4FOREIGN RELATIONS, 1950, VOLUME I


more favorable economic position that would result from the projected
level of aid in fiscal year 1952 would not be-inconsistent with objectives
of U.S. policy toward Japan.
   The Defense Department is considering a partial pay-as-you-go
 arrangement to begin on July 1, 1951. If that arrangement is estab-
 lished, it would obviate the need for any GARIOA appropriation for
 economic aid to Japan, although GARIOA funds for administrative
 expenses and the reorientation program might continue to be needed.
   South East Asia (including Formosa): The objective of U.S. aid
 is to strengthen the present moderate and Western-oriented govern-
 ments in this area, to increase internal support for these governments,
 and to give effective evidence at the grass roots of U.S. Government
 constructive interest in the local welfare.
   The amount of aid actually required will depend on the direction
 and pace of current political and military developments. The estimates
 assume that there will be no serious political degeneration in the coun-
 tries concerned and that those countries which are now suffering mili-
 tary and guerilla operations will become gradually pacified.
   The grant aid program for STEM countries is substantially a con-
 tinuation of the program recommended by the Griffin Mission and
 recently initiated under ECA. It embraces rehabilitation and develop-
 ment projects with strong emphasis on technical assistance and asso-
 ciated supplies and equipment for direct implementation of technical
 assistance projects, as well as consumer goods needed to raise local
 revenues for rehabilitation projects without embarrassment to the
 fiscal systems of the countries concerned. The projects cover a wide
 range, but particular emphasis is placed on health, agriculture, and
 transport.
   U.S. Government loan assistance is provided for longer-term capital
 investment projects in Indonesia and Burma which have capacity to
 service further indebtedness. Thailand's needs for long-term capital
 investment will probably be met by the International Bank. Malayan
 needs should logically be the responsibility of the U.K.
   The estimates for Formosa are projected on "as is" assumptions
 regarding Formosa's membership in the free world, its present status,
 and its military burden. The general political outlook in the Far East
 and the fact of U.N. consideration of Formosa's further status render
the latter two of the above assumptions highly speculative. Aid esti-
mates now prepared for Formosa taper off in the later years, reflecting
the assumption that increased productivity would-enable the island
to carry a greater portion of the burden resulting from a high level
of Chinese military expenditures.
   Korea: The studies of the damage to and requirements of the
Korean economy in consequence of the hostilities have not been com-


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