Foreign Relations of the United States, 1961–1963, Volume XXII, Northeast Asia

242. Progress Report⁰

Washington, August 24, 1961.

¹

REVISED PROGRESS REPORT ON FOLLOW UP ACTIONS RESPONSIVE TO RECOMMENDATIONS OF KOREA TASK FORCE REPORT

(Keyed to Summary and Revision of Recommendations, dated June 13, 1961)²

Category I: U.S. Actions to be Undertaken Immediately

• 1 a. Ambassador Berger and DCM Green have so informed the new Korean leaders at the highest levels and on a number of occasions. Secretary Rusk issued a full statement along these lines to the press on July 27.³
• 1 b. See paragraph 2 below.
• 1 c. Done by Ambassador Berger and by the Secretary in his July 27 press statement (see 1 a above).
• 1 d. Ambassador Berger has made this clear to Korean leaders and has provided a senior U.S. economic adviser to General Pak Chong-hui, i.e., in mid-July Mr. Albert Boucher of USOM was temporarily detailed to this advisory position on a full-time basis. At Ambassador Berger’s request, the State Department is actively recruiting the services of a team of top-flight economic advisers to assist the Supreme Council in the formulation of Korea’s long-range development program (also see 4 d).
• 1 e. The new Korean Government on May 26 agreed to restore CINCUNC’s operational control over the ROK armed forces, and CINCUNC’s operational control appears to be essentially restored in practice. Moreover, Embassy Seoul has recently reported that General Meloy is receiving “excellent cooperation” in this field.
• 2. On August 12, Chairman Pak announced that the Korean Government would be turned back to civilian control in 1963 under a presidential system with a smaller unicameral legislature in accordance with a time schedule calling for a new constitution before March 1963 and general elections in May 1963. Although this timetable is somewhat slower than we would have preferred, General Pak’s announcement does represent a step in the right direction in that it provides a public commitment to return to representative constitutional government by a specific time.
• 3. The authorization to invite the chief of Government to Washington was originally prepared in the context of the announced desire of the previous Prime Minister, General Chang Do-young, to do so and has since been held in abeyance until the attitude of his successor should become clear. The new Prime Minister, General Song Yo-chan, is at present only a front man and completely subordinate to Supreme Council Chairman Pak, who has now indicated that he would like to visit Washington, briefly and informally, perhaps in late October or early November. In the meantime the Department has informed Embassy Seoul that we would be prepared to consider such a request, but that the President’s schedule would probably preclude a visit before November. We are now awaiting Ambassador Berger’s further recommendations.
• 4. The Korean Government has publicly expressed its intention to carry out the economic reform program agreed to by the previous regime, including maintenance of a unified exchange rate at 1300 hwan per dollar. (The new exchange rate system has not yet been implemented to the Embassy’s complete satisfaction—see Embtel 106, July 19).⁴ The electric power industry has been reorganized into a single corporation for improved administration. New and improved credit facilities have been established, banking and price controls generally eliminated, leading businessmen released from detention, and other actions taken to engender business confidence and stimulate the economy. In a recent message (Deptel 165, August 1)⁵ Ambassador Berger stated: “Recent actions of military government leave little doubt of its ability to develop and instate measures and establish machinery to deal with present economic problems.” However, economic confusion and stagnation continue; the private business sector has still not regained confidence to move ahead; the ROKG has still not fully complied with the economic undertakings of October, 1960; tax collections are lagging; and increases in money supply may lead to inflation.
• 4 a. The residual FY 1961 aid funds were released ($28 million, of which $25 million was for fertilizer) in the closing days of the ‘61 fiscal year. Ambassador Berger has requested waiver of the preferential U.S. procurement policy for fertilizer; this matter is under ICA consideration.
• 4 b. Expansion of electric power will receive high priority as soon as Ambassador Berger makes a determination as to the eligibility of Korea for continuing developmental assistance, based upon Korean willingness and ability to carry out a long-range development program. Meanwhile, DLF has undertaken preliminary work on several proposed power projects, in order to be in a position to take immediate action on all pending loan applications as soon as the “go-head” decision is taken. USOM is engaged in preparing a long-range power development plan in conjunction with the ROKG and Commonwealth Associates.
• 4 c. Although the new regime has indicated plans to expand the National Construction Service, the Embassy has reported that the program is not fully under way; local currency financing appears to be the bottleneck. Under present circumstances, it is doubtful that additional U.S. support of the program is necessary or practicable. If and when it appears that additional U.S. support can be advantageously utilized, it will be made available to the ROKG.
• 4 d. The ICA is urgently attempting to contract for a team of specialists to assist the ROKG in preparation of its Five-Year Development Plan (see 1d above). The choice appears to be between the RAND Corporation and the Arthur D. Little Company; a decision is expected to be made within the next few days and the team should be in Seoul within the next few weeks.
• 4 e. Ambassador Berger has on several occasions informed the Korean Government of the terms on which developmental funds will be available. Commitments to the support of specific undertakings necessarily await formulation of an agreed Five-Year Development Plan. The draft plan prepared by the ROKG, as it now stands, is hastily prepared, and contains unrealistic assumptions.
• 5. Over the past year and one-half, USOM/Korea has made a considerable reduction in its staff, and it is considered desirable to await the new Director’s arrival in Korea (in early September) before undertaking further actions to streamline USOM operations with a view to eliminating unessential projects.

Category II: Subsequent U.S. Actions

• 6.

  The proposal to send a Special Envoy accompanied by a group of economic advisers was directed toward a contingency situation which has not yet arisen. In a recent cable (Embtel 146, July 24)⁶ Ambassador Berger stated that he was not prepared to recommend at this time that the Department send a Special Envoy and team on long-range economic program as visualized in the NSC Paper, adding that this is something we can do, if at all, later when we see how situation evolves and what effect emergency economic measures have on the economy.

  In regard to the question of consulting other Free World nations about the possibility of contributing to a Korean Five-Year Development Plan, Embassy Bonn has been alerted to our interest, but we feel that it is premature to approach Japan on this subject, at least until ROK receptivity to such Japanese assistance can be ascertained. It is doubtful that the Korean Government will be willing to entertain Japanese offers of economic assistance until and unless at least most of the basic issues outstanding between the two countries have been resolved, particularly Korean claims against Japan. (Our Embassy has recently reported a serious resolve on the part of the ROKG to resume negotiations with Japan in the near future aimed at a settlement of basic issues.)

• 7. These announcements have not yet been made, not only because Congressional appropriations have not yet been determined, but also because while the Korean Government has consolidated the power companies, administration of the power industry and its financial and rate structure is still under Embassy/USOM observation.
• 8. The question of ROK force levels has been reviewed by Defense on the basis of a preliminary assessment from the field, and the Defense Department assessment thereof will be transmitted to the State Department in the very near future.
• 9. This subject is included in the Defense assessment referred to in paragraph 8 above.
• 10. The improvement of ROK-Japan relations was discussed with the Japanese Prime Minister during his visit to Washington and has been discussed in a similar vein by Ambassador Berger in Seoul. It has been made clear to the Japanese and Korean Governments that the Japanese settlement of GARIOA is not to be related to U.S. and Japanese aid to Korea. We anticipate that ROK-Japanese relations will be resumed in September or October. There are indications that the Korean Government may have decided to seek solutions to outstanding issues, but it is not clear whether the ROK is prepared to make realistic compromises with the Japanese or whether the Japanese Government is yet prepared to reach settlements with the new Korean Military Government so soon after the military coup.
• 11. These activities are subject to further review by USIA in the light of our developing overall policy toward the new ROK Government.

Category III: Required Korean Actions

• 12 a. The Korean Government has issued a preliminary Five-Year Economic Plan which is to be reviewed by a team of experts who will advise the ROK Government in the plan’s implementation.
• 12 b. The SCNR Chairman, General Pak, issued a statement on this subject on August 12, in which general elections were scheduled for May 1963.
• 12 c. The Korean Government has indicated its intention to cooperate fully with CINCUNC, who has stated that he is now receiving “excellent cooperation” from Korean military leaders.
• 12 d. General Pak has indicated that he intends to grant a large-scale amnesty to many of those imprisoned after the coup and to deal leniently with military leaders who did not cooperate with the coup. Moreover on August 12 he promised to return the Government to civilian control in 1963 (see paragraph 2 above). In this connection, over 5,000 prisoners were released on August 15, including former First Army Commander Lee Han-lim.
• 12 e. The Korean Government has taken a number of actions specifically designed to reduce usurious practices among the rural population.
• 12 f. The Korean Government has issued many decrees and taken many actions which appear sincerely designed to root out corruption throughout the Korean society.

0. Source: Kennedy Library, National Security Files, Countries Series, Korea, General, 7/61-2/62. Secret. Drafted by Manhard and Elizabeth Gallagher of NA.
1. Based upon a draft submitted to the Task Force Meeting of August 17, revised by State:FE:NA in accordance with ICA comments. [Footnote in the source text. The revisions were apparently incorporated into this report on August 25, but the date of the memorandum remained August 24. No record of the Task Force meeting has been found.]
2. See Document 230.
3. See footnote 2, Document 237.
4. Not printed. (Department of State, Central Files, 895.B00/7-1961)
5. The quote is not from telegram 165 to Seoul, July 26, in which the Department asked the Embassy for its current evaluation of the SCNR’s ability to develop and implement promptly effective measures to solve Korea’s economic problems. (Ibid.) The quote is taken from the Embassy’s response to telegram 165, telegram 206 from Seoul, August 1. (Ibid., 895B.00/8-161)
6. Not printed. (Ibid., 795B.00/7-2461)