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

302. Telegram From the Embassy in Korea to the Department of State⁰

Seoul, April 29, 1963, 6 p.m.

838. For Hilsman and Bell from Berger. Reference: Aidto 1219.¹

1. Since January we have been preoccupied with day-to-day aspects of political crises and negotiations on economic stabilization measures, punctuated by rapid changes in junta and cabinet membership. Sudden and dramatic changes in situation have made it all but impossible to put together political, economic and psychological assessments in kind of perspective necessary for Washington’s understanding of situation here. With Pak’s announcement on April 8 delaying until Sept decision on elections, and with Korean Govt’s commitment to USOM last week to adopt certain anti-inflationary measures, it is now possible to provide an interim assessment which has immediate relevance to certain policy decisions Washington must make.

2. On political side I shall be sending this week Embassy’s analysis of various elements now in motion and play of forces, issues and personalities. It is our present view that moderate elements in junta are making genuine and serious effort to find basis for holding elections this year, because they think referendum proposal to prolong military rule does not hold out prospect for stability in Korea. Our strong stand was an important factor in this conclusion, but it was also determined by adverse action within Korea itself. Indeed I think latter was decisive reason for decision to abandon April referendum.

3. What is now going on is an examination and behind-the-scenes talks by moderate military and civilian leaders of the problems of providing Korea with a political solution that hopefully, through elections this year, will provide a stable and effective govt. It will be some weeks or months before results are discernible. Meanwhile tension has subsided and immediate danger of domestic collision has been averted.

4. With this easing of political situation country’s attention now being concentrated more and more on economic instability, attributable in part to political uncertainties, but in the main to inflationary pressures generated during 1962 and continued in 1963. Industrial production, tax collections and exports have held well during first quarter, but the rise in domestic prices, fall in foreign exchange reserves, and growing propensity to hoard in anticipation of accentuated price inflation are now producing great nervousness in country. Govt took some steps in March to curb inflation by means of credit restrictions and last week agreed with USOM to cut budget and reduce deficit. They represent substantial measures in right directions. Whether Korea Govt can during balance of 1963 resist pressures to modify them, can be argued. Our immediate problem during next four critical months, while political solutions are being sought, is to encourage govt to hold to its stabilization plans and to take US actions that will help keep economic situation as stable as possible.

5. Current pressing problem is upward trend of rice prices. This arises in part from smaller crop in 1962 in part from natural inclination of farmers and merchants to hoard in anticipation of higher price rises this year, and in part from inflated incomes of largest segment of population during last eighteen months which they are using to buy more food. Only 400,000 tons of wheat provided under Nov 1962 PL 480 agreement, along with carryover of wheat and barley from June 1962 agreement, added to Korea’s own grain supplies, would give Korean people during this year about same food intake as in 1961, but it does not reckon with psychological, inflationary and higher consumption patterns that are disturbing whole situation. From now until new rice crop harvested in November I anticipate serious pressure on rice prices as supplies thin out. I interpret govt’s intention to import 50,000 tons of rice from Japan on deferred credit terms, as psychological moves to discourage hoarding and relieve pressure upon prices. It should have some effect but fear of inflation and worry over declining foreign exchange reserves are now so psychologically deep-seated in Korean community and these two measures may not be adequate to arrest further rises in price of rice.

6. Timing of our announcement of additional PL 480 wheat and cotton and additional SA as requested in reftel will have major psychological impact. I feel strongly that an immediate Washington decision supporting our request at least for PL 480 would contribute to political and economic stability during next four critical months.

7. To summarize I think Korea is now in period of restless insecurity and nervous instability. If we withhold PL 480 announcements until we have iron-clad guarantees as to elections or performance indications in respect to stabilization measures, it will only add to country’s frustrations and worsen matters. If we announce aid now we have a better chance of influencing local personalities and local situation in political and economic directions we would like to see them proceed. Moreover Korean Govt is intent on settling with Japanese during these months and will go to some length to make concessions on fisheries. Evidences of our support of Korea during this period might be helpful in persuading Japanese to conclude with this govt.

Berger

0. Source: Department of State, Central Files, E 1-1 S KOR. Confidential; Limit Distribution. Repeated to Tokyo and CINCPAC for POLAD.
1. Aidto 1219 to Seoul, April 16, stressed the need for completion and implementation of economic stabilization immediately or as soon after resolution of ROK political problems as possible. Otherwise the program would become lost in the face of demands for politically urgent aid commitments. (Ibid., E 2-2 S KOR)