793.5/6–651
Memorandum of Conversation, by the Director of the Office of Chinese Affairs (Clubb)
Subject: Desire of National Government to Have Additional Economic and Military Aid
| Participants: | Dr. V. K. Wellington Koo, Chinese Ambassador |
| Mr. Rusk, FE | |
| Mr. Clubb, CA |
Ambassador Koo stated that the National Government had already expressed its need for additional economic and military aid in the [Page 1704] coming year as compared with last year. The matter of economic aid had been discussed with ECA at Taipei. Here, too, more was needed than in the previous year. When $50–60 million (FY 1951) were allocated for economic assistance to Formosa, for FY 1952 there would probably be needed about $70 million,* the increase being due to what might be called economic “impact costs” arising from an increased military program. Estimates of requirements for military aid had been presented to Minister Rankin in mid-February, with the request having then been made for $82 million for the next three months. The figures presented last autumn were of course larger but were for the whole year. In mid-April the National Government gave the Embassy three copies of a supplementary request for military aid. Under the military aid program they “would expect” to get additional amounts of planes, tanks, guns. For the proper utilization of this war matériel it would be necessary to meet what might be called military “impact costs” falling into two categories, namely, (1) $133 million military impact costs in foreign currency to purchase additional food for the nutrition of the troops, clothing, textiles, petroleum products, and (2) approximately $54 million local currency costs which would have to be spent by the National Government.
Noting that the military aid bill was evidently to be presented to the National Government all in one package, Ambassador Koo said that the National Government was interested in getting a reply to the question “Where do we stand?”
Mr. Rusk confirmed that by present intentions the military aid program would be presented to Congress in an omnibus bill. He was not certain that it had yet been formally presented to Congress for their consideration. In that bill, as it will probably be passed, there would of course be no specification of definite amounts for particular areas such as Formosa. In any event one prominent question would be that of the availability of military supplies: the passage of the bill did not mean necessarily that the goods would be instantly forthcoming. When hearings were to start on that bill was unpredictable. Mr. Rusk asked if there had not been discussions respecting the matter with ECA and General Chase on Formosa.
Ambassador Koo confirmed that there had been such discussions. He asked what the time-table of the bill’s passage would probably be. Mr. Rusk said that it was to be anticipated that the bill would have heavy going, that its course was uncertain, that almost certainly a considerable time would ensue before its passage. The question was left on the suggestion that it might not pass until early fall.
[Page 1705]Ambassador Koo referred to the testimony of General Omar Bradley in the current Senate hearings to the effect that the JCS had reported that $300 million were to be provided for FY 1952. Mr. Rusk said that he was uninformed in respect to the particulars, and it was to be noted in any event that this was an over-all sum.
Ambassador Koo said that more ECA aid was needed, that there is at the present time a gap which worries the National Government, that there are growing economic difficulties confronting Formosa. It is desirable that somehow or other some “timely aid” be supplied to fill that gap. He noted that there was a surplus existing in the European ECA funds, noted that some surplus had already been transferred, and wondered whether there could be an additional transfer for the purpose of enabling the National Government to tide over the present difficult period—which would presumably last until new ECA funds became available. Mr. Rusk replied that the question arose whether there had not already been transferred all that it was possible to transfer by the existing authority. He noted that in the case of such transfers it was of course necessary to consult Congress and effect only such transfers as were within Congress’s authorization.
Ambassador Koo said that it was the Nationalist feeling that ECA was sympathetic to the Nationalist needs, and wondered whether the matter was not primarily a political question. He was unable to define clearly the reason why the question might be considered “political”. He referred again to the big surplus existing in the European funds, and was told by Mr. Rusk that it would be necessary to consult Congress in case there was contemplated any transfer in excess of existing authority.
Ambassador Koo next referred to the difficult foreign exchange position now occupied by the National Government, and referred to it as a separate problem from that of economic aid. He stated that in the current year there had been sold 200,000 tons of sugar netting $30 million (U.S.?). The new sugar crop, although substantially increased in acreage, will not be harvested until the end of September, and until that time there will exist a serious gap in the “foreign exchange requirements”. The ECA people at Taipei have given certain advice with respect to the foreign exchange position, and the Nationalists are consequently cutting down the import requirements. They nevertheless need approximately $5 million monthly for the next six months. There has already been some inflation in Formosa. The Nationalists have the project of raising $30 million on the security of next year’s sugar crop, which will yield, it is estimated, 500,000 to 550,000 tons. Two hundred thousand tons would be offered as security. The arrangements might be made in two manners: (1) either by advance sale of the sugar crop, with payment in advance, or (2) by the making of a straight loan on [Page 1706] that part of the crop as security. In both instances the National Government would plan to repay the advance (or loan) by the end of May 1952.
Dr. Koo said that they had approached the Ex-Im Bank with respect to the matter in point, but that the Bank had indicated disinterest because it is concerned with strictly commercial propositions, and this is considered partly political. Mr. Clubb asked why the Ex-Im Bank considered it partly political, and Dr. Koo replied that presumably it was because of the political uncertainties surrounding the island.
Dr. Koo said, in response to a question from Mr. Rusk, that the proceeds would be used in meeting import requirements in excess of those now covered by ECA action. Heretofore the National Government has been meeting the deficit from their reserves and with ECA aid. In the event that there is failure to meet those needs, public confidence would be shaken. Those imports are required. Mr. Clubb asked what particular imports in addition to those now made possible by ECA aid were needed for Formosa. Dr. Koo replied that they were primarily consumption goods such as, for instance, cotton cloth—only a part of Formosa’s current needs being met by ECA aid. Formosa has only about 40,000 spindles, and no raw cotton.
Ambassador Koo said that the Nationalists had taken soundings in commercial circles respecting the possibility of making a loan on the sugar crop only to discover that, while commercial interests considered that the loan was o.k. as a commercial proposition, there still existed (as in the case of the Ex-Im Bank) the question of “political security”. It was hoped that if the United States Government were approached by commercial interests they would give a favorable report in respect to the security aspect.
In response to a question from Mr. Rusk, Ambassador Koo said that this loan, although somewhat similar to the currency stabilization project, would in fact be used only to meet international payments. He said that the problem had already been discussed with ECA.
Mr. Rusk being called from the room, Mr. Clubb asked Ambassador Koo what would happen in respect to the budget plans of the National Government if they spent their income from the sugar crop in advance as now projected and then were called upon to repay the advance by the end of May next—and thus were left short of the funds that they would otherwise have. Ambassador Koo replied that he himself had queried his Government in respect to that very point, but that their reaction was that they would “cross that bridge when they came to it”. Mr. Clubb asked whether there was not a possibility that the export of pineapples—previously a large export item—could go some distance toward meeting the foreign exchange deficit. Ambassador [Page 1707] Koo remarked that the previous market in Japan particularly had been largely lost, that the Japanese had bought some bananas but were uninterested in obtaining more of even those. (Mr. Cornelius Roosevelt in a conversation later in the day reported that the Nationalists lost their pineapple market because of the export of inferior product after V–J Day.) Ambassador Koo remarked that the world sugar price was somewhat up, and expressed (somewhat halfheartedly) the hope that perhaps the United States could purchase some. It was remarked that the United States obtained its main supplies from Cuba and the Philippines.
Ambassador Koo expressed the hope that some encouragement could be given in respect to this matter of the foreign exchange deficit. This could be done preferably through the ECA who are themselves apprehensive of the situation in that regard. Mr. Rusk said that there were fundamentally two questions, one, of the balance of international payments, and the other, of currency stabilization. The latter question was complicated and difficult. We would, however, have ECA take a look at the whole problem.
- Corrected by phone by Minister Tan Shao-hua June 7 to $75 million. [Footnote in the source text.]↩