ECA Telegram File: FRC Acc. No. 53 A 278: Taipei Ecato: Telegram
The Administrator of the Economic Cooperation Administration (Foster) to the Embassy in the Republic of China
Ecato 611. I. The greatly increased cost U.S. aid to Formosa induced by causes of which you aware have led to decisions that ECA must at once assume greater responsibility for providing effective guidance to Chinese Govt in efficient management their economic affairs and in accomplishing increased productivity of Formosan economy.
In order promote maximum Chinese effort, ECA should impress on Chinese they must operate on assumption appropriated aid funds which may be announced for Fiscal 1952 represent maximum possible availabilities of US assistance and price for failure of Chinese realize fully their own productive potential will be paid for by Chinese in increased austerity.
The following factors fall within this enlarged area of responsibility (Recognize you are already taking action with regard some of following):
- A.
- Utmost economic development Formosan capacity earn foreign exchange by increased productivity export products.
- B.
- Utmost development economically feasible production for local consumption, that will lessen requirements imported products and thereby conserve foreign exchange.
- C.
- Effective control foreign exchange expenditures, so as to lessen requirements for US dollar aid.
- D.
- Effective control internal budgetary commitments, so as to 1) restrict or eliminate inflationary pressures and 2) lessen requirements US commodity support for anti-inflationary purposes.
- E.
- Continued effort to prevent reduction living conditions farmers by excessive taxation.
- F.
- Control of taxation that discourages increased investment in desirable productive enterprises or drive for increased productivity in existing enterprises.
- G.
- Continued program to increase proportion benefits to farmers from increases in production.
- H.
- Stimulation agricultural advances and reforms that do not result [Page 1725] in decreasing productivity but that continue progress made in serving welfare farmers.
- I.
- Realistic planning for use total funds derived from all sources, this planning to include capital improvement program aimed at increasing economic viability.
II. To end that necessary controls may be exercised and developments furthered, it is expected ECA Mission, fully coordinated with Embassy and, where applicable, with MAAG, will assume following responsibilities in addition its regular program operations:
- A.
- Exert its influence vigorously and firmly with and through all necessary agencies of Chinese Natl Govt and provincial govt to improve policies and practices in fields fiscal administration, export and import controls, taxation, budget preparation and controls, and all related matters; and exert vigorous efforts to end of proper and effective use of Chinese revenues from all sources coordinated with the most effective utilization American aid.
- B.
- Vigorously attack problem of overhead and problem of efficiency operations in all govt-controlled industries and insist upon reforms where necessary.
- C.
- Insist upon maintenance JCRR program of upholding improved status of farmers and progressing further in agricultural reform, rural credits, etc. Formosa must be example of what good government backed by American aid can do for Asiatic peasant.
- D.
- Maintain intimate relations with MAAG as well as Embassy to assure mutual support for consistent US policies and exercise of coordinated pressures.
III. MAAG guidance and direction Chinese military expenditures is essential part in over-all control.
IV. We do not think at this time this extension ECA influence requires formalization any new relationship US Govt with ChiGovt. Most important evidence US purpose depends on united front of Embassy, MAAG and ECA. Degree to which effective direction Chinese affairs will be afforded depends upon your exercise tact, perseverance and firmness and in causing Chinese to adopt these plans and directions as their own. By “direction” in foregoing we mean providing vigorous, clear and persuasive guidance. Such guidance to be undertaken by some practical method whereby competent American authority may exercise, jointly with responsible Chinese military and civilian officials, effective supervision over budgeting and expenditure of Formosan resources and funds for support of military establishment and civilian economy. Exercise greater authority would however entail out-right assumption responsibility for Formosa which would conflict with basic US policies both with respect to Formosa and Far East as a whole. Our job, in short, is to cause Chinese on Formosa to undertake [Page 1726] to do for themselves what is essential for their survival as strong, ultimately self-supporting part of Free World. (Separate cable follows re staff to implement above.)1
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