895B.13/6–651: Telegram
The Ambassador in Korea (Muccio) to the Secretary of State
1019. Re Embtel 995, May 29. I recd letter dated June 3 from Pres Rhee replying to my letter of May 26 addressed to PriMin concerning need for establishment realistic counterpart rate. President’s letter transmitted memorandum1 he described as mtg “in effect” every major point suggested in my communication. Memorandum reiterated previous position of ROK that change of rate wld be inflationary but that [Page 518] ROK wld agree that “reps of the US or the UN or both may set the price of such goods as they see fit regardless of the official exchange rate.” Memo also charged that won advanced to the UN forces, if continued, are alone “sufficient to wreck the natl economy and lead to financial collapse, to the detriment of the UN Forces in Korea as well as to the ROK Govt,” and urges repayment of the “loan”, more aid goods and rehabilitation Korean productive capacity as desirable deflationary program while ROK holds exchange rate at won 2,500 to $1. I returned letter and its enclosure to Pres with informal memo stating there seemed to be some misunderstanding as communication was contrary to understanding reached last week in that it failed to indicate agreement to any rate for use in calculating counterpart deposits. I therefore expressed reluctance to transmit document to Wash.
Fol impasse at ESC meeting May 26 Emb kept pressure on key ROK officials and until receipt above letter has reason to believe that some progress was being made toward acceptable solution. In two long sessions with Fin Min, Carwell reviewed need for more responsible fiscal and monetary policies. Reiterated and emphasized objections to persistent adherence ROK to “low price policy” for aid goods. Fin Min indicated general agreement with Emb’s views but stated final decision rested with Pres. Carwell also called on PriMin who indicated his support for revision of counterpart rates. State Council had special mtg with Pres to consider rate question. Emb was informed that State Council finally agreed that:
(1) Counterpart rate shld be raised to won 6,000 to $1;
(2) Official exchange rate shld be maintained at won 22,500 to $1;
(3) Imported goods shld be priced at not less than won 6,000 to $1;
(4) Ministries shld be permitted to buy from office of supply at won 2,500 to $1 rate in order not to disrupt 1951/52 budget. Ministers of Communications and Commerce and Industry reportedly objected to bitter end to any change in rate. Subsequently, Carwell also had long talk with Pres who gave impression he was at least convinced that revision of counterpart rate was sound. Interview was cordial and export of scrap, tungsten mining, and responsibility of ROK toward UN, as well as urgent need for more responsible fiscal and monetary policies, were discussed. Letter of June 3, however, confirms earlier indications that despite detailed explanations both oral and written, Pres Rhee and several of his advisors have little understanding of nature of problem or of objectives intended to be served by econ assistance programs. Local press has also intensified its campaign against increase in counterpart rate.
Will advise further developments.
- Neither the letter nor the memorandum is here printed.↩