TNAG-0340-FCO40-376-Aid-to-Hong-Kong-from-UK-1972 — Page 133

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5. The ODA, FCO and British Development Division in the Caribbean originally agreed that the Associated States would be informed sometime in 1972 by means of a despatch from the Secretary of State that aid would be in the form of Variant 1 interest free loans with effect from 1 April 1974. It has recently emerged, however, that there is a possibility of a severe cut-back in the development aid allocation to the Associated States and it would be politically damaging to have to announce over a short period of time a second unwelcome measure, ie a change from mainly grant aid to aid in loan form, for these States. We have therefore concluded that, although there is a sound economic and administrative case for the change to interest-free loan terms, the timing of the change and of its announcement should be reviewed in the autumn of 1972, when firm decisions on aid framework allocations for the ensuing financial years will have been made.

6.

As in the case of independent countries the terms of aid agreed for these territories would of course be reviewed from time to time, eg in country policy papers, to take account of changing circumstances.

7.

In considering what are appropriate country terms of aid I think that account must be taken of the fact that we are pressing in the EEC for softer terms of aid in order to reduce the indebtedness of developing countries, whilst British terms of aid now compare unfavourably with those of other members of the enlarged European Community or of the DAC as a whole. Our proportion of grants in the aid programme (48%) is lower than that of all of the EEC except Italy and of all the DAC except Italy, Portugal and Japan. In grant element of total official development assistance we are at 82% or 83% level with France, but in the EEC below Belgium (97%), Denmark (93%), Germany (84%), Netherlands (87%) and Norway (99%). Our general conclusion, with which I hope you will agree, is that there is a need to look for greater liberality in our terms policies. The changes now proposed should, on balance, take us a little way in this direction, and at the same time extend the basic country terms approach to the Dependencies and Associated States, in line with our general policy. The move will however be slight and might be reversed if country terms harder than those proposed were to be selected.

8. Copies of this letter go to Miss E J Emery, J D B Shaw, NB J Kuijsman, E O Lairă, CA K Cullimore (FCO), to N E Robins (DTI), A L Ryan (Bank) and to A Moisley here.

Rhod

Yours

But Rand

(R E Radford)

Enol

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