793.5 MAP/3–2951
The Director of the Far East Program Division, Economic Cooperation Administration (Griffin) to the Deputy Assistant Secretary of State for Far Eastern Affairs (Merchant)
Dear Livy: According to the reports from the ECA Mission on Formosa, indications are that the Chinese Military authorities feel that the United States will underwrite local currency expenses required to implement the military assistance program. As you can well appreciate, such an attitude on the part of the Chinese Military authorities can prove to be extremely dangerous. Pending the establishment of a policy for handling “impact costs” in which State, ECA, and the Defense Department are in accord, it seems highly desirable to us that the Chinese Government be officially notified that the United States will not tolerate unwarranted military expenses nor diversion of Formosa’s resources to the point of endangering the economic stability thus far achieved.
[Page 1614]We have prepared the attached draft cable1 which we feel should go out as a Department cable to the Embassy which provides for a course of action, in coordination with the ECA Chief of Mission, to make known to the Chinese authorities our position in respect to unwarranted over-expansion of the military budget. Subject to changes and corrections in the attached draft as you consider appropriate, we suggest early dispatch to the Embassy in Taipeh.2