PROGRESS REPORT ON NSC 5409 (SOUTH ASIA)

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP80R01731R003000160013-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 22
• Document Creation Date: December 16, 2016
• Document Release Date: April 15, 2005
• Sequence Number: 13
• Publication Date: February 23, 1955
• Content Type: REPORT

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OPERATIONS, COORDINATING BOARD
Washington, D.C.
PRO S$,REPORT ON N$C 5404 (SOUTH ASLQ
REFERENCE: NSC Action No. 1052.
OCB FILE NO. 48
NSC review(s) completed.
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This document contains information affecting the national defense of the
United States, within the meaning of the eg Pionage laws, Title i8, Sec-
tions 793 and 794, U.S.C., the transmission or revelations of which in
any manner to an unauthorized person is Prohibited by law.
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the belief that the United States was trying to pressure India
in the negotiations with respect to the possible continuation
of the Air Transport Agreement between the two countries. The
Indian Ambassador also expressed concern to the State Department.
The tension was relieved when Secretary Dulles on January 6
authorized license for export of the Super Constellation then
ready for delivery. A repetition of this incident was avoided
in February when Secretary Dulles on February 14 authorized
licensing for export of the fourth and fifth Super Constellation.
4. The formal launching in India of the Industrial Credit
and Investment Organization did not take place in January as
anticipated in paragraph 21 of the Annex, due to minor complica-
tions. However, the corporation prospectus has been issued, and
formal launching, including subscription of necessary capital,
is expected in the near future.
5, Implementation of economic and technical aid programs
for South Asia will in the future be guided by NSC 5506 which
was approved by the Council on February 3, 1955.
Elmer B. Staats
Executive Officer
Attachment:
Progress Report on NSC 5409
(South Asia), dated 2/23/55.
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February 23, 1955
PROGRESS REPORT ON NSC 5409
UNITED STATES POLICY TOWARD SOUTH ASIA
(Policy Approved by the President March 6) 1954)
(Period of Report: June 16, 1954 - Dec. 15, 1954)
A. SUMMARY OF MAJOR ACTIONS
1. There have been no significant omissions or deficiencies in
implementation of NSC 5409. Listed below is a summary of significant
actions taken.
2.. Pakistan signed the Manila Pact. In addition to this
demonstration of its anti-communist and pro-collective security
policy, Pakistan banned the Communist Party and limited the travel
of Soviet representatives within its borders,
3. The United States substantially increased its economic
assistance programs for Pakistan. Deteriorating economic condi-
tions in Pakistan had led to the dispatch of the Heinz Mission
which reported existence of severe economic strains, the continu9.nce
of which would increasingly threaten Pakistan's political and
economic stability. An emergency assistance program resulted. This
program was in addition to technical and developmental assistance,
which has been continued, and to special flood relief which was
sent to both East and West Pakistan. The total aid figure for fiscal
1955, exclusive of MDAA assistance, amounts to over $105 million.
The U.S. is proceeding to approach certain Commonwealth countries
on the possibilities of their aiding Pal;istan in this period of
crisis? The Canadian Government informed us that it was allocating
Pakistan $1 million in emergency commodity aid. A spectacular air-
lift into the flooded areas of East Pakistan by the U.S. Air Force
of supplies aad U.S. Army r,.,dical personnel made a very favorable
impression on the people of East Pakistan.
4. Implementation of the Military Defense Assistance Agreement
with Pakistan was begun. A 14MG mission arrived in Pakistan in
early Augusta Following pleas of Prime Minister Mohammed Ali during
his visit, a substantial increase was m-ie in the FY 55 funds allotted
for military assistance to Pakistan, originally set at only $29,5
million. The first- U.S. shipment of military hardware under the new
program arrived in Karachi in November;,
5. An emergency flood relief program amounting to about 01.3
million was established for Nepal, it was gratefully received and
had a highly favorable public relations impact.
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OPERATIONS COORDINATING BOARD
Washington 25, D. C.
March 14, 1955
MEMORANDUM FOR THE OPERATIONS COORDINATING BOARD
SUBJECT: Progress Report on NSC 5409 (South Asia)
The attached second Operations Coordinating Board Progress
Report on NSC 5409, "United States Policy Toward South Asia,"
dated February 23,1955, was noted by the National Security
Council on March 3, 1955, Action No. 1348.
The previous draft of #bis report, dated February 14, 1955,
is obsolete and may be destroyed in accordance with the security
regulations of your agency, The last sentence of paragraph 13 a.,
page 4, was deleted from the report.
-'` --Sliner'1 . Staats
Executive Officer
Attachment:
Executive Officer, OCB, Memo to
NSC, on above subject, dated
2/24/55, with attachment as listed.
OCB File No. 48
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OPERATIONS COORDINATING BOARD
Washington 25, D. C.
February 24, 1955
MEMORANDUM FOR: Mr. James S. Lay, Jr,
Execu 'jive Secretary
National Security Council
SUBJECT: Progress Report on NSC 5409 (South Asia)
(Policy Approved by the President, March 6, 1954)
There is attached the second Progress Report by the Operations
Coordinating Board on NSC 5409, "United States Policy Toward South
Asia," covering the period from June 16, 1954 through December 15,
1954. On February 23, 1955, the Operations Coordinating Board
concurred in the Progress Report for transmittal to the National
Security Council.
In considering the report the Board noted the following sig-
nificant developments since the cutoff date of the report:
1. The 1946 Air Transport Services Agreement with India
terminated on January 14, 1955 in accordance with its terms
and the termination notice given by the Government of India on
January 14, 1954. It had not been found possible to reconcile
divergent Indian and United States points of view. The Govern-
ment of India has issued temporary permits authorizing continued
operation of two round-trip flights weekly to and through India,
each by Pan-American and Trans-World Airlines, and has expressed
the hope that negotiations leading to a more permanent arrange-
ment may begin in the near future. (Par. 15)
2. The Government of India agreed on December 30 to extend
the five-year period of the Beryl Agreement between India and
the United States into a six-year period ending on September 30,
1956, the Agreement being automatically renewable thereafter for
further five-year periods, unless either party gives notice by
September 30, 1955 of its intention to terminate the Agreement
by September 30, 1956.
3. U. S. delay in licensing for export the third of five
Super Constellations which had been ordered by Air-India Inter-
national led to wide criticism in the Indian press which expressed
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6. High U.S. officials held discussions in Washington with the
Prime Ministers of Pakistan and Ceylon, the Vice President of India
and a number of other cabinet members of South Asian countries.
7. During the visit of the Prime Minister of Ceylon, U.S.
officials explained that the Battle Act precluded granting of aid
to Ceylon unless Ceylon was able to show cooperation with the U.S.
within terms of the Act, and unless such cooperative action did
not consist at least in reduction of rubber shipments to Communist
China with a view towards their ultimate elimination. The Prime
Minister stated he would look into the matter to see if they could
get out of the "Chinese mess." Despite his failure to obtain
immediate tangible benefits for Ceylon, the Prime Minister seemed
pleased with the results of his visit.
8. In December India and Pakistan resumed under the aegis of
the IBRD discussion of a plan for settlement of the dispute over
distribution of the river waters supplying certain irrigation canals.
The Prime Ministers of Pakistan and of India also have indicated
readiness to make a renewed effort to settle other outstanding
India-Pakistan disputes, including that over Kashmir.
9. The U.S. continued a vigorous information program. Sus-
tained emphasis on the use of atomic energy for peace served as a
build-up for exhibits due to open in India and Pakistan. USIA
India increased its press placement of anti-communist material,
opened two new reading rooms, and pushed the college contact and
book translation programs. In Pakistan, a "country team" campaign
was launched and plans were drawn for a concerted anti-communist
effort similar to that in Thailand.
10. The de facto transfer of power under friendly circumstances
from France to India over the remaining French enclaves in India
during November should result in greatly improved Indo-French rela-
tions with an indirect benefit on Indo-U.S. relations.
OPERATIONAL CONSIDERATIONS BEARING ON POLICY
11. The policy is considered timely, complete and appro-
priate. No changes are recommended at this time. Note is made of
the revision of NSC 5409 with respect to Afghanistan approved
December 11, 1954.
C. EMERGING PROBLEMS AND FUTURE ACTIONS
12. Governmental Instability in Pakistan
Pakistan has never had a general election. The power of
the Central Government rests on the Army, a few leading political
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figures and the Civil Service.. This was demonstrated by events
beginning September 21 when the Constituent Assembly of Pakistan
tried to strip the Governor General of his power to appoint and
remove Cabinet Ministers at will. Following the return of Prime
Minister Mohammed Ali from the United States to Karachi on
October 23, the Governor General, sure of support of the Army,
the Civil Service, and certain important political leaders, dissolved
the Constituent Assembly and forced ;di to reform his cabinet. The
shake-up brought into the cabinet two powerful personages, General
Ayub as Minister of Defense (but remaining as Commander-in-Chief
of the Army) and General Iskander Mirza as Minister of the Interior.
Ali appears to remain Prime Minister only by sufference of the
Governor General, Ayub, and M:Lrza, chief leaders of the present
ruling group. Unless he "cooperates", he is likely to be replaced
at any time. This unstable political situation is aggravated by
Pakistan's grave economic needs to which the Government must give
the most careful attention if it is to avoid serious popular dis-
content. The present insufficiency of Pakistan's resources to
maintain a politically necessary level of development along with
defense expenditures places Pakistan's economic and political founda-
tions in grave danger. ?,dhile it is obvious that economic progress
over a period of years would ameliorate this condition, it is equal-
ly obvious that even with the optimum Pakistan effort and U.S. aid,
the situation will be critical for at least three years. U.S.
assistance is now and will continue for some time to be particular-
ly important as a means of relieving economic strains, stimulatirjg
industrial and agricultural development and leading to development
of the stable economic base necessary for political stability. Our
military aid is important as a means of strengthening the Central
Government's control and of creating strength in Pakistan and the
general area. At the same time, it is apparent that in the fore-
seeable future, Pakistan's budget cannot bear any additional invest-
ment in the military over the substantial amounts now going annually
into defense.
13. Trend Toward Rstablishment of Closer Relations Between
South Asian Countries and Communist China
a. India has certain political, religious and cultural
affinities with China, the benefit of which redounds to the
communist regime. In addition, India wants to develop fruit-
ful trade relations with Communist China, but at the same time
is apprehensive of Red China's political and territorial
ambitions. These factors are important elements of India's policy
of non--alignment, but nevertheless they may lead to a strengthen-
ing of ties between India and Communist China, perhaps in part
as a result of Indian efforts at appeasement. On the other 'land,
Nehru's recent visit to Peking and his personal contact with
conditions such as the absence of a free press, the strait
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jacketed communist mentality, the communist discipline, and the
evidence of Soviet assistance which he found may have had a
sobering effect upon him.
b. The consolidation of Communist control in Tibet has been
followed by attempts of the Communist Chinese Government to open
diplomatic relations with Nepal. Nepal may handle the represen-
tation problem by accrediting the Chinese representative in New
Delhi also to Katmandu. The opening of a Chinese Mission in
Katmandu certainly would be followed by increased communist sub-
versive activities, but it seems likely in any event that the
formal establishment of diplomatic relations between the two
countries will be followed by increased communist influence in
Nepal.
c. Some time ago Indonesia began efforts for an Afro-Asian
Conference to be attended by representatives from most of the
African and Asian countries. It now seems probable that the con-
ference will be held next April. There is a serious probability
that Communist China will attempt to turn the conference into a
united expression of anti-U.S. and anti-Western sentiment on every
conceivable issue. It seems certain that all the South Asian
nations will attend.
14. The weakness and confusion which have existed in the Nepalese
Government since the overthrow of the Ranas in 1951, in recent months
have become even worse.
15. Soviet Efforts at Economic Penetration
a. U,S. policy has been developed to counter Soviet attempts
at economic penetration of Afghanistan by providing increased U.S.
economic assistance for projects that will reduce the attractions
of Soviet aid and draw Afghanistan closer to the free world.
b. In India further evidence of Soviet desire for economic
penetration and concern with success of U.S. programs in the area
may be found in the recent negotiations between India and the
U.S.S.R. for construction of a steel mill in India by Soviet
technicians with Soviet funds lent for that purpose.
16. Further difficulties in U.S.-Indian relations can be expected.
During the period there were several irritating developments. Krishna
Menon was particularly trying in the UN, Two U.S. ships were detained
in Bombay for alleged violation of an Indian law which prohibits
taking military cargo into or out of India. Through a misunderstandin
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some U.S. Air Force transport planes carrying flood relief to East
Pakistan encountered administrative difficulties in obtaining
clearances from the Goverment of India to utilize air facilities,
or to overfly India. Finally, the U.S.-Indian Civil Air Agreement
would expire on January 14, 1955, and at the end of the year no new
agreement had been reached which would enable U.S. air lines to
continue operations to India.
D. EXTENT OF -AGENCY INTERESTS
17. No other agencies participated in Working Group discussions
other than OCB member agencies.
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ANNEX "A"
DETAILED DEVELOPMENT OF MAJOR ACTIONS
There have been no significant omissions or deficiencies in
implementation of NSC 5109. Significant substantive actions taken
in support of NSC 51109 are listed below. (Numbers shown below
refer to paragraph numbers in NSC 5409. Courses of actions are
quoted.):
Para. 15. "Give particular emphasis to the maintenance of
cordial official, and personal relations in all
areas of contact and where possible increase those
areas of association."
Prime Minister Mohammed All. of Pakistan came to the United States
in October and spent three days of his time as a guest of the Presi-
dent. He was accompanied by two members of his cabinet and the
Commander-in-Chief of the Pakistan Army. The talks between the
Prime Minister and his advisers on the one hand and U.S. high officials
on the other, including the Secretaries of State and Defense and
Director of FOA, resulted in increased understanding of the problems
facing each country in advancing common objectives.
Vice President Radhakrishnan of India made an informal visit
to the United States in November and came to Washington to present
an ivory gavel from the Indian Upper House of Parliament to the
U.S. Senate. The Indian Vice President made the presentation in
the Senate chamber and addressed the Senators present. He was enter-
tained at luncheon by the Vice President of the United States and
later r lled o4 the Pres3~dent.. Ark exchange of warm personal letters be--
ween e President and rr'rime i![in~.ster Nehru. was an outcome. of
Radhakrishnan's visit.
The Nepalese Minister for Planning and Development, Commerce
and Industry, Food and Agriculture made an informal visit to Washing-
ton in September. He was entertained at an official luncheon and
conferred with top FOA and State Department officials.
(See para. 61 with regard to the visit of the Prime Minister
of Ceylon.)
Para. 16. "Vigorously pursue effective information and educa-
tion programs designed to broaden support for actions
consistent with U.S. policies and to diminish sus-
ceptibility to communist appeals."
During the period allocations were made for the exchange of per-
sons program in South Asia for Fiscal Year 1955. A total expenditure
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of $1.9,086o939 is planned for FY 195 5, $7144, 000 under P.L. 5814
(Fulbright) and $3429 939 under PAL. 102 (Smith/Mundt). India and
Pakistan have high priority in these programs and have been
allotted $581,176, and $349,983, respectively. There is no
Fulbright program in Afghanistan, but one is expected in FY 1956.
It is expected that in fiscal 1955 some 378 lecturers, research
scholars, teachers, students and. leaders in the fields of journalism,
the arts, cultural affairs, government, political affairs, etc.,
will be exchanged between the United States and the countries of
South Asia.
Planning was completed for the FY 1956 exchange of persons budget
which contemplates roughly $200,000 over and above this year's budget
for the area. In addition the P.L, 148 program (India 11Jheat Loan
Educational Exchange Program) was activated during the period with
the assignment of a highly qualified officer to New Delhi to put the
program into operation.
Stepped-itp activity in the press placement of anti-communist
material met with considerable success in India. In Bombay, for
example, during October alone a total of 957 column inches of such
material was carried by the press. Copies of "Problems of Communism"
were distributed to influential p-,rsons throughout the country.
Ten thousand copies of a, pamphlet "From My China Diary" by Shastri
were distributed through an Indian publisher,,
Continued emphas::_s vas placed on the college contact program.
Interest was engendered in a new direction with the visit of two
American athletes, Bob Richards and Sammy Lee. Reports indicate teat
these Olympic champions won a generally enthusiastic reception and
through their behavior evoked an immense amount of good will. Also
in the line of athletics was the tour of two American track coaches,
Hamilton and Doherty, and their participation in the Indian Olympic
training camp,
The theme of atomic power for peaceful uses has been pressed in
India as an appropriate build-up for the atoms-for-peace exhibit due
to be opened in February. Plans are being laid for joint sponsorship
of the exhibit with the Indian Govejfnment, and it is hoped that Prime
Minister Nehru will be able to attend the opening ceremony. A
similar exhibit will be shown in Pakistan,
Another phase of American life gained attention as the United
States handicrafts exhibit toured India. Films and lectures were
used to supplement the display,.
In India two reading rooms were opened, one at Guntur and the
other at Patna. It is hoped that eight more can be in operation by
the end of the fiscal year,, An experimental project involving a
temporary .reading room at Nagpur was considered highly successful.
An excellen'' report on the press of Ceylon came from Colombo in
response to inquiries initiated by the OCB00 The analysis of basic
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causes of anti"Americanism in the Ceylon press provided not only an
insight into domestic journalism, but gave a reassuring account of
steps being taken to improve the situation, such as personal contacts
with key editors and publishers, and preparation of material specially
tailored to the needs of specific papers.
The American Reporter' a bi-.weekly newspaper with a circulation
in India of 311,000, has mode some editorial improvements designed
to increase its effectiveness, One arrangement which has proved
highly successful involves the placing of exclusive stories with
leading Indian newspapers and the reprinting of these articles in the
American Reporter with attribution to the Indian journal.
The book translation program has been used both to present the
positive values of democracy, in such titles as "The Goodly Heritage"
and "Classless Capitalism", and to expose the methods and motives of
communism, in such titles as "Conquest by Terror" and "Rise of Modern
Communism's. In India alone thirty-three books, about evenly divided
between the two categories above, were published in local languages.
Plans have been drawn up for a concerted anti-communist effort
in Pakistan along the lines of that made in Thailand. This ties
in with a "country team" effort designed to make use of all Americans
in the country. The unstable political situation has brought out
the need for helping Pakistanis gain confidence in their own economic
potential and at the same time reminding them of the danger of com-
munist infiltration,
No great change is foreseen in the Afghanistan program, although
plans are being readied for a moderately intensified information
activity in conjunction with possible increase in economic aid.
United Nations activities received attention throughout the
area, with emphasis on the speeches of Secretary Dulles and Ambassador
Lodge before the M USL1/Nepal used as its dominant theme, "U.S.
and UN Workers for Peace," and called specific attention to Russia's
veto on Nepal's admission to the UN.
Para. 17,, "Encourage greater participation in all UN activi-
ties by South Asian countries which are members of
the UN."
Zafrulla Khan was elected to fill the vacancy in the International
Court of Justice left by the death of the Indian representative.
Zafrullats election probably would not have taken place except for
active U.S. support of his candidacy
On the other hand, the United States found it necessary to sup-
port another country for the seat on ECOSOC which Afghanistan earnest-
ly desired,
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Para. 18. "Assist through the UN and by other feasible means
in the settlement of disputes between the various
countries ~."
United States participation in the United Nations - administered
cease fire in Kashmir ended on December 6, 1954. The U.S. representa-
tives were withdrawn as their normal tours ended and were not replaced
because of Prime Minister Nehruts objections following the conclusion
of the U.S.-Pakistan NDA agreement.
The World Bank talks with India and Pakistan on distribution
of the Indus waters, which had been broken off, were renewed in
December. There has been little progress, however, and the Pakistanis
are showing further dissatisfaction with the Bank's plan.
We have continued to try to play an unobstrusive role in encourag-
ing settlement of Afghanistan's dispute with Iran over uses of the
waters of the lower Helmand River and in discouraging Afghanistan's
anti-Pakistan activity
25X1
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Para. 20. "Assist the governments of the area to develop their
natural resources, particularly agricultural, and
their basic industrial potential, including the
provision of technical assistance and limited economic
aid."
The BOA programs for all countries in South Asia are directly
consistent with the objective: though through FY 1955 the programs
in Afghanistan and Nepal are limited to technical assistance efforts.
FY 1955 Technical Assistance funds in the amount of $i.6 million
were allotted to the Afghanistan Mission for the continuation of
existing projects. In the Helmand Valley the program is being
strengthened in all phases of Community Development, including agri-
culture and public administration, An, expanded contract was signed
with Wypming University to provide for an agricultural research and
demonstration project and the establishment and operation of an Insti-
tute of Applied Science, and expansion of the Columbia Teachers College
Contract is being considered. Additionally, there is under active
consideration the problem of assisting in meeting the civil aviation
needs of the country. In November -che Government of Afghanistan
finally took the necessary initial action of approving the $18.5 million
Export-Import Bank loan which had been authorized months before. The
major portion of the loan is for use in connection with Helmand Valley
development. The Afghans have :indicated unwillingness to proceed with
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the road maintenance unit to be provided for by the loan because of
differences with American contracting firm of Morrison-Knudsen.
In Nepal the limited magnitude of the activities is suggested by
the allotment of some $780,000 in Technical Assistance funds for FY
1955. AdditLonally, flood relief activities were launched as indi-
cated in Para,, 22. The technical assistance activities are concentra-
ted in the agriculture, community development and education fields.
FOA in Pakistan is co.itinuing Technical Cooperation projects in
Agriculture, Natural Resources, Community Development and Education.
Four college contracts are now in operation and a fifth with New
Mexico A & M is ready to be signed. Assistance will be augmented by
a greatly expanded Defense Support program, details of which are rrew
being planned. FOA will continue participation in basic development
projects, including the Taunsa Barrage, and new projects consistent
with the objective are being developed, including civil aviation.
During the period a total FY 1955 program of over $105 million was
authorized (see Para. 22) providing $65.5 million Defense Support
(including flood relief) and $5,.3 million Technical Assistance under
P.L. 665, and $35 to 40 million agricultural commodities under
P.L. 480. Of the Defense Support funds, p20 million will be a loar_.
About $9 million in commodities will be Liven Pakistan under Title II
of P.L. 180 for relief and rehabilitation,, Under Title I $10 million
will be for loans to promote trade and economic development; $2 minion
to help develop new markets for U.S agricultural products; $1LG.L46
million will be used to procure military equipment, materials, facili-
ties and services for the common defense, and $2.94 million will be
used to pay U.S. obligations in Pakistan. Agreements on these items
are being negotiated.
.In India for FY 1955 ;p15.1 million in technical assistance and
$60.5 million development assistance funds have been authroized. The
GOI has agreed that $45 million of the latter will be reraid to the
U.S. Half of the development assistance funds will be taken up in
agricultural commodities, and it is anticipated that substantial addi-
tional quantities of agricultural commodities will be disposed of unde'
P.L. 480. All the FOA activities are parts of the total India Five
Year Plan development involving much larger sums. Some guarded opti-
mism about India's economic progress seems justified,. Since 19L49-1950
food grain output has risen some 21%, about a third attributable to
Five Year Plan activities with FOA help. There is good response at
the grass-roots to the far-reaching community development program, now
reaching over 40,000,000 rural people. Industrial production is up
some 40% since 1951. However., unemployment is of serious proportions.
Implementation of economic and technical assistance programs Dn
the various countries is proceeding more slowly than anticipated,
although it should be recognized that the nature of the programs is
such that time-lags in implementation are inherent. The promulgation
last fall by FDA of "Operation Blueprint", the continuing review of
procurement procedures, which is at present being subjected to anothex
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thorough review, and intensive technician recruitment efforts over the
past six months are expected to ameliorate the programming, procure-
ment and personnel problems whi: h have p .a-red a large part in the
implementation delays,, Additionally, however, for the FY 1955 program
new facets were introduced in the: form of loan requirements for both
Pakistan and India and PL 480 for Pakistan, as well as the inclusion
of Section 402, PL 66K program for India and the initiation of the
large commodity component in the Defense Support program for Pakistan.
The necessity for inter-agency policy development coupled with the
problems of negotiating on these new bases with the governments involved
had a major effect in delaying early initiation of these programs.
The problems have largely been resolved and aggressive action is being
taken to implement the programs, in view of the serious economic prob-
lems in the area, the Soviet efforts at economic penetration and the
need to strengthen the internal stability and defense of the area.
Consideration has recently been given to resuming an aid program
in Ceylon (the start made in 195:). being halted by Communist China
trade). No decisions have been made, pending review of Battle Act
problems.
The Department of State has been pressing forward, with other
interested agencies, on the important questions involved in NSC 542f9/2
and 5422/2, dealing with an Asian economic grouping and the national
security interests involved in the possible acceleration of the rate
of economic growth in underdeveloped countries.
Para. 21. "Foster South Asian conditions and governmental
policies favorable to the investment of indigenous
and foreign private capital in such economic develop-
ment of the area,"
To date little progress has been made in Afghanistan on the policy.
The Afghans have made some overtures which indicate an interest, and
there have also been a number of inquiries from American concerns
which indicate their interest in investment possibilities in the country.
Positive steps are needed to foster' Afghan conditions and to encour-
age governmental policies more favorable to the investment of indige-
nous and foreign private capital,
In Pakistan agreements are now being worked out with the Pakistan
Government under which increa:3ed financial aid will be used to pur-
chase urgently needed raw materials and consumer commodities in order
to bolster Pakistan resources anc', assure economic and political
stability. In this way it is hoped that previous investment efforts
will produce more results and additional investment will be encouraged.
Industry and investment adviser) on the staffs of the missions
in both Pakistan and India are working with the governments and the
private sector to enhanct: these activities? In addition, it is antici-
pated that shortly a Treaty of Friendship and Commerce will be con-
cluded between Pakistan and the U.S,, which will facilitate accomplish-
ment of our objectives,
For India, the World Bank had announced of of a
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and Investment Corporation with a total of y35 million (in dollars
and rupees) initial capital. Sources of equity capital will be as
follows, with corresponding voting weight on the corporation's board:
Indian-70%; British 20%; U.S0..J-0%e The World Bank will provide a
"10 million line of credit, FOA and GUI have agreed to make $15 million
in rupee counterpart available to the corporation's capital funds on
a basis of deferred repayment to the GOID The corporation should help
,materially to encourage accumulation of private capital and channeling
it into new and expanded businesses, and is so organized as to permit
expansion if initial operatior:3 are successful.
Para. 22. "Be prepared to extend emergency aid as circumstances
justify on a case-to-case basis to alleviate unexpected
food shortages or the effects of natural disasters."
During the pert^de e;ftended emergency flood relief assistance
to Pakistan, India and Nepal.
of the various agencies involved, the program for Pakistan was carriEd
out with striking speed and effectiveness The Department of Defense,
particularly the Air Force, played an especially important role. India
received about 100,000 in medical supplies Nepal was granted flood
relief amounting to ,,out 41.3 million, Some ';P5.5 million was
authorized for Pakistan.
During the period deteriorating economic conditions in Paki,tan
led to the dispatch of the Heinz Mission for a special study. As an
outcome of that Mission's recommendations, an emergency program of
assistance amounting to some $76 million (included in fiscal 1955 total
of over $105 million) was agreed for Pakistan. The special relief
will come partly from Mutual Security funds and partly under the Agri-
cultural Trade Development and e brceaction ofassist-
ance was made particularly effect;iv by the cooperative
various government agencies involved, which made possible a public
announcement of our assistance at the close of the visit of the
Pakistan Prime Minister,
Para. 23. "Encourage and assist where possible South Asian
states to expand their t: 7.d.e with friendly neighbor-
ing county. es, with the United States, and with other
countries of the free worlds"
(See paragraphs 20 and 21)
Para. 2L. "Continue diplomatic psychological and propaganda
efforts to discourage and. where possible prevent
shipment of strategic materials to the communist bloc."
Although confronted with such obstacles as India's trade agreements
with the Chinese Communists, we have continued with varying degrees of
success our efforts t diocourage and where possible prevent shipments
of strategic materials to the communist bloc,, As a result of our pre-
vious diplomatic efforts; as in the case of the thorium nitrate problem,
we are hopeful that India will prevent, shipments of gasoline to Tibet
from becoming a serious problem,
We also are hopeful that our conversations with the Prime Minister
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rice-rubber trade with Communist China.
Para. 26, "As politically feasible, seek to obtain (a) the use
of military and strategic facilities in South Asi&,
including communications, transit and base rights
and (b) the right to operate forces in the area upon
the threat of and during general hostilities."
Requirements for U.S. Army, Navy and Air Force communication
facilities in Ceylon still exist. In addition,, the U.S. Air Force
has a need for air base transit rights J.n Ceylonese air fields. In
view of the continued unfavorable situation resulting from (1) Ceylon's
rice-rubber contract with Communist China; (2) Ceylon's reluctance to
join the Manila Pact; and (3) India's unfavorable attitude toward the
development of any U.S. interests in the area, no progress has been
made in this direction. (Also see Summary)
Para. 27. "Encourage participation of the nations of South Asia
in regional defense arrangements coordinated with
those in adjacent areas."
Pakistan was encouraged to participate in the Manila Confer(n=:e
in September, was a signatory of the Pact, has participated actively
in the Working Committee and it is anticipated will in due course
ratify the Pact.
The Ceylonese Government is interested in the Pact, but has
not joined because of the opposition of the Ceylonese public. At the
same time, it has not completely foreclosed the possibility of ad-
herence at some future time.
Para. 28. "Provide to selected South Asian nations limited
military aid, reimbursable or grant, contributing
to the maintenance of internal security and the
defense of the area."
Following signing of our Iutual Defense Assistance Agreement
with Pakistan last May, a MAAG was set up in Pakistan. The first
shipments of military hardware arrived in November.
Partly as an outcome of the . lohammed Ali visit the President
directed that our initial (fiscal 1955) military assistance program ` r
Pakistan be increas.,d, and it was raised from about $30 million to
about $50 million.
Para. 29. "Utilize the above political, economic and military
courses of action whenever necessary and practicable
to encourage cooperation with the United States in
attaining its objectives in the area."
In view of the implications with respect to the Battle Act -fit'
Indian exports of gasoline to Tibet, we are hopeful that recent admix .
istrati'-e action by India will stop the trade. (See also Para. 24.)
Para. 32. "Recognize that India exerts a growing influence in
world affairs, (particularly in UN matters and in. issues
between the United States and the Soviet bloc) *ile
avoiding actions which appear to support India a,_ the
leader of the free Asian nations."
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India's activity in the UN, its role in the Indochina Supervisory
Commission and the part which it plays with respect to Communist
China make it obvious that India's influence in world affairs is
growing. At the same time, our sponsorship of the Manila Pact and
our military assistance to Pakistan show that we do not supoort India
as the leader of the free Asian nations.
Para, 34, "Make clear to India that by providing military
assistance to Pakistan, the U.S. is not seeking to
make Pakistan the dominant state of South Asia."
The previous progress report referred to President Eisenhow,r's
letter uo Prime Minister Nehru regarding U.S. military assistance
to Pakistan as well as to other steps we had taken to mitigate Indian
apprehensions? Furthermore, we have provided for another substantial
aid program for India in this fiscal year. Nevertheless, our mili-
tary aid to Pakistan continues to rankle in Indian minds and we
recognize that this condition may last for an indefinite future period.
Para. 40. "Recognize that for the present India's policy of
'non-involvement' will continue; and make use of
India as a mediator when it 4.s in U.S. interests."
In the case of the eleven U.S. airmen held by the Chinese Com-
munists,, we have informed India of the facts, and India has made
diplomatic efforts to obtain the release of the men.
Para, 44. "Support the present Government of Pakistan so
long as it remains friendly to the United States,
and seek to insure that any successor government is
not Communist controlled and is friendly to the
United States."
(See Summary of Major Actions)
Para. 45. "Continue and increase close consultation with the
Government of Pakistan on matters of policy and
encourage it to consult more frankly with us."
(See Summary of Major Actions)
Para. L.6. "In carrying out U.S. policies in South hsia, male
maximum use of Pakistan's favorable attitude toward
the West."
(See Summary of Major Actions)
Para. ) 7. "Seek greater participation of Pakistan in a comron
front against communism."
(See Summary of Major Actions)
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148.
"Make clear to Pakistan that our objective in the
Kaslimir issue is a solution acceptable to both
India and Pakistan and that in this issue we are
not prepared to support either country against
the other."
(See Summary of Major Actions)
Para. 49. "Encourage Pakistan's participation in any defense
association which is judged to serve the interests
of the United States. Priority should be given to
the establishment of such an arrangement between
Pakistan and Turkey."
(See Summary of Major Actions)
Para. 50. "Seek to insure that in the event of general war
Pakistan will make available manpower, resources and
strategic facilities for mutual defense efforts
with the West."
(See Summary of Major Actions)
Para. 51- "Give special consideration to Pakistan in providing
military assistance, including grant, in view of
Pakistan's attitude and key position among the
countries of South Asia with respect to military
collaboration with the West."
(See Summary of Major Actions)
Para. 53. "Encourage the growth of closer economic and politica
relations between Afghanistan and Pakistan, thus
creating conditions favorable to settlement of tine
Pushtunistan dispute and strengthening Afghanistan
to enable it better to resist Soviet penetration."
Recently the !fghan Foreign i.Linister and the Ambassa,Ior to the
U.S. have stressed heavily Afghanistan's desire for a settlement of
the Pushtunistan problem indicating that close relations with Pakistan
would inevitably follow. The implication has been that the U.S.
should persuade Pakistan to take a more "reasonable" attitude,, In
response we have informed the Afghans that we do not see how we Can
assist them in obtaining the kind of settlement they would like. At
the same time, we have avoided encouraging the Pakistanis to assume
an intransigent attitude on this question.
Para. 61. "Endeavor to maintain the friendly relationship
between the United States and Ceylon which continues
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despite the strains imposed by Ceylon's trade in
rubber with Communist China,"
The Prime I'linister of Ceylon visited Washington in December as
the guest of the US. Government. He was entertained by the
President and the Secretary of State and conferred with a number
of other top level U.S. Government officials, There is every evidence
that he thoroughly enjoyed his visit., (Alsi see Summary of ,:ajor
Actions)
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