Office of the Historian

841.00/3–352

No. 364
Memorandum by the Assistant Secretary of State for European Affairs (Bonbright) to the Secretary of State1

secret
Washington, March 3, 1952.

Subject:

  • Expediting Transmission of Current Economic Aid Funds to the United Kingdom.

Problem:

To obtain the maximum impact from the $300 million in economic aid to the United Kingdom by ensuring that the full amount is reflected in British reserves as soon as possible.

Background:

The decision to give $300 million in economic aid to the United Kingdom during the fiscal year 1952 was made subject to the following conditions: (a) that the funds would be used only to purchase items directly related to military uses, and (b) that payments would only be made against contracts yet to be signed, with exceptions in specific cases, providing past shipments were not covered.2

It was recognized that under these conditions it would not be possible to transfer all of the $300 million by June 30, 1952. Therefore, it was agreed that, as procurement authorizations were issued, [Page 866] MSA would establish a corresponding credit in a British account in the Federal Reserve, so that the British might be able to reflect these deposits as dollar assets in their reserve statement. It is now apparent that the type of Federal Reserve account which can be established cannot meet the necessary full requirements for inclusion of the account in the British statement of reserves and therefore the device will not fully serve the purpose for which it was designed.

During the past two months British reserves have continued to decline at an alarming rate. In the opinion of Embassy London, if the drain continues at the current rate, the British economy may be brought to a point where the entire British military effort would be threatened.

It has been estimated that, even under the most favorable conditions, on the present basis of eligibility the actual impact of aid on British reserves before June 30, 1952 will fall significantly short of $160 million. According to Embassy London, therefore, the full $300 million can be reflected in reserves by that date only if (a) we allow reimbursement for past shipments which can be fully documented and (b) we extend the range of eligible commodities to include some items not directly related to military uses. (See Tomus 177, from London, February 28, 1952, copy attached.3)

Since the public statements regarding aid to the United Kingdom have specifically indicated that it would be used to finance imports of commodities related to the defense program, it would be very difficult to expand the present basis of eligibility to include other items.

On the other hand, the condition regarding reimbursement of past shipments could be changed by agreement among the agencies concerned, namely, MSA, Defense, Treasury and State. The inclusion of such items would greatly assist in meeting the immediate problem.

Recommendations:

It is recommended that you call Mr. Harriman and make the following points:

(1)
That you share the concern expressed by Embassy London over the continuing deterioration in the British reserve position.
(2)
That we should change our policy to allow reimbursements for past shipments which can be fully documented, so that our aid can be reflected in British reserves to the maximum extent possible by March 31, and in any event not later than June 30.
(3)
That, in spite of possible criticism of this policy, we should not risk losing the benefits of aid through extreme caution in administering it.

  1. This memorandum was drafted by Beale.↩
  2. This decision was taken at a meeting of officials from the Departments of State, Treasury, Defense, and the Mutual Security Agency on Jan. 28, a record of which is in file 741.5 MSP/1–2852.↩
  3. A copy of telegram Tomus 177 was not attached to the source text; however, a copy is in MSA telegram files, lot W–130, “London Tomus”.↩