326. Memorandum of a Conversation, Department of State, Washington, May 21, 19551
SUBJECT
- Turkish Loan Request
PARTICIPANTS
- Mr. Zorlu, Deputy Prime Minister of Turkey
- Mr. Esenbel, Turkish Foreign Office
- Mr. Allen, Assistant Secretary, NEA
- Mr. Baxter, Director, GTI
Mr. Zorlu asked to see Mr. Allen for a private discussion without the presence of a large working group.
Mr. Zorlu opened the conversation by expressing the strong hope that we would avoid any inter-relation between consideration [Page 640] of Turkey’s loan request and the forthcoming mission to Turkey of the International Monetary Fund. The IMF group would go out in June; it would spend several weeks in Turkey; then it would prepare a report. This whole process might take several months, and the situation in Turkey called for immediate action, as the next few weeks were crucial. Furthermore, the IMF visit was a routine annual affair and should be kept separate from the need for extraordinary assistance. Mr. Zorlu felt that we were not making much progress and wondered just what procedure Mr. Allen would suggest for reaching a quick decision.
Mr. Allen regretted the necessity to agree with Mr. Zorlu that we weren’t making much progress. There appeared to be a fundamental difference of opinion between the Turkish Government and the United States Government as to the nature of the present economic crisis in Turkey and the methods by which it might be improved. As Mr. Zorlu had heard personally from the Secretary the day before, the figure of $300 million was far in excess of anything which the United States could do, and, if extraordinary assistance in a lesser amount should prove feasible, it would have to be coupled with additional measures taken by the Turkish Government to insure that the present situation would not recur year after year.
Mr. Zorlu said he thought there should be some way to get out of the vicious circle of talks on the technical level. He believed that many of the technicians were too theoretical and tried to follow text-books without knowing the realities of European trade or of the particularities of Turkish economy. They all made a great issue of inflation, without understanding that there was no inflation in the usual sense of the word in Turkey, where 85 percent of the population had very little cash income and where importers’ goods represented only 5 percent of the outlay of the average Turkish peasant. The technicians also talked as if Turkey were expanding its investment program, whereas it was in fact only finishing projects already started and had no intention of starting new ones. He believed too much emphasis had been given to our differences of opinion instead of to the large areas of agreement. The Turkish Government realized that it must try to get a balanced budget and was working to that end; it was also carrying out necessary credit policies and intended to slow down the rate of development in the future. Details on all of these matters could be worked out satisfactorily, he felt sure, but the first important thing to do was to establish the amount of the loan which the United States could make and then discuss how matters could be worked out. If the United States felt it could not extend a loan of $300 million, it certainly must have some figure in mind which it was prepared to make available. If the Turkish Government could know what [Page 641] amount the United States had in mind, it could then decide what measures it must take.
Mr. Allen said that, if Mr. Zorlu wanted to know the answer as to what amount the United States could make available at this time and in the present circumstances, he must answer frankly that the answer was none. Mr. Allen explained that, though he had done most of the talking with Zorlu, he thought he had reflected accurately the view of other agencies—which is that any extraordinary aid we might find available would have to be accompanied by extraordinary measures instituted by the Turkish Government to get its economy on a sounder basis.
At this point Mr. Zorlu said that, if this was the answer, he would have to tell his Government that the United States would not help Turkey in its time of need.
Mr. Allen said that, though it was Mr. Zorlu’s privilege to report to his Government in any fashion he saw fit, he believed Mr. Zorlu would be making a mistake if he gave the impression that the United States was not interested in the future of Turkey or in helping Turkey as much as it could. The United States attaches great importance to the close and friendly relations between our two countries and is eager, as is Turkey, for Turkey to be strengthened in every way to play a major role in the area and in the defense of the free world. However, there is an honest difference of opinion as to how that strength may be achieved. We are not convinced that the remedy proposed by the Turkish Government is the one which will achieve the desired results, and, as the Turkish Government is asking United States assistance, it is unfortunately up to the Turkish Government to convince us that its policies are those which in our opinion will overcome the present economic difficulties and not allow them to become a chronic element in Turkish economic life.
Mr. Zorlu stated vehemently that the aid problem had always been kept separate from the broader and more important relationships between the two countries. No matter what the United States decision might be on the loan request, it would not be permitted to jeopardize cordial United States-Turkish relations, nor would Turkey reduce its defense effort, which it maintained for its own security as well as for the contribution it could make to NATO and the free world. He believed, however, that the United States would not be acting in its own best interests if it made a decision which would weaken a country so important to the free world and to United States objectives as is Turkey.
Mr. Allen asked if he were correct in inferring that the Turkish Government felt that its present economic difficulties were in large measure due to bad luck, specifically the crop failure of a year ago. When Mr. Zorlu indicated the essential accuracy of this statement, [Page 642] Mr. Allen said that he feared the United States view was that Turkey could have taken steps which would have prepared it to be in a stronger position to meet such natural disasters, and that measures had not yet been taken which would prevent the present difficulties from recurring. Therefore, to answer Mr. Zorlu’s question as to what size of loan might be feasible, he must state frankly that, in the circumstances, he could see no source for any funds.
In referring several times to measures which the Turkish Government would take to improve the economic situation, Mr. Zorlu had taken the position that those could not be decided upon or usefully discussed until the size of the United States loan was known; otherwise, the Turkish Government would not have the basis on which to determine what steps should be taken and how drastic they should be. However, Mr. Esenbel had indicated that Mr. Zorlu would be willing to discuss those measures with a small group of high American officials, but, of course, because of their delicate nature, he could not be expected to talk them over with a large working group. It was, therefore, agreed at the close of the conversation that a meeting would be arranged early next week at which Mr. Zorlu could discuss such questions with Mr. Allen, Mr. Hensel, Mr. Overby, and Dr. FitzGerald. Mr. Allen pointed out that Mr. Hensel might not wish to say too much at that time, as his views would necessarily be dependent on the Holcombe report, which will not be received in Washington until the latter part of next week.
Throughout the conversation Mr. Zorlu frequently referred to the fact that FOA funds and credits from the Exim Bank, by being tied to specific projects, had the effect of pushing Turkey toward further development. Such sources of assistance were not required in the present situation. What the Turkish Government really needed was a cash loan (fonds de manoeuvre) with which to establish a stable import program.2