FOREIGN ECONOMIC AND COMMERCIAL POLICY


not expected that such assistance is likely to influence appreciably
the levels of gold and dollar reserves of the individual recipient
countries. Therefore, the programs for these areas would not appear
to raise any serious problems relating to reserves at this time.
   (2) Counterpart Policy
   (a) For End- Use Military ItemI. It is recommended that, as in
the past, counterpart deposits should not be required by recipient
countries for end-use military items given on a grant basis. This
policy would also appear appropriate for other areas.
   (b) For General Economic Assistance. (Alternative Positions)
   Alternative A-It is recommended that a mandatory requirement
of counterpart funds for economic assistance should be discontinued in
fiscal year 1952,
   Alternative B-It is recommended that counterpart deposits should
be required for all direct grant assistance. It is also recommended that
appropriate legislative steps be taken to permit counterpart funds to
be used directly for military expenditures where such use would most
advantageously facilitate the defense effort.
   (c) For Grant Assistance to Underdeveloped Areas
   1. In view of the diverse nature of the programs and the varying
political and economic circumstances in such areas as the Middle East,
South Asia, and Southeast Asia, it is recommended that the adminis-
tering agencies of grant assistance economic programs should have
substantial discretion in determining the extent to which counterpart
funds may be appropriately required country-by-country and on the
terms and conditions under which counterpart may be expended.
  2. In general, it is recommended that counterpart deposits for grant
assistance be required at least in those cases where the goods supplied
are to be sold through private commercial channels either directly or
by the recipient government. In some instances a policy of requiring
counterpart deposits for the full amounts of goods supplied may be
desirable if in fact this policy should be of value as a means of in-
fluencing general monetary and economic policies.
  3. Generally, it would appear desirable that where counterpart
deposits are required the amounts should be commensurate in value
to the dollar costs of the goods supplied. It is suggested that com-
mensurate value be determined by the existing official exchange rates.
If, in some of the countries substantial inflation takes place and the
existing official exchange rates are out of line, it would be necessary
to re-examine in individual cases the appropriate basis for calculating
commensurate value of the goods supplied.
  4. It is suggested that counterpart deposits be made available to
meet the United States local costs of administering the programs but
that no fixed percentage of proceeds be assigned for such costs nor that


829