895B.13/5–2951: Telegram
The Ambassador in Korea (Muccio) to the Secretary of State
995. Pass Tokyo. Re Deptel 868, May 14.1 On May 26 after series unsuccessful conversations Emb reps with ROK officials, I addressed letter to PriMin2 referring to previous communications from Emb to ROK concerning urgent need to revise counterpart rate. Indicated [Page 468] that proposal to adopt as counterpart rate weighted average of prices actually charged in won by Office of Supply for goods and services furnished Korea under aid agreement was not satisfactory to US. Advised aid agreement interpreted to require that counterpart rate be agreed to in explicit terms. Letter also stated: “The US Govt considers that prompt agreement on a counterpart rate for the period after Dec 1, 1950, is a matter of urgency. In accordance with the consistently expressed view of my govt, the agreement of the Govt of the Republic of Korea to a counterpart rate of won 4,000 to 1 dollar for the period December 1, 1950 to March 31, 1951, is earnestly requested. Having regard for the depreciation of the purchasing power of the won and the emphatic need to maintain a realistic counterpart rate, agreement of your govt is also requested to a counterpart rate of won 6,000 to 1 dollar, effective April 1, 1951”.
At meeting of ESC with Pres, Vice Pres3 and PriMin on May 26, Carwell4 and Loren5 presented US position that agreement on specific counterpart rate at realistic level is of utmost urgency. Indicated that failure ROK to utilize most effectively the aid furnished jeopardized future appropriations for Korea. UNKRA’s rep stated position his agency that imported goods must be sold at realistic prices. UNCACK has also required CRIK goods to be sold at won 6,000 to 1 dollar. Despite reiteration urgency for realistic rate by all agencies concerned, Pres continually reverted to discussion of payment of “UN loan” as solution to present difficulties and stated that thereafter prices wld come down making revision of rate unnecessary. It was pointed out to him that every effort being made to increase flow of supplies for civilian economy, need for which all agencies recognize, but that rate involves question of effective utilization of supplies by ROK to combat inflation. Pres and Ministers of Commerce6 and Communications7 particularly insistent that “devaluation of won” wld cause further inflation, but again offered to raise prices of imported goods to “market levels”. This was rejected as already disapproved by US Govt, and as having been found unsatisfactory in practice in the past. Director, Office of Supply admitted that cotton, a major import item, is being sold at less than market price despite previously approved policy because of price control on cotton cloth allegedly set by Min of Commerce and Industry. PriMin appeared to [Page 469] recognize need for revision of rate and Min of Finance8 also seemed to favor change, but neither wld take issue with Pres who had support of other Korean members of comite. Vice Pres did not enter discussion. Recent press campaign, probably inspired, has blamed present inflation exclusively on expenditures of UN Forces, without regard to govt deficits and failure govt to take full deflationary advantage of such goods as have been delivered for civilian economy. Public and Natl Assembly view reflected in these press reports were cited as evidence of general acceptance of govt position. Mtg closed with agreement by Rhee that govt wld reply to my letter after careful consideration of views expressed at mtg, but Emb reps convinced his position is unaltered.
Rptd info Tokyo 174.
- Not printed.↩
- The letter to Prime Minister John M. Chang is not printed.↩
- Kim Song-Soo.↩
- Joseph Carwell, international economist in the Department of State, temporarily assigned to the Embassy in Korea.↩
- Elbert A. Loren, formerly Deputy for Financial Affairs, ECA Mission in Korea, at this time financial adviser to the Embassy in Korea.↩
- Kim Hoon.↩
- Chang Kee Yung.↩
- Paik Too Chin.↩