatest share of the $1.4 billion in military
aid, including direct forces support, was pro-

grammed for the Far East and South Asia, but
appreciable amounts were earmarked also for
military shipments to Europe and the Near East.

Of the non-military aid, defense support was
by far the largest component, amounting to about
$1 billion and accounting for about two-thirds of
funds for other than direct military assistance.
Defense support helps to provide the supple-
mental economic resources required if a country
participating in the military aspects of the mutual
security program is to carry out an adequate de-
fense effort and achieve or maintain economic
stability. Virtually all of this aid was pro-
grammed for the less developed areas; the only
recipients in Europe were Spain and Yugoslavia.

The $173 million programmed for development
assistance in fiscal year 1956 went entirely to the
economically less developed areas. This form
of economic aid assists key projects in develop-
ment programs which are being carried on by the
recipient countries themselves. In addition to
development assistance destined for individual
countries, the Congress appropriated $100 million
to the Asian Development Fund to be used over a

2 These figures reflect the program as of March 15,
1956.

The Mutual Security Program For FY 1956

BY FUNCTION

(Millions of Dollars)

BY REGION

(Percent)

Technical

Developm

Assistan

$173

Non-Regional
18%

.Europe/

1 •

:::;:::;::::::: Asio::::::::::::::

52%

INearHS

.'East and«

$AfricasS
14%

Total $2.9 Billion*

ncludes funds mode available from previous years.

Non-Military Programs Have Shifted From Europe To
Economically Less Developed Areas

EUROPE LESS DEVELOPED AREAS

1200

800

400

1953

1954

1955

1956*

1953

1954

1955

1956

* For Spoin, Yugoslavia ond West Berlin.

(Program) Fiscal Years

three-year period in Asia. Forty million dollars
of this has been tentatively programmed.

Some $153 million was programmed for techni-
cal cooperation, about 15 percent more than in the
preceding fiscal year. Upwards of one-third of
this amount was planned for Asia, with the Near
East and Africa, Latin America and the non-
regional programs receiving roughly equal por-
tions of the remaining two-thirds.

Other activities of the mutual security program
accounted for about $175 million. These included
costs of ocean freight for surplus agricultural
commodities, assistance to joint control areas in
Europe, assistance to Palestine refugees, and
other purposes.

Strengthening Organizational
Efficiency

In July 1955, ICA was formally incorporated
as a semi-autonomous agency operating within the
Department of State. In the course of the half-
year under review, a number of measures were
taken to promote greater efficiency of operations.
Plans were under way for eliminating some of the
functions under the ICA programs for refugees,

escapees, and voluntary assistance and transfer-
ring part of such functions elsewhere in the
Department of State. The investment guaranty
program was also under study to determine where
it could best be administered. One possibility
under consideration was to transfer that program
to the Export-Import Bank for administration.

In recognition of the diminishing non-military
program in Europe, the ICA staff there is being
progressively reduced. By the end of fiscal year
1956, personnel strength will be 20 percent below
the preceding year; an additional reduction of
35 percent is planned for fiscal year 1957. A num-
ber of European missions will be terminated by
June 1956. Moreover, several missions, mainly in
the Near East and Far East, have been reorgan-
ized to secure more uniform and effective opera-
tions, especially in strengthening fiscal controls.

Contracting procedures are receiving detailed
attention. This function at present is shared by
several different organizational units, but plans
are in the final stages for centralizing contracting
responsibility in order to provide better control
and more expeditious action, and to assure
uniform contracting standards.

381526—56-

To provide better management control over
agency operations, several organizational changes
are in process. A small evaluation unit of highly
trained and experienced personnel is being organ-
ized to visit key overseas missions periodically to
review the direction, content and effectiveness of
the country programs. Another change repre-
sents part of a continuous effort to strengthen
fiscal control. A special assistant for finance has
been appointed to provide critical review and
analysis of financial programs, particularly those
in vol vine: loans. In addition, a special engineer-
ing unit is being established to improve technical
supervision over the capital projects which absorb
such a large share of program funds. This unit,
staffed with competent engineers will be able, with
the help of private engineering consultation on a
contract basis, to maintain the necessary technical
review and surveillance over the joint projects
under way. Such a unit would also insure that
major projects are economically and technically
sound before funds are committed to them.

Problems in the Achievement
of Progress

The mutual security program is one of the most
far-spread and complex operations ever under-
taken, involving military, economic or technical
activities in cooperation with nearly 80 countries
and territories in different stages of economic
development, of widely varying political and
social structures, and with diverse and sometimes
conflicting national interests. Through deter-
mined and dedicated effort, our cooperative en-
deavors have produced real and considerable
accomplishments toward the common goals of
greater free world security and accelerated eco-
nomic development.

It should be noted, however, that carrying out
a program of such magnitude and complexity
necessarily involves a number of operational prob-
lems which slow down the rate of progress. Many
overseas projects, for example, especially in the
field of technical cooperation, are being held back
because competent specialists with the right quali-
fications and aptitudes for work in distant lands
are hard to find. Important overseas positions
still remain unfilled despite constant improve-
ments in recruitment procedures and the hiring

under contract of personnel from non-governmen-
tal organizations and institutions.

A number of operational problems flow from
the legal requirements embodied in the Mutual
Security Act. It is becoming increasingly diffi-
cult to complete the amount of surplus agricul-
tural sales specified under the Act. Although
every effort is being made to reach the $300 million
target set for the 1956 fiscal year, a number of con-
siderations may prevent full attainment of that
goal. One consideration involves the fact that
program emphasis has shifted to the newly de-
veloping countries where overall consumption of
food and fibres is at a low level, and where eco-
nomic systems are not yet capable of providing a
market for a significant expansion of such con-
sumption. Then, too, many of these countries,
especially in Southeast Asia, are predominantly
agricultural and have export surpluses of their
own. In an attempt to increase its surplus sales,
ICA is endeavoring to negotiate triangular ar-
rangements— that is, to sell surpluses to one coun-
try and use the local currency obtained to procure
goods for programming in another country. But
here, too, there are limiting factors in the form of
legislative restrictions.

In mapping out our programs abroad, assistance
has been put on a loan basis where possible. In so
doing, ICA has tried to make sure that such loans
did not supplant those which might be available
from public lending institutions or replace poten-
tial private capital investment. During fiscal
year 1955, nearly $210 million of mutual security
assistance was furnished on a loan basis. Efforts
this year to increase the volume of loans, however,
have run into obstacles, primarily because in many
instances the substitution of a loan for a grant
would not be feasible unless the terms were made so
liberal as in effect to constitute a partial grant.

Considerable attention has been given to the
problem of getting private industry in the United
States to participate increasingly in the economic
development of other countries. ICA actions
taken along these lines include assistance to coun-
tries in promoting a more favorable investment
climate, through such measures as f umishing ad-
vice in the preparation of investment laws and
codes, dissemination of investment opportunities
to the United States business community, and the
guaranty program offering American investors

abroad protection against loss from expropriation -
and inconvertibility. It will take time, however,
for such efforts to induce an accelerating flow of
private capital to areas characterized by political
hazards, remoteness, internal insecurity, and a gen-
eral lack of consumer purchasing power.

Besides these operational problems, there are the
broader and more basic problems which flow from
the attempts of newly developing countries to
speed up their economic progress under handicaps
of insufficient financial resources, heavy defense ex-
penditures and technological shortages of all kinds.
Despite these handicaps, the people of these eoun-

— tries and their leaders are determined to push for-
ward at all costs to lift themselves above their
present subsistence standards of living.

In carrying out mutual security operations in
furtherance of United States foreign policy objec-
tives, program procedures and program direction
are under constant study to insure the most effec-
tive use of available funds and resources. Pro-
gram operations will continue to be designed to
meet changing conditions and to take full advan-
tage of* new opportunities for promoting free
world stability and progress.

CHAPTER II

Military Defenses for Freedom
Are Strengthened

GOOD PROGRESS was made in the second
' half of 1955 in strengthening free world de-
fense capabilities. United States shipments of
weapons and equipment continued to buttress
forces which other free nations are maintaining in
all parts of the world. The general magnitude of
these forces is equivalent to more than 200 divi-
sions, over 2,000 naval ships and about 300 air
squadrons as well as related supporting units.

In Free Europe, defenses on the continent were
made stronger by the addition of new guided mis-
siles for use of our armed forces serving there ; at
the same time, NATO initiated a reassessment of
its defense plans in light of new advances in
nuclear warfare. In South and Southeast Asia,
the SEATO alliance was becoming more effective
through specific measures to strengthen its organi-
zational structure and to establish the machinery
for gpmbined military exercises. In Northeast
Asia, the United States helped the Republic of
Korea and the Chinese Government on Taiwan
tighten their defenses, and furnished training and
equipment needed by Japan in building up its
armed forces. In the Middle East, the Baghdad
Pact provided a basis for joint defense efforts of
nations in that area with common security inter-
ests. In Latin America, military assistance con-
tinued to those countries working together for the
security of the Western Hemisphere.

U. S. Military Support to Free Nations

Supplementing the defense efforts and commit-
ments of its free world partners, the United States
sent about $900 million worth of military equip-
ment and supplies to friendly nations during the
latter half of 1955. Since the beginning of the
military assistance program in October 1949, the

United States has shipped over $12.4 billion of
materiel of all kinds to free world countries in the
mutual security program. These shipments in-
cluded planes, tanks and combat vehicles, and
naval vessels, as well as artillery, small arms,
machine guns, electronics, and other military
supplies.

Offshore Procurement — A portion of the mili-
tary weapons and supplies provided under the
mutual security program is manufactured in
friendly countries overseas under the offshore pro-
curement program. From September 1951
through December 1955, contracts placed under
this operation amounted to almost $2.8 billion.
Most of these orders, about $2.7 billion, were in
Europe and the remainder in the Far East. Pay-
ments for deliveries through December 1955 have
come to $1.7 billion. Plans for fiscal year 1956
did not finally crystallize imtil about midway in
the six-month period; accordingly, only about $2
million worth of contracts was placed during
July-December 1955.

Significant political and economic benefits grow
out of the offshore procurement program, but its
primary purpose is to develop military production
bases overseas. In the event of an emergency there
would thus be less dependence on supply lines
from the United States. Substantial strides
toward the achievement of this objective have been
made. Efforts are now under way to assure the
maintenance of established production plants in a
standby status. It is hoped that this will result
in a gradual but significant reduction in offshore
procurement orders as the countries in which
production facilities are located assume greater
responsibility for maintaining the important
munitions production potential that has been
developed.

NATO in Europe

Discussions in the North Atlantic Treaty
Organization Council and in NATO commit-
tees during the second half of 1955 pointed out
that NATO has entered a new phase of its defense
preparations. NATO planners are concentrating
on the need to modernize the Alliance's armed
forces in line with the rapid development of new
weapons and the increasing thermonuclear capa-
bilities of the Soviet Union.

The reassessment of NATO military planning
in light of nuclear warfare possibilities neces-
sarily involves important changes in organization
and equipment. Firm goals for the size of NATO
forces were approved for 1956, and tentative goals
were agreed upon for 1957 and 1958. Apart from
the forces of the Federal Republic of Germany,
these goals do not call for major increases except
in the air forces which have not yet completed
their scheduled buildup. Primary emphasis will
continue on measures to improve the combat readi-
ness of existing forces rather than on efforts to
increase the number of frontline units.

In appraising the changes required for modern-
izing their forces, the NATO countries face a dual
problem. On the one hand, they must weigh the
cost of financing more modern equipment against
the cost of maintaining and replacing the con-
ventional equipment they now have. At the same
time, they must balance these costs against the
availability of funds committed for defense.

Defense expenditures by the European NATO
governments (including Greece and Turkey)
amounted to some $12 billion in 1955, about the
same level as in 1954. These NATO members
have put up from their own resources about 85
percent of the total cost of the European NATO
buildup; the United States has contributed
through the military assistance program about
15 percent of that total. Moreover, NATO Eu-
rope supplies about 90 percent of NATO's inte-
grated ground forces, 75 percent of its combined
air forces, and a substantial share of its total naval
strength.

During various meetings in the latter part of
1955, new procedures were worked out which
would help NATO members, particularly the
smaller countries, to keep abreast of the latest
developments in more advanced weapons and tac-
tics. Such information will enable them to meas-
ure future defense requirements in terms of the
resources they have available.

European NATO Countries Finance The Bulk
Of Their Military Effort

(Billions of Dollars)

European NATO Defense Expenditures

1950 1951 1952 1953 1954 1955

Calendar Years

A New Air Defense Network — Air defense has
been a serious weak spot in the NATO structure.
In a major step toward correcting this weakness,
the NATO Council authorized General Gruenther
to proceed with plans for developing a coordinated
air defense system for NATO Europe. The
United States offered to finance two pilot links,
estimated at $8 million, in a new jam-proof com-
munications system for the air defense and radar
warning network. These pilot links, underwritten
with mutual security program funds, will con-
nect Paris headquarters with Naples in Italy, and
Naples with Izmir in Turkey. A shorter link will
connect two points in Norway. General Gruenther
has proposed that the remaining links of the sys-
tem, which will cost about $45 million, be financed
by all countries on a multilateral basis inasmuch
as all NATO members will be benefited. Present
plans contemplate that the system will be operated •"
by the Supreme Headquarters for Allied Powers
in Europe (SHAPE) and will be completely in-
dependent of civilian communications facilities.

Advanced Weapons for NATO — Continental
defense forces were considerably strengthened
during the second half of 1955 by the arrival of the
latest types of weapons and planes for the Ameri-
can armed forces now stationed in Europe. Nike,

A formation of F-100 Super Sabres. These jet supersonic fighters are being sent to United States forces
in Europe to buttress NATO defenses.

Corporal, Honest John, and Matador missiles and
280 mm gun battalions, all with an atomic capa-
bility, were dispatched to Europe in increasing
quantities. Moreover, the United States Air Force
recently announced the first step toward replac-
ing its F-86 Sabrejets in Europe with F-100 Super
Sabres. The first flight of the Super Sabres was
scheduled to depart from the United States in
January 1956. These F-100's are the first of
the Century Series of supersonic fighters to be
based overseas in strength and will constitute a
major asset to NATO's defense forces.

The United States plans to provide its NATO
-partners with certain types of modern defense
weapons and equipment which we are now fur-
nishing in increasing numbers to our own NATO
forces in Europe. Many European countries are
now able to finance a greater share of the cost of
maintaining their existing forces using United
States equipment furnished in prior years. A
greater proportion of United States assistance can
therefore be used in helping them acquire the new

weapons necessary for strengthening the common
defense effort.

Germany Ratifies MDAP — Since the Federal
Republic of Germany became a member of the
North Atlantic Treaty Organization in May 1955,
a number of steps have been taken to bring into
being the German forces so vital to the defense
of Western Europe. The buildup of these forces
will be accomplished in line with the provisions
of the NATO and the Western European Union
treaties.

In December 1955, the German Parliament rati-
fied the U. S.-German Mutual Defense Assistance
Agreement, and the way was cleared for coopera-
tion in equipping and training the required Ger-
man armed forces. The United States will provide
certain major items which must be obtained from
outside Germany to equip initial German forces.
The total forces planned are to be in the dimen-
sions originally scheduled — 12 army divisions,
approximately 1,300 aircraft, and a small coastal
navy.

\

y

West German officers receiving instruction in the operation and maintenance of United States ordnance
equipment as part of the training prodded under the mutual security program.

An American military advisory group is already
operating in Bonn under the terms of the assist-
ance agreement. Prospective German officers are
now in training in United States military estab-
lishments both in Germany and in this country.
The first delivery of MDAP equipment for the
German forces was slated for shipment in January
1956, in token quantities for orientation of key
military personnel. Deliveries of more substan-
tial quantities will begin with the activation of
the first formal German training units, at present
scheduled for spring of 1956. German legislation
has already provided for the immediate induction
of 6,000 personnel.

NATO as a Forum for IS on-Military Affairs —
On the occasion of the Summit Meeting and the
subsequent Conference of Foreign Ministers in
Geneva, the Western Powers represented used the
North Atlantic Council of NATO as a forum for
full consultation with the other NATO Govern-
ments in order to insure understanding and unity
on the Western side. Discussions took place prior

to both meetings, and the Permanent NATO
Council in Paris was kept fully informed of de-
velopments as the Geneva negotiations progressed.
To a greater extent than at any time before in its
history, the North Atlantic Council became, dur-
ing these months, the focal point for political con-
sultation by the member governments on the
problem of relations with the USSR. The
Council in December also stressed the importance
of further consultations within NATO on the
question of German reunification and noted that
Soviet moves and declarations regarding Asia and
the Middle East constituted a new challenge to the
Free World.

NATO has made other advances recently in the
field of political and social cooperation. The
Council of Permanent Representatives was asked
in December to study and implement all possible
measures of cooperation in the non-military fields.
Among the steps taken was the establishment of a
fellowship program to further the study of the
common traditions, historical experience, and

present problems of the North Atlantic Com-
munity nations.

Meanwhile, last July some 200 legislators from
member countries met to consider methods of more
closely associating NATO with their respective
parliamentary bodies ; and through them with the
electorates of their countries. These legislators
also discussed the various political and economic
aspects of the North Atlantic Treaty and unani-
mously agreed to hold similar meetings in the
future.

Joint Facilities for NATO Use — Modern mili-
tary forces, although highly mobile, still require
the support of certain fixed military installations
to retain their mobility and to provide the required
staying power. These military "public works"
for NATO are termed infrastructure ; they include
airfields, pipelines, naval fleet bases, telecommu-
nications, radar systems, ammunition storage and
fuel oil tanks. Inasmuch as these military in-
stallations are for joint use of the NATO forces,
the cost is shared jointly by all NATO countries.

As of December 31, 1955, agreed NATO pro-
grams for infrastructure construction through the
end of calendar year 1956 amounted to approxi-
mately $2 billion. The United States share of
these costs is about $780 million, approximately
38 percent of the total.

Over half of the $2 billion program is being
used to construct 174 tactical airfields. By mid-
1955, there were 142 airfields in a sufficiently ad-
vanced state of construction to permit use in an
emergency by modern jet aircraft. During the
latter half of 1955, however, little further progress
was made on airfield construction since most proj-
ects were held up in view of the current reassess-
ment of the NATO military posture.

One of the major infrastructure projects under-
way is a continental fuel distribution system
which will include about 3,800 miles of pipeline
and nearly 450 million gallons of storage capacity
essential for the support of modern jet air forces.
This project will provide a central European net-
work of fuel pipelines, connecting with ports on
the Channel and Mediterranean coasts, that can
be supplied by the tanker fleets of NATO coun-
tries. By December 1955, work was well along
on more than half of the planned pipeline and
fuel storage facilities.

Another important development now in progress
is the telecommunications program. This will
reinforce existing facilities by the addition of

about 4,000 miles of land lines, 3,700 miles of
radio relay circuits, and more than 700 miles of
submarine cables. Nearly all the contracts for
this communications program, totaling some $400
million, have been placed; more than 65 percent
of the projects have already been completed.

Assistance to Spain and Yugoslavia — United
States military assistance to Spain covers pro-
vision of military equipment and improvement of
the logistics and training systems of Spain's armed
forces.

The United States is building naval and air
base facilities in Spain under a series of agree-
ments concluded with the Spanish Government.
This program of military construction is progress-
ing satisfactorily. By the end of December 1955,
contracts totaling $145 million had been author-
ized. For the air bases at Torrejon, Zaragoza
and Moron, these contracts covered provision of
pavements, drainage, on-base fuel facilities,
troop housing and messing facilities, and ware-
housing. For the naval base at Rota, the con-
tracts included waterfront work, airfield paving,
and related facilities. In addition, the contracts
provide for fuel terminals and transmission pipe-
lines from Eota through Madrid to Zaragoza.

During the six-month period of this report the
United States continued to furnish Spain's army
with tanks, anti-aircraft and anti-tank weapons,
and various types of communication equipment.
Spain's navy received a net tender, in addition
to minesweepers already delivered, and material
for ship modernization and harbor defense ; how-
ever, progress on the modernization program is
slow. The Spanish air force is using T-33 and
T-6 training planes provided by the United States
to develop capabilities for using jet fighters. The
initial consignment of F-86F day fighters was
delivered during the six-month period, and the
Spanish air force was able to activate its first jet
fighter unit.

In Yugoslavia, the fundamental aim of the
mutual security program has been to assist that
country's own efforts to keep free of foreign domi-
nation. United States military assistance is di-
rected toward improving Yugoslavia's existing
forces by providing modern weapons, equipment,
and training. Deliveries of tanks, trucks, artil-
lery, radios, radar and engineer items have con-
verted what were once largely guerrilla forces into
a modern army. Through United States aid,
Yugoslavia's coastal destroyers have been modern-

10

ized, small mine sweepers received sweep gear, and
a number of patrol craft have been placed in good
operational condition. In addition, the Yugoslav
Air Force has been provided with jet training
aircraft and is now engaged in a program under
which it will be equipped with jet fighter bombers
and jet pursuit planes. Military students from
the Yugoslav armed forces have been given for-
mal courses of instruction in United States service
schools in this country and overseas.

In keeping with its policy of pursuing an in-
dependent course politically, Yugoslavia resinned
normal relations with the Soviet Bloc. At the
same time, it maintained close ties with Greece and
Turkey, its allies in the Balkan Alliance, and
strengthened its relations with Western European
countries both directly and through its association
with certain Western European bodies such as the
Organization for European Economic Coopera-
tion (OEEC). Recently, Yugoslavia, which has
observer status in the OEEC, has expressed an in-
terest in participating more fully in the work of
that organization, including activities of the
European Productivity Agency.

SEATO in Southeast Asia

The United States is actively engaged in pro-
viding military assistance to the Asian countries
of the Southeast Asia Treaty Organization. The
Asian members of SEATO are Pakistan, the
Philippines, and Thailand. Other SEATO
members, in addition to the United States, are
Australia, France, New Zealand, and the United
Kingdom. Cambodia, Laos, and free Viet Nam
fall within the area covered by the Treaty.

The defense capacity of the Asian members of
SEATO continued to be strengthened during the
second half of 1955 with military equipment
furnished by the United States. In addition,
American military advisers are assisting in the
training of troops in these SEATO countries; ap-
proximately 3,000 military students were training
in United States installations.

SEATO took several measures in the second
part of 1955 to strengthen its organizational struc-
ture. The Foreign Ministers of member countries
make up a central Council. Serving the Council
are representatives of the member countries who
coordinate activities on a permanent basis. The
Council also has a group of military advisers who.

in turn, are backstopped by committees which deal
with the various elements of military planning.

It is not contemplated that SEATO will set up
an extensive permanent structure. It is felt, how-
ever, that a continuous Secretariat is necessary to
enable the organization to function on an efficient
basis. General agreement has been reached for
establishing a SEATO public relations office and
a research center in Bangkok, Thailand. These
bodies would provide member countries with in-
formation on developments which affect SEATO
objectives, as well as material on Communist sub-
versive activities and means for countering
such subversion.

SEATO military advisers and supporting com-
mittees have made good progress in exchanging
views necessary for improving military coordi-
nation. They have conferred on methods of
achieving better standardization of weapons and
equipment, of improving training, and of using
the training facilities of one nation to assist the
forces of another. These discussions will furnish
a firmer basis for combined military exercises.

Much remains to be done in SEATO, but the
new alliance in Asia enters its second year with the
knowledge that tangible initial steps have been
taken toward the creation of an effective organi-
zation for freedom.

Aid to Northeast Asia and Taiwan

Rounding out the SEATO defense line, the
United States has assisted the individual efforts of
the Republics of China and Korea to maintain and
strengthen their capabilities of defense against po-
tential military aggression. We have also coop-
erated in Japan's efforts for defense by providing
training and selected types of equipment which the
Japanese need to get their defense buildup under
way.

In Korea, essential military weapons, equipment,
and training supplied during the second half of
1955, together with defense support aid, made it
possible for the ROK Government to maintain a
force strength of 20 active divisions, a marine divi-
sion, a navy of approximately 50 vessels, and an air
force of one fighter wing plus miscellaneous sup-
porting aircraft. Reserve divisions also have been
developed. In further efforts to improve Korea's
military capabilities, the United States provided
logistical training to the Korean Second Army.
This unit is now conducting the logistical support

11

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activities which were formerly performed by our
own armed forces.

In Taiwan, the United States continued to fur-
nish assistance in the form of training, equipment
and other materials used by the Chinese armed
forces on the island. Deliveries of major items
of military weapons and supplies during the sec-
ond half of 1955 helped to strengthen the Re-
public of China's capabilities for coping with the
continued threat of Communist military action.
Replacement of conventional fighter-type aircraft
by jet aircraft in the Chinese Nationalist Air Force
continued.

In Japan's recent program of constructing a
broad base for defensive strength, progress has
been made in developing ground forces, maritime
defense forces with supporting vessels and air-
craft, and a small air force. Most of the equip-
ment of Japan's air units has been furnished
through United States military aid ; but by mutual
agreement Japan is beginning to produce a limited
number of trainer and interceptor fighter-type
aircraft. In addition, Japan is constructing ves-
sels to be used in its coastal defense. Although
Japan's air force is still a fledgling, it is rapidly
developing capacity to absorb various types of pro-
grammed aid equipment. To insure that the ships
and aircraft we supply are used most effectively,
selected Japanese personnel are being given "on-
the-job"' training in Japan and more formal train-
ing in the United States.

Aid to Baghdad Pact Nations
in the Middle East

The Pact of Mutual Cooperation between Tur-
key and Iraq, generally known as the Baghdad
Pact, was concluded in February 1955. It was

subsequently enlarged by the addition of the
United Kingdom in April, of Pakistan in Septem-
ber, and of Iran in November. Like other free
world alliances, the Pact established a regional
system of collective defense against aggression,
within the framework of the United Nations Char-
ter, as a basis for promoting peace, political sta-
bility, and economic well-being within its area.
Though not a member, the United States has pub-
licly endorsed the pact as a demonstration of the
common security interest among the northern tier
of nations in the Middle East area. Because of
its geographic overlap with NATO and SEATO,
the Baghdad Pact constitutes a vital span anchored
in neighboring free world alliances to the west and
east.

The armed forces of the Middle East and South
Asian members of the Baghdad Pact are being
strengthened with United States military assist-
ance. Turkey, Iran, Iraq, and Pakistan have
signed mutual defense assistance agreements with
the United States. During the half-year, military
equipment and training measures were carried out
to improve their capacity for fulfilling individual
and collective defense responsibilities.

The organizational structure of the Baghdad
Pact is still in the formative stage. Beginning
with its first organizational meeting at Baghdad
in November 1955, the Council of Deputies formed
military and economic committees in recognition
of the interdependence of military and economic
measures in promoting security and peace in the
region. As the year closed, the Economic Com-
mittee was preparing to meet in order to establish
effective organizational arrangements and launch
specific activities in the field of economic coop-
eration.

13

CHAPTER III

Use of U.S. Economic Resources

Abroad

AS part of the mutual security program, the
-^*- United States is actively engaged in helping
people in newly developing countries to build a
broader and more diversified economic base. In
strengthening their economic foundation, many of
these countries face a twofold problem. Security
requirements necessitate their carrying a defense
burden beyond the present capability of their
economies to support without outside aid. United
States economic resources are being used to help
the participating countries in their efforts to cope
with this particular problem. Industrial and
agricultural commodities are being furnished in
substantial measure both to fill existing shortages
and to provide additional local currency for use
of the recipient government in meeting develop-
mental and military needs.

The other part of the problem which these coun-
tries face involves the achievement of legitimate
economic objectives necessary to maintain political
stability and meet the aspirations of their people.
In this respect, the United States is furnishing the
materials and technicians to supplement local ef-
forts in carrying forward key developmental proj-
ects. In some cases, we are also aiding in the solu-
tion of special difficulties such as refugee care
and resettlement.

Accelerating Specific Develop-
ment Projects

The projects which are being assisted through
the mutual security program encompass virtually
every type of activity designed to bring the po-
tential resources of the participating countries in-
to full production so that they can better meet
their security needs and at the same time move
steadily forward with essential self-development
plans. They have included hydro and thermal

power projects to promote greater industrializa-
tion, vital irrigation works to increase land avail-
able for food production in deficit areas and pre-
vent recurrent food crises, port improvements to
enable a country to earn more foreign exchange
and take a bigger part as a partner in world trade.
They have included projects in highway and rail-
road construction to open up hinterland areas and
new markets as well as projects to develop mineral
resources and expand small industries. Activities
such as these not only make possible a more effec-
tive and self-sustaining effort by the people of the
participating country ; they also open the way for
a larger inflow of private capital, both foreign and

Almost Two-Thirds Of Aid For Specific Projects
In FY 1956 Is Earmarked For Asia

Total Project Aid
$455 Million

14

domestic, by providing expanded opportunities
for productive investment.

Almost two-thirds of the project aid pro-
grammed during the first half of fiscal year 1956
was for Asia, where countries such as Korea, free
Viet Nam and Taiwan face serious problems of
economic rehabilitation as a result of Communist
aggression. Approximately one-fifth was allo-
cated to countries in the Near East and Africa
area, and most of the remainder to Latin America.
The small portion of project aid for Europe went
to Spain.

The following paragraphs describe some of the
projects under way in the July-December period
of 1955 to which the United States provided sup-
plemental assistance in commodities, supplies,
equipment and technical guidance.

Building Needed Power Resources. — Korea is
handicapped by a severe power shortage origi-
nally created when the Communists cut off the
country's main generating sources in the North.
In addition, the few power installations in the
South were extensively damaged in the Commu-
nist invasion. To meet Korea's critical need for
power, plans were laid in 1954 to expand gen-
erating capacity from 68,000 kilowatts to about
300,000 kilowatts by 1960. As part of this effort,
three new plants with a total generating capacity
of 100,000 kilowatts are being constructed to serve
the capital city, Seoul, the manufacturing and
port city of Pusan, and the important coal mining
center at Samchok on the east coast. In addition,
the hydroplant at Hwachon is being expanded.
The major portion of this new capacity should be
in operation by mid-1956. Rehabilitation of other
existing power facilities at Tangin-ri, Unam and
Yongwol, when completed, will further increase
output. Fiscal year 1956 funds are also being used
to extend and improve, power transmission and
distribution systems.

Taiwan's present electric power capacity is not
sufficient to support essential expansion of the
island's industrial resources. To remedy this sit-
uation, it is planned to increase installed capacity
by 226,000 kilowatts above the level existing at
the end of 1953, so that Taiwan can achieve a
total power output of 590,000 kilowatts by 1957.
These plans include rehabilitation of existing
installations.

In November 1955, the first unit of the Nan Pu
thermal power plant went into commercial opera-
tion. This steam turbine generator unit and boiler

Taiwan Electric Power Capacity To Reach
590,000 KW In 1957

590

(1,000 KW)

493 /

364 /

Thermal

1953

1955

has a capacity of 40,000 kilowatts. Construction
of this plant improves the relationship between
thermal generating capacity and run-of-river hy-
dro-plants. The latter must have reliable standby
thermal capacity during the dry seasons, when
output of hydro-power is reduced, in order to help
meet the demands for peak and base load
operation.

Constructing Essential Transport Facilities. —
Cambodia presently relies on the Port of Saigon
in free Viet Nam to ship out and bring in its goods.
This arrangement is uneconomical and is causing
costly delays. Negotiations were completed at the
end of 1955 for a contract to design and supervise
construction of a highway linking the capital city
of Cambodia, Phnom Penh, with the new deep
seaport of Kompong Som being constructed by
the French on the Gulf of Siam. The completion
of the highway and port will not only reduce high
shipping costs and delays resulting from depend-
ence on foreign ports; it will also stimulate local
agriculture and industry and make essential con-
sumer goods available to the. people at reduced
costs. The United States is providing needed ma-
terials and equipment for the highway; Cambodia
is furnishing the labor and paying the local cur-
rencv costs of construction.

15

The lack of transportation facilities in Thai-
land hampers economic development, limits gov-
ernment services to the people and seriously re-
stricts the mobility and effectiveness of Thai
defense and internal security forces. This is espe-
cially true of the isolated region of northeastern
Thailand where living standards are quite low
and crop failures are frequent, These factors,
together with its proximity to Communist-held
areas and the presence of large numbers of North
Vietnamese refugees, make this area especially
vulnerable to subversion. A $20 million, all-
weather Northeast Highway is being constructed
through virgin territory for about 100 miles from
Sara Buri on the Central Plains to Korat in the
northeast to assist in the defense and economic
development of this depressed area.

Another transportation project provides for
general highway improvement throughout Thai-
land in order to strengthen a skeleton network of
all-weather highways to meet the country's basic
military and economic needs. During fiscal years
1955 and 1956, the United States expects to con-
tribute about $18 million to this project.

South Korea's railways were severely damaged
during the Communist invasion. In addition, the
North-South orientation of the country's track
system did not provide the lateral connecting lines
necessary for adequate transportation from
coastal to inland points. Under the mutual secu-
rity program, the United States has been helping
Korea rebuild and operate its railroads for the
past two years. It is expected that about $25
million will be made available for this purpose in
fiscal year 1956.

In December 1955, the newly built Cholan spin-
line was completed. This spur will carry coal
from the Samchok mines on the east coast of Korea
directly to its point of consumption at Seoul on
the west coast. Transportation time has been cut
from ten days to ten hours, since the long coastal
trip to Pusan has been eliminated, and it is no
longer necessary to reload from shore to barge and
on to shore again.

Developing Irrigation and Natural Resources. —
Haiti is working to repair and improve the irriga-
tion systems which were damaged by Hurricane
Hazel in October 195-4. In support of this project,
$1.3 million of mutual security funds were made
available. The resulting direct increase in agri-
cultural production will be used to meet Haiti's
internal consumption needs. In addition, many

sections of mountainous land will be freed for the
production of coffee and other crops which could
provide foreign exchange revenues. Work under
the present plan includes strengthening the main
irrigation canals and distribution systems in order
to minimize potential damage from future floods.
It will also improve the drainage system so that
seepage water may be collected and re-used for ir-
rigation on the lower plains. In the latter half of
1955, three diversion dams destroyed by the hur-
ricane were replaced ; a number of damaged
emergency flood protection works were also re-
paired and new ones constructed.

Bolivia is trying to find another source of for-
eign exchange earnings to make up for heavy losses
resulting from the fall in the production and price
of tin, the main source of its export revenues. Oil
shows promise of providing excellent returns.
Last year, for the first time, Bolivia became a net
exporter of petroleum.

To assist Bolivia in the development of a new
petroleum law, the United States sent a top-flight
American expert at the request of the Bolivian
Government to work with a Bolivian team of
specialists. A petroleum code was formulated to
protect the basic rights and interests of Bolivia
in its oil resources and at the same time to attract
foreign capital to develop them. The Bolivian
Government has put the new code into effect, and
several United States firms have already shown
that they are interested in providing capital for
further exploration of the country's petroleum
resources.

Israel's pressing population problem calls for
the fullest use of its limited natural resources. An
American engineering firm has been evaluating
Israeli deposits of copper, magnesium and iron so
that the economic possibilities of developing such
resources can be examined. Copper and iron
deposits appear to be the most promising. The
second stage of the project is now being started,
and two trained drillers with necessary equipment
are being sent to Israel to help determine the extent
of actual resources at the copper and iron mines.
A training program will also be initiated under
which Israeli technicians will be trained in drill-
ing, sampling, and technical analysis, thereby
enabling them to carry on with additional explo-
ration of the nation's natural resources in other
fields.

Expanding Manufacturing Industries. — Inade-
quate supplies of fertilizer in past years have

16

limited Taiwan's yields of rice and other food-
stuffs. By increasing local production of fer-
tilizer, Taiwan will be able to raise its crop levels
and at the same time save some of the scarce
foreign exchange it has had to spend for fertilizer
imports. In 1955, Taiwan imported about 300,-
000 tons of chemical fertilizer valued at $22
million. This item accounted for more than 10
percent of total imports.

Through the mutual security program, Taiwan
is being helped to establish a domestic fertilizer
industry that will make maximum use of the
island's raw materials. For example, expansion
of the Kaohsiung ammonium sulphate plant now
under way will increase production of ammonium
sulphate from 20 tons to 100 tons a day. It is ex-
pected that the plant will lie completed by the fall

Packaging ammonium sulphate at the Kaohsiung
jertilizer plant in Taiwan. This plant is being
expanded to make maximum use of tin island's raiv
materials and cut down on import requirements,

of 1956. The Kaohsiung plant will also produce
■_'."i tons of anhydrous ammonia a day for other fer-
tilizer projects. In addition, this plant is related
to two other projects. One is a nitrogen solution

plant which will use ammonium sulphate from the
Kaohsiung plant for the production of liquid
nitrogen fertilizer. The other is a pyrite explora-
tion project which aims to insure a continuous sup-
ply of sulphur for the Kaohsiung and other
fertilizer factories. The Kaohsiung works will
cost approximately $3.3 million, with almost $2
million coming from United States funds and the
balance from counterpart and local government
funds.

Because Spam is highly susceptible to adverse
weather conditions, its agricultural sector is not
too reliable an earner of the foreign exchange
required for essential imports of manufactured
goods. Therefore, manufacturing for local con-
sumption is being encouraged to give the economy
greater stability. To meet Spain's growing in-
dustrial requirements for stamped steel products,
the United States is assisting in construction of
a cold-finishing mill in Bilbao which is being car-
ried out by a Spanish steel company. This mill is
expected to go into production in mid-1957 with an
initial output of about 40,000 metric tons of sheet
steel a year. As demand increases, production is
expected to expand to the full 120,000 ton capac-
ity. The United States contribution of equi p-
ment for this steel-finishing plant amounts to
$3.9 million ; the company is financing $2.7 million
of the total cost.

Pakistan must diversify its productive resources
in order not to become overly dependent on the
agricultural sector of its economy. The Pakistan
Government, therefore, is working on plans to
expand its modest manufacturing industry. The
city of Lahore, in the northern part of West
Pakistan, is the main manufacturing area of the
country. A survey of the metal products industry
there pointed up a number of deficiencies in manu-
facturing processes. There was little or no quality
control, tools were inadequate, personnel wTere
poorly trained, and manufacturing costs were ex-
cessive. At the request of the Pakistani Govern-
ment, the United States is helping to establish
a training center in Lahore to demonstrate efficient
techniques of industrial production and to advise
local manufacturers on their particular problems.

The United States is providing technicians to
help staff the center and is furnishing the dollar
costs of instructional equipment. The center will
furnish guidance in such fields as machine shop
operation, tool grinding, welding, heat treatment,
plating and inspection. There will also be train-

17

ing in foundry operations, pattern making and
forging, along with tool, gauge and die making.
By the end of 1955, the building to house the
center was almost completed, and contract nego-
tiations for the United States staff were well
under way.

Resettling Refugees From Communism. — Up
to June 1955, $56 million of mutual security funds
had been allotted to free Viet Nam for the evacu-
ation, reception and emergency relief of some
600,000 civilian refugees from Communism in the
North. During the second half of 1955, an addi-
tional $37 million was programmed for the perma-
nent resettlement and rehabilitation of these free-
dom-seeking people. This last phase of United
States assistance will help relocate the new popu-
lation on unused but potentially productive land.
Assistance takes the form of equipment for land
preparation, farm tools, draft animals, seed, and
fertilizer. The program is also providing equip-
ment to meet the needs of fishing and village in-
dustries and basic community services, including
medical and sanitation facilities. At the end of
the year, the Vietnamese Government's land re-
form program got off to a vigorous start. A block
of almost 200,000 acres of land was made available
for resettlement purposes, with prospects of more
acreage being made available in the near future.

President's Fund for Asian
Economic Development

A new measure to assist the area of free Asia in
expanding its economic growth on the basis of self-
help and mutual cooperation was created by the
establishment of the President's Fund for Asian
Economic Development. Under this authority,
$100 million was appropriated in fiscal year 1956,
to remain available for use over a three-year pe-
riod. Preference is to be given to projects which
will clearly contribute to promoting greater eco-
nomic strength in the Asian region as a whole or in
one or more groups of countries in it.

This legislation represented a new element in
the mutual security program, particularly in its
regional approach. Before using the funds, there-
fore, it was necessary to work out new guidelines
fully reflecting the intent of the law and to get
some indication from the countries in the area on
feasible projects which they could undertake. In-
formal views of Asian countries were obtained, for
example, during the October 1955 meetings in

Singapore of the Consultative Committee of the
Colombo Plan.

During the period of July-December 1955, a
workable basis was established for using the
Fund, and a number of projects which appeared to
qualify for financing through the Fund were se-
lected for further careful examination. Among
proposals favorably considered was the establish-
ment of a regional nuclear research center for the
benefit of Asian countries.1

Such a center for regional study will permit
Asian scientists to learn how to apply the benefits
of nuclear science to area problems in medicine,
agriculture and industry. Specific proposals have
emerged also for transportation and telecommuni-
cations links between countries as well as for
development of minerals production in certain
countries for export to others in the region. In
addition, consideration is being given to the estab-
lishment of technical training centers for the Asian
region as a whole.

The establishment of the Fund has stimulated
keen interest on the part of the countries of free
Asia and has given them a greater incentive to

work together
advantage.

for their mutual economic

Providing Saleable Commodities

In addition to assistance for specific projects,
the United States furnishes a substantial amount
of commodities which go directly to consumers and
private industries through sale in the local mar-
kets of the recipient countries. More than $750
million worth of such saleable commodities was
programmed for the 1956 fiscal year. A substan-
tial portion is in the form of agricultural products,
most of which are in surplus in this country. Chief
among these are grains, raw cotton, and fats and
oils. Principal industrial commodities furnished
are made up of textiles, machinery, iron and steel,
and fuels.

These commodities help to meet the essential
needs of consumers and of industry, and in so
doing they act to curb inflationary forces. They
also provide additional financial resources to the
recipient government for meeting local currency
costs of economic development and of supporting
the armed forces.

About 60 percent of the proceeds in local cur-
rencies realized from the marketing of saleable

1 This center was subsequently approved for location
at Manila in the Philippines.

18

commodities programmed for this fiscal year will
be used by the recipient countries for specific de-
velopment projects, enabling the purchase of local
materials and the payment of local labor.

The proceeds from the sale of these commodi-
ties are also used to carry out essential military
activities. Approximately 40 percent of such
proceeds provide financing for troop pay, locally
available military supplies and vital military con-
struction such as airfields, barracks, and storage
facilities.

Use of Surplus Agricultural Commodities

To put United States surplus farm products to
constructive use overseas, work continued on three
broad programs.

Sales of $60 Million Worth Under the Mutual
Security Act. — Section 402 of the Mutual Security
Act of 1954 as amended requires that a minimum
of $300 million of funds made available for fiscal
year 1956 be used to finance the export and sale of
United States surplus agricultural commodities in
exchange for foreign currencies. Proceeds from
these sales are used on a loan or grant basis to carry
out the objectives of the mutual security pro-
gram— that is, for military assistance, defense sup-

Over $500 Million Worth Of Surplus Products
Have Been Authorized For Sale Under
Section 402 Of The Mutual Security Program

300

250

200

150

100

50

(Millions of Dollars)

244

181

Total: $508 6 Million

(July 1, 1954- December 31,1955)

29

27

27

LU

Cotton Grains Fruits Fats 8 Other

Oils

port, or development assistance.

During the six-month period, sales reached $60
million, and sales involving several times this
figure were in process of negotiation. The major
item of the surplus commodities component was
$34 million for grains. Other commodities in-
cluded $8 million for cotton, $5 million for frozen
beef, $1.5 million for shell eggs, and $2.8 million
for sugar. The sugar is part of the 100,000 tons
which the U. S. Department of Agriculture pro-
cured to relieve a pressing domestic problem.
Negotiations for additional sales, including the re-
mainder of the sugar, will be concluded in conjunc-
tion with ICA programming. Commodities are
considered eligible for sale in accordance with the
recommendations of the Secretary of Agriculture.
Sales were generally made at prices prevailing in
the United States export market. Private trade
channels were used to the maximum extent pos-
sible. Shipments of these commodities were sub-
ject to the statutory requirement that 50 percent be
shipped in American vessels as far as practicable.

Sales Proceeds Under Title I of the Agricul-
tural Trade Development and Assistance Act. —
Other legislation outside the mutual security pro-
gram— specifically, Title I of the Agricultural
Trade Development and Assistance Act of 1954
(Public Law 480 as amended) — provides that
local currency proceeds derived from sales of sur-
plus agricultural commodities may be used by the
United States for several purposes. ICA is re-
sponsible for administration of funds set aside for
loans or grants for economic development and pro-
motion of multilateral trade, and for procurement
of goods or services for other friendly countries.

By December 31, agreements providing for sales
of over $500 million (United States export
market value) of surplus farm products had been
concluded. The sales agreements provide that the
equivalent of $236 million of the sales proceeds
may be used for loans, $7.5 million for grants, and
$15 million for purchases for other friendly
countries.

During the period under review, loan agree-
ments made pursuant to the sales agreements,
amounting to the equivalent of about $S0
million in local currencies, were concluded with
four countries— Japan, Israel, Peru, and Spain.
Programs for utilization of loan funds are de-
veloped jointly by the United States and the
foreign sjovernments. By the end of the year, pro-

19

grams totaling about $69 million had been ap-
proved in Japan, Israel and Peru. Funds will be
used for electric power development, irrigation and
reclamation of land, and improvement of
productivity.

Shipments Under Title 11. — Title II of Public
Law 480 provides that up to $300 million of sur-
plus commodities held by the Commodity Credit
Corporation (CCC) may be used over a three-year
period for assistance to friendly peoples in meet-
ing famine or other urgent relief requirements.

By the end of 1955, programs undertaken under
this continuing authority reached $141 million,
valued on the basis of CCC cost and investment.
During July-December 1955, ICA authorized the
transfer of about $32 million of surplus commod-

ities under Title II. This amount included $11
million of nonfat dry milk, $11 million of wheat
and corn, $5 million of rice, $3 million of fats and
oils and $2 million of raw cotton and dry beans.
These commodities were used mainly for urgent
relief requirements in seven countries in the Near
East, Far East and Latin America, and the expan-
sion of a school lunch program in Italy.

To assist victims of flood conditions, an initial
shipment of 40,000 tons of wheat was authorized
for Pakistan; also 10,000 tons each of rice and
wheat were distributed in northeast India for
similar reasons. To cope with another form of
disaster, Cambodia was furnished 10,000 tons
of rice to deal with urgent relief needs resulting
from a severe drought in 1954.

20

CHAPTER IV

Sharing American Know-How

rp HE LATTEK half of 1955 marked the fifth
-*- anniversary of technical cooperation between
the United States and the economically less de-
veloped areas around the world under the Act for
International Development and successor legisla-
tion, although small cooperative programs had
been carried on in Latin America since 1942.
In the five-year period, the program of sharing
technical skills with others has grown from an idea
on paper to a productive reality. Today, thou-
sands of American technicians are working with
other free people in every part of the world;
thousands of nationals from other lands are com-
ing to the United States for technical training;
and hundreds of individual demonstration proj-
ects are being carried on in virtually every field
of activity needed to underpin a country's eco-
nomic growth.

Since we cannot transmit modern technical
knowledge directly to each of the hundreds of
millions of economically less developed people in
the free world, our technicians train local people
who in turn train others. They start one
demonstration of a better way. This grows to
ten and then to a hundred demonstrations through
local initiative so that ultimately the improved
way becomes the standard method of doing things
in a country. They work with local agencies to
develop and staff locally rooted institutions and
organizations which can expand and continue the
work begun.

The effects of our cooperative programs of
demonstration, training, and advisory services are
becoming more and more self-evident. Wherever
American technical resources have been joined
with the resources of others, you will find
tangible achievements. Better health, a longer
and more productive life, improved food crops,
accelerated and more efficient manufactures, more
meaningful and useful educational methods, more
effective administrative procedures in govern-

ment— all of these gains are directly attributable
to the unified initiative of American technicians
and their counterparts in a cooperating country.
Encouraged by these visible results, host coun-
tries today are contributing by far the greater
share of manpower and funds in almost every
technical cooperation project.

Economic development through technical co-
operation, though continuous and cumulative, is
necessarily a gradual operation. It is an effort
to help people help themselves by transmitting
needed know-how. It is faced with near primitive
economic conditions in many areas. Often, po-
litical, social and administrative barriers must
be overcome. Confidence and trust must be won
before plans can be worked on. Progress, there-
fore, is an evolutionary process of planting seeds
of ideas and techniques and waiting for them to
grow.

Current Program Trends

Current programs of technical cooperation are
focusing on the development of greater balance
and integration among activities in various func-
tional fields. They are being aimed also at broad-
ening the base of the program through use of
contracts with non-governmental agencies to carry
out certain field operations. Then, too, the pro-
gram as a whole has grown in terms of actual
numbers of American and cooperating country
personnel at work.

A More Balanced Program — Although work in
agriculture and natural resources still accounts for
more than one- fourth of the technical cooperation
activities scheduled for fiscal year 1956, this field
is receiving relatively less emphasis than in past
years. Activities in public health have also been
somewhat curtailed proportionately. The pro-
gram is moving increasingly toward assistance
in industry and mining, transportation, public
administration, and other sectors as countries

21

Agriculture And Health Activities Receive
Relatively Less Emphasis As Other Programs Expand

(Percent)
10 20

Agriculture ond
Natural Resources

Education

Health and
Sanitation

Industry and
Mining

Public
Administration

Transportation

Community Develop.
Socio I Welfare
ond Housing

Other

: FY 195 5 .,.:;. ..,.-,-;:■; ;.j

~|FY1956'"

Distribution of

Technical Cooperation Funds
Programmed, Percent by
Field of Activity

strive for better balance and diversification in
their development efforts.

Greater Use of Contracts — Additional technical
cooperation contracts have been placed with
United States universities, private firms, and
other nongovernmental agencies. At the end of
1955, 51 American universities held 79 contracts
for undertakings abroad in 37 countries. The
number of technicians operating under such con-
tracts increased from 31 percent to 37 percent of
total technicians abroad in the course of the six
months covered in this report. The program for
fiscal year 1956 shows a continuation of that
movement.

A significant development has been the increased
use of inter-university contracts between Amer-
ican and foreign educational institutions. Under
these arrangements, American universities assist in
strengthening the foreign institutions in those
areas of higher education and extension work
which are of greatest significance to economic
development.

The effectiveness of the contract technique va-
ries by field of activity. In public administration,
the program has about an equal number of people
under direct hire as compared to contract hire.
Similarly in education, about 46 percent of the

educational technicians are under contract ar-
rangements. Contracts are not as practical in the
field of agriculture because such a large propor-
tion of American technicians is recruited from
the Department of Agriculture and land-grant
colleges. As a result, only 15 percent of agricul-
tural technicians are expected to be recruited under
contract arrangements during fiscal year 1956.

Over-all Program Growth — From June 30 to
December 31, 1955, the number of technical coop-
eration technicians actually on duty overseas in-
creased from 3217 to 3881, a growth of over 20
percent. It is expected that there will be well over
4,000 technicians on duty by June 30, 1956. These
figures include both technicians directly employed
and those under contracts.

It is difficult to recruit competent American
technicians for overseas assignments in certain
fields of activity. Qualified public administrators,
for example, are reluctant to go overseas at mod-
erate salaries and make the necessary adjustments
in living conditions.

The most critical shortage area is in the field of
public health where it has been impossible to ob-
tain enough qualified public health doctors and
sanitary engineers. The problem is attributable
to the limited number of Americans who are
trained in these fields and to the very great de-
mand for such personnel in this country.

More American Technicians Are Serving Abroad

3,881

Technicians Overseas
at End of Period Stated

3,217

1,827

1,960

As

of Dec
1955

31,

1953 1954 1955 1956

Fiscal Years

22

The flow of participants from the cooperating
countries to the United States to take part in pro-
grams of technical training and observation of
American methods is increasing significantly.
Some 5,665 persons are scheduled to participate
in such programs in fiscal year 1956, an increase
of 24 percent over fiscal year 1955. Participant
programs are putting more stress on the broad
fields of community development and housing.
Activities in labor and education are also receiv-
ing more attention.

During the July-December period of 1955, a
study was begun to determine the desirability of
providing certain types of technical training in
places outside the United States. In those cases
where training in the United States may be too
highly advanced and too technical, or because of
language difficulties, it is felt that training in an-
other country might be of more positive assistance
to the participants concerned. ICA is continuing
to study this matter. In the meantime, somewhat
increased use is being made of established training
institutions overseas.

At best the two-way flow of technicians and
trainees directly engaged in a technical cooperation
program can reach but a small fraction of the
population of the participating countries. There-
fore, to achieve a greater mass impact, intensified
efforts have been made to expand the distribution
of technical literature, films, visual aids, and other
specialized types of training materials in the co-
operating countries. These valuable materials for
learning, commonplace in the United States, are
lacking in most newly developing countries.

Activity Highlights in Selected Fields

Some of the more noteworthy developments in
technical cooperation activities during the July-
December period are described in the following
paragraphs.

Atoms- for-Peace — In terms of its implications
for the future, possibly one of the most far-reach-
ing developments was the start made in carrying
out the program for advancing peaceful uses of
nuclear energy.

In October 1955, the first group of 30 physicists
and electrical and chemical engineers from 19
countries finished the first course in the School of
Nuclear Science and Engineering, at the Argonne
National Laboratory in Illinois. The course was
conducted under the combined auspices of the

Atomic Energy Commission, the State Depart-
ment, and the International Cooperation Admin-
istration. Thirty-nine more scientists and en-
gineers arrived in October for the second course
at Argonne; a total of 27 different countries were
represented in the two courses. The visiting scien-
tists received a thorough grounding in reactor
science and technology, with particular emphasis
on the versatile nuclear research reactors which
are basic to building a sound atomic energy
program.

Another phase of the Atoms-for-Peace Program
was carried out at the Oak Ridge Institute of
Nuclear Studies in Tennessee. Here, scientists
from countries receiving radio-isotopes from the
Atomic Energy Commission were brought in to
study the research uses of such isotopes in medi-
cine, biology, agriculture, industry and the phys-
ical sciences. Scientists taking this course came
from India, Guatemala, the Philippines, Taiwan,
Thailand, and Greece.

Through these courses, nuclear information will
be provided to other countries of the free world
to assist them in making practical applications of
atomic energy in a wide range of fields. Examples
of such applications are : in industry, the detection
of wear, flaws and quality in materials; in medi-
cine, treatment of types of cancer, and blood dis-
eases ; and in agriculture, development of hardier
strains of plants.

Technical Cooperation in Industry — Cooper-
ating governments have expressed increased in-
terest in improving industrial production proc-
esses and general management techniques. Dur-
ing the six-month period, the United States ex-
panded its assistance in industrial methods to
cover more countries. Team of senior executives
from American industries served as seminar
leaders in conferences with top management
in Mexico, Chile, and Japan. The Pakiston
Industrial Development Board employed an
American management firm to help map out a
broad outline of an industrial development policy
and program stressing immediate investment
opportunities.

ICA concluded new contracts with three Ameri-
can universities to furnish assistance in engineer-
ing and related work to educational institutions
in India, Indonesia, and Japan. Five other
American universities continued their relationship
in these fields with partner institutions in India,
Thailand, Peru, and Taiwan.

23

Two Egyptian scientists being trained in the use of radio-isotopes for medical diagnosis. Scientists from
all over the jree world are studying peaceful uses of atomic energy at American research centers under the
Atoms-for-Peace Program.

In India, an American steel expert advised the
management of an iron and steel plant to simplify
the shapes and sizes of steel mill products and to
establish a minimum amount for production
orders, thereby avoiding operations at uneconom-
ically low levels. These steps are expected to in-
crease the output of the plant by nearly 180,000
tons annually. In addition, by using mechanically
mined hard ores, the plant should be able to raise
pig iron production by 226,000 tons annually.
These improvements, when fully realized, are ex-
pected to yield cost savings of $10 million an-
nually, and use of the hard ore will eliminate the
need for investing $8.5 million in an ore-crushing
and sintering plant.

Agriculture — In the field of agriculture and
natural resources, greater emphasis was placed on
extension work, credit facilities, and applied agri-
cultural research. Conservation and marketing
also received more attention.

In one major project during the six-month
period, five American land-grant colleges joined
together to assist the agricultural colleges and
major research institutions of India. Some 40
agricultural technicians from these land-grant col-
leges will go to India to help strengthen agricul-
tural teaching, and applied research and extension
programs of local institutions.

In keeping with the principles of self-help basic
to the technical cooperation program, projects
started with United States assistance have been
taken over by the cooperating foreign govern-
ments wherever possible. For example, in Costa
Rica the Extension Service, formerly operated as
a joint undertaking, is now completely under the
administration of the Costa Rican Ministry of
Agriculture. Since its creation in 1948, this serv-
ice has expanded to an organization with 34 field
offices serving 92,000 individual farmers. As
another example, during the half-year under

24

review normal responsibilities for carrying out
locust-control measures were assumed by the gov-
ernments of Pakistan, Iraq, Jordan, and Iran.
These countries now have well organized and
competent departments of plant protection; four
of them operate their own spray-inane units.

Public Administration — As economic develop-
ment proceeds, many of the countries are seeking
to improve their governmental administrative
practices and train personnel to run their increas-
ingly complex operations. Requests for assistance
in public administration have been received from
nearly 50 countries. While emphasis in technical
assistance in public administration has been on
aiding improvement of central government serv-
ices, ICA is also giving particular attention to
projects which will contribute to the development

Increasing efforts have been made to meet
growing requirements. ICA has 225 public ad-
ministration technicians overseas under direct em-
ployment, and an equal number of technicians
working under 42 university and management-
firm contracts.

During the six-month period, the participant
program in public administration continued to
expand in numbers of foreign officials visiting
the United States for training and for observa-
tion of American practices. More than 350 key
officials representing 26 countries are now in this
country on practical training programs in public
administration. Such training is integrated with
the work of the United States technicians abroad
and is an important contribution to the building of
local institutional strength in cooperating coun-
tries.

ICA has given priority to projects that will
result in bringing better services directly to the
people. A noteworthy development in this con-
nection was the completion of a private manage-
ment-firm contract to assist the Philippine Gov-
ernment in improving issuances of land titles.
When this project was first undertaken some 15
months ago, the government was issuing land titles
at the rate of 5,000 a year. By December 1955,
with United States help under this contract, the
rate of issuance of land titles by the Philippine
Bureau of Lands had increased to more than
60,000 a year. This operation has contributed sig-
nificantly toward giving added security to the
people in the ownership of their lands.

Under a contract with Michigan State Univer-
sity, an extensive program of in-service training

was inaugurated in free Viet Nam to enable the
new government to improve the competence of its
civil service and its services to the people.

In Honduras, technical assistance in customs
administration is leading to the installation of
simpler methods for revision of tariff rates and a
faster and more equitable handling of imports.

Education — In the second half of 1955, ICA
financed a contract with the University of Tennes-
see to assist India in improving training in home
economics. Another contract with Columbia Uni-
versity was expanded to assist Afghanistan in
reconstructing its entire educational system and
in revising its curriculum materials and teacher
training methods.

In the Philippines, a cooperative project was
started to furnish practical training in a number
of secondary schools in agronomy, fisheries, weav-
ing, industrial arts, and homemaking. The
United States will supply hand tools and power
equipment for demonstration. The schools se-
lected will become pilot schools for others of the
same level. In a companion project, three small
high schools will undertake development of a
comprehensive secondary curriculum for typically
rural areas. Major emphasis will be on func-
tional studies geared to the preparation of rural
youth for community improvement.

Housing — Technical cooperation in housing
seeks to demonstrate to people in newly developing
areas how they can work together to build better
homes with very little capital by the efficient use
of local materials. Financial assistance from the
United States is minimal and largely confined to
furnishing technicians.

A typical example of the techniques employed
is in Indonesia, where American technicians car-
ried out a six-month training course in housing.
Indonesian students received classroom instruc-
tion from American housing experts who were
assisted by qualified local technicians. Two
courses were given, each of them to an enrollment
of 30 students. These students are now in a posi-
tion to train their fellow citizens across the coun-
try. The skills they learned will be used in the
Indonesian Government's 500-unit demonstration
project in Dj ark art a.

In Taiwan, American technicians have intro-
duced the concept of long-term residential mort-
gage credit. During the second half of 1955, loans
covering over 1,800 family dwelling units were
approved by local lending agencies.

25

A vocational education shop at the School of Arts and Crafts in Panama. Cooperative education programs
in Latin America emphasize the teaching of practical skills related to real-life situations.

Transportation — Under the technical coopera-
tion program, American experts have assisted
other nations with technical guidance and train-
ing in all the major forms of transportation.
Transportation authorities in Spain were aided
in the installation of centralized traffic control on
Spanish railroads. This operation greatly in-
creased the flow of traffic on two existing routes
and eliminated the necessity of expensive double-
tracking. In the Philippines, the United States
has provided the services of American transpor-
tation technicians to make a survey of Philippine
transportation and outline methods for integra-
tion, improvement and expansion.

A regional survey involving Viet Nam, Laos,
Cambodia, and Thailand will produce data on the
navigability of the Mekong River, as well as re-
lated information pertaining to power develop-
ment potentialities and the feasibility of irrigation
in this strategic area of Southeast Asia.

As a result of United States engineering studies
in Egypt, extensive improvements in highway
construction are now being introduced which will
provide better roads and reduce construction costs
by as much as 50 percent. In addition, a large
Egyptian training center is being established to
show how to maintain and operate transportation
equipment.

Public Health — Because of its direct impact on
the well-being of individuals, assistance in pub-
lic health is one of the most productive and attrac-
tive forms of technical cooperation. Cooperative
efforts in this field have brought striking and wide-
spread benefits to people in virtually every one of
the participating countries.

Additional progress was made during the pe-
riod in helping countries located in the world's
malaria belt. In the Far East, individual malaria
control programs were broadened to aim at com-
plete eradication of this disease. Of special
significance was the regional approach of the

26

Southeast Asian countries with common bor-
ders— Thailand, Laos, Cambodia, and Viet Nam —
in a coordinated attack on their malaria problem.
In Iran, the Iranian Government assumed the en-
tire financial support of the malaria control pro-
gram. India expanded its program to include
100 million people in exposed areas.

In Latin America, three new health centers were
completed in Bolivia with United States technical
guidance. Hospital administration seminars were
held in Colombia, Peru, and Brazil under the
supervision of the American Hospital Association.

Two particularly critical situations received
attention during the six-month period. ICA
rushed drugs and medical supplies to West Pakis-
tan to prevent epidemics from the October floods.
In free Viet Nam, where health problems in the
rural areas were sharply aggravated by the heavy
influx of refugees from the North, United States
technicians helped the Vietnamese make prepara-
tions to develop a school for training health
technicians.

Community Development — Host country com-
munity development programs and activities are
expanding in number and scope, particularly in

the Near East and South Asia. During the sec-
ond half of 1955, American technicians aided the
Iraqi people in initiating a national village im-
provement j>rogram in Shaqlawa. This program
was based in large part on the demonstration of
methods and techniques by the International Vol-
untary Services, Inc., under contract with ICA.

In the Philippines, the government embarked
upon a nation-wide rural improvement program
which included the establishment of provincial
and municipal councils and the training of staff
at all levels in community development techniques.

Pakistan is doubling its facilities to train field
workers in the village-improvement program. In
India, the program now reaches a total of more
than 100,000 villages embracing a population of
over 60 million people.

Other countries which have either expanded
their programs in community development or ini-
tiated pilot projects include Iran, Jordan, Af-
ghanistan, Libya, Laos, and Brazil. In each of
these programs, the United States participated
with technical staff or demonstration equipment,
or both, during the period of this report.

27

CHAPTER V

The Picture in Selected Countries

THIS SECTION describes noteworthy de-
velopments during the six-month period in
selected participating countries. The main as-
pects of United States military assistance to these
countries through the mutual security program
have been described in Chapter II of this report.
Many specific details on the amounts and types
of military aid programs and activities in a par-
ticular country are of a classified* nature and must
of necessity be omitted from the following coun-
try highlights.

Asia

Korea

With a heavy defense burden superimposed on
a war-damaged and power-short economy, the Re-
public of Korea must depend to a large extent on
external resources to rebuild its strength. Ac-
cordingly, a tentative aid level of $297 million
was programmed for defense support in fiscal year
1956. Of this amount, $91 million was earmarked
for specific projects, covering chiefly electric
power, railway rehabilitation, communications
and the development of needed industries. The
remaining $206 million was earmarked for assist-
ance in the form of fertilizer, raw cotton, fuels,
cereals, and industrial goods. A substantial por-
tion of the local currency received from the domes-
tic sale of these commodities will be used to
support the ROK military budget. Other sales
proceeds will help finance the local costs of essen-
tial development projects.

Complementing the defense support program
and increasing its effectiveness are the joint activi-
ties in technical cooperation. About $5 million
was tentatively programmed for fiscal year 1956
for advisory services and training to help Korea
develop essential technical, managerial, and ad-
ministrative skills.

Korea made some progress during the last

FY 1956 Program For Korea:
Main Commodity Components

Total Program
S302 Million

(Millions of Dollars)

Services 4%'

Industrial
Commodities

Agricultural
Commodities

months of 1955 in slowing down the inflationary
forces which have retarded the rate of economic
progress. The Korean Government initiated a
number of deflationary measures, including ad-
justment in the value of the Korean hwan; in ad-
dition, the domestic sale of commodities imported
under the mutual security program helped drain
off some of the purchasing power which had in-
flated prices of essential goods in short supply.
Underlying inflationary forces were still strong,
however, at the end of the year.

Korea's agricultural production had regained
pre- World War II levels by the end of 1955. Ko-
rean efforts to achieve needed food output gains
were supported by United States assistance in in-
stituting effective irrigation and flood control

28

measures and in developing better methods for
raising fish and livestock production. These
gains, though encouraging, have not kept pace
with normal population growth, and per capita
output is still about 25 percent below prewar.

Industrial production in general reached ap-
proximately the level of 1949. Gains in some seg-
ments were partially offset, however, by declines
in others because of Korea's severe shortage of
electric power. The power shortage should be
considerably eased by the end of 1956, when the
construction of three new thermal power plants,
with a total generating capacity of 100,000 kilo-
watts, should be largely completed.

Among other aid projects showing progress was
the rehabilitation of transport facilities. An out-
standing development in the six-month period was
the completion of the Maesong-Cholan railroad
spur. This new spur line supplied the missing
link needed to transport coal from the Samchok
mines on the east coast to Seoul in the west. Rail
transportation was helped also by increased rolling
stock and signal equipment, better track main-
tenance, and a variety of other improvements.
Additional progress was made in the replacement
of war-damaged bridges and in harbor and port
rehabilitation. In these improvements of Korea's
transportation facilities, the United States has
supplied most of the heavy equipment, and Korea
has provided the labor component.

Taiwan

Taiwan does not have the productive resources
to support simultaneously its rapidly increasing
population and an armed force of the present size.
The mutual security program in Taiwan is geared
to underpin those military and related undertak-
ings essential to United States interests which are
beyond the capacity of the Government of the
Republic of China. During the July-December
period of 1955, $60 million was tentatively pro-
grammed for these purposes; of this amount, $20
million was on a loan basis.

Taiwan's economic picture in the latter part of
1955 was again clouded by inflation. Wholesale
prices rose by 18 percent in the six-month period,
a greater rise than any during the last two years.
This price upswing was attributable in large
measure to defense outlays. Stricter import con-
trols and, in lesser degree, exchange rate devalu-
ation were other measures which accounted for the
new upturn in the inflationary trend. The force

of inflationary pressures was somewhat eased by
United States deliveries of nearly $50 million
worth of grains, cotton, fats and oils, chemicals
and other commodities which supplemented Tai-
wan's local output of commodities during the
half-year by more than 10 percent. In addition,
a substantial portion of the local currency pro-
ceeds realized from the sales of such commodities
in Taiwan are being used for construction and
repair of military bases and airfields and for
the improvement of harbor and communication
facilities.

The price rise in the six-month period was a
disturbing factor, but there were a number of
favorable developments which indicated forward
progress in Taiwan's economic growth. Agri-
cultural production improved as did industrial
production. Foreign exchange reserves showed
a small increase at the end of 1955, an improvement
which stemmed mainly from increased exports to
Japan under the Sino-Japanese trade agreement.

A loan fund has been established in Taiwan, de-
signed specifically to help the development of the
island's small industries by making capital avail-
able at moderate interest rates. This fund is
financed in large part from local currency that was
acquired by the government through the sale on
local markets of commodities furnished under the
mutual security program. Loans financed by the
fund are channeled through commercial banks
to aid the expansion of small private industries.
Some 150 loans, amounting to about $3 million in
local currency, have been made to assist a variety
of enterprises — chemicals and chemical products,
textiles, paper, processed foods and other items.

Free Viet Nam

By the end of 1955, there was evidence of greater
stability in the Government of Viet Nam, per-
mitting increased attention to economic rehabili-
tation and development. Working committees
established within the government began to plan
priorities for economic expansion; a Directorate
General of Planning was set up. To accelerate
imports, most of which come in under the mutual
security program, the Government of Viet Nam
took measures to improve its import licensing and
exchange control machinery.

Despite the extension of the government's au-
thority by the defeat of the rebellious sects and
the strengthening of President Diem's position in
the October referendum, a number of unsettling

29

factors persisted. Of a military nature were the
continued activity of some dissident groups and
subversive elements, particularly in outlying areas,
and the unabated Communist military threat from
the North. On the economic side, prices rose 10
to 15 percent during the half-year period. Pro-
duction of rice, Viet Nam's staple food and once
its main foreign exchange earner, has not yet
recovered from the effects of the Indochina war
and is still well below the pre-World War II level.

Over $130 million in local currency generated
by sales of aid commodities in Viet Nam was used
for support of the Vietnamese military budget in
1955. These expenditures covered troop pay and
allowances, food, clothing, medical services and
transportation, and construction of barracks and
training grounds. Such assistance has facilitated
the reorganization and maintenance of Vietnamese
armed forces and strengthened their military ca-
pabilities for maintaining security in the country.

Major steps were taken in December toward
making the refugees self-supporting. Initial
measures call for permanent resettlement of some
100,000 refugees through assistance in clearing
land and making other improvements at reloca-
tion sites; many refugees will be transferred to
new areas in the south and west of Saigon.

With so much of the Vietnamese population de-
pendent on an agricultural sector heavily damaged
during the period of hostilities, a large segment
of United States assistance continued to be di-
rected toward agricultural development. The
dedication in October of the Tuy Hoa irrigation
project, which will bring 46,000 acres of land back
into production, was a milestone in United States
assistance in broadening irrigation measures. In
another form of assistance, proceeds from the sale
of aid goods on the local markets were used to
extend credit to the rural population at moderate
interest rates. In the month of September alone,
such loans amounted to almost one million dollars
in Vietnamese piasters.

India

United States aid to India has been meshed with
India's objectives under its first five-year plan of
economic development. The Indian Government
is spending the equivalent of about $1.5 billion
from its own resources under this plan, roughly
90 percent of public projected expenditures. In-
dian private enterprise is spending about $3.5
billion as part of the plan. United States as-

sistance to India in the five-year plan period has
totaled about $460 million, including a wheat loan
of $190 million in 1951.

The objectives of the first five-year plan are
being reached in virtually all major aspects. For
example, an actual increase of 15 percent is being
attained in total national income against a planned
increase of 11 percent; the per capita increase will
be at least 8 percent. A gain of 11 million tons in
food grains over the base year 1949-50 was regis-
tered in crop year 1954-55 as against a planned
increase of 7.6 million tons, thus restoring India's
per capita agricultural production to prewar
levels.

Although the main focus of the first plan has
been on agriculture to overcome India's acute food
shortage, many advances have been made in the
non- agricultural sector. Industrial production is
now 50 percent above pre-plan levels. Numerous
factories have been established to lay the ground-
work for more diversified industry, and a good
start has been made in improving transportation
facilities.

As part of its program allocations of some $38.5
million for rehabilitating India's badly deterio-
rated railroad system, the United States during
the second half of 1955 continued deliveries of
rolling stock and steel for local production of
railroad equipment. Four locomotives and 2,120
freight cars have been shipped ; the remainder of
the planned 100 locomotives and 8,700 freight cars
are scheduled for delivery in the near future.
India's railway system is a key factor in the coun-
try's developmental progress. Each day, some
3,800 trains carry more than 3 million passengers
over 34,000 miles of track. The Indian Govern-
ment is spending some $2 billion in rupees on rail-
road improvement.

Also in the six-month period, the equivalent of
$14 million in local currency proceeds from the
sale of American wheat was made available to pay
the costs of local labor and materials in building
the Rihand Dam. India contemplates spending
more than $150 million on this project designed
for greater flood control and power in the State
of Uttar Pradesh.

In further support of India's efforts to achieve
its planned goals under its first development plan,
$50 million was programmed from fiscal year 1956
funds for development assistance; $37.5 million
of this was on a loan basis. Surplus agricultural
commodities accounted for $20 million of the total.

30

An additional $10 million in technical cooperation
was also programmed.

Joint technical cooperation measures have
helped spur advances in health, education, and
housing, although there is still a great deal to be
done in these fields. During the half-year, the
United States continued to support the country-
wide anti-malaria program begun in 1952.

The community development program in India
has brought far-reaching and significant improve-
ments to India's village population. In thou-
sands of villages, farmers are now actively con-
tributing labor, materials, and money to build
schools, community halls, roads, and hospitals.
Over 60 million Indians in 100,000 villages have
contributed $88 million in local currency to im-
provement projects, about twice as much as came
from the Indian Government.

India's second five-year plan, scheduled to begin
in April 1956, is being designed to provide more
opportunities for employment by emphasizing
industrial expansion. However, construction of
new manufacturing plants on the scale projected,
along with necessary improvements in related fa-
cilities of transportation, communication and mar-
keting, will require considerably more capital
investment than did the first five-year plan. In
large degree, therefore, the success of India's sec-
ond plan will hinge on mobilizing the full re-
sources of all sectors — state and central govern-
ment, private industry, and rural and urban
population.

Pakistan

Pakistan's economic situation was serious in the
latter half of 1955. A large foreign exchange
imbalance had developed because of sharp declines
in domestic output and lower world prices for
jute and cotton, the country's principal export
crops. Moreover, Pakistan's armed forces impose
a heavy burden on its budget. Accentuating these
difficulties, West Pakistan was stricken by one of
the worst floods in its history in October.

To assist Pakistan in meeting these immediate
and critical economic problems, about $63 million
was programmed for defense support during the
July-December period from fiscal year 1956
funds; $20 million was on a loan basis. Of the
total, $5 million was earmarked for surplus ag-
ricultural products. Some $26.4 million was for
supplies and equipment for projects geared to im-
proving the use of land and water resources and

for industrial development, including fertilizer
plants and development of fisheries. About $30
million was for essential consumer goods.

Contracts for two important surveys were
signed during the period. One was to examine
the possibilities for private investment in Pakis-
tan to determine which industries can best be de-
veloped in light of availability of natural re-
sources, economic needs of the country, potential
markets, and maximum returns. The other was
an interim agreement with an American firm to
survey the preliminary work performed to date in
connection with the multi-purpose dam on the
Karnafuli Eiver in East Pakistan and to recom-
mend a work schedule for its completion. This
dam will provide irrigation, electric power, and
flood control when completed as planned in 1960.

Programming of assistance for Pakistan in fis-
cal year 1956 also included $8.7 million for techni-
cal cooperation. Joint activities will be continued
in agriculture, land reclamation, transportation,
public health, and vocational education. The as-
sistance which American technicians are provid-
ing to Pakistan's nationwide community develop-
ment program is helping thousands of villagers
to coordinate their efforts in building progressive
and better integrated rural communities. Typi-
cal of such assistance is the help they provide in
establishing village training centers in each of the
major provinces of Pakistan. Local leaders are
being trained in the centers to carry on village-
level work in agriculture, education, sanitation,
and cottage industries.

The Near East and Africa

The Arab States and Israel

Over the past four years the United States,
through the mutual security program, has worked
with the countries of the Near East in support of
measures which would help accelerate the rate of
economic development in the area as a basis for
engendering political stability. These efforts
were sharply slowed down in the latter half of the
year when the frictions and tensions between the
Arab States and Israel were aggravated by open
Soviet intervention to expand Communist activi-
ties into another strategic arena and put new
obstacles in the way of peaceful solution there.

The uncertain atmosphere resulting from these
newly introduced factors made it difficult to plan
firm program projects for fiscal year 1956. It is

31

possible that funds earmarked for the area will
be used along different lines from those originally
projected. One consideration, for example, in-
volves the High Dam at Aswan, the key to Egypt's
future capacity to support its growing population.
So important is this project that the United States,
the United Kingdom and the World Bank have
joined forces in offering to assist Egypt in its
financing.

During the six-month period, Israel completed
work on a project to bring more water to the
parched lands in the Negev area. A 66-inch pipe-
line was opened to divert the waters of the Yarkon
River which formerly flowed unused into the Medi-
terranean. These waters are now carried more
than 60 miles into the Negev desert and make pos-
sible the irrigation of over 200,000 acres of once-
barren soil. About 10 percent of the cost of the
project was financed from counterpart funds real-
ized from the sale of United States commodities
on Israeli markets.

The United States continued its activities
throughout the area in support of technical co-
oj^eration programs designed to overcome the
basic problems of low production, illiteracy, poor
health, and inefficient public administration.
American support went also toward carrying out
economic development projects in Egypt, Israel
and Jordan funded from prior year's funds. In
Jordan, for example, assistance was given in de-
veloping a network of roads which will link agri-
cultural producing areas with wider markets.
Other assistance was provided in afforestation,
construction of terraces to conserve water, and the
tapping of underground water resources.

Iran

In contrast to the unsettled conditions which
prevailed in Iran over the past several years, the
second half of 1955 was a period of stability on
all fronts. Oil production was well up to sched-
ule, and Iran's development program, financed
primarily from the renewed oil revenues, promised
to make significant headway.

Iran's adherence to the Baghdad Pact during
the latter part of 1955 represented a major de-
parture from its traditional policy of neutrality
in the Middle East. Despite considerable counter-
pressure from the Soviet Union, the Government
of Iran determined that this step was in its own
best interests and has now joined wholeheartedly

Iranian Oil Production Revives

35

30

25

20

15

10

(Mill

1

on

Metric

Tons)

1

A

/

_^<s

1

i .^£.........:is:«3

1950

'51

52

'53

'54 '55

with the other signatory powers in associating
itself with the West in the common defense.

During the second half of 1955, the United
States provided Iran with grant funds amounting
to $10 million for essential imports, the local sale
of which would produce revenue to reduce the
government's deficit in its operating budget.

In conjunction with the $8 million technical co-
operation program approved for this fiscal year,
a major reorientation of the technical program
was undertaken. This was done to meet changing
requirements of the country and to place increas-
ing responsibility with the Government of Iran
for activities formerly carried by the United States
technical mission. Projects in road and building
construction, for example, which had been ad-
visable earlier in the program, are now being
brought to a conclusion or turned over to the
Iranian Government which can now finance and
manage these types of activities.

Libya

United States economic aid to Libya is chan-
neled through the Libyan- American Reconstruc-
tion Commission (LARC). Actual work under
LARC got under way in the late summer of 1955
on priority projects such as water development
and conservation, capitalization of an agricultural
credit bank, and renovation of the Federal Coast
Road.

32

American technicians are working with the
Libyan people to build dikes and earth levees
which will make better use of available water and
reduce the severe flood damage to land and life
heretofore caused by heavy rains in the interior.
In addition to its protective features, this op-
eration, as it is expanded, may increase the pro-
ductivity of some 100,000 acres of land for food
and forage production.

Recurrent drought and flash-floods have cut
Libya's production of cereal foods and brought
the threat of hunger or starvation to many areas
of the country. To ease this situation, the United
States shipped 12,800 tons of wheat to Libya dur-
ing the second half of 1955. This amount brought
total shipments of wheat to Libya for the past
two years to 45,000 metric tons.

Under the technical cooperation program of $2
million for fiscal year 1956, American technicians
are helping on joint projects to improve local
health conditions and develop better sanitation
measures. Carpet-wool washing and marketing,
forestry, livestock management, and teacher train-
ing are other fields in which the United States is
furnishing technical assistance.

Turkey

The outstanding development in Turkey has
been the very rapid expansion of the general econ-
omy. The heavy concentration on investment
activities brought in its wake a considerable degree
of inflation. This situation had assumed such
critical proportions by the end of 1955 that a new
cabinet was formed which plans to undertake a
reform program directed toward economic stabili-
zation.

The planned stabilization measures, if adopted,
should check the inflationary effects of an unreal-
istic budget and other public activities which,
while not included in the budget, have the same
unsettling effect on the general economy. Re-
forms in fiscal and monetary policy are also indi-
cated. A drive has been launched to moderate
inflationary pressures by holding down the total
investment program; part of this program in-
cludes concentrating on the completion of projects
which are either already under way or which are
expected to reflect almost immediate improvement
in production.

In light of the prevailing economic atmosphere,
only $14.5 million of aid from 1956 fiscal year
funds was made available by the end of 1955.

Latin America

Bolivia

To help forestall imminent economic chaos in
Bolivia, the United States in fiscal year 1954 be-
gan an emergency program of economic assistance
geared to Bolivia's overall development plan. This
program was continued in fiscal years 1955 and
1956. During the second half of calendar year
1955, $20 million of development assistance funds
were made available, bringing the cumulative total
of United States aid to approximately $50 mil-
lion. About 70 percent of this was in surplus
foodstuffs needed to avert serious food shortages
in Bolivia; proceeds from the sale of these com-
modities have been used to pay local costs of
economic development projects. The remainder
was for the purchase of equipment, supplies and
materials requiring dollar outlays.

Among the more important projects undertaken
during the second half of 1955 was the prepara-
tion and enactment of a petroleum code to attract
private foreign capital for the development of
Bolivia's petroleum resources. These oil resources
are regarded as a significant potential source of
foreign exchange earnings which will considerably
reduce the country's present heavy dependence on
the export of minerals, principally tin.

Bolivia Is Developing
Its OH Resources

Oil Production

( 1,000 Metric Tons )

267

1951

1952 1953 1954

1955

33

Another cooperative project involved a com-
prehensive study by an American engineering firm
on methods to improve the efficiency of extractive
and marketing operations of Bolivia's mining
industry. Also, contracts were concluded with
American engineering firms for the design and
construction of a permanent all-weather bridge
across the Piray River. Lack of such a bridge
has been a major bottleneck in the development of
penetration and feeder roads to fan out from the
Santa Cruz terminal of the newly completed Co-
chabamba-Santa Cruz highway. This road sys-
tem, when completed, will open up for develop-
ment the fertile lowlands around Santa Cruz.

A technical cooperation program of $2.6 million
for fiscal year 1956 is designed to assist in im-
proving agricultural production and marketing
procedures. Direct efforts toward this end in-
clude cooperation in agricultural research, and
extension and development of a supervised agri-
cultural credit system. Allied with these efforts
are the joint programs to improve educational,
health, and public service training methods and
facilities. The technical cooperation program
also includes encouragement of small industry
through increased private investment.

Despite notable progress in the cooperative
programs undertaken thus far in Bolivia, many
serious economic obstacles remain to be overcome.
There is a substantial annual deficit in the balance
of payments caused largely by a steady decline in
income from tin exports. Possibilities for obtain-
ing needed foreign credit are extremely limited.
Moreover, Bolivia is experiencing a serious in-
flationary movement, and attempts to curb it have
thus far been unsuccessful. As efforts to improve
performance in agriculture and mining take hold,
however, and new land and petroleum resources
are brought into production, Bolivia's opportuni-
ties to work its way out of its present economic
difficulties will continue to improve.

Guatemala

The United States has expanded its program of
assistance to Guatemala in order to help the new
pro-West government strengthen the nation's
economic position. A $15 million development
assistance program has been approved for the 1956
fiscal year, primarily for highway construction;
$5 million of this is to be in the form of surplus
agricultural commodities. Other projects include
rural and agricultural development and additional

equipment for the Roosevelt Hospital. Moreover,
the United States is contributing $1.8 million
for technical cooperation to step up production in
industry and agriculture, and advance the nation's
progress in health, education, and public adminis-
tration.

Because of the importance of building a network
of roads to open large tracts of potentially produc-
tive areas to convenient markets, the Government
of Guatemala has placed top priority on its high-
way program. Toward this objective, $10.2 mil-
lion was approved to meet local currency costs of
construction. These funds will be used to move
forward on three crucial transportation links.
One is the Atlantic Highway, which will connect
Guatemala City with the Atlantic ports of Puerto
Barrios and Santo Tomas. Another involves
work on the Pacific Slope Highway which crosses
Guatemala from Mexico to El Salvador. The
third project is a road connecting Quetzaltenango
on the Pan American Highway with Retalhuleu
on the Pacific Slope Highway. The Guatemalan
Government has been working on these roads as
rapidly as weather conditions permit in order to
be ready to enter the intensive construction phase
when the dry* season begins in January.

Haiti

A total of $5.6 million has been allocated for
economic and emergency aid to Haiti since the
program began in fiscal year 1955. During the
July-December period of 1955, some $800,000 was
used to pay for emergency supplies and the freight
costs of surplus agricultural commodities shipped
to Haiti to alleviate the conditions caused by a
disastrous hurricane and flood, and subsequent
drought. In addition, grants totaling $2.8 million
in development assistance funds are being used to
reconstruct flood damaged farm-to-market roads
and irrigation systems.

Some $2 million has been made available to
assist the Haitian Government meet expenses con-
nected with the construction of the Peligre Dam
and other irrigation systems in Haiti's Artibonite
Valley Project. When completed, the dam and
irrigation canals will supply water and power for
about 80,000 acres of land in what is now a semi-
arid and nonproductive area. By expanding the
arable land acreage and rehabilitating key roads
and irrigation systems, Haiti will be able to in-
crease its production of food crops badly needed

34

for domestic consumption, and its export of prod-
ucts such as coffee, sisal, and cacao.

The $1.4 million made available for the tech-
nical cooperation program in fiscal year 195C will
continue the cooperative programs started in 1942
in agriculture, education, sanitation and public
administration. Interrelated projects in each of
these fields are now being carried on independently
in specific areas by the Haitian Government, as
local trained technicians and capital become
available.

Europe

Spain

For the 1956 fiscal year, $27 million was pro-
grammed to provide Spain with urgently needed
agricultural commodities, including $20.5 million
earmarked for cotton, $5 million for meat, and $1.5
million for eggs. The remainder of the fiscal
year's program, expected to reach a total of $50
million, will go for industrial equipment and sup-
plies for economic development, and for technical
exchange.

Spanish economic progress in recent years has
been handicapped by recurrent and severe
droughts. Water shortages have not only held
down agricultural output but have also retarded
production in critical industries which depend on
hydroelectric sources of power. In the latter half
of 1955, favorable rainfall combined with assist-
ance provided through the mutual security pro-
gram spurred an upturn in the Spanish economy.
Notable elements in this assistance included de-
liveries of industrial raw materials and machinery,
cotton, fats and oils, and other commodities which
helped fill critical needs.

The plentiful rainfall in the fall and winter of
1955, the heaviest in many years, brought hydro-
electric power reserves to levels higher than at any
time in Spain's history. Production of electric
power in 1955 was more than 15 percent over 1954.
The upsurge in power availabilities made possible
an increased output in a number of basic manu-
factured items.

Although Spain's agricultural output in 1955
showed a net gain, production of several staple
items still lags considerably. Heavy frost dam-
age to citrus, nut and vegetable crops will reduce
Spain's export earnings and thus for a time impair

its ability to finance imports of sorely needed in-
dustrial items.

During the past year, Spain noticeably strength-
ened several important sectors of its economy.
The overall improvement in production, a
strengthening of investor confidence, and a mod-
erate increase in gold and dollar assets were some
of the factors indicating that Spain was emerg-
ing from difficulties which previously had held its
economy at a stand-still. But much remains to
be done in rehabilitation of the railroads, mod-
ernization of industry, expansion of thermal
power capacity to supplement the hydroelectric
power system during periods of drought, and re-
duction of Spanish agriculture's vulnerability to
drought.

Yugoslavia

United States economic aid has served to assist
Yugoslavia in maintaining a position of national
independence by contributing to the support of an
economic base for its defense efforts. Since 1950,
such aid has amounted to more than $400 million.
About 60 percent of it has been in agricultural
commodities, and roughly 30 percent in fuels and
semi-processed goods.

Yugoslavia's efforts to insure its independence
place an exceptionally heavy defense burden on
its economy. Its defense expenditures are about
10 percent of its gross national product, the high-
est proportion in non-Soviet Europe; but its per
capita consumption is among the lowest. More-
over, its available gold and foreign exchange re-
serves continue to be extremely limited.

During the second half of 1955, plans were well
advanced to allot some $25 million from 1956
fiscal year appropriations for sales of surplus
wheat, cotton, hides and skins, and tallow under
Section 402 of the Mutual Security Act. Under
consideration were technical exchange projects
totaling approximately $1 million in agriculture
and industry, especially in the service and con-
sumer fields. Technical exchange projects were
contemplated also in transportation, education and
public administration. During the six-month
period, arrangements were completed for the ship-
ment to Yugoslavia of 300,000 additional tons of
wheat, valued at approximately $22 million, under
Title I of Public Law 480.

35

Other Parts of the Mutual
Security Program

CHAPTER VI

Investment Guaranty Agreements
With 30 Countries

HPHKOUGH the investment guaranty program,
■*- the United States makes available, for a fee,
insurance to protect new private investors against
the risks of inconvertibility of foreign currency re-
ceipts and loss through expropriation or confis-
cation in any foreign country with which the
United States has formally agreed to institute the
guaranty program. There was increased activity
in the program during 1955, following the sim-
plification of policies and procedures and the com-
pletion of guaranty agreements with additional
countries.

By the end of 1955, agreements had been com-
pleted with 30 countries — 13 in Europe, 9 in Latin
America, 4 in the Far East, and 4 in the Near
East. A total of 98 guaranty contracts had been
issued, affording protection of $94.5 million for
investments in a variety of industrial and com-
merical projects in 10 of the 30 countries. Of
particular significance during 1955 were the agree-
ments with 8 countries of Latin America which
facilitated investment in an area long favored by
United States investors. Continuing efforts are
being made to negotiate agreements with other
countries in which American investors have ex-
pressed an interest.

At the end of 1955, applications for new guaran-
ties of approximately $273 million were under
consideration. Of this amount, $84 million repre-
sented applications filed during the latter half of
the year, one of the largest six-month totals since
the guaranty program was instituted.

At the end of 1955, consideration was being
given to transferring the administration of the
investment guaranty program to the Export-Im-
port Bank, inasmuch as the program appeared to

fit in with the broad pattern of activities which
the Bank conducts in servicing American business
overseas.

Opportunities for American
Small Business

ICA's Office of Small Business continued to
serve the interests of American business firms,
particularly smaller enterprises, by alerting them
to procurement and service opportunities in con-
nection with the mutual security program. In
the latter half of 1955, more than 2,600 notices on
proposed ICA-financed procurement were circu-
lated to American suppliers, informing them of
details required for submission of bids. For the
information of American organizations specializ-
ing in services, such as freight forwarders and
transportation companies, award notices were
published listing successful bidders on more than
4,300 transactions financed by ICA. In addition,
memoranda were issued providing general infor-
mation of current interest to exporting firms.

The Contact Clearing House Service assists
in establishing direct communications between
American and foreign concerns interested in ex-
ploring the possibilities of licensing or investment
arrangements. In conjunction with this opera-
tion, the Office of Small Business is responsible for
finding overseas opportunities for American busi-
ness firms and for distribution abroad of American
licensing and investment offers; and the Depart-
ment of Commerce brings foreign business oppor-
tunities to the attention of firms in the United
States. During the period under review, the Of-
fice of Small Business distributed 59 American
investment proposals in 33 foreign countries and
obtained 157 foreign proposals for publication by
the Department of Commerce.

36

Transportation: Over 50 Percent
in American Ships

Shipments to and from the United States — In

compliance with the American flag rule on ocean
shipments of commodities financed under the mu-
tual security program, more than half of the 6.4
million tons of such non-military cargo in the 1955
fiscal year was carried in U. S.-flag vessels. Of
the amount shipped by tramp steamers, 53 percent
was in U. S.-flag vessels; for liner carriage, the
ratio was 65 percent, and for tankers 90 percent.
For the period of July-December 1955, prelimi-
nary figures covering 2.1 million tons of non-mili-
tary cargo show 55 percent of tramp and 67
percent of liner carriage in American ships.
There were no tanker shipments during the half-
year.

On military shipments, 68 percent of the total
of military end-items shipped since the beginning
of the mutual security program was carried on
U. S.-flag commercial vessels. For the July-
December period of 1955 the proportion carried
in United States commercial vessels was 82
percent.

Virtually all, 99 percent, of the inbound stra-
tegic materials procured with United States
counterpart funds was imported in American
bottoms.

Shipments Between Foreign Countries — The
rule of U. S.-flag preference was extended by
Public Law 664, August 1954, to non-military aid
shipments originating in foreign ports and des-
tined for other foreign ports. Preliminary fig-
ures show that waivers of the requirement had to
be made on three-fourths of the 1.5 million tons
of such cargo shipped in the 1955 fiscal year be-
cause no U. S.-flag services were available. On the
remaining fourth, compliance was obtained for
tramp and tanker categories. It was achieved also
in the liner category, except for the Far East. The

situation in liner vessels is being reviewed with
participating countries in the Far East area.

Multilateral Programs

The United Nations Technical Assistance
(UNTA) program, operating through the UN and
its specialized agencies, continued to expand in
1955 as contributions from supporting govern-
ments showed a total increase of approximately 11
percent over the previous year. The United
States contribution for the calendar year 1955 was
$15 million, about 54 percent of total contribu-
tions from 70 governments. UNTA had 1,880
technicians at work in more than 80 countries and
territories during 1955. In addition, 2,050 fellow-
ships were awarded for trainees.

During the second half of 1955, the United Na-
tions Children's Fund (UNICEF) continued its
work in maternal and child health, mass health
campaigns, and child nutrition. At its September
meeting, the Executive Board of UNICEF allo-
cated about $7.4 million for long-range projects,
including $2.4 million for malaria eradication in
Mexico. The United States is contributing $9
million to UNICEF for the calendar year 1955
program.

The United States continued its support of the
technical cooperation program of the Organiza-
tion of American States (OAS) . Seven regional
training centers are being operated in Latin Amer-
ica under this program. Pledges to OAS from
21 governments for the calendar year 1955
amounted to approximately $1.6 million, of which
the United States pledged 70 percent.

The United Nations Refugee Fund (UNEEF)
entered into full operations during the latter half
of 1955. In 1955, the UNREF Executive Com-
mittee approved project allocations amounting to
$3.1 million to benefit approximately 23,000
refugees.

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