794.5–MSP/8–2751
Memorandum by the Officer in Chargé of Economic Affairs in the Office of Northeast Asian Affairs (Hemmendinger) to the Deputy Director of That Office (McClurkin)
Subject: Consideration of GARIOA Claim by the National Advisory Council.
I attach a transcript of the meeting of the National Advisory Council of October 24, 1951,1 in which the German and Jap settlements were discussed. This transcript was supplied confidentially by Treasury with the understanding that it would not be given circulation or be referred to in official communications. The transcript should be read with caution because there appear to be some inaccuracies and failures to catch all that was said.
[Page 1385]I attached also a copy of the staff committee’s paper2 which the Council had before it which presents no recommendation but three alternative possibilities: (a) contingent repayment of a large portion of the debt; (b) funding with substantial scale-down; and (c) agreement on interim payments and deferment of settlement.
In the discussion only the Defense representative supported the third alternative, and when it became clear that none of the other agencies liked it, he virtually withdrew from his original position, recommending only that over the next few months the settlement be made within the context of negotiations on defense and on prewar debts. This was fully accepted.
The State Department representative supported the second alternative. The representatives of ECA and the Federal Reserve Board inclined to think that a workable contingency formula could be developed and were worried about the congressional reaction to a substantial write-down without any possibility of recapturing a greater amount. They inclined to think the initial write-off could be more than 15%. The Commerce representative had no specific suggestion, but, when all was said and done, he thought we would be lucky to realize 25%. The representatives of Ex-imbank thought that the value of the contingency arrangement was political only, and that the write-off should be liberal.
It was decided that there would be no indefinite postponement of negotiation and settlement, that the German negotiators would proceed within the general framework of alternatives A and B, i.e., somewhere between a 75% scale-down with outright funding and a 15% scale-down with outright funding of 20% of the remainder and contingent funding of the balance. The NAC staff was to try to work out an acceptable contingency formula. It was decided that the Japanese settlement would not necessarily have to parallel the German but that the starting point should be the same, with a possibility of an agreement for a larger percentage repayment in the case of Japan.
It was also decided, with reference to the German settlement, that the United States would accept a much smaller write-down of the British and French claims than of the United States claim.
After the meeting, Treasury handed State a paper called “Possible Compromise of State and Treasury Positions”3 which provided for a 40% write-down, the straight funding over 35 years at 2½% of 50% of the remainder and a contingent funding over 10 years of the other 50%. Treasury appeared to feel that reference of the matter to [Page 1386] the National Advisory Council had served a useful purpose in eliminating the Defense proposals for deferment, and that it would now not be too difficult for State and Treasury to get together on the actual terms.