Pushed to the Front: The
Foreign Assistance Policy of
the Federal Republic of
Germany, 1958–1971
H E I D E-I R E N E SC H M I D T
Introduction
In Germany, as in many other countries, development policy to a large extent
was and remains a theme for development experts in political science, economics
and sociology. The huge amount of literature which has accompanied development
policy since the beginning, reflects a continuous reinvention of development policy
in new terminologies. The strong theoretical approach associated with ‘progressive’
ideologies offers a fairly coherent definition of ‘development’, but usually excludes
the broad and complicated international, political, economic and social contexts
that shaped development policy. This is quite obvious when it comes to ‘historical’
judgements on the first development decade of German foreign assistance policy. The
few monographs that cover the early period and the textbooks on Entwicklungspolitik
argue with one voice that the foreign assistance policy of the Federal Republic
of Germany (FRG) in the 1960s served to sustain the Hallstein doctrine of nonrecognition of the German Democratic Republic (GDR) and to support the FRG’s
export interests.1 In these studies, an ideologically ‘correct’ development policy starts
with the participation of the Social Democrats (SPD) in German governments,
notably Willy Brandt and Erhard Eppler (SPD Minister for Economic Co-operation
in 1968–74), and the abandonment of the Hallstein doctrine with the beginning of the
new Ostpolitik and the recognition of the GDR. The narrow view of development
policy in the 1960s only as part of the Deutschlandpolitik (the so-called ‘German
1
K. Bodemer, Entwicklungshilfe – Politik für wen? Ideologie und Vergabepraxis der deutschen
Entwicklungshilfe in der ersten Dekade (Munich: Weltforum Verlag, 1974); F. Nuscheler, Lern- und Arbeitsbuch
Entwicklungspolitik (Bonn: Dietz, 1987/1991); H.-J. Spanger and L. Brock, Die beiden deutschen Staaten in
der Dritten Welt: Die Entwicklungspolitik der DDR – eine Herausforderung für die Bundesrepublik Deutschland?
(Opladen: Westdeutscher Verlag, 1987); I. Haase, Zwischen Lenkung und Selbstbestimmung. Geschichte und
Gegenwart des Deutschen Entwicklungsdienstes (Berlin: Dietrich Reimer Verlag, 1996); D. Nohlen, ed.,
Lexikon der Dritten Welt (Hamburg: Rowohlt, 1998).
C 2003 Cambridge University Press
Contemporary European History, 12, 4 (2003), pp. 473–507 DOI: 10.1017/S0960777303001383 Printed in the United Kingdom
474
Contemporary European History
question’) ignores the multifaceted international co-ordination and co-operation
of German policy not only in development but also in interrelated issues such as
international finance and trade.
In his analysis of German development assistance policy for the Overseas
Development Institute in 1965, John White comes to conclusions that are in sharp
contrast to the still prevailing judgement in German literature on German aid in
the 1960s as being undertaken for the selfish motives of supporting the Hallstein
doctrine and promoting German export trade. While diagnosing a lack of experience
in German aid administration, White recognises ‘extremely valuable theoretical
thinking’ that concentrates on the main objectives ‘to promote development in
those countries to which aid is given’.2
This article offers a historical analysis of German development policy and
demonstrates that the first development decade was the formative period of the
Federal Republic’s foreign economic assistance policy.
The specifics of the German situation
On foreign aid, as on many other postwar political issues, the FRG was in a
singular position. Unprecedented economic success had turned a crushed and
occupied enemy into Europe’s key country and a stalwart of the international
economy within a decade. The importance of Germany’s economic resources and
the solid foundations of its ‘economic miracle’ were seen as a driving force behind
the European recovery and as an important stabilising factor for the international
economic order. The adverse factors were psychological: the economic power of
Germany caused resentments among the European power, and Bonn responded by
being reluctant to pull its weight in international relations.
Even though the German role in the West European postwar economic recovery
gave Bonn governments considerable leverage in pursuing their internal and
external policy objectives, Germany’s financial and economic strength had an
embarrassing aspect, too.3 The international payments surplus and the massive
increase in currency reserves (DM 8.3 billion in 1953, DM 32 billion in 1960)
made Germany a primary target for burden-sharing demands backed up by a strong
moral pressure. In view of the perceived strength of the economy, the arguments
that Germany was far from being a wealthy country and that postwar reconstruction still absorbed the financial capacity of a scarce capital economy were not
well received. Instead, Germany was asked to accept greater responsibilities and an
increased share of the burden for securing the future of the Western alliance and
2
J. White, German Aid. A survey of sources, policy and structure of German aid (London: Overseas
Development Institute, 1965), 9–11.
3
H.-I. Schmidt, ‘“The Embarrassment of Strength”. Die deutsche Position im International
Monetary System 1958–1968’, in U. Lehmkuhl, C. Wurm and H. Zimmermann, eds., Deutschland,
Großbritannien, Amerika: Politik, Gesellschaft und internationale Geschichte im 20. Jahrhundert (Stuttgart:
Steiner Verlag, 2003).
The Foreign Assistance Policy of the FRG, 1958–1971
475
the international monetary and trade system, and for the development of the Third
World.
Pushed to the fore
From the aftermath of the war until the mid-1950s the United States almost
unilaterally set up a system of foreign economic assistance. The motives and arguments
were clad in Cold War terms, and the security aspect was undoubtedly the most
powerful political incentive for economic and military assistance. But even in the Cold
War period foreign aid policy was double-stranded. Just as the Marshall Plan was seen
not only as a strategy to harness Europe to the struggle against communism but also as
a means of reconstructing Europe as an important pillar of the new economic world
order, both of these strands can be seen in the development policy towards the Third
World. Although the first wave of foreign aid was intended to prevent the former
colonies from falling into the communist orbit in their search for ‘independent’
ways of development, there was a genuine desire to create a long-term development
strategy that would provide a solution to the problems of underdevelopment and to
integrate the newly independent countries (NICs) into the global economy of the
Free World.
The main concern of the Western countries was where the money to
fund development assistance would come from. At the end of the Eisenhower
administration the impact on the US balance of payments of worldwide commitments
in the military and foreign aid fields had already resulted in reduced aid budgets and
the tying of the disbursement of aid money to procurement in the United States
in order to neutralise the balance of payments effect. When Kennedy launched his
‘Decade of Development’ campaign, it was clear from the beginning that the success
of the enthusiastically proclaimed new effort in developing the Third World4 would
depend on substantial matching contributions by other countries. Kennedy’s objective
was substantially to increase multilateral and bilateral aid. Germany, as the financially
and economically strongest country in Europe, could not avoid participating in what
Washington perceived as a major obligation of the international community to fight
underdevelopment.
In US eyes, Germany was always inclined to minimise the strength of its position
in order to avoid further claims and unwanted commitments. When the United States
in 1958 started to lobby Western capitals for the establishment of an International
Development Association (IDA) to serve as a concessional lending affiliate to the
World Bank, the German initial reaction was negative. Economics Minister Ludwig
Erhard, responsible for capital aid, was reluctant and critical of the US request for
three reasons: (i) the budgetary deficit in Germany would not allow an increase
4
Walt Whitman Rostow, who was the author of a prominent economic development theory, called
the proclamation of the development decade a watershed in modern history and – true to American
tradition – a ‘great barn-raising event’. 13 March 1961, Rostow Memorandum to Pres., Draft of Crucial
portion of Foreign Aid Message, John F. Kennedy, Presidential Papers ( JFK), National Security Files,
1961–1963 (NSF), Boston, JFK Library.
476
Contemporary European History
in official aid; (ii) he did not share the US view that it was necessary to fend
off a Sino-Soviet economic offensive in the less developed countries (LDC) –
even though Soviet propaganda proclaimed economic assistance on a large scale,
the USSR’s actual development aid compared badly with the aid from the West – ‘a
drop on a hot stove’;5 and (iii) he criticised the way in which aid had been provided
so far, especially by the United States, as wasteful and ineffective.6
After an intensive visit to south-east Asia and the Far East, Erhard changed his
mind.7 He recognised the need for huge infrastructural investments which could not
be financed bilaterally or privately.8 With regard to the request for German bilateral
assistance in form of technical aid and direct investments, Erhard – addressed as ‘the
successful director of the limitless admired German recovery’9 – was reassured that
the system of credit insurance for private investments was an appropriate bilateral
approach to economic development.
When Bonn agreed to participate in the IDA, Washington and London tried
to persuade the German government to accept a larger share in the IDA than the
equivalent of its World Bank (IBRD) quota. The US administration knew that
Germany would resist strongly being singled out to increase its share while France
and Britain each tried to reduce their own contribution. In the end, Germany and
France took 7 per cent of the shares (Germany’s IBRD quota was 5.3 per cent), Britain
17.3 per cent (IBRD quota 13 per cent) and the United States 42.3 per cent (see
Table 1).
From 1957 onwards the West German Economics Ministry, in high-level talks
with the US and UK administrations, had frequently ventilated the idea of a single
international institution as a clearing house for information and programmes in the
aid field,10 because the industrialised countries lacked knowledge of the needs of less
developed areas.11 Erhard favoured a co-ordinating role for the World Bank because
its ‘sound’ lending policy was highly regarded by the Federal Republic. However,
the US administration did not like the German idea of making use of the experience
of the World Bank for evaluating development projects of the donor countries. In
general, it disliked the idea of a donor group which it believed would be suspect in
5
27 Oct. 1958, Memorandum of Conversation, Erhard–Anderson, RG 56, General Records of the
Department of the Treasury, Office of the Assistant Secretary for International Affairs (OASIA),Country
and Area Records, Box 46, National Archives, Washington (NARA).
6
1 Dec. 1958, Excerpts made by American embassy, Bonn, from ‘Report on Southeast Asian and
Far East Trip of Minister Erhard’, ibid.
7
26 Oct. 1960, Memorandum of Conversation, Erhard–Upton, ibid.
8
See note 4; the problem with the Rourkela steel plant in India was an example of this.
9
9 Jan. 1959, Tasca Telegramme (Embassy Bonn) to State, Erhard visit to Asia, ibid.
10
14 July 1959, German position towards IDA, Cabinet Office, CAB 130/161, Public Record Office
(PRO), London; 15 Nov. 1957, Scherpenberg talk with US Government, RG 56, OASIA, Box 46;
29 July 1959, Memorandum of Conversation, v. Hofe–Upton, Expansion of credits, ibid.
11
Erhard’s trip to Asia supported this opinion. One example was South Vietnam, where the available
counterpart funds for US aid remained unused because of the lack of private investment and transfer of
knowledge; see note 5.
The Foreign Assistance Policy of the FRG, 1958–1971
477
Table 1. IDA replenishments by country and replenishment period
Initial funding
(1961–64)
Country
Canada
France
Germany
Italy
Japan
Netherlands
Sweden
UK
US
OPECa
Total
Otherb
Gross
US$ million
(real 1990)∗
194
272
272
93
173
143
52
674
1,646
25
3,543
344
3,887
(2,915)c
per cent
5.0
7.0
7.0
2.4
4.4
3.7
1.3
17.3
42.3
0.5
91.2
8.8
100.0
IDA2b
(1969–71)
IDA1
(1965–68)
US$ million
(real 1990)∗
203
302
354
146
201
80
73
471
1,521
16
3,368
263
3,631
(2,723)c
per cent
US$ million
(real 1990)∗
per cent
5.6
8.3
9.8
4.0
5.5
2.2
2.0
13.0
41.9
0.5
92.8
7.2
100.0
280
363
437
180
248
109
295
580
1,791
20
4,303
441
4,744
5.9
7.6
9.2
3.8
5.2
2.3
6.2
12.2
37.8
0.4
90.7
9.3
100.0
∗
Incorporating start-of-year deflators. Includes total, basic and special contributions.
Saudi Arabia, Kuwait, United Arab Emirates.
b Other, including Part II, country contributions, transfers from Bank profits, and IDA reflows.
c Normalized to a three-year rate.
Source: D. Kapur, J. P. Lewis and R. Webb, The World Bank. Its First Century. 2 Vols., Vol 1: History (Washington:
Brookings Institution Press 1997), 1137.
a
the eyes of the developing countries.12 A US Senate initiative in 1958 to put foreign
economic assistance policy on a long-term concessional lending basis resulted in the
Monroney Plan (the origin of IDA),13 and congressional restraints on bilateral aid
induced the US administration to drop its reservations and take the chance to press
the other financially strong countries to increase their outflow of aid to LDCs and to
establish a long-term lending programme.
To get a firm grip on European bilateral foreign assistance policy as well, the
United States took the initiative for establishing a Development Assistance Group
(DAG) within the Organisation of European Economic Co-operation (OEEC) where
the major donor countries would be represented. For the British government,
which supported the setting up of IDA and the DAG,14 the objective of the US
administration was obvious: the Federal Republic of Germany was seen as the ‘largest
12
29 July 1959, Memorandum of Conversation, v. Hofe–Upton, Expansion of credits, RG 56,
OASIA, Box 46.
13
D. Kapur, J. P. Lewis and R. Webb, The World Bank. Its First Half Century, 2 Vols., Vol. 1: History
(Washington: Brookings Institution Press, 1997), 1128.
14
Despite certain objectives the British government saw in ‘the establishment of IDA . . . the occasion
for a big presentational assault on the uncommitted world by the economic assistance of the West’;
14 April 1959, Brook to Prime Minister, International Development Association, Prime Minister’s
Office, PREM 11/2972, PRO.
478
Contemporary European History
untapped source’15 for financing development aid, not being restricted by balance of
payments problems. Although the initiative was recognised in Germany as a way to
institutionalise the pressure on the Europeans, it was also welcomed as the right step
towards co-ordinating foreign aid policies.
The first DAG meeting was held in Washington and the second in Bonn, where
Germany was expected to present a cohesive aid programme. The pressure on
Germany to play a greater role in development assistance occurred at a time when
the United States still had the valid claim that Germany had to compensate for its
delayed military contribution to the alliance by making a substantial contribution
to the development policy of the West. Kennedy told Erhard that it would make
matters easier for him if he ‘could go to Congress’ and deliver the message that a
former recipient of US aid is now ‘a full-fledged partner in our endeavour to help
the world . . . If West Germany will not go along in this, the efforts of the Western
world will fail, because the United States does not have sufficient resources to do it
alone.’16
From the perspective of Washington, there were many incentives for Germany to
become especially active in the field of development aid: (i) the FRG had regained
its economic strength through foreign economic assistance – hence it had a moral
obligation to participate in offering foreign assistance for the Third World; (ii) while
the United Kingdom and France tied their aid to their former empires, Germany
could direct its help where it was most needed; (iii) the unsatisfactory status of German
rearmament should be compensated for by increasing the level of foreign assistance;
(iv) a substantial level of foreign aid would recycle the German foreign exchange
surplus to the benefit of the international monetary system and the liquidity of
hard-pressed countries such as the United States and the United Kingdom.
The German response was reluctant, but ultimately forthcoming for two reasons:
first, Germany accepted the view that it had both the economic capacity to make
a major contribution to the development of the Third World and the political,
economic and moral obligation to do so; second, substantial foreign economic
assistance would give Germany the leverage to pursue its interests in other fields
and to gain political status in the international community. When the pressure grew
in the first DAG meetings and in bilateral German–American talks, the embassy
in Washington advised that the German government should come forth with a
substantial and concrete suggestion in the aid field.17
The massive aid programme which was finally introduced was the result of a
bundle of motives that were closely intertwined with a number of pressing political
issues. The balance of payments situation forced deficit countries like the United
States and Britain either to reduce their commitments to safeguard their currency
15
11 May 1956, Laskey Memorandum: Aid to underdeveloped countries and the Soviet economic
offensive. Foreign Office Records, FO 371/120 804, PRO.
16
8 Jan. 1962, Memorandum of Conversation Erhard–Kennedy, JFK, NSF, Germany, Box 74a.
17
24 March 1960, Report of the German Embassy, Washington, on the DAG meeting, B 52/68,
Politisches Archiv des Auswärtigen Amtes (PAA), Berlin.
The Foreign Assistance Policy of the FRG, 1958–1971
479
reserve position or to ask the countries in surplus (such as Germany and Italy)
to compensate them for the payments disequilibrium. Germany’s large surplus
invited pressures on all fronts. As the German government and the Bundesbank
ruled out a revaluation of the German mark (which none the less came in 1961)
or an inflationary policy to expand domestic demands, a massive official capital
export was considered to be an option which would not clash with other German
policy objectives. The Bundesbank suggested a grant of DM 3–4 billion ($714–
$1000 million).18 In addition, an increased capital export could be reconciled with
the demands to offset the costs of British and US troops stationed in West Germany
and to extend foreign aid payments. The demand for capital export sounded familiar
to German ears since European Payments Union (EPU) days, but was problematic
in a capital-scarce economy and with restraints on federal income.19 West Germany
did withstand the pressure until the revaluation debate, combined with US pressure
to come forward with an aid programme, forced Germany not only to address the
problem but to act convincingly.
On the US side the approach was mixed. A revaluation of the mark could solve
the surplus problem for Germany but would reduce the claim for burden-sharing
in the military and economic assistance field. When revaluation finally occurred in
1961, Germany’s commitments to offset US military expenses and to expand its
foreign aid were in place. In the long run it became obvious that neither capital
exports nor revaluation of the mark alone could solve the problem of disequilibrium
in international balances.
There is a grain of truth in the statement of the vice-president of the Bundesbank,
Otmar Emminger, that the German surplus problem was the midwife for a
systematically planned development policy,20 but his assessment ignores the fact that
German foreign aid in the late 1950s had already quietly equalled and even surpassed
the US level of aid as a percentage of GDP (see Table 2).21
The early period
In addition to multilateral commitments (to the United Nations and the IBRD),
Germany had granted bilateral economic assistance since the mid-1950s in the
form of technical aid (DM 200 million ($46.6 million) in 1956–9) through the
Foreign Ministry and in long-term export financing under the Hermes export credit
guarantees, with a ceiling of DM 9.5 billion ($2.26 billion), 80 per cent of which
18
O. Emminger, D-Mark, Dollar, Währungskrisen. Erinnerungen eines ehemaligen Bundesbankpräsidenten
(Stuttgart: Deutsche Verlags-Anstalt 1986), 111. In a discussion with the US Treasury, Harkort had
already mentioned in 1957 that this amount should be transferred ‘to other purposes’. 13 Sept. 1957,
Memorandum of Conversation Harkort–Brown, RG 56, OASIA, Box 46.
19
In principle, the German government rejected the US position that ‘any appraisal of German
capability for assisting underdeveloped countries must necessarily be centered upon the balance of
payments surplus and how to marshall it for development assistance use’; 20 July 1960, OASIA, OECD,
Box 7.
20
Emminger, D-Mark,111–14.
21
OECD, The flow of financial resources to less developed countries, 1961–1965 (Paris: OECD, 1967), 49.
480
Contemporary European History
Table 2. Total net flow of aid from DAC countries, 1950–1961
1950–1955
Country
United States
United Kingdom
France
Germany (FRG)
Japan
Italy
1956
1957
1958
1959
1960
1961
Percentage of GDP at market prices
FRG statistics
US statistics
FRG statistics
US statistics
FRG statistics
US statistics
FRG statistics
US statistics
FRG statistics
FRG statistics
0.49
–
–
0.30
0.09
0.27
0.77
0.77
1.03
0.97
2.06
2.61
0.93
0.46
0.48
0.51
0.92
0.92
1.48
1.39
2.40
2.81
1.07
0.71
0.42
0.80
0.83
0.84
1.32
1.03
2.29
2.60
0.96
0.68
1.15
0.52
0.68
0.68
1.33
1.25
2.15
1.97
1.35
0.92
0.58
0.54
0.76
0.77
1.20
1.09
2.24
2.02
0.92
0.74
0.63
0.87
0.90
0.89
1.15
1.10
2.25
1.99
1.08
0.98
0.78
0.72
Sources: Germany: BMZ, Entwicklungshilfe der DAC-Mitgliedsländer ab 1950.Leistungen in absoluten
Beträgen und in Prozenten vom Bruttosozialprodukt in jeweiligen Marktpreisen. 25.3.1963, B 136/2921,
BAK. United States: Net Flow of Long-Term Resources, Offical and Private, to Developing Countries from
the United States and other DAC Countries. 9 Nov. 1965, Bell Memorandum for Bundy, LBJ, NSF, Agency,
Box 2. The differences between the United States and the German data result from the fact that the US figures
only include long-term official and private loans and credits (i.e. of more than five years’ maturity).
was used for exports to underdeveloped countries.22 The United States had asked
Germany to stabilise the southern flank of NATO by providing economic assistance
to Turkey and Greece, making Turkey a recipient of German aid virtually up to the
present day. In 1953, at the request of the United States, Germany participated
in implementing the Greek Plan for Economic Reconstruction and Technical
Equipment with credit facilities of $47.6 million, a grant of technical aid and credit
guarantees for German exports to Greece. This co-operation was extended twice, in
1955 and 1958, amounting to $148 million in 1958.23
At multilateral level, West Germany transferred its total quota ($66 million) to the
World Bank and in addition the Bundesbank provided dollar loans of $314 million
($289 million since 1957) to increase the credit lines of the World Bank.24 In 1962, 60
per cent of the World Bank loans were raised on the German capital market.25 The
president of the World Bank, Eugene Black, tried to persuade Germany to channel
all its aid through the World Bank. His argument was that the World Bank would
provide sound evaluation and control and that development assistance from the World
Bank would be non-political.26 Members of the Bundestag saw this proposal in a
different light. They advised the federal government to stay away from international
22
29 July 1959, Call by Mr v. Hofe, German Economic Ministry, on Mr Upton, RG 56, OASIA,
Box 46.
23
28 Oct. 1959, Germany: Aid to underdeveloped countries, RG 56 OASIA, Box 50.
24
Ibid.
25
4 Jan. 1962, BMW, Vorbereitungsmemorandum für Besuch von Black, B 136/3340, BAK. German
contributions up to this date were $800 million – one-eighth of the total net disbursements.
26
März 1958, Leitung der finanziellen Hilfen für Entwicklungsländer über die Weltbank. Akten des
Bundeswirtschaftsministeriums B 102/115019, Bundesarchiv Koblenz (BAK).
The Foreign Assistance Policy of the FRG, 1958–1971
481
Table 3. Total aid flow from Germany, 1950–1960
1950–1955
1956
1957
1958
1959
1960
1169.2
1018.5
2187.7
1744.8
1610.1
3354.9
1439.1
1146.4
2585.5
DM million
Official aid
Private aid
Total
1320.5
1215.0
2535.5
677.6
1155.0
1832.6
1252.1
1039.1
2291.2
Source: Gesamte Leistungen der BRD an Entwicklungsländer in den Jahren 1950 bis 30.6.1961, PAA, B
58/388.
organisations, which were associated with the image of US aid.27 Similarly, the
European Development Fund (EDF) was criticised for being used to advance the
interests of the former colonial powers, even though Germany provided a third of
its funds. Contrary to received wisdom, German official development aid exceeded
private aid from 1950 to 1960 with the exception of 1956 (see Table 3); this was
largely due to the high percentage of multilateral aid.28
Nonetheless the United States criticised German aid as export promotion, and
asserted that Bonn’s contributions were totally insufficient in scale, given Germany’s
huge international payments surpluses. When Germany offered advanced payment
of its postwar debts to reduce its balance of payments surplus, it was told that this
was too easy an option. What was required was a large-scale, long-term overseas
assistance programme, irrespective of deficits or surpluses in the German national
budget.29 ‘It is really remarkable, the ingenuity the Germans seem to be showing in
trying to avoid facing up in full to what all their friends are trying to get them to do.
I think people are beginning to get rather impatient.’30
In a public statement of October 1957 the German government had already stressed
the importance of foreign assistance to the underdeveloped world and announced its
intention to contribute substantial means to this purpose.31 In 1961 the Adenauer
government launched a big aid programme that would be administered by a new
Ministry for Economic Co-operation (Bundesministerium für Zusammenarbeit,
BMZ) under Walter Scheel in co-ordination with the Foreign Ministry (Auswärtiges
Amt, AA) and the Economics Ministry (Bundesministerium für Wirtschaft, BMW).
For the German aid budget, DM 5.479 billion ($1.37 billion) were authorised, the
27
7 Oct. 1958, Aufzeichnung über gemeinsame Sitzung des Außenhandelsausschusses und des
Unterausschusses Wirtschaftsentwicklung fremder Völker in Berlin am 1.10.1958, PAA B58/9. West
Germany refused to participate in organisations of colonial powers, like the CCTA (Commission for
Technical Co-operation in Africa, South of the Sahara) and a planned subdivision, FAMA.
28
A. Kruse-Rodenacker, H. Dumke, unter Mitarbeit von Niklas von Götz, Kapitalhilfe. Untersuchungen zur bilateralen Kapitalhilfe im Rahmen öffentlicher Leistungen (Berlin: Duncker und Humblot, 1970), 93–
101.
29
16 Sept. 1960, J. A. M. Marjoribanks (British Embassy Bonn) to J. E. Chadwick, Economic
Relations Department, FO 371/150018, PRO.
30
21 Sept. 1960, Earl of Cromer (Brit. Embassy Washington) to Chadwick, ibid.
31
Dec. 1957, Aufzeichnung über deutsch-britische Zusammenarbeit zur Förderung der
Entwicklungsländer, ‘Colombo-Plan für Afrika’, PAA, B58/30.
482
Contemporary European History
highest budget in the decade, which raised the overall West German aid to 1.17 per
cent of GNP, exceeding the target unofficially set for the ‘Decade of Development’.
The concept of development policy which formed the basis of the 1961 programme
evolved during the late 1950s, when decolonisation in Asia revealed the problems of
the newly independent states.32 But it also acknowledged the responsibility of the
rich nations to assist the development of new states.
Concept and principles of the German development assistance programme
When the BMW began to discuss development policy in 1956, it had to respond to the
debate about the so-called ‘Sino-Soviet economic offensive’. In a short memorandum
for the Chancellor’s Office on how to deal with the Third World, three points were
emphasised. First, the problem of underdevelopment requires a policy of co-existence
with the Soviet Union in the foreign aid field to avoid fruitless competition; second,
development assistance should not be labelled as ‘aid’ but rather presented on the
basis of ‘partnership’ in order to generate the self-help capabilities of the developing
countries; third, the developed countries should co-ordinate their economic policies
with a view to absorbing the products of the LDCs.33 The last two points embraced
principles that were basic to German development policy, which sought to relate the
donor’s and the recipient’s perspectives to the overarching goal of attaining sustainable
development while at the same time maintaining that the objective of the West, a
‘free world economy’, was the best guarantee for the free flow of resources between
the developed countries and LDCs.
The basic assumptions underlying German economic assistance policy were first,
that development can only be assisted by foreign aid, but is predicated upon the
political, economic and social conditions of the LDCs. Second, technical assistance,
especially education and the transfer of know-how, would be a catalyst for improving
the standard of living, promoting social and political stability and inducing economic
growth in order to narrow the gap between rich and poor countries. Third, the
integration of LDCs into the international economy would only be possible if they
were granted free access to the markets of the industrialised countries. Aid as a
surrogate for market access would be counterproductive to the purpose of aid. Fourth,
increasing food production in LDCs should have priority over exports of surplus foodstuffs from developed countries, even when food aid was given on a grant basis.
It can be reasonably argued that a concept of development mirrors to a certain
extent the way a community thinks about itself; in this respect the concept of aid was
influenced by Germany’s recent experiences of rebuilding an economy from scratch
and transforming it into a social market economy. Sound economic and financial
policies were seen as prerequisite for economic growth and social betterment of the
32
H. Dumke, Anfänge der deutschen staatlichen Entwicklungspolitik. Eine Korrektur des politischen Bildes
(St. Augustin: Konrad-Adenauer-Stiftung, 1997), 5–8.
33
11 Sept. 1956, Probleme und Lösungsvorschläge der westlichen Welt. Akten des Bundeskanzleramtes, B 136/2519, BAK.
The Foreign Assistance Policy of the FRG, 1958–1971
483
people. Based on this assumption, the main German criticism of large-scale foreign
assistance programmes which focused on government-to-government aid (Official
Development Assistance) was that it was unlikely to lead to a free market economy
but rather would increase the danger of corrupt state economies.34 It would exhaust
the capabilities of the donor countries while having only a marginal effect on the
recipient. Germany wanted foreign aid to be restricted to measures that were likely
to be successful and would therefore be based on partnership between the donor and
the recipient, not expressed as a lofty principle but in a practical way. Development
projects should require a contribution from the recipient to make sure that there
was genuine commitment. Avoiding a waste of money and making the best use of it
was the attitude of a country where capital had been scarce for the previous fifteen
years. Thus the German ‘aid philosophy’ was different from the US approach that aid
should be ‘on easy terms and lots of it’35 and from that of the former colonial powers
which tried to rescue their spheres of influence (the sterling area and the franc zone)
and secure the assets of colonial times.36
In the intense discussions between the Germans and the Americans on a
multilateral and bilateral level, Germany defended its position against US pressure.
Whereas for the United States the amount of aid and the capability of donors to pay
were the touchstones of aid, Germany insisted that the value of aid could only be
judged by its effectiveness and by what would be most beneficial to the recipient.
The 1961 programme
In the inspiring early days of the Kennedy administration, backed by a thriving
economy, the German government moved in the direction the United States wanted
it to take and started a long-term assistance programme. For Adenauer, who was
personnally not very interested in the issue, this seemed to be a topic on which to
demonstrate close US-German understanding and thus gain a claim on US support
in matters closer to his political objectives. After the elections in October 1961, the
German government gave up its reluctance to come forward as a major donor country.
At the DAG meeting in March 1961 in Washington, the German delegation had
already announced that the government would present a DM 5 billion ($1.19 billion)
aid programme, including long-terms loans, grants and multilateral commitments.37
This statement was repeated in the Bundestag in response to the opposition’s Große
Anfrage (large enquiry) about development policy; the United States had refrained
34
21 March 1961, Memorandum of Conversation, Rashish with German Government, RG 59,
Records of the Department of State, LOT 68 D 83, Box 25, NARA.
35
White, German Aid, 11.
36
D. Fieldhouse, The West and the Third World. Trade, Colonialism, Dependence and Development (Oxford:
Blackwell, 1999), 230ff.
37
10 March 1960, Grewe (German Ambassador) telegramme on the first DAG Conference
Washington, PAA, B52/68.
484
Contemporary European History
from pressuring the Adenauer government too much in order not to undermine the
governing party’s position in the forthcoming elections.38
A cabinet paper produced by the three ministries involved (the AA, the BMW and
the BMZ) elaborated on the cabinet decision that official development aid should be
integrated into the national budget; it summed up the basic assumptions of German
development policy and the principles of financing foreign aid. ‘In co-operation with
the other countries of the Free World it is the intention of the Federal Republic to
support the developing countries in their effort to build a sound political, economic
and social order to increase the standards of living and to integrate these countries
into the world economy.’39 The political motives were to develop good and friendly
relations with the developing countries and to help to reduce friction that might
evolve from different stages of development being exploited by the communist bloc
in an attempt to blame the West for the plight of the Third World. The amount of aid
committed in this programme complied with the DAG resolutions on the ‘Common
aid effort’ which were adopted in March 1961, and with the agreement among DAG
members that GDP should be the reference for the unofficial 1 per cent target for
aid.40
For the first time a considerable amount was assigned to official long-term capital
transfer from both budgetary and capital market resources, including credits from
the Kreditanstalt für Wiederaufbau (the German official development bank, KfW)
(see Table 4). Apart from technical aid given on a grant basis, official development
aid was to be employed to finance (i) bilateral projects with a multiplying effect
for the development process in the recipient country; (ii) development programmes
on a multilateral basis evaluated by international institutions (World Bank, IDA, the
United Nations); and (iii) contributions to national development banks in developing
countries for projects that would be administered according to German aid project
criteria.41 In particular it was stated that German development aid was granted with
no political strings and on a global basis, and that capital aid would be untied, that is,
not instrumentalised as export promotion for German industries. These conditions
were different from those of former colonial powers whose aid was tied and restricted
to former dependencies. The United States provided aid on a global basis, but it was
tied to US procurement for balance of payments reasons.
The administration of aid
The administrative responsibility for West German development aid was split between
three ministries. To ensure a proportionate distribution of portfolios in the new
German coalition government of Christian Democrats and Free Democrats, a
38
15 Feb. 1961, Rusk Memorandum for President, German Balance of Payments proposals, JFK,
NSF, Germany, Box 74.
39
30 Dec. 1961, Entwurf einer Kabinettsvorlage. Memorandum von AA, BMZ und BMW:
Grundsatzfragen der Entwicklungspolitik und Finanzierung der Entwicklungshilfe, PAA B58/388.
40
12 April 1961, Bericht über die 4. DAG Tagung in London, B 136/2926, BAK.
41
15 Nov. 1961, BMW Memorandum, Vorläufige Grundsätze für die Ausgestaltung der bilateralen
langfristigen Finanzhilfe der Bundesrepublik Deutschland, PAA, B 58/388.
The Foreign Assistance Policy of the FRG, 1958–1971
485
Table 4. The German aid programme, 1961
DM million (US$1 = DM 4.20)
Disbursements
1961
1962
1965 1964 1965 1966
Bilateral capital aid
Technical aid
Multilateral aid
Other
Total
Sources
1. New sources
Budget allocations of capital aid
Allocations of capital aid by KfW, ERP and Länder
Budget and ERP allocations for technical aid
Budget allocations for multilateral aid
Budget and ERP allocations for other aid purposes
Total
2. Surpluses from 1961
Loan to KfW
from Title 6007/570 (total DM 1,525 million)
from Kap. 0502/669 (total DM 80 million)
Total 1 and 2
1,200 1,560
88 250
265 580
72 155
1,625 2,325
1,920 2,280 2,640 1,800
546 465 555 555
580 580 580 580
155 155 155 155
2,801 3,278 3,530 2,690
1,285 1,000 1,050 1,050 1,085 1,050
1,440 440
750 750 750 750
88 150
346 463 355 355
265 380
380 380 380 380
155 155 155 155
72 155∗
3,150 2,125 2,681 2,798 2,725 2,690
120
–
80
3,150 2,325
120 480 805
–
–
–
–
2,801 3,278 3,530 2,690
∗ Including DM 40 million from ERP.
KfW – Kreditanstalt für Wiederaufbau (German Development Bank).
ERP – European Recovery Fund.
Source: Entwurf einer Kabinettsvorlage. Memorandum von AA, BMZ und BMW: Grundsatzfragen der
Entwicklungspolitik und Finanzierung der Entwicklungshilfe, PAA B58/388, Table 4.
new Ministry for Economic Co-operation (BMZ) was established. It would share
the competence for development policy with the AA and the BMW, which
together had been in charge of foreign aid prior to 1961. As the new ministry
was mainly staffed with officials from these two ministries, and under-secretary
Gustav Sonnenhol from the BMW and head of department Horst Dumke from
the AA took care of the organisation of the BMZ, a certain degree of continuity
was guaranteed. The sector of technical aid was transferred from the AA to
the new ministry, while the BMW remained in charge of capital aid. The AA
was given the leading role in formulating development policy, as an important
aspect of the foreign relations with developing countries, in close co-ordination
with the BMW and the new BMZ.42 To ensure that development aid was
provided on a coherent basis and that decisions on projects and disbursement
of aid money were co-ordinated between the ministries involved, including the
Ministry of Finance (BMF), the AA initiated an Interministeriellen Ausschuß für
Entwicklungsländer (Interministerial Committee for developing countries) which –
by a cabinet decision of 1959 – was to be the permanent steering and coordinating committee for development policy. This committee was supported by
42
25 Jan. 1962, Aide memoire Lahr, Aufgabe des Auswärtigen Amtes auf dem Gebiet der
Entwicklungshilfe, B136/2919, BAK.
486
Contemporary European History
the Interministerielle Referentenausschüsse (Interministerial Officials’ Committees,
IRA) dealing with specific aspects of aid at expert level.43 After the setting up of the
BMZ, the chair of the steering committee went to the new ministry and the number
of IRAs was reduced in 1964 to technical aid and capital aid.44 The proceedings of
the steering committee did not reveal fundamental differences between the undersecretaries of the three ministries on basic principles of development policy or on
questions of area distributions and projects. Discussions were problem-orientated
and mostly non-controversial.45 Questions that could not be solved were subject to
cabinet decisions.
At ministerial level, questions of competence and status continued to be debated
into the 1970s. Minister Walter Scheel, who took up his post in 1961 with personal
foreign policy ambitions,46 tried to gain responsibility for the relationships with
developing countries. The AA refused to establish the post of Entwicklungsattaché
(chargé d’affaires for development) in the diplomatic service who would take
instructions from and report to the BMZ: there had to be a single authority of
instruction in foreign affairs.47 To build up direct connections with the recipient
countries, the BMZ developed a network of Länderbeobachter (country observers) who
were recruited from the Überseevereine (overseas societies; like the Ibero-American
society) and who were supposed to collect information in the developing countries
(field reports) and make suggestions for development projects.48 Not only did the AA
complain about the interference in foreign relation with developing countries,49 but
many of the developing countries preferred and insisted on authoritative diplomatic
relations in foreign aid as in other relations.50 The positive aspect of the activities of
the BMZ was the increasing attention given to development matters in the foreign
service. Scheel’s successor, Hans-Jürgen Wischnewski, and his under-secretary Udo.
Hein acknowledged that the system of country observers had not been as successful
as expected; they proposed as a solution incorporating Entwicklungsattachés in the
ambassadorial staff in the most important developing countries.51
When Eppler came to office in late 1968, he not only claimed a ‘depoliticising’
of foreign aid, which he saw as subordinated to the Hallstein doctrine, but also
tried to enlarge his area of competence in two directions: (i) the BMZ should be
43
Dumke, Anfänge der deutschen staatlichen Entwicklungspolitik, 38–9; 18 June 1964, Sachs
Memorandum, Zuständigkeiten für Entwicklungshilfe, PAA, B1/381.
44
5 April 1964, Bundeskanzler Erhard an Scheel, PAA, B1/381.
45
11 March 1967, Aufzeichnung, Zusammenarbeit der für die Entwicklungshilfe zuständigen
Ressorts, PAA B58/649.
46
R. Lahr, Zeuge von Fall und Aufstieg. Private Briefe 1934–1974 (Hamburg: Albrecht Knaus Verlag,
1981/1984), 345
47
See note 42, Aide mémoire Lahr.
48
24 Oct. 1967, Anforderungen für Außenwirtschaftsdienst, B58/649.
49
24 July 1963, Lahr Memorandum, Tätigkeit der Auslandsvertretungen auf dem Gebiet der
Entwicklungspolitik, B2/153.
50
16 Oct. 1967, AA an BMZ, Beobachtung der Wirkungen deutscher Entwicklungshilfemaßnahmen,
B58/649.
51
8 May 1967, Memorandum, Entwicklungspolitik – Besprechung zwischen StS. Lahr und StS. Hein
(BMZ) am 5. 5. 1967, ibid.
The Foreign Assistance Policy of the FRG, 1958–1971
487
in charge of capital aid – which finally happened in 1971; and (ii) the BMZ should
represent Germany in international negotiations and organisations whenever issues
of development policy were on the agenda.52
The principles of development policy and the criteria for aid that were formulated
at the beginning of the 1960s remained the basis for German development aid into
the second development decade of 1970 to 1980. The public statements of Eppler
seemed to indicate a total change in development policy,53 but at official level – as
in DAC meetings – Eppler stressed the continuity in German development policy
which would be modified according to the recommendations agreed upon in the
DAC.54
Development policy and German policy objectives
It is obvious that the status of the Federal Republic vis-à-vis the Third World was
a result of its foreign assistance policy in the same way as its status among Western
countries was a result of its economic and financial strength. I would argue that
Germany was able to pursue its foreign policy objectives on the basis that its foreign
assistance policy reflected a genuine commitment to the development of the Third
World. Foreign aid was seen from the perspective of how a ‘new’ Germany presented
itself to the world. Germany had no ambitions to establish spheres of influence; this
added to the credibility of its economic assistance to the Third World, as did the fact
that it was not tainted by colonialism. As a successful economic power, Germany
was in a position to offer world-wide attractive forms of co-operation to developing
countries. German technical assistance, in particular, was well received and extremely
successful.
I agree with White’s analysis55 that Germany’s planned and co-ordinated
programme was tailored to the promotion of economic development and that shortterm political and economic interests do not form an important factor in explaining
Germany’s aid concept.56 This does not imply that Germany did not use its political
status as major donor country to ensure that the recipients of aid would not act
against well-known German policy positions. Although development aid was granted
52
11 Dec. 1969, Vermerk von Lebsanft über Gespräch des StS. mit Eppler, PAA B58/856. To give
one example: the authority of instruction for the German policy in the DAC had prevailed in the BMW,
while the papers for proceedings and the country reviews were prepared in the BMZ, 2 Dec. 1965,
Lamby, DAC Ministerial Meeting in Bonn, BAK B 213/937.
53
The social movements of the left in the late 1960s developed empathy for the Third World that
implied a new approach in development policy.
54
27 Nov. 1969, Eppler speech at the DAC Meeting 4 Dec. 1969. In the steering committee for
development aid, the most senior and experienced aid expert, Elson, summed up the findings of the
Pearson Report as indicating in principle that the development policies of the Western donors were on
the right track. 156. Sitzung des Lenkungsausschusses, DAC Meeting.
55
White, German Aid, 16.
56
R. Hofmeier and S. Schultz, ‘German Aid: Policy and Performance’, in O. Stokke, ed., European
Development Assistance, Vol. 1: Policies and Performance (Tilburg: European Association of Development
Research and Training Institutes; Oslo: Norwegian Institute of International Affairs, 1984). See also
Nuscheler, Nohlen, Haase, Bodemer. It is astonishing that Bodemer comes to this conclusion, too,
although his very informative and extensive material allows a different interpretation.
488
Contemporary European History
according to the recipients’ needs and German aid criteria, and although the FRG
did not expect ‘active support’ over the ‘German question’ (Alleinvertretungsanspruch)
in return for aid, it expected mutual respect of national interests as a foundation for
co-operation.57 From Adenauer to Brandt, no German government would allow its
Deutschlandpolitik to be prejudiced from outside. At a conference of ambassadors in
Addis Ababa, Brandt made it absolutely clear that the Hallstein doctrine would be
enforced until the government had finally settled on a new Ostpolitik. States who
were seeking German assistance knew about these conditions; German official aid
was withdrawn in a very few cases, such as Ceylon (Sri Lanka), Tanzania, Egypt and
Cuba, who refused to endorse them.58
In the mid-1960s, the AA was extremely concerned that the Soviet Union would
take the opportunity at the many conferences of non-aligned countries to promote
its German policy.59 The AA lobbied the Western allies to secure their support in
influencing those attending the conferences not to give international attention to the
GDR regime. In letters to Chancellor Erhard, Finance Minister Rolf Dahlgrün, and
Economic Minister Kurt Schmücker, Foreign Minister Gerhard Schröder argued that
foreign aid should be directed in such a way as to ensure the political support of LDCs
for the policy of non-recognition of the GDR.60 The reaction to Schröder’s initiative
was symptomatic: he was reminded that the main objective of foreign assistance was
the development of recipient countries and not to generate support for FRG policy
objectives such as the non-recognition of the GDR. To create a link between the
two issues would make the FRG a target for pressing for more aid in exchange for
political support.61 The fact that the GDR was a marginal donor, although very
active in the developing countries, added to Bonn’s confidence that the amount and
the quality of its aid would support its policy interests in developing countries. In
general, the concept and direction of FRG development policy was hardly affected
by the Hallstein doctrine.62
Form and conditionality of German development aid
The German aid programme of 1961 was welcomed as an adequate contribution to
the flow of aid from OECD countries to LDCs. For the United States, however,
57
R. F. Pauls, ‘Außenpolitik und Entwicklungshilfe’, Außenpolitik, 6 (1965), 375–88.
16 March 1965, Aufzeichnung: Kabinettsentscheidung über Entwicklungshilfe für Tanzania, PAA,
B 1/381. Tanzania was the most prominent case. Technical aid and guaranteed export credits were not
affected by the withdrawal of aid. The DED – although funded completely by the German government
– stayed in Tanzania because of its ‘private’ character.
59
17–21 July 1964, Cairo Conference; 5–12 Sept. 1964, Second Arabian Summit in Alexandria;
10 Oct. 1964, G-77 Conference in Cairo (Second Belgrade Conference); Summit of Afro-Asian States:
Second Bandung Conference in March 1965.
60
4 Sept. 1964, Schröder to Erhard; 30 Nov. 1964, Schröder to Dahlgrün, PAA B 58/388.
61
7 Oct. 1964, Dahlgrün to Schröder, PAA B 58/388.
62
There are a lot of alarmist reports to the AA from the field about East German activities, and
promises of more aid were made against this background, but, as in the case of Indonesia, these promises
did not materialise due to the strictly enforced aid criteria and budgetary restraints. 8 March 1967,
Aufzeichnung: Deutsch-indonesische Verhandlungen in Bonn, 6. und 7.3., PAA B58/649.
58
The Foreign Assistance Policy of the FRG, 1958–1971
489
Table 5. Distribution of Official Bilateral Disbursements and Commitments, 1962–1963
1962
Disbursements
∗
Value
Europe
Africa
Latin America
Asia
Not allocated
geographically
Total
1963
Commitments
∗
per cent
Value
per cent
112
256
150
633
238
8
18
11
46
17
297
276
146
1,071
85
16
15
8
57
5
1,390
100
1,875
100
Disbursements
∗
Commitments
per cent
Value∗
per cent
162
266
146
773
250
10
17
9
48
16
342
484
100
1,602
194
13
18
4
59
7
1,597
100
2,722
100
Value
∗ DM
million (US$1 = DM 4.00): all bilateral grants and bilateral loans with maturity of more than one year.
Sources: The Flow of Financial Resources to Developing Countries – OECD, supplemented by the Federal
Ministry for Economics; White, German Aid, 77.
this could only be the beginning, and it intended to exert pressure so that the
forward momentum of Germany’s foreign assistance initiative would be maintained.
Using burden-sharing arguments against the background of US deficits and German
surpluses, the United States wanted to prove that the United States’ combined aid
and defence budget constituted 10 per cent of GNP, whereas the planned German
aid and defence budget accounted for only 6 per cent.63 In US eyes there was much
more room for expanding development aid. However, Bonn categorically rejected
a linkage between defence expenditure and foreign aid, and referred to the DAC
meeting in London in 1961, when the burden-sharing argument had been rejected as
a basis for discussions;64 from Bonn’s, perspective the United States’ linkage strategy
served to cover up the fact that US aid was dwindling in quantity and quality.
Under the impact of a very tight budget, drastic cuts were made in the 1963
German aid budget. The advance commitments made in the 1961 aid programme did
not result in corresponding disbursements, hence, the question was raised whether
the LDCs could absorb the aid on terms laid down in the German programme.
Loans were slightly below market costs, distributed in projects on the basis of a
strict evaluation of usefulness and economic soundness, and in accordance with the
overall economic and social development of the recipient state. The evaluation of a
project would take about two years and after general approval was given it would take
another five years for the project to follow through. The history of the disbursement
of authorised loans in the years 1961 to 1965 demonstrated that the LDCs were indeed
lacking administrative and technical capacities to absorb aid offered on strict terms
(see Table 5). Chancellor Erhard used this argument frequently when confronted
with the request for higher German expenditures on aid. German budget problems
in 1963/4 were another reason for scaling down the authorisation for development
assistance.
63
64
7–9.1.1962, Talking Papers for Kennedy before Erhard visit, JFK, NSF, Germany, Box 75a.
12 April 1961, Bericht über die 4. DAG Tagung in London, B 136/2926, BAK.
490
Contemporary European History
The US Johnson administration reacted angrily to this German retreat. It used a
tougher language, believing that Germany was only forthcoming in aid as financial
compensation for the foreign exchange costs of Allied troops in Germany when
pushed hard by the United States, which believed that the disbursement problem
could be solved easily: Germany would simply have to soften its terms of aid and
follow the US example of large programme financing. In order to get Bonn to
do what Washington expected, the US administration went so far as to ask Bonn
to postpone cabinet meetings and parliamentary debates on the budget, so that the
United States could present its arguments for aid increases. Washington even suggested
a redistribution of income between the Länder (states) and the Bund (federation) to
increase the federal budget.65
The channelling of aid through multilateral institutions was also seen in
Washington as a solution to the German disbursement ‘dilemma’, the welcome
side-effect of such shift being the chance to avoid the ‘hard’ German aid conditions.
When Germany agreed to the setting up of the IDA, it saw it as not only a support
for multilateral aid but an option for lending on concessional terms. Germany
saw the IDA as its means of making contribution to the soft loans required for
large development projects; bilateral aid, however, should not be subject to similar
conditions.
Multilateral aid
In principle a multilateral approach to aid was not unattractive to Germany. The
government’s planning capacity was inadequate, and both the new ministry and the
various semi-official development agencies were lacking experience; planning was
hampered by a lack of data and information to evaluate projected aid. By transferring
resources to the IDA, aid might be more effectively applied and less of it wasted. The
flow of data, accumulated in the World Bank over fifteen years, could be used to
gather information on the economic situation of the underdeveloped countries and
make them available to the donor countries. The World Bank would monitor the
flow of aid and assess whether aid achieved its objective. Multilateral aid administered
by the World Bank was said to be independent from political or commercial interests
of donor countries and therefore more acceptable for recipient countries.66 On
the other hand, Germany was well aware that multilateral aid, whether distributed
through the IDA or the EDF, would benefit former colonial powers, because a large
part of the loans would be used for orders spent in the former metropoles. To give
examples: the United Kingdom contributed 13 per cent of IDA funds, but 20 per
cent of the funds were spent in Britain, and while 80 per cent of the IDA loans went
65
28 July 1961, Dillon Memo for the President, Possible reduction of taxes by West Germany;
17 June 1963, From Charles Sullivan about his Meeting with Deputy Defence Minister Hopf on June 4,
RG 56 198 D, Office of the Secretaries, Under-Secretaries, and Assistant Secretaries, 1932–65. Executive
Secretariat Files of Douglas Dillon, 1961–65, Box 1C.
66
14 July 1959, GEN 681/34, German Position towards IDA, CAB 128/161, PRO.
The Foreign Assistance Policy of the FRG, 1958–1971
491
to India and Pakistan,67 EDF payments went to the former French dependencies
and were mostly spent in France. In Germany’s case, the competitive position of its
industry was the main reason why it got at least a fair share of the IDA aid business
(while making 7 per cent of the contributions to the IDA, about 13 per cent of IDA
loans would be spent in Germany).68 In the case of the EDF Germany’s contribution
was 34 per cent, while only 10 per cent of the money was spent there.69
The argument against increasing Germany’s share of multilateral programmes was
that this would be at the expense of bilateral aid and dilute the chance to pursue
its own aid objectives. In addition, multilateral aid required fixed contributions over
a number of years and could not be reduced in cases of budgetary constraints.
Nevertheless the German Economics Ministry, from Erhard to Schiller, supported
the increase in multilateral aid as a gesture of compliance with the demands of LDCs,
which were forcefully presented at the first United Nations Conference for Trade
and Development (UNCTAD) in 1964.
In the two rounds of replenishment of the IDA in 1963/4 (for IDA 1965–8)
and 1967/8 (IDA 1969–71) (see Table 1), Germany was asked to increase its share
significantly, with the intention of forcing more of its aid money into soft-loan
lending.70 In addition, a German increase was important in order to compensate for
a considerable reduction in the British and Dutch contribution and because the US
Congress was asking for a reduction in US contributions in order to demonstrate
that the United States meant business with regard to burden-sharing.
The second IDA replenishment was more difficult to negotiate than the first.
Because IDA funds were running out of capital, the president of the IDA, George
Woods, suggested a quadrupling of the contributions of the Part I (mainly OECD)
countries from $250 million annually to $1 billion. The United States even proposed
a contribution of $2.4 billion over three years with the proviso that contributions of
deficit countries would be tied to procurements in these countries, a proposition that
already applied to more than 90 per cent of bilateral US aid.71 The proposal was not
acceptable to other members. In addition to the fact that the German government saw
this as another attempt to redirect German aid money from bilateral to multilateral
channels which were directed according to US aid philosophy, Germany strongly
defended unconditionality in multilateral aid; this had always been the premise of its
support for it.
67
During the discussion in Britain about the second IDA replenishment, the argument for the British
contribution was that for each pound the UK contributed to the IDA, £4 would flow to India. 19 Jan.
1967, DVO (67) Minutes of Committee on Overseas development, Replenishment of IDA, Foreign and
Colonial Office (FCO) 48/138, PRO.
68
Peter Müller, Zum Problem der Mittelbindung in der Entwicklungshilfe (Hamburg: Deutsches ÜberseeInstitut, 1969), 12.
69
14 Nov. 1967, Wischnewski to Kiesinger, PAA, B 58/648.
70
IDA loan conditions were a ten-year grace period, a fifty-year repayment period and 3/4 per cent
interest – ‘softer’ than the US terms. 26 Aug. 1963, JFK, President’s Office Files (POF), Box 90.
71
10 July 1962, Kennedy Memorandum for Secretary of State, JFK, NSF, Department and Agencies,
Box 88.
492
Contemporary European History
Germany, whose position was seen as ‘the key to a successful conclusion of the
negotiations for replenishment,’72 was reluctant to offer increased contributions
for two major reasons. First, discussions about the so-called ‘gap financing’ or
‘compensatory financing’ preceeding UNCTAD II held in 1968 in New Delhi
implied the possibility that yet another multilateral fund would be established which
would require a German contribution.73 Germany sided with the British suggestion
to increase the IDA substantially as a pre-emptive action in the face of the demands
of the LDCs at the forthcoming UNCTAD meeting.74 The German government
indicated its willingness to raise the contribution to the IDA, but insisted that other
donor countries, especially the United States, which used to make concessions to
the LDCs and then tried to pass the bill on to others, should agree to resist the
demands for ‘gap financing’ at UNCTAD II.75 Second, the German decision was
stalled because the cabinet was divided on this issue. Whereas Economics Minister
Karl Schiller supported a substantial replenishment of the IDA, the BMZ was reluctant
and the AA in outright opposition, because any increase in multilateral aid had to be
compensated by a reduction in bilateral aid. Finance Minister Franz-Joseph Strauss
insisted that the plafond of the mittelfristige Finanzplanung (mid-term financial planning)
for the aid budget could not be extended.76 His objections were fundamental: the
IDA, in his view, distorted the capital markets and undermined the principles of sound
financing, which he, like Erhard, considered essential to both LDCs and developed
countries.
After the IMF’s annual meeting in Rio de Janeiro in September 1967, when the
financial problems of the LDCs had been discussed in connection with a reform
of the international monetary system, Schiller warned Chancellor Kiesinger that a
restrictive German attitude towards the IDA question would have an adverse effect
on Germany’s political standing with the developing world and would also have
an adverse impact on the political effects of bilateral development assistance.77 A
ministrial meeting finally decided that Germany should increase its contribution to
the IDA to DM 155 million ($38.8 million) a year for a three year period; this
meant a 60 per cent increase in relation to former contributions and amounted to
10 per cent of total IDA funds.78
72
17 Oct. 1967, Visit of Federal Chancellor to London, Oct. 1967, British and West German Aid
Policies. Note by the Ministry of Overseas Development, CAB 133/361, PRO.
73
The Federal Republic vehemently argued against the Horowitz-Plan, which suggested an automatic
credit-financing of LDCs’ balance of payments deficits if currency income was to be reduced by
deteriorating prices for raw materials and major export products. 5 March 1965, Position of the Federal
Republic in respect to the Horowitz Plan, B 102/48595, BAK.
74
28 June 1967, Vermerk Hartmann, B 213/942, BAK.
75
24 July 1967, Lamby Memorandum on the High Level Meeting of DAC, ibid.
76
12 Sept. 1967, Keusen Memorandum on IDA replenishment, B 136/7354, BAK.
77
10 Oct. 1967, Schiller to Kiesinger, B 136/7354, BAK. The problem was that the coalition
government had announced in its Regierungserklärung on 13 Dec. 1966 that it would not increase its
contributions to multilateral organizations. 26 Oct. 1967, Strauß to Schiller against increase of multilateral
aid and IDA-Replenishment, ibid.
78
11 Dec. 1967, Vermerk: Zweite IDA Aufstockung, B 136/7354, BAK.
The Foreign Assistance Policy of the FRG, 1958–1971
493
The AA and the BMZ finally accepted the ensuing reduction in bilateral aid.79 In
its discussions with other donors, the German government objected to the safeguard
clause for deficit countries, but agreed to an ‘end of the queue’ procedure by which
quotas of deficit countries would be the last to be called upon.80 This time the
United States was the laggard, the Aid Bill failing to get through Congress until the
end of 1968. There was the ensuring danger that other donors would turn away from
multilateral lending and concentrate on bilateral development aid.81
One of the principles of German development policy was support for regional
economic intergration, not only to foster development from within the region
by combining capabilities, but also as an instrument for peaceful problem-solving.
Germany participated in funding the regional development banks as a non-regional
contributor: the Inter-American Development Bank (IDB, founded in 1959), the
African Development Bank (AfDB, 1964), the Asian Development Bank (AsDB,
1966). Although the membership of the IBD was at the beginning limited to
regional members, Germany provided it with special funds, and in 1976 became
the second-largest nonregional contributor, after Japan. Germany took 10.8 per
cent and 9.8 per cent respectively of the shares in the AfDB and the AsDB, being
the third-largest nonregional contributor after the United States and Japan in the
former and the second-largest in the latter.82 The negotiations for the AsDB offer
a good example of the pressure the United States was exerting on Germany in
the aid field. With the establishment of AsDB approaching, US Secretary of State
Dean Rusk asked at the end of 1965 for a $75 million German contribution as
being appropriate for a ‘great and rich nation’, and would help ‘to shame’ the
other European nation into increasing their share.83 Negotiations with the British
government revealed the opposite strategy: since Germany had stated that it would
match whatever the British were prepared to contribute, the United States asked
the British government to increase its offer from $10 million to $30 million to
make the Germans come into line, and agreed that USAID should make equivalent
funds available to the United Kingdom for development expenditure to compensate
this increase.84 The expectation ‘that the British decision to move to $30 million
might be a decisive lever in producing a German decision to move to a lever of
79
29 Dec. 1967, BMZ to BMF, bilateral capital aid, ibid.
It had been customary for quite a while that, because of US balance of payments problems, the US
quotas in the IMF, the IBRD and the IDA were not fully drawn. Germany occasionally used the argument
against further demands that its actual share was higher than its nominal share in these organisations.
81
29 Oct. 1968, Fowler to President Johnson, Critical Importance of US Action on IDA. Foreign
Relations of the United States (FRUS), 1964–8, Vol. IX, 437–8.
82
H. M. Selim. Development Assistance Policies and the Performance of Aid Agencies: Studies in the
Performance of DAC, OPEC, the Regional Development Banks and the World Bank Group (London: Macmillan,
1983); see the chapters on the development banks. Initial subscriptions to the AsDB, Collection of
documents, AsDB Website.
83
6 Nov. 1965, Rusk to Embassy Bonn, Lyndon B. Johnson, Presidential Papers, 1963–1969, National
Security File (NSF), Country File, Germany, Box 186, LBJ Library Austin.
84
21 July 1966, PMV 66/13, Background Note for Meeting with US President: Economic
Development in Asia, CAB 133/347, PRO; 14 May 1965, Letter for PM: J. E. Rednall (Overseas
Dev.) to J. O. Wright (cleared with T and FO), Visit by Mr Eugene Black, Economic Aid to SEA,
80
494
Contemporary European History
$50 million’,85 was not fulfilled: the German government did not move beyond the
$30 million.
A particular focus of multilateral aid were the country consortia for India and
Pakistan in the World Bank and Turkey and Greece in the OECD, in which Germany
played a prominent part.86 Although the funds for the consortia, which represented
a group of donors financing the development plans, came from bilateral sources,
the commitments, based on multilateral agreements, gave them the character of
multilateral aid. Here again the United States tried to set the pace for increasing
contributions.87 The problem with the Indian and Pakistan consortia derived in West
German eyes from the practice that once a consortium was founded, the developing
country expected that the donors involved would finance the development plans
without scrutinising the national development plan or asking questions about the
self-help capabilities of the country concerned.88 Although the Federal Republic
contributed $750 million to the India and Pakistan consortia, second only to the
United States, Bonn got the impression of being consulted only in the ‘paying
phase’.89 Germany complained that it was not invited to the negotiations around
the Indian–Pakistan conflict, and made known that it would not participate in any
new consortium and would only be prepared to co-operate in so-called consultative
groups (within the IBRD and the DAC) if they were not intended as a first step
towards a consortium and if no fund-raising functions were attached which would
further reduce the flexibility of donor countries in development assistance policy.90
Bilateral aid
At the end of the 1960s, about 80 per cent of German foreign aid was administered as
bilateral aid. To promote a greater flow of capital to LDCs, the United States urged
the group of donor countries to do more. Until the 1964 UNCTAD, the pressure
to provide more aid came mainly from within the donor group represented in the
DAC, while since the first UNCTAD the donors were faced with the demands of
developing countries, now acting as a group (G-77). This changed the functions of
the DAC from assessing and comparing aid to dealing with urgent problems such
as food production, access to markets, terms of trade, falling prices for the LDCs’
exports, debt problems and the consequences of the practice of tied loans.
PREM 11/1263 PRO. This was a good deal for the British, as in any case a British contribution would
be paid off in contracts for British industries.
85
2 Nov. 1965, For Mitchell or Wright from McGeorge Bundy, Asian Bank, Enlargement of the
German contribution, PREM 11/1263, PRO.
86
See Table 6.
87
The United States asked for German contribution to the third Indian five-year plan – $350 million
in the first year, $300 million in the second. Germany offered $100 million. 26 April 1961, Proposed
letter from the President to Chancellor re Indian aid, RG 56, Files of Douglas Dillon, Box 4.
88
4 Jan. 1962, Henckel an Minister und Staatssekretär, Besuch des Ministers bei Black, B 102/115020,
BAK.
89
23 Sept. 1965, Germany and the Indian-Pakistan conflict, LBJ, NSF, Germany, Box 186.
90
14 Jan. 1966, Lamby to White (ODI) re multilateral aid by consortia, B 213/761; 28 June 1967,
Memorandum on Consultative Groups of the World Bank, B 213/942, BAK.
The Foreign Assistance Policy of the FRG, 1958–1971
495
At the fourth and fifth DAG meetings in London (April 1961) and Tokyo (July
1961), the United States argued that a rich donor should provide comparatively
more aid than the poorer ones.91 While this particular premise was accepted by
DAC members, a link between defence expenditure and foreign aid was rejected by
all other delegations, because it suited only the United States to do less in foreign
economic assistance while pressing the other donors to do more.92 The main topic
of these meetings was the definition of what would be counted as ‘aid’ and how
much would be required to ensure self-sustained growth in developing countries.
The United States presented its proposals: donors should assign 1 per cent of their
GNP to foreign assistance on a grant or long-term financing basis with only nominal
interest rates (3/4 per cent), long maturities and grace periods; the financing of
development programmes was seen as more beneficial to the developing countries
than project financing. This was in every respect contrary to what the Germans
perceived as a sound development concept. They thought that the 1 per cent target
was unrealistic;93 it was bound to raise expectations on the recipient side and would
damage the reputation of the donor countries because they would promise more
than they could deliver. When the United States delegates maintained that the waste
of tranferred capital to LDCs was the unavoidable price of the development process
the German delegation was shocked, and in bilateral talks tried to persuade the
other European delegations that this sort of nonsense had to be stopped.94 Taking
the DAC meetings as a whole over the 1960s, it is obvious that the United States,
although it kept pushing, no longer had the leverage of a front runner to promote
the development policy of the donor group according to its own aid philosophy.
How to evaluate and compare aid conditions was a permanent issue for discussion
between the fifteen DAC members. Not only did the forms of aid differ, but also the
conditions the donors attached to them.95 Germany was concerned that the DAC
would waste its energy in trying to find solutions for technical/statistical problems
of comparability. To look good in aid matters, the member countries would try to
include as much public expenditure as possible in their aid statistics, which were the
basis for DAC evaluations. From the German perspective, the most valuable form
of co-ordination would be to share information on recipient countries and thereby
avoid overlapping projects and hence the wasting of aid money.
91
12 April 1961, Bericht über die 4. DAG Tagung in London , B 136/2926, BAK.
11–13 July 1961, Bericht über DAG Tagung in Tokyo 11–13 July 1961 und Besuch in Bangkok
18–21 July 1961 von Dr. v. Hofe, B 102/112589; 14.7.1961, Drahtbericht von Carstens über DAG
Konferenz, B136/2926, BAK.
93
24 Oct. 1967, US Embasy Bonn to Secretary of State, Visit of Aid Minister Wischnewski to the
US, RG 59, Central Foreign Policy Files, 1967–1969, Box 2121. The German position is that the trend
of ever-widening new funds in the multilateral area does not produce availability of funds.
94
The representative of the European Commission accused the Germans of being as cowardly as the
rest because they did not stand up to the Americans. The German approch – seeking solutions in bilateral
talks – was the result of the experience that the United States used arm-twisting tactics in multilateral
meetings and exploited differences between the participants.
95
27 Aug. 1963, Aide Ḿemoire zu deutsch-amerikanischen Konsultationen am Vorabend des DAC
High Level Meeting vom 23 July 1963, B 102/111913.
92
496
Contemporary European History
The United States proposed a formula for evaluating the various forms of aid
employed by donor countries which would have downgraded German untied loans
in their aid value because of their higher interest rates but accounted the soft loans
of the United States and other donors which were tied to procurement in the
respective donor countries as maximum aid donations.96 Private investments backed
up with a government guarantee – which was a an important component of German
development assistance – would not count at all.97 To press Germany for more aid, the
United States tried to impose a very one-sided definition of aid with the effect that
the German aid effort would look inappropriately low in comparison with the US
figures and the aid targets formulated in DAC and in relation to German financial and
economic strength.98 Presenting two examples, the Germans tried to demonstrate
that an inflexible formula was useless in assessing the comparability of aid.99 First,
Britain and France assigned 90 per cent of their aid to former colonial areas. However,
the high amount of grants in British and French aid to their former dependencies
should not be compared with what the Germans provided in this category, because
concessional capital transfer to former empires protected neo-colonial interests and
therefore benefited donors and recipient alike. Outside the former colonial areas
Britain and France offered aid only on ‘hard’ terms. Second, in the same way German
aid should not be compared with the grant-like100 aid provided by the United States
with exporting agricultural surpluses to LDCs under Public Law 480. To accept this
form of export subsidy as foreign aid, simply because the recipient received it under
concessional terms, contradicted the United States’ own thesis that aid had to be a
bugetary ‘sacrifice’. Germany had no surplus commodity to ‘dump’ as foreign aid.101
It defended its foreign aid structure and the underlying development concept as being
oriented towards the recipients’ needs and putting the quality of aid above quantity.
Nevertheless, Germany continuously softened its capital aid conditions under the
impression of growing problems of the LDCs, and accepted the criteria for official
development aid listed in the DAC resolution on official development assistance
(ODA) in 1965.
German bilateral aid was divided into official and a private sectors. The latter was
considered as important and indispensible but did not reach such a volume as to
justify the thesis that German aid in the 1960s was nothing but export promotion in
96
12 April 1961, Bericht über die 4. DAG Tagung in London, B 136/2926; 27 June 1963, BMW/Elson
an Interministeriellen Ausschuß: Ergebnisbericht der DAC Arbeitsgruppe Terms of Aid in Paris, ibid.
97
12 March 1960, Grewe/Harkort Fernschreiben, 3. Tag der DAG Sitzung, PAA, B 52/68.
98
2 Dec. 1961, Elson report on the DAC Working Party on ‘Common Aid Effort’, B136/2926.
From within the US administration a warning was issued that these evaluation formulas were likely to
backfire, since they could reveal that the United States, Canada and Japan were the real laggards in foreign
assistance, not the Europeans. 10 Feb. 1961, Emerson Ross to Martin, Burden sharing on aid, JFK, NSF,
Box 324.
99
30 Aug. 1963, Ergebnisbericht einer Besprechung im BWM betr. Leddy Memorandum über die
Vergleichbarkeit von EH B53/97, PAA.
100
Until the mid-sixties the United States allowed repayment of the credits in local currencies.
101
1 July 1965, Vermerk von Linhart über eine Direktorenbesprechung über den DAC
Entschließungsentwurf über finanzielle Bedingungen der Entwicklungshilfe – Ergebnisbericht,
B213/937, BAK.
The Foreign Assistance Policy of the FRG, 1958–1971
Figure 1. Net flow of German financial resources to developing countries and multilateral agencies, 1956–1972.
Sources: OECD, Finanzielle Listungen an Entwicklungsländer 1956–1963 (trans. Bonn, 1965). OECD, Development Assistance Efforts and Policies of the Members of the Assistance Development
Committee. 1964, 1966, 1967, 1969, 1971, 1973 Review (Paris).
497
498
Contemporary European History
Figure 2. German bilateral official development assistance, 1963–1970, net disbursement
Sources: OECD; Development Assistance Efforts and Policies of the Members of the Assistance Development Committee,
1964, 1966, 1967, 1969, 1971, 1973 Review (Paris).
the first place (see Figure 1).102 On the contrary, German financial flows to LDCs
from 1958 to 1967 (and again in 1970 and in 1973) consisted of more than 50 per
cent official aid.103 The official part of bilateral aid was a combination of technical
co-oporation on a grant basis and development projects financed through capital
loans (see Figure 2). Technical co-operation was the easiest part to implement to
help the development process, since it concentrated on education and the transfer
of knowledge104 supported by the volunteers of the Deutsche Entwicklungsdienst
(DED),105 an equivalent of the American Peace Corps. Technical co-operation was
most important for the least developed countries; technical aid went in equal parts
to Africa and Asia (see Figure 3), but when population is taken into account, Africa
received a proportionately greater share of technical aid than Asia. The difference in
development and potentials between both continents becomes apparent when one
looks at the regional distribution of capital aid: here, Asia received more than 60 per
cent of the total (see Figure 4). This includes the large share of German capital aid
for India and Pakistan due to consortium commitments (see Table 6).
Development loans were tied to projects for which an underdeveloped country
had to submit an application that had to comply with German aid conditions. As
the first step, the steering committee had to make a political decision for financing
102
Internally the US administration had to acknowledge that German aid had already reached
1 per cent at the end of the 1950s. Feb. 1961, German Perspective on Foreign Aid. A background paper,
by Hans Karl von Borries, prepared for Economic Panel discussion at American-German Conference,
16–19 Feb. 1961, JFK, NSF, Box 324.
103
For comparison: 2000 official flows to LDCs reached 21 per cent and private flows 79 per cent.
BMZ, Statistik und Berichtswesen, table: Stat-02d €.xls/22.02.2002.
104
German educational aid concentrated on students and trainees who were educated half in Germany
and half in their home country; France, for example, concentrated on sending teachers and instructors
to its former colonies to strengthen cultural ties. OECD, Review, 1971, 182–3.
105
Haase, Deutscher Entwicklungsdienst.
The Foreign Assistance Policy of the FRG, 1958–1971
499
Figure 3. The regional distribution of German bilateral technical aid, 1956–1966.
Source: Memorandum entitled, ‘Überblick über die bisherigen Leistungen der Bundesrepublik auf dem Gebiet
der bilateralen Technischen Hilfe und Rahmenabkommen über wirtschaftliche und technische Zusammenarbeit
1967’, 22.2.1967, PAA B58/648.
a project, then the KfW106 took over to evaluate the project. After a final decision
by the steering committe on the basis of the KfW report, a contract was concluded
between the recipient and the KfW; the bank was responsible for the technical and
financial implementation of the project. The loans which financed the projects were
in principle untied (i.e. with no procurement required in Germany), although this
varied over time in order to give German companies a better chance to participate
in the disbursement of aid money, especially as the system of tied loans was practised
by most of the other big donor countries, such as the United States, France and
the United Kingdom.107 The loan conditions varied from project to project and did
not meet the criteria of concessional loans which the United States tried to impose
on the DAC members. Germany defended the position that loan conditions should
be designed individually for each project and each recipient country; it wanted to
differentiate between the more developed countries of the Third World that were
106
The Kreditanstalt für Wiederaufbau (100 per cent public ownership: 80 per cent federal state, 20 per
cent Länder) was responsible for the financing of German reconstruction, which by a legal amendment
(18 Oct. 1961) was to act for the Federal Republic as a development bank in financial settlements with
foreign aid recipients. K. Hesse, Das System der Entwicklungshilfen (Berlin: Duncker & Humblot, 1969),
322.
107
9 Sept. 1963, Erläuterungen über die Ausgestaltung der langfristigen Kapitalhilfe der
Bundesrepublik Deutschland vom BMW, B 102-64498, BAK.
500
Contemporary European History
Figure 4. Regional distribution of FRG official capital aid, 1960–1968, as a percentage of the total.
Source: Geographical distribution of financial flows to less developed contries (disbursements) 1960–64; and country memoranda for 1965–67, BMZ(IIB6-02095-159/68), Bonn,
16.9.1968; in Gref, Johann 149.
The Foreign Assistance Policy of the FRG, 1958–1971
501
Table 6. The most important recipient countries of German capital aid, until December 1968
Country
l. India
2. Pakistan
3. Turkey
4. Greece
5. Spain
6. Chile
7. Iran
8. Afghanistan
9. Egypt
10. Morocco
11. Tunisia
12. Brazil
13. Indonesia
14. Thailand
15. Korea [South Korea]
16. Ceylon [Sri Lanka]
17. Jordan
18. Ghana
19. Peru
Total 19 countries
Distributed to further 45 states
Total
DM million
Percentage of total aid
2,874
914
872
400
275
253
237
231
230
226
202
191
190
185
125
119
115
110
100
7,849
2,689
10,538
27.3
8.6
8.2
3.9
2.6
2.4
2.3
2.2
2.2
2.1
1.9
1.8
1.8
1.8
1.2
1.2
1.1
1.0
0.9
74.5
25.5
100.0
Source: A. Kruse-Rodenacker and H. Dumke, unter Mitarbeit von Niklas von Götz, Kapitalhilfe. Untersuchungen zur bilateralen Kapitalhilfe im Rahmen öffentlicher Leistungen (Berlin: Duncker & Humblot 1970), 109.
able to pay interest rates close to market conditions, and the least developed, who
would get concessional terms.108
According to the German development concept, the promotion of private
investment in developing countries was an important element of foreign aid. Beside
the secondary argument, that private engagement and investment was oriented
towards reward and therefore the best guarantee for joint ventures between West
German companies and LDCs to follow sound economic criteria, the main argument
was that official aid, being dependent on the budgetary and/or balance of payments
situation of the donor countries, would never be sufficient to provide the enormous
financial means necessary to spur a development that would slowly close the gap
between the rich and the poor countries.
For German industries, investments in developing countries were not attractive
under short-term calculations. The return on investments in Germany was extremely
high and the economy worked to the limit of its capacity. Further expansion
of production would have inflationary effects. Under these circumstances, the
promotion of capital exports to LDCs with state guarantees and incentives for
investing in developing countries through credit guarantees and tax rebates was seen
as ‘real’ development assistance. Joint ventures between German and LDC companies
108
BAK.
5 Jan. 1962, Memorandum Internationale Koordinierung der Entwicklungshilfe, B102/31786,
502
Contemporary European History
not only mobilised private capital but also stimulated the transfer of training skills,
knowledge of management, and logistics.109 For this purpose, West Germany set up
an elaborate system of organisations and legal frameworks to overcome the many
obstacles facing private investments in LDCs (a system of guarantees and agreements
with LDCs to protect investments).110 US efforts to exclude private investment from
the accounting of aid were finally dispelled by the European DAC members, as was
the US attempt to use the DAC to influence the provision of bilateral aid by the
other members by suggesting that $1 billion of the bilateral aid should be distributed
according to DAC resolutions.111
The German government shared the assumption that foreign economic assistance
on a large scale was an obligation of the industrialised world which had to include
the transfer of capital, but was more sceptical about the capacity of the recipient
countries to absorb the assistance. Therefore Germany preferred project aid to
programme aid; it was considered less likely that project aid would be wasted
since it was planned in close co-operation between donor and recipient. It was a
speciality of German project aid that a contribution from local sources was required
to make sure that the recipient countries would accept responsibility for the project,
thus making defined self-help a criterion for the giving of aid. For the donor
country, project aid appeared to offer a guarantee of how aid was spent. In an
ideal case, project aid would promote the recipient’s self-help capabilities and selfrespect.
In general, Germany did not deny that financing development programmes
could be beneficial to a recipient country, but this would depend on the state of
development and whether responsible administrative and political structures were in
place. The German government saw two major risks for LDCs that were aggravated by
programme financing: tying of aid and increasing the debt burden. First, programme
aid was tied to procurement in the donor countries. A recipient of US aid would
have to pay a 30 per cent higher price for ‘buying American’ than on the world
market, an effect which neutralised the concessional lending terms. Further, tied
loans could not be spent in the developing regions to support the production
sector of other underdeveloped countries. It was thus undermining the US and
European objective of strengthening regional economic co-operation. Exports of
the other donor countries were also affected by the fact that the US programmes
often exclusively reserved certain import sectors of the recipients for US products.112
To German ears it sounded cynical that the US encouraged other donor countries
109
17 March 1960, Bericht des AA über die erste DAG Tagung in Washington vom 9–11.3.1960, B
52/68, PAA.
110
Deutsche Entwicklungsgesellschaft (DEG) 1962; Deutsche Fördergesellschaft für Entwicklungsländer 1964 (GAWI); Selim, Performance of Aid Agencies, 104–9; Hesse, System der
Entwicklungshilfen, 325–40.
111
10 Oct. 1962, BMW an Interministeriellen Ausschuß: Arbeitsprogramm des DAC, B 136/2926,
BAK.
112
27 Aug. 1963, Aide Mémoire zu deutsch-amerikanischen Konsultationen am Vorabend des DAC
High Level Meeting am 23.7.1963, B 102/111913, BAK.
The Foreign Assistance Policy of the FRG, 1958–1971
503
to finance their export to LDCs in the same way ‘to protect their export markets’
against subsidised US competition. When it came to principles, however, the US
always stressed the fact that untied loans were the most efficient form of aid, but
asked to exempt themselves because of their balance of payments deficit. The DAC
tried to cope with tying of aid, a problem to which all members paid lip services.113
Germany was the only major donor on the DAC whose capital aid was to a large
extent untied114 and who allowed international bidding or the participation of nonGerman contractors even in the case of ‘tied’ projects.115 At the High Level DAC
Meeting in Tokyo in September 1970, a new discussion of untying of aid was initiated,
this time with the support of the US (agricultural products and technical aid were
excluded). The French insisted that there was nothing wrong with tying aid; if a
recommendation of untying would be agreed upon, France would have to withdraw
from the Indian and Pakistan consortia.116 Second, according to the arguments of
the US administration, concessional lending with a long grace period would reduce
the debt problems, while harder terms of project aid and credit guarantees were
blamed for the dramatic increases in LCDs’ indebtness. The Germans disputed this
view and argued that carefully chosen projects with a multiplying development effect
would produce a lesser debt burden than would concessional programme lending.117
LDCs usually did not recognise soft loans as loans and therefore ignored the ensuing
debt problem; it was merely transferred to the future. Abundant capital transfers
from outside increased the tendency in LDCs to underestimate their own capabilities
and discouraged efforts in self-help.118 In 1966, LDCs’ debt payments increased
dramatically, and it was obvious that development financing had to be made more
efficient to get better results from capital transfers.119
A specific case of foreign aid was food aid; to this Germany had a markedly
different approach than the other countries. From Kennedy’s ‘Food for Peace’ to
Johnson’s ‘Food for Freedom’ programme, the humanitarian aspect of food aid made
it difficult to criticise. What began as measures to relieve food shortages under the US
Public Law 480 in the late 1950s120 became in German eyes a huge export subsidy
for agricultural surpluses and should therefore not be counted as aid at all. The
free and easy food supply affected agricultural production in the recipient countries
113
Elson, one of the most respected German aid experts, chaired a working group on ‘Untying of
Aid’, 24/25 July 1963. DAC Meeting Paris, FO 371/172478, PRO.
114
Müller, Mittelbindung, 38. Credits from federal budget and KfW: 1967: 33.8 per cent tied (1966:
28 per cent) and 33.9 per cent untied (1966: 68 per cent); guaranteed export credits 30.1 per cent (1966:
4 per cent). Capital aid credits 1967: tied 48.8 per cent (1966: 29.2 per cent), untied 51.2 per cent (1966:
70.8 per cent).
115
1963, Telegram from the British Ambassador in Colombo, German development aid, FO
371/169239, PRO.
116
17 Sept. 1970, Telegram Sohn about High Level Meeting, Tokyo, B58/702, PAA.
117
23 Feb. 1965, Elson talk with Bell about DAC, B102/11913, BAK.
118
11 July 1966, Entwurf der Erklärung der deutschen Delegation Bundesminister Scheel vor der
DAC Konferenz in Washington am 20/21.7.1966, B 213/939, BAK.
119
2 Aug. 1966, DAC High Level Meeting, OD-9/153, PRO.
120
B. I. Kaufman, Trade and Aid: Eisenhower’s Foreign Economic Policy, 1953–61 (Baltimore: Johns Hopkins
University Press, 1982).
504
Contemporary European History
because local producers were no longer competitive; in the long term this would
increase the problem of feeding the growing populations of the LDCs. At the 1963
annual review meeting of the DAC, Germany stressed the importance of encouraging
agricultural production in the LDCs instead of financing food aid, but received no
support from other members in trying to make food production a major subject
of DAC discussions.121 In 1966 the United States changed its mind and asked for
German support when, despite an enormous flow of aid, hunger became a wellknown phenomenon in the Third World. Instantly the United States decided to
make food production in LDCs a major issue in the DAC and called a high-level
meeting in Washington.122 The reasons were obvious: the United States had run
out of agricultural surpluses, and the Soviet Union (and the Chinese) purchased
crops on the world market with dollars (selling gold), whereas food aid would be
repaid in local currencies. To fight hunger and to increase its monetary reserves,
the US administration decided to increase its agricultural production; in addition,
food production in the underdeveloped countries was declared a major development
target and considered a major indicator of a developing country’s willingness for
self-help.123 Donor countries without agricultural surpluses to export were expected
to contribute to food aid by buying agricultural produce from the United States or
Canada, or France. To Germany, supporting agrarian production in the West with a
view to feeding the Third World was exactly the wrong kind of approach to solving
the problem of hunger. It was important to encourage production and improve rural
infrastructures to make it more attractive for people to stay in their villages.124 It was
necessary to discuss the problem with the LDCs to reverse the policy of precipitating
industrialisation and undertaking prestigious industrial projects and instead pay more
attention to agrarian production to feed a growing population. To German experts,
food aid was the most uneconomic form of aid: money was spent on the shipment
of bulky products where the amount for freight and insurance was higher than
the product price; the same amount of money, however, would have a multiplying
effect when invested in agrarian production in the recipient countries.125 For this
reason, more than 40 per cent of the second EDF (1964–9) went into the promotion
of agrarian production.126 When the United States approached the West German
government in 1967 for a renewal of the 1965 Food aid convention, the latter agreed
to finance the export of agricultural products from LDC to LDC, but refused to pay
for exports from rich countries such as the United States, Canada and France. Only
121
20 Oct. 1964, Thorp–Lamby talks, PAA B 58/364.
3 Aug. 1966, Bericht über die 5. High Level Sitzung des DAC am 20. und 21.7.1966, B 213/939.
This produced angry reactions, especially from the British side, 6 July 1966, Minute for Minister, OD
9/152.
123
23 March 1966, German Embassy Washington to AA, PAA, B60/484.
124
March 1963, Chester Bowles for Clay, Summaries of the Preliminary Discussions of the Committee
to strengthen the Security of the Free World. Chester Bowles criticised the aid policy of his government
as neglecting rural development and the fact that 80 per cent of the people in LDCs were living in rural
villages. JFK, NSF, Robert W. Komer Files, Box 412.
125
7 April 1966, Bericht Dr. Rau über die 63. Sitzung des DAC in Paris, B 213/938, BAK.
126
Bulletin der Europäischen Gemeinschaften (March 1969), 26.
122
The Foreign Assistance Policy of the FRG, 1958–1971
505
one exception was made when Germany – to fulfil its offset obligations – financed
US grain deliveries to India.
The problem of food aid was closely related to the terms of trade between developed countries and LDCs. In some regions, food aid had affected the intra-regional
exchange of agrarian products and deprived LDCs of part of their income.127 The
relationship between trade and aid had been on the agenda ever since foreign assistance
policy had been implemented, but the first two UNCTADs, in 1964 and 1968, added
a new dimension to international development policy. For the first time the LDCs
spoke with a strong voice as a group – and insisted on a dialogue with the developed
countries on development policy. G-77 opposed a donor policy designed to suit
the developed countries’ perception of what was best for the development of Third
World countries.
The initial reluctance of the Federal Republic to pursue foreign aid derived
from the conviction that economic development would not come through aid but
through market access for the LDCs. On his Asian trip in 1958, Erhard – true to
his economic credo – had asked the industrialised countries to open their markets
to LDCs’ products, not only to raw materials but to low-technology products in
which LDCs had a comparative advantage. The proposal was well received by the
countries he visited. Erhard had recognised the necessity for LDCs to start out on the
path of industrialisation as a prerequisite to closing the gap between the rich and the
poor countries. In this respect he also saw the necessity for a structural adjustment of
production in the developed countries – low-technology industries should no longer
be protected against LDC competition.128 For a country like Germany with a high
end technology production which had already lost the low end sector to southern
European competition this was seen as unavoidable, because aid as a surrogate for
market access would not work in the long term. Germany was uneasy about the
UNCTAD conference, not only because the question of representation arose for
the Federal Republic (which was not a member of the UN) but also because the
developed countries had nothing to offer to the LDCs as far as trade was concerned
as long as they did not want the difficult negotiations in the GATT Kennedy Round
to be upset by possible UNCTAD discussions. Consequently the LDCs were to
concentrate on getting more aid as a substitute for trade concessions.129
The first UNCTAD conference, which the LDCs perceived as ‘their’ conference,
revealed the stunning disorganisation of the donor group as compared with a fairly
well organised LDC group, which tried to use its majority to impose its point of view
127
One of the most prominent examples is the delivery of rice as food aid to south-east Asia, which
deprived Burma of its traditional markets. In this case Moscow stepped in and bought the Burmese
rice crop. 10 Nov. 1955, Jackson to Rockefeller, Soviet Economic Offensive, Dwight D. Eisenhower,
Papers as President of the United States, 1953–61, Ann Whitman File, Administration Series, Box 30,
Eisenhower Library, Abilene.
128
29 July 1959, Hofe–Upton talk re expansion of credits, RG 56, OASIA, Country, Box 46. For the
trade not aid discussion in the United States in the late 1950s see Kaufman, Trade and Aid.
129
26 Dec. 1963, State to all OECD Capitals re UNCTAD, German position, RG 59, Central Files
1963, Box 3463.
506
Contemporary European History
on the industrialised countries.130 In the course of discussions about deteriorating
terms of trade for the LDCs, Germany opted for a non-reciprocal preference system
for LDC trade as long as it was non-discriminatory. Germany therefore tried to
reach an agreement within the EEC to extend the preferences of the Yaoundé.
Convention, restricted to former French and Belgian colonies, to the whole region
of Africa. Although non-reciprocal preferences would violate GATT rules, Germany
argued that, when waivers were allowed for balance of payments reasons and for
safeguarding declining industries, it should be possible to protect the infant industries
of the LDCs. Germany categorically objected to the G-77 demand for the creation of
new international funds which would automatically finance trade imbalances of the
LDCs,131 but participated in agreements to stabilise the income accruing from the
exports of primary products (Exporterlös-Stabilisierung), the main export category of
the LDCs. One result of the conference, when the LDCs succeeded in making trade
and development a focus of the international economic system, was the revitalising
of the DAC, since the conference had revealed that more co-ordination and more
fundamental thinking on the issues of trade and aid was required.132 Despite intensive
discussions about the result of UNCTAD (in the DAC Working Committee on
UNCTAD) and preliminary deliberations in the OECD on the eve of UNCTAD II
in New Delhi, the question of the terms of trade of the LDCs remained unsolved.
The German delegation to the High Level Meeting in Tokyo in September 1970
complained that the DAC was still concentrating on the performance of donor
countries and was critical of the fact that a solution to underdevelopment was still
sought in increasing the amount of aid and improving the conditions, while a 10
per cent increase in LDCs’ exports would give them additional revenue amounting
to 30 per cent of the received aid.133 For this reason, German development policy
after the first UNCTAD in 1964 focused on Handelshilfe (trade assistance) in addition
to Technische Hilfe (technical assistance) and Agrarhilfe (agrarian assistance).134 This
included direct measures to promote trade and increase foreign currency income: (i)
the removal of trade barriers (tariffs and quotas); (ii) the improvement of the export
capabilities of LDCs (traffic and port infrastructures, administrative structures); and
(iii) support for intra-regional trade.135
By the middle of the 1960s, the development euphoria of the early years had
completely evaporated. Despite major efforts in foreign aid, it became obvious that the
gap between the highly developed and the underdeveloped countries would widen
further. The political disturbances in many parts of the Third World ran counter to
130
M. Timmler, ‘Das Drama der Genfer Welthandelskonferenz’, Außenpolitik, 7 (1964), 443–52.
21 March 1964, Probleme der Entwicklungshilfe, Beteiligung der BRD, Burden-sharing bei
amerikanischer Wirtschafts- und Militärhilfe, B 102/115021, BAK.
132
16 July 1964, Delegationsbericht über DAC Sitzung vom 9/10.7.1964 über Welthandelskonferenz,
B 136/2918, BAK.
133
14 Sept. 1970, High Level Meeting of DAC, Report Sohn, B58/702, PAA.
134
White, German Aid, 145.
135
H. Dumke, ‘Das Entwicklungspolitische Konzept der Bundesrepublik Deutschland’, in H.
Besters et al., eds., Kooperative Entwicklungshilfe. Deutsche und amerikanische Bemühungen beim Aufbau der
Entwicklungsländer (Bielefeld: Bertelsmann, 1969), 65.
131
The Foreign Assistance Policy of the FRG, 1958–1971
507
the objectives of development. Energy, resources and manpower were diverted by
internal and external conflicts. The donor countries were occupied with pressing
domestic problems (Germany for the first time in fifteen years faced a recession),
while development policy lost public support in most of the donor countries and
was criticised for its failure to produce convincing results. As a result, the World
Bank appointed the Pearson Commission to analyse the first development decade in
the light of the problems that still prevailed. The report presented in 1969 reflected
the DAC discussions during the first development decade, and the recommendations
for the second development decade were interpreted by the principal German ‘aid
diplomat’, Dr Elson, as indicating that the foreign assistance policy of the West was
in general on the right track and that the second ‘Decade of Development’ should
be approached in the same way.136
In its governmental address of 28 October 1969, the coalition of Social and
Free Democrats under Chancellor Brandt declared its intention to implement the
recommendations of the Pearson Commission.137 The German government accepted
that 70 per cent of the 1 per cent GNP aid target should come from public sources
on concessional terms, that technical aid would be increased, that the tying of loans
would be further reduced and that the returns on aid capital should be reinvested.
Notwithstanding the announcement by Eppler of a ‘new development policy’, total
German aid as a proportion of GDP decreased during the 1970s, and ODA shrank in
relation to private investments. The international financial and political disturbances
of the second ‘Decade of Development’ reduced the chance of halting the widening
of the gap between the developed and the underdeveloped world.
A newcomer to the donor countries, from the late 1950s Germany developed a
respectable, comprehensive and wide-ranging foreign assistance programme in a very
short time. It constituted a responsible and constructive approach to the question
of development aid clearly distinct from that of other donor countries, despite the
pressure to comply with the aid philosophy promulgated by the United States. Aid
was given to countries, which, in German eyes, were prepared to help themselves
and only where a project would promote the economic and social development of
the recipient. The basic elements of German development policy evolved during the
1960s and were continued into the second Decade of Development. The thesis that
at the beginning of the Social-Democratic era this development policy had to be
liberated from the political strings of the East–West conflict to be a true global social
policy, derives from the ideological environment of the late 1960s and does not stand
up to historical scrutiny.
136
137
4 Dec. 1969, 156. Sitzung des Lenkungsausschusses, DAC Meeting, B 58/703, PAA.
Archiv der Gegenwart. Deutschland 1949–1999, Vol. 5: 1966–1970, 4880–90.