794A.5 MSP/5–851
Memorandum by the Assistant Secretary of State for Far Eastern Affairs (Rusk) to the Director of International Security Affairs (Cabot)
Subject: Control of Military Expenditures on Formosa
Attached is a telegram which we propose be sent to Rankin-Chase-Moyer in Taipei requesting that the quoted aide-mémoire be presented to the Generalissimo at the earliest appropriate time (Tab A).1
The minutes of the May 22 SEAC meeting (Tab B)2 indicate that there is agreement among Defense, ECA, and State that the Department should undertake negotiations with the Chinese National Government for the purpose of obtaining its acquiescence in arrangements which would, in effect, provide the Chief of MAAG with authority for direct supervision of local currency withdrawals from the Bank of Taiwan.
My memorandum to you of May 8 (Tab C)2 and my letter to Allen Griffin of May 9 (Tab D)3 state the rationale for seeking acquiescence of the Chinese National Government in such an arrangement. ECA [Page 1703] acceptance of this rationale is set forth in its presentation to the Bureau of the Budget, (Tab E) “Supplementary Funds for Fiscal Year 1952 to Support Mutual Defense Assistance Program for Formosa”.4
Our telegram instructs Rankin to present the aide-mémoire by hand to the Generalissimo. … Commitments to regularize withdrawals cannot, as a practical matter, be given responsibly by any lesser authority in the National Government-Provincial Government hierarchy of authority.
The aide-mémoire requests that the Generalissimo come forward with his own recommendation for control arrangements. We will not be precluded from revising his proposals. We believe it important, however—quite as much for the effect produced in Southeast Asia as in Formosa itself—that when we proceed with working out the precise arrangements under which we will subtract from the Generalissimo’s sovereignty in the field of military administration, we make as our starting point proposals which he himself has advanced and not arrangements of our own which he could construe as an explicit ultimatum.
Our aide-mémoire contains the veiled inference that military and economic assistance may not be forthcoming, in maximum amounts, unless the Chinese come forward with acceptable arrangements to bring their local military expenditures under control. This contingent aspect of our programs could be lost on the Chinese if the aide-mémoire is not presented until after Congressional consideration of the Foreign Assistance Program for Asia has begun. Therefore, we consider it to be of the greatest importance that the aide-mémoire be presented at once.
My recommendation is that, if you approve of the telegram we propose, ECA and Defense concurrences be obtained.