894A.00–R/4–451: Telegram
The Secretary of State to the Embassy in the Republic of China
secret priority
Washington, April 4,
1951—5 p. m.
1035. For Rankin and Moyer.
- 1.
- This para for info only. Interrelated problems of econ and mil
assistance to Formosa have been subj discussions here. Irrespective
actual impact cost figures, there are certain principles in
connection
[Page 1620]
this problem
which must be worked out between State, ECA and Defense Dept. Major issues now under
consideration are:
- (a)
- Extent to which Chi Govt can absorb impact costs and estab by them of effective controls necessary to prevent unbridled unjustified expenditures by Chi mil;
- (b)
- Procedure of mtg from US sources ltd local currency and dol impact costs including POL for mil purposes. Tentative InterDept decision is that ECA shld absorb latter costs and for this purpose ECA/W will seek additional $8 million above proposed $65 million for FY 52. ECA/W will amplify in separate cable to Mission.
- 2.
- This para for action. Together with Chief ECA Mission you shld approach Chi Govt and officially
set forth US Govt position re matter in point substantially as
follows in both language and tenor:
- During present session Cong, Exec Branch this Govt has under consideration requesting additional funds from Cong for econ and mil assistance in gen area China. To avoid any possible misunderstanding on part natl Govt, it is to be pointed out that it is planned that such funds, if requested of and approved by Cong, shall be appropriated for entire area and not firmly allocated or committed to needs any particular country in area.
- In this connection US Govt desires invite attn Govt China to circumstance that absorption such mil aid cld produce impact on economy Formosa which might be inflationary and damaging that economy in event natl Govt fails take precautionary measures to reduce impact. Although US Govt has noted with gratification improvement during 1950 in econ position Formosa, such improvement deriving partly from ECA and partly from effects natl Govt in naturally rich econ environment, it is considered that if gains are to be retained and further advances achieved it is necessary that additional steps be taken promptly to expand exports, to control imports more rigorously, and (most important of all) through careful admin of natl budget to increase tax rates, improve tax collection methods, reduce non-essential governmental expenditures and increase substantially gen levels governmental revenue. US Govt proceeds on assumption that it is possible in visible future for US to reduce and eventually stop what now amts to econ subsidy to Formosa and natl Govt will appreciate impossibility of US Govt’s underwriting indefinitely Formosan economy. US Govt, especially during period when US itself is engaged expansion its own mil estab at considerable cost to its own economy and its own people, wld not find itself in position to guarantee to offset effects of supply of mil matériel to Formosa for defense against aggression on standards of living in Formosa. US Govt considers that Formosa has substantial assets within its grasp and wld view with extreme disquiet any failure [Page 1621] natl Govt to exploit those assets to best its ability in order achieve econ stability and security for Formosa. Standard by which US Govt gauges econ and/or mil assistance to any country is capacity of recipient country for making such use of aid, with maximum of self-help, as to offer prospect of durable results. US Govt believes that only when such recipient country undertakes econ and other sacrifices comparable in scale to those which provision of such aid imposes upon Amer people is contd assistance justified.
- 3.
- FYI Dept feels this step necessary in order to check Chi mil from carrying Formosa on headlong course to econ disaster and to correct any misconceptions now existing in minds Chi leaders and to place maximum responsibility on Chi at very inception any proposed new program. Dept will advise you soonest possible re further policy developments and procedures as established for handling dol and local currency impact costs which may be determined natl Govt unable absorb without causing severe disequilibrium in Formosan economy.
- 4.
- ECA concurs.
Acheson