611.6731/607
The Ambassador in Turkey (MacMurray) to the Secretary of State
[Received August 8.]
Sir: I have the honor to refer to my despatch No. 1125 of June 28, 1939,31 relative to the enforcement of the American-Turkish Trade Agreement, and to report, with regard to the third paragraph of that despatch, that the Director of the Istanbul Exchange Control Office has commenced the liquidation of the balance of the exchange arrears for 1938 imports, and that he informed the Embassy on July 11th that $130,000 had already been paid out in settlement of these [Page 870] arrears. The Exchange Control Director, on the basis of more complete data now available to him, estimates that the total amount of arrears which were outstanding for 1938 imports was $420,000 instead of $353,000, the figure given in my despatch. Consequently, the exchange arrears still outstanding for 1938 imports amount to $290,000. Inasmuch as the exchange arrears for 1939 imports are estimated to amount to $2,300,000 (my despatch No. 1125 of June 28, 1939), the total arrears now outstanding amount to approximately $2,600,000.
It is the opinion of the Embassy that the Turkish Government will not be in a position to furnish any considerable amount of exchange for the payment of imports from the United States until dollar exchange becomes available during the last three months of the year from the purchase of tobacco by American firms, and the export of other commodities to the United States. It is doubtful whether during the next two and one-half months the Turkish Government will be able to do more than to liquidate the arrears for 1938 imports and the remaining amounts outstanding on applications filed between January 1st and February 15th, 1939.
The present situation with respect to exchange payments for imports from the United States is due to the fact that, since May 11, 1938, when the payment of foreign exchange for commercial imports was discontinued, the Turkish Government has made available for the payment of imports from the United States not much more than 50 per cent of the dollar exchange received since that date from the purchase of Turkish products by the United States. According to available data, the Turkish Government has made available since May 11, 1938, approximately $6,900,000 for the payment of imports from the United States. The following table shows the amounts of exchange paid out at various times in liquidation of exchange arrears for imports from the United States:
| 1. Part payment on exchange requests received up to December 21, 1938 | $2,700,000 |
| 2. Part payment on exchange requests received from December 21 to 31, 1938 | 280,000 |
| 3. Fifty per cent of remaining 1938 arrears | 700,000 |
| 4. Seventy-five per cent of exchange requests received between January 1 and February 15, 1939 | 380,000 |
| 5. Fifty per cent of remaining 1938 arrears | 350,000 |
| 6. Payments on remaining 1938 arrears | 130,000 |
| Estimated payments to petroleum companies, May 11, 1938, to June 20, 1939 | 2,400,000 |
| Total | $6,940,000 |
The Embassy estimates that during the same period Turkey received approximately $13,500,000 of dollar exchange, of which about $10,000,000 [Page 871] was obtained from tobacco purchases by American companies, about $2,000,000 in 1938 subsequent to May 12th from the export of commodities, other than tobacco, to the United States, and about $1,500,000 during the first six months of the present year from the export of commodities, other than tobacco, to the United States. It will be observed that while Turkey received about $13,500,000 during the period in question, only $6,900,000 has been made available for the payment of imports from the United States. If the Turkish Government had acted in accordance with the decision of the Council of Ministers of May 5, 1938,* and had allocated for the payment of imports from the United States 80 per cent of the dollar exchange received from exports to the United States, there would be not only no exchange arrears at the present time but a reserve of more than $1,000,000 for future imports.
It is believed that the dollar exchange obtained by the Turkish Government from exports to the United States which has not been made available for the payment of imports from the United States has been already expended or allocated for other purposes. There is no question but that Turkey’s foreign exchange availabilities at the present time are extremely low. Recently, for instance, according to information obtained from a reliable source, the Ministry of National Defense was unable to obtain foreign exchange in order to purchase spare parts badly needed for military planes. No authoritative information is available with regard to the disposition made of the balance of the dollar exchange. It is known, however, that $300,000 was used for the purchase of aircraft equipment from the Curtiss-Wright Corporation, $250,000 for the purchase of spare parts from the Aviation Manufacturing Corporation, approximately $1,000,000 for Turkish participation in the World’s Fair in New York, and $200,000 for payments on Turkish indebtedness to the Government of the United States, and it is believed that $1,700,000 has been allotted for the purchase of 50 training planes from the Curtiss-Wright Corporation, and probably $375,000 for the purchase in the United States of 1,500 mules for the Turkish Army. Of the remaining dollar exchange it is thought that the greater part has been used for the purchase of military supplies although it is possible that an appreciable amount has been used in connection with payments falling due on credits extended to Turkey by Great Britain and the repayment of the loan which had been made to Turkey by the Bank for International Settlements.
As indicated in the fourth paragraph of my despatch No. 1097 of June 12, 1939, it was for the purpose of preventing the recurrence of the present situation with respect to exchange payments for imports [Page 872] from the United States that such exchange payments have been placed under the control of the Central Bank and 80 per cent of the exchange received from exports to the United States earmarked for the payment of imports from the United States. While the official responsible for this arrangement—the Secretary General of the Foreign Office—realizes that the United States would prefer to have exchange payments for American imports made from the general exchange fund, he is convinced that such an arrangement would be most inadvisable under the present international situation in view of Turkey’s tremendous need of foreign exchange, particularly for national defense purposes, and the consequent great pressure on the Turkish Government to utilize for such purposes the exchange available in the general exchange fund. He felt that the only way to preclude the repetition of what happened last Fall and to make certain that exchange would be currently available during the year for the payment of American imports was to earmark for this purpose specific exchange in the State Bank.
Respectfully yours,