Senator Tom Connally, chairman of the Senate Foreign Relations Committee, demonstrated the popular sentiment toward foreign aid when he declared in 1951, "We can't go on supporting countries all over the world with handouts just because we like them—or any other reason." Indeed, many members of Congress in this era were reluctant to vote public funds for development purposes, because they believed that such funds should not replace private investment. Beginning with the Marshall Plan, aid had been traditionally aimed at stimulating private investment through trade liberalization and by making improvements in the global economic climate. In fact, in his first State of the Union message, President Dwight D. Eisenhower unabashedly proclaimed that the explicit purpose of American foreign policy was the encouragement of a hospitable environment for private American investment capital abroad. He called for trade, not aid. Such hard-headed motives did not preclude a significant expansion of U.S. economic aid in the Eisenhower administration, however, as confirmed by a significant augmentation of U.S. Export-Import Bank loans and an increase in soft loans in 1954. Cold War pressures as well as the lobbying efforts of individual countries helped further this trend, and the Mutual Security Act of 1954, the first single piece of legislation to embrace the entire foreign assistance program, became the instrument for this new policy. The United States also launched the Agricultural Trade Development and Assistance Act in 1954, commonly called the Food for Peace program, which was still thriving a half century later. This program initially authorized $350 million in food surplus shipments, payable in local currency. Known as Public Law 480, it was the product of some heavy lobbying by Senator Hubert Humphrey, a Democrat who hailed from the farmfilled state of Minnesota. Designed to "increase the consumption of United States agricultural commodities in foreign countries, to improve the foreign relations of the United States and for other purposes," Public Law 480 would authorize $3 billion in sales by 1956 and become an important element in the foreign aid program, while helping to lower U.S. food surpluses. The foodstuffs served as a development subsidy, enabling recipient countries to sell them on the domestic market and then use the proceeds for development projects. Unfortunately, food aid significantly damaged Third World producers, including many Indian farmers, pushing India close to famine in the 1950s and 1960s.
In addition to providing food, foreign aid was also an important weapon of anticommunist intervention during the mid-1950s. After the United States brought down Iran's nationalist, anti-American prime minister, Mohammad Mossadegh, in 1953, replacing him with Shah Mohammad Reza Pahlavi, it gave that country $85 million in foreign aid, and the shah's army was soon among the best-equipped in the Middle East. Eisenhower and Secretary of State John Foster Dulles also used foreign aid to gain friendship and allies in Latin America. In 1954, the United States intervened in Guatemala to overturn the regime of Jacobo Arbenz Guzmán and assist in the military coup of Carlos Castillo Armas. Guzmán, according to U.S. Ambassador John Peurifoy, "talked like a communist, he thought like a communist, and he acted like a communist, and if he is not one, he will do until one comes along." American aid to Guatemala, which had amounted to just $600,000 over the preceding ten years, rose to $130 million in the six years following Castillo Armas's coup. One of Guatemalan aid's most vigorous supporters was Vice President Richard Nixon, who touted construction of the country's Inter-American Highway as promoting everything from trade to security. Guatemala thus became a "testing ground" in the Eisenhower administration's newly expanded foreign aid program.
At the same time, however, U.S. officials grew increasingly uncomfortable with another Latin American client, Cuban leader Fulgencio Batista, who used American military aid meant for "hemispheric defense" against his own people in the late 1950s. Washington welcomed his departure and, initially, the ascendance of Fidel Castro. Soon, however, American military aid, training, and scuba suits would be furnished to the Cuban foes of the Soviet-leaning Castro, though to little effect. In 1957, the State Department's International Cooperation Administration set up a Development Loan Fund chiefly to assist India, which faced a serious foreign exchange crisis. This program represented the first significant use of subsidized (or soft) loans, which by the end of the decade would become the most important tool employed in U.S. foreign aid programs, replacing development assistance. By 1961, the World Bank had also set up a soft loan agency, the International Development Association. U.S. and World Bank lending to India helped the government build fertilizer plants, power plants, highways, railroad locomotives, and airplanes. In the process, however, it strengthened India's national economic planning apparatus, as Shyam Kamath noted in a 1994 article, and "facilitated the growth of the public sector at the expense of the private sector." Thus, though the United States professed that its aid and technical assistance was aimed at creating a better environment for investment and a more liberal economy, as the Indian example shows it often assisted instead in the entrenchment of heavy-handed central planning agencies in the Third World.
As the loans to India demonstrated, the less-developed countries continued to be a vital battleground for U.S.-Soviet competition. In January 1957, in response to the deepening of relations between Egyptian leader Gamal Abdul Nasser and Soviet premier Nikita Khrushchev, the Eisenhower Doctrine pledged U.S. support to any nation in the Middle East that wanted help "resisting armed attack from any country controlled by international communism," and Congress approved a $200 million economic and military aid program for the defense of this region. Then, as 1960 ushered in the "development decade" (see sidebar), Washington finally recognized its largely neglected neighbors at the Conference of the Organization of American States in Bogotá, pledging $500 million for the Inter-American Fund for Social Development. This fund included a bank to furnish improved sanitation, housing, and technical training, in order to enable "the individual citizen of Latin America to live a better life and to provide him the fullest opportunity to improve his status." At the Punta del Este Conference the following year, the Kennedy administration would launch the Alliance for Progress. This program, funded largely by the United States, had as its goal the modernization of Latin America through reform of its political and economic structures, and the injection of capital and technical assistance.