Foreign Relations of the United States, 1955–1957, Korea, Volume XXIII, Part 2

162. Progress Report Prepared by the Operations Coordinating Board¹

Washington , July 18, 1956.

PROGRESS REPORT ON U.S. OBJECTIVES AND COURSES OF ACTION IN KOREA (NSC 5514)²

(Policy approved by the President March 12, 1955)

(Period Covered: December 1, 1955 through July 18, 1956)

A. Summary of Operating Progress in Relation to Major NSC Objectives

1. Adequacy of present policy: The OCB does not recommend review at this time of U.S. policy towards Korea as set forth in NSC 5514. The policy statement in NSC 5514 has been reviewed and is not in conflict with the Basic National Security Policy as set forth in NSC 5602/1.³

2. Although U.S. objectives in NSC 5514 remain valid the means for their achievement are being reviewed within the Executive Branch in the light of changed conditions.

3. In respect to the long-term U.S. objective—unification of Korea with a self-supporting economy and under a free, independent and representative government friendly toward other countries of the free world—change occurred during the period under review to indicate prospects more favorable than in the past for its achievement. The policy statement provides for continued observation of the Armistice and review of the courses of action in the event the U.S. becomes engaged in hostilities in the Taiwan area or elsewhere in Asia; this has not occurred during the reporting period.

4. The judgment of the OCB in respect to progress achieved in relation to the current objectives of NSC 5514 follows:

a. To assist the Republic of Korea (ROK) in order to enable it to make a substantial contribution to free world strength in the Pacific area:

(1) Military: During the period U.S. military assistance has maintained substantial ROK military capability. The ROK Army is almost twice the size of the North Korean army. It has sufficient individual equipment, is well trained and is combat ready. It is superior to the North Korean Army in heavy weapons and artillery. The ROK Navy is clearly superior to that of North Korea which is attributed no combat capability. The ROK Air Force is inferior to that of North Korea. Despite weakness in the air, the ROK, given adequate logistic support, could repel an aggression by North Korean forces alone. However, against aggression by combined Chinese Communist and North Korean forces the ROK would be incapable of conducting a sustained defense without prompt military assistance from the United States.

(2) Economic: Production increases during the past six months were more moderate than in preceding periods, reflecting the gradual transition of the aid program from rehabilitation, where quick gains were possible by restoring previously existing facilities, to new economic development where progress inevitably is slower. In general both production and consumption levels now equal or exceed those of 1949–50, heavily dependent, however, on massive U.S. aid. The rate of implementation of the development program was slowed by lack of effective action by the ROK in fiscal policies and program operations, which lack of action resulted in a continuing shortage of local currency including counterpart funds. Prices have recently resumed their upward climb and have exceeded their previous peak.

(3) Political: In the past the political situation within the ROK—the largely unopposed, frequently authoritarian, policies of President Syngman Rhee—have proven a sharply limiting factor on the acceptability of the ROK in its relations with much of the free world. The concrete demonstration of Korean democracy in the May 15 elections may well contribute to increasing its political acceptability. This favorable development may be offset, however, if controversy between the President and the Vice President becomes acute and causes political or administrative deterioration in the ROK. Information and educational exchange programs have made a significant contribution to efforts to strengthen the government and democratic institutions of the ROK, although much remains to be done. At present the probability of a larger measure of ROK-free world cooperation appears somewhat improved.

b. To prevent more of Korea from coming under communist domination either by subversion or aggression: A study on internal security in the ROK ⁴ has been completed pursuant to NSC Action No. 1290–d and steps are being taken to improve police organization, training and equipment. Communist capabilities other than those of direct aggression are estimated to be small, a situation which has prevailed since the end of hostilities. While the objective of preventing further communist domination has been achieved to date, the tensions inherent in an armed truce persist.

c. To develop ROK armed forces sufficient for internal security and capable of defending ROK territory short of attack by a major power: The ROK armed forces are sufficient for internal security and are estimated to be capable of at least strong initial defense, short of attack by a major power.

5. Progress in meeting commitments and program schedules: U.S. commitments of $420 million for military aid under the “Agreed ROK-U.S. Minute”, November 17, 1954,⁵ will have been met by July 31, 1956 (CF Financial Annex).⁶ Secretary Dulles, in August 1953, signed a Joint Statement⁷ with the Korean President announcing a three-four year program for rehabilitating the economy which contemplated a $1 billion expenditure by the U.S. Total aid under ICA programs since then, including the one proposed for FY 1957, surpasses this amount. If FY 1956 DFS and non-military aid supplied by the Army were included, the billion dollars will have been made available by the end of 1956.

B. Major Problems or Areas of Difficulty

6. The continuing volume of U.S. expenditures in Korea for military and economic aid coupled with evidence of changing communist posture and tactics with respect to Korea⁸ presents a major problem. The Interdepartmental Committee on Certain U.S. Aid Programs (Prochnow committee) completed a study⁹ on the implications of the military and economic aid programs in Korea and will submit its findings to the National Security Council.

7. Neutral Nations Supervisory Commission. The action taken by the United Nations Command, unilateral removal of the NNSC inspection teams to the Demilitarized Zone, will be debated in the UN General Assembly. The communist bloc will accuse the U.S. of violating the Armistice Agreement, and some other countries as well probably will censure the action. Support of our associates in the UN, and particularly of our Allies in Korea, will be needed. It is hoped that support will be forthcoming as a result of the consultations of the Sixteen preliminary to, and on the execution of, the UN Command action. The ROK has renewed agitation for complete abrogation of the Armistice Agreement, and will in particular continue to demand the return of Kaesong, Ongjin Peninsula and Han River Delta areas it held before 1950.

8. Obsolete Weapons. The UN Command’s literal compliance with the provisions of paragraph 13 d of the Armistice Agreement, which requires replacement of combat equipment on a piece-by-piece basis of equal effectiveness continues to handicap its efforts to maintain military readiness. The UN Command will move ahead soon to introduce new weapons to replace obsolete ones through a more flexible interpretation of the Armistice Agreement. The problem of interpretation of 13 d was not discussed with our Allies in the recent consultations on the NNSC problem; some adverse reaction to the introduction of new equipment is anticipated from our Allies.

9. The difficulty in providing spare parts for the maintenance of the now obsolete F–51 aircraft loaned to the ROK Air Force by the Far East Air Force will become more critical. The current difficulty has resulted in a request from the Chief of Staff of the ROK Air Force, now under consideration by Defense, for an additional fighter bomber wing of jet aircraft (75).

10. Settlement with members of United Nations Command. Settlements of obligations for logistical support furnished by the U.S. to non-ROK forces under the UNC, during and after the Korean hostilities, have not been made with all countries concerned. A study is being made to determine the capability of each country concerned to meet its obligation. There is no authority to seek settlements at less than full value where necessary, in the absence of a change in policy with respect to the right of the U.S. to claim reimbursement in accordance with agreements or understandings concluded earlier with countries receiving such logistical support. This problem is in part related to the retention of international complexion of the United Nations Command.

11. Syngman Rhee. The meaning of the Presidential Vice-Presidential elections of May 15 and their significance in future ROK policy are not yet entirely clear and it is premature to attempt any prediction on the wide range of issues involved. It can be said, however, that the election clouds the succession issue and foreshadows increased unrest if the President continues to ignore the apparent popular desire for change indicated by the substantial degree of popular discontent with the Rhee Administration shown in the election.

12. Economic Aid

a. With respect to economic matters there will most probably continue to be differences of opinion between the ROK and the U.S. in respect to the size, composition and administration of the U.S. economic aid program. The exchange rate is to be reviewed in September 1956, and if prices have changed more than 25% over those of September 1955, the exchange rate under the existing U.S.-ROK agreement will have to be adjusted accordingly. Such a price rise could occur by September 1956. The required upward adjustment of the exchange rate would probably be objected to by the ROK.

b. Current recovery of the proceeds of sales of commodities imported under the aid program is lagging, making the probable shortfall of hwan for implementing the program a serious problem. The ROK has indicated that in FY 1957 it wants proceeds from the saleable commodities supplied under the aid program used solely for investment projects, rather than for both military budget support and investment projects. Accordingly, the collection and use of counterpart funds and the financing of the local currency cost of the military budget will continue to be a problem.

C. Listing of Major Developments During the Period

13. Political

a. Although relations with the Republic of Korea improved on the surface, the ROK did not change its position on specific U.S.-ROK differences, e.g., Japan-ROK relations.

b. The re-election of President Rhee and the election of Chang Myon as Vice President on May 15, 1956 are of major importance as political events in the ROK. According to current indications, specifically post-election cabinet changes, Rhee does not plan to change his policies.

c. The U.S., continuing to observe the Armistice but unable to secure full communist compliance with the Armistice terms, removed the Neutral Nations Supervisory Commission’s inspection teams to the Demilitarized Zone June 9, following consultation with our Allies.

14. Military

While the overall strength of the UN Command remained constant its international character further deteriorated during the period as a result of reductions by the Commonwealth countries and Ethiopia.

15. Economic

a. The ROK wholesale price index resumed its climb in April and by the end of June had risen almost 17% above the September 1955 average.

b. $25 million in additional aid was allocated to the Korean Defense Support Program in December 1955 for anti-inflation purposes, and another $25 million in June 1956 for the same purpose.

c. A conference held in Seoul in January 1956¹⁰ resulted in several limited procedural improvements, and better understanding of aid procedures on the part of the ROK Government.

d. See Financial Annex for PL 480 Agreement.¹¹

16. Informational and Cultural

a. There was an increase in information activities in support of the U.S. economic aid program.

b. The ROK continued to receive generally unfavorable publicity in the world press.

c. FY 1957 appropriation requests provide for a moderate expansion of the information program and a major expansion of the educational exchange program.

1. Source: Department of State, S/S–NSC Files: Lot 63 D 351, NSC 5514 Series. Top Secret. Prepared by an OCB working group composed of representatives of the Departments of State and Defense, ICA, USIA, [less than 1 line of text not declassified], and the Department of the Treasury. A covering note attached to the Report indicates that it was approved by the OCB on July 18 for transmittal to the NSC. A two-page Financial Annex is not printed.
2. Document 24. The previous Progress Report on NSC 5514 is printed as Document 102.
3. Dated March 15, 1956; for text, see vol. XIX, pp. 242–268.
4. Document 99.
5. See footnote 3, Document 3, and footnote 5, Document 8.
6. Not printed.
7. For text of the Joint Statement issued in Seoul on August 8, 1953, at the conclusion of talks between President Rhee and Secretary Dulles, see Department of State Bulletin, August 17, 1953, p. 203.
8. Footnote in the source text [less than 1 line of source text] not declassified; see Documents 116 and 159.
9. See Document 155.
10. The conference involved senior officials of the South Korean Government concerned with economic and military aid and a team of Embassy and ICA officials led by Economic Coordinator Wood. The purpose of the brief conference was to review the implementation of the agreement arrived at as a result of the economic conference which took place in Washington during the previous summer. For text of the economic agreement signed by Ambassador Yang and Assistant Secretary Robertson on August 12, 1955, see Document 78. The conference held in Seoul in January was limited in objectives and results. Documentation on this conference is in Department of State, Central File 795.5–MSP.
11. Not printed. The annex lists the dollar amounts and hwan proceeds involved in the provision and sale of such commodities as tobacco, cotton, wheat, barley, and dairy products under P.L. 480.