With reference to your minute of 7th December2 and your cable No. 6383 regarding the suggestion that ERP aid to this country might be suspended, we do not wish you to take any specific action in the matter at the moment, but if any more official approach than that made by Mr. Hopkinson is made, you should put forward the following points to support our claim for the maintenance of aid.
First, in so far as the occasion for any proposed suspension would be the improved position of the sterling area reserves, discontinuance of aid to us would, by forcing us to draw on the dollar pool some eighteen months before it was expected we should have to do so, impose an additional strain on those reserves. Furthermore, the automatic suspension of aid to Ireland following on the suspension of aid to Britain would hardly be consonant with our position as an individual and separate participant in the European Recovery Programme. Although Ireland is a member of the sterling area, our particular situation in ERP has always been recognised and a suspension of aid following as an immediate consequence of the suspension of aid to Britain would be regarded by the Irish people as a complete departure from the existing principles by virtue of which we have been regarded by ECA and OEEC as a fully separate participating country.
In the context of ERP it has always been recognised that there are fundamental differences between the Irish and British economies. For instance, concentration on the production of bread grains and feeding stuffs may be advantageous for countries with a suitable soil and climate for large-scale cultivation of cereals or in which agriculture is a subsidiary element in the economy. But for us agriculture is the basic industry, soil and climate do not permit of the growing of grain crops extensively enough to supply our needs fully, and the potentialities of our small farms and our special advantages in livestock production can be realised in full degree only on the basis of substantial imports of wheat, maize and other feeding stuffs. This fact is fully appreciated by ECA. The present scale of imports of wheat and maize, made possible by ECA assistance, is, in fact, much lower than in pre-war years, because home production of grains has been increased, despite the additional cost to the community of native wheat. We believe that the Americans have a better understanding of our needs, particularly in the field of agriculture, than the British have. If, however, aid were now suspended we would have to seek dollar facilities from the Sterling Area pool, in which event the amount would tend to be conditioned by British policy in relation to British agriculture.
Our long-time policy under the European Recovery Programme has been directed primarily towards repairing the effects of the war years on agriculture and raising output and exports to levels greatly above those of pre-war years. Recovery to the pre-war level only has yet been attained.4 Continued progress depends on adequate imports of dollar commodities, particularly wheat, maize, feeding stuffs, machinery and oil. If these had to be curtailed, agricultural output would suffer and, as a direct consequence, exports of foodstuffs would decline, to the disadvantage of Great Britain and other European countries. Maintenance of the flow of tobacco supplies is vital for Exchequer financing. Our development plans have been based on the expectation that aid would be available until 1952, although on a diminishing scale and its suspension now would dislocate these plans. Even by 1952, we would still be far from self-sufficient in dollars but had hoped that our earnings would have been sufficiently expanded to enable our essential requirements to be met with the aid of moderate recourse to the central reserves of the Sterling Area. Any premature reduction in the dollar availabilities hitherto expected would seriously prejudice our economic development.
An immediate and vital need which is a new factor in our supply situation, is that for coal from the U.S., due to the failure of our normal supplies. This has already upset our programme of dollar imports and has increased our pressing dollar requirements. In addition, our requirements under all heads, include our essential requirements for defence.
There is further the point that suspension of aid at this time might well have adverse psychological effects in the interruption of or even a recess in the striking progress of the European Recovery Programme in Ireland. The index of industrial production in the June quarter 1950 was 163.7 (1936 = 100). Agricultural production has reached pre-war levels. Much of this progress has been due to Marshall Aid and a withdrawal of this aid now, due to circum-stances unrelated to the country's economy and to the further progress which is essential might have an undesirable reaction. In addition, such benefits as the ECA Technical Assistance Scheme and the Counterpart Funds might be prejudiced by a suspension of aid. We understand, of course, that suspension of aid would not necessarily mean the termination of Technical Assistance, but it might well have an adverse effect on the utilisation of the scheme by private industry. This would be particularly unfortunate as the Technical Assistance Scheme, after a rather slow start, is getting well under way here and we have such valuable projects in train as the Industrial Survey. As regards the Counterpart Funds, they are, of course, an important source of finance for internal development, including improvement of agriculture, exploitation of power resources, tourism, afforestation, etc.
A further distinction between our position and that of Britain is that Britain will continue to receive dollar aid for her defence programme while, of course, we will not.
Finally, it may be pointed out that in total our needs are relatively insignificant in the total of U.S. foreign aid.
