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Jtwdarory Review
Document # ^9
75
OCIopy No.
MEMORANDUM
BRITAIN'S GOVERNMENT EXPENDITURES EAST OF SUEZ
APPROVED FOR RELEASE DATE.0
DIRECTORATE OF INTELLIGENCE Office of Current Intelligence Office of Research and Reports
am
CENTRAL INTELLIGENCE AGENCY Office of Current Intelligence Office of Research and5
INTELLIGENCE MEMORANDUM
Britain's Government Expenditures ttast of Suez
Summary
One of Britain's main concerns about its overseas commitments is the cost of the "long thin line" beyond Suez. Actual cost figures broken down by geographic area are hard to come by, but our calculationsurden east of Suez of moreillion dollars annually.
An expense of this magnitude does not represent an extraordinarily high percentage of British GNPittle more than oneut in their current hours of financial strain, tho British feel they have to examine all the straws on the camel's back. There is moreover the consideration that the costsizable expenditures which Britain wants especially to minimize because they enter into the balance of We estimate that the adverse effect on the balance of payments may be as highillionear.
This amount is less than the income, nearlyillion dollars, earned annually by Britain from investments east of Suez. However, many Britons feel that this income should not be considered an economic justification for the costs. Their opinion is that the income would by and large still flow to Britain even If drastic economies were made in expenditures. The possible saving of some hundred millions in the balance of payments is largo enough to engage the grim attentionovernment anxious to restore International confidence in the pound.
Calculation of Costs
1. ecent article in the Daily Telegraph (Conservative)rowing viewpoint: "We
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the British hove not providedaccounting of these costs, some indication of
tho economic burden is available from occasional figures thrown out ln parliament and other forums. (See Annox 1) We haveostingof our own as an independent check on these figures. (Soe Annex 2) Our calculation suggests an expenditure ofillionear to maintain British forces east of Suez.
We caution that this figure (amountingtoercent of overall defense expenditures) is an approximation, indicating only the order of magnitude. We stress further that our estimate does not represent the saving that would be roalized if all the forces east of Suez were withdrawn; if the forces were still kept in being after withdrawal, they would then still bo draining Britain's treasury.
Although defense expenditures are much the largest part of Britain's burdon, there are also the additional expenses of military asslstanco payments and other aid to foreign governments. (See Annexur estimate of these payments by the British treasury over and above tho expense of maintaining Britain's own silitary forcesillion dollars. This brings Britain's burden east of Suez toillion dollars annually in round numbers.
Balance-of-Payments Impact
burden is supportable underby an economyNP of more than
illion dollars. Tho causo for concern Is Britain's balance-of-payments deficit. Itillion dollars last year. International apprehensions about sterlingmight ln turnun against thewidespread. The British authorities now have to support the pound against almost constant speculative pressure. In these circumstances, Britain considers its commitments east of Suez to be
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especially onerous insofar as they bear on the balanco of payments.
figures are only partiallyproviding information on this aspect of The published balance-of-paymentsno geographic breakdown that wouldimpact of expenditures attributable to theof Suez specifically. We do, however, have
data from which we estimate that military expenditures east of Suezrain on Britain's balance of payments amounting toillion dollars. (See Annex 4)
this figure we have added the amountand economic aid, with an adjustmentstimulated by such aid. (See Annex 5) of the net drain on the balance oftoillion dollars. With allfor the margin of error, we are still left
lear impression of serious pressure on Britain'* balance of payments; the amount will behird of the expected large deficit
is of some advantage to Britain thatin this analysis are in large partcountries of the sterling area. Thislikelihood that deficits will be financed byin Britain's pound liabilities to othercountries rather thanoss of Even so, the effectecline inof reserves to external liabilities, to erode international confidence in theaccelerate the flight of funds from Britain.
British Income from East of Suez
all of the preaentwould be saved by withdrawal of troops to Even if the troops were all brought homo, would still incur expenditures forneeded to maintain them. Whatever thewould presumably be balanced against theto important British investments whichincomes. On the basis of data forwe estimate thatillion dollars
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secret
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in interest, profits, and dividends is earned annually by the British fro* their inveatements east of Suez, exclusive of the earnings from the Middle East oil properties. Weit more in the dark about the profits from Middle East oil; this statistic is pretty well shrouded ln Britain's balance-of-payments accounts. From figures on the oil revenues ofsthowever, we have estimated that the BritiBh earnillionear on their Middle East oil investments. The sum total of nearlyillion is well above any balance-of-payments saving that could be realized by withdrawal of forces. (See Annex 6)
10. Many Britons argue against balancing these earnings against the drain. Americanin Middle East oil, they point out, exceed British investments, yet Americans are notthe area. Western Europe Is the market for Middle East oil, they reason, and leverage through exploitation of commercial interest rather than through application of military pressure is dsclared to be the bost assurance for Western investments. There are rebuttals to the argument, but it is apparently persuasive onough to have engendered considerable British sentiment for economizing on expenditures east of Suez or, alternatively, getting Britain's allies to assume more ofburden.
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:et
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ANNKX 1
Statements in Parliament
On total military costs east ol Suez
he total directly attributable (annual) cost of our forces oast of Suez is expected to beillion6 million dollars) (Secretary of State for Defense Denis Healey in the House of Commons,9
hesere notcale comparable to the operations east of Suez, which costillionillionear." (Sir Alec Douglas-Home in the House of Commons,
On military costs ln Malaysia
"It really makes no senBe to spendillion pounds0 millionf we include tho Far Eastern Royal Navy operating'in Singapore,illion0 millionprotect British assets inKonnie Zllliacus,. in the House of Commons,
On military costs In Aden
"Is there any need now toase atIt costs usillion0 million dollars)illion0 million dollars) (Emlyn Hoc-son,. in the House of Commons.
On Balance-of-Payments Impact
ost of our forces east ofncludingillion0 million dollars) across tho exchanges." (Secretary of State for Defonse Denis Healey ir: the House al Commons, London
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Estimated British Military Expenditures East of Suez (in millions of US dollars)
Army Navy
Air Force
Total Explanatory Note
British Aid to Countries East of4 (in Billions of US dollars)
Bilateral
Aid Economic Aid Total
Middle
South
Southeast
Explanatory Nof
In calculating the burdenonar country, there are reasons both for and against differentiating between grants that are cost-free to the recipient country and repayable credits that boar interest. The above tabulation on aid excludes privatebut includes official credits, which are ordinarily extended on terms more generous than the recipient country could obtain in capital markets.
Militarycclly Entering Into Balance- of Payments
We do not have statistics for British military expenditures abroad in support of forces east of Suez.
Information is available, however, on British military expenditures abroad3 in support of forces based in countries that are not members of NATO. We also have figures for the militaryof these countries in Britain. The. the not outflow of funds from Britain resulting from these military expenditures,illion dollars.
On the basis of the ratio of British forces east of Suez to tho number in all countries not members of NATO, wo would adjust this net outflow figure downillion. We caution that thisery rough estimate.
balance-of-payments impact of britain's commitments bast ol suez
(in millions of US dollars)
Military expenditures, netAnnex 4)
Military aid (from Annex
Bilateral economicAnnex 3)
Less exports tied to economic
Explanatory Note
In calculating the balance-of-payments impact, the aid figures should be adjusted to allow for export stimulation from foreign aid disbursements.
The tabulation above already makes an implicit allowance for the effect of military aid on export stimulation;illion dollars for military expenditures, transferred to the tabulation from Annex 4, is net of earnings from military exports.
In the case of economic aid, an explicitfor export stimulation is made on the basis of information thatercent of British aid is now wholly tied, that is, requires the recipientto buy British (See Paris3notherercent is partly tied. Theillion figure in the above table is reached by calculating that roughly half the balance-of-payments impact of bilateral economic aid is softened by tying.
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British exports have probably also beenby economic aid which was not tied, but this effect is indeterminate and we have not allowed for it in our calculations.
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sr
Britain's Annual Income From Investments East of Suez
(millions of US dollars)
(Payments to UK) (After Payments from UK)
Selected Countries
Middle East Countries
SubtotalCountries undetermined undetermined
Total
Explanatory Note
"Selected Countries" refers to Burma, Ceylon, India, Malaya, Pakistan, and Thailand. These countries break out transactions with Britain in their balance-of-payments data. The figures, taken from2 balonce-of-payments accounts, are suspect with regard to adequacy of covereage and to their comparability.
The Middle East figures are largely our estimates of income from British oil investments. The estimates are derived from data3 payments by the oil companies to Middle East governments.
Although we lack data for other countries east of Suez, the amounts are probably not large enough to affect our estimated totals substantially.
There are of course debits to Britain's balance of payments which arise when British companies increase their investments abroad. These investments are assumed to be voluntary and recoverable by and large, and we have not brought them into our calculations as an offset to earnings,
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Original document.
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