800.51W89 Czechoslovakia/197

The Czechoslovak Minister (Veverka) to the Secretary of State

Excellency: The Czechoslovak Government gratefully appreciates that the Government of the United States is not on principle unsympathetic to the idea of re-examination of the debt problem and is at the same time seeking practical ways and means for the carrying out of this re-arrangement. The Czechoslovak Government welcomes also the suggestion implied in the note of November 26th, 1932, to submit additional facts and reflections which in its opinion tend to corroborate the request for the suspension of the payment due on December 15th, 1932.

The Czechoslovak Government desires to stress at the beginning that Czechoslovakia has always considered it as her duty to fulfill and meet all her obligations in the fullest measure and without hesitation, and that the present request does not cast the slightest doubt on the legality and validity of the existing agreement.

In the same spirit, Czechoslovakia, guided and moved by the gratitude towards the American nation who came first after the Great War to her aid and assistance, immediately and without bargaining accepted and bound herself in the debt settlement of 192565 to pay fully without any reductions or alleviations both the principal and interest as the terms of the settlement were laid before her by the World War Foreign Debt Commission. Czechoslovakia accepted also to pay the highest interest of all the debtor nations. From the time of the contracting of the debt, Czechoslovakia continued to meet her obligations in gold although the sums lent to her were entirely spent for goods manufactured and produced in the United States and bought at prices of the highest level in history, and although it was evident that the nature of these purchases, i.e. agricultural products, war materials and transport services, will prevent her [Page 715] from repaying in kind and thus enable her to take advantage of the decline in prices. And all this was done during a time when Czechoslovakia was laboring under the weight of an adverse balance of trade with the United States as a logical sequel to the system of the unconditional most favored nation clause which worked in favor of the United States trade in regard to Europe. Thus, in the last years the exports from the United States to Czechoslovakia, including indirect shipments via foreign transit ports, were approximately twice as large as the exports from Czechoslovakia to the United States.

In the light of figures, Czechoslovakia bound herself to repay her original indebtedness of $91,879,671.03 in the funded sum of $185,071,023.07 at a time when the favorable trade balance of Czechoslovakia amounted to approximately seventy-six million dollars, which, in this period of expansion of foreign trade did not represent an intolerable burden as it certainly does today when our trade balance became adverse during the first nine months of the current year.

This strict fulfillment of assumed obligations under such adverse conditions, a fulfillment which in fact represented with other payments to the United States the exporting of an integral part of the late excesses of favorable trade balances with other European countries to the United States, may be considered a conclusive proof that the Czechoslovak Government would not lay before the Government of the United States a request for postponement if the situation in which these obligations have been accepted and assumed had not substantially and fundamentally changed as to entitle it to a re-iteration of this request in view of the present insurmountable difficulties. Moreover, the interpretative statement of the Secretary of the Treasury made at a time of the settlement seemed to imply and foresee such a request under basically changed circumstances.

If, Czechoslovakia today is laying again before the Government of the United States the request that the payment of the December installment, which in the most candid opinion of the Czechoslovak Government could not be effectuated without endangering her present economic and financial structure, be transferred and included in the eventual rearrangement of the debt problem, she is acting in the spirit of this conception and interpretation of the capacity to pay.

If, however, this request of postponement be not granted, the tendency to restrict importation will fatally, spontaneously and immediately be imposed on nations importing from the United States in order to correct and counteract the menacing adverse trade balance, and in this vicious circle the volume of international trade will be again diminished creating further unemployment, which is the [Page 716] most distressing and ominous phenomenon of the present crisis, and the way to recovery, both economically and psychologically, will be automatically barred.

This state of affairs would create exceptionally serious repercussions in Central Europe in the economic structure of which Czechoslovakia assumes an integral part as an industrial, exporting and creditor country.

Being wedged in the bloc of Central European states so heavily hit by the present world’s crisis of credit so that they were compelled to introduce various exchange restrictions, transfer moratoriums, and agreements concerning postponements, and being geographically and economically so closely connected with Central and Eastern Europe, Czechoslovakia has been seriously affected by these external influences exceeding the extent of the effects of the general economic crisis. The economic depression in Central and Eastern Europe deprived Czechoslovakia of approximately $180,000,000.00, which include frozen credits in the neighboring countries and payments on debts abroad. These two exigencies created by strict fulfillment of our obligations on one side, and the impossibility of collecting our credits abroad on the other side, compelled Czechoslovakia to face these difficulties in order to maintain her sound currency. The restoration of normal conditions is impossible as long as the Central European states, influenced by monetary and financial fears, see their economic salvation only in the drastic restriction of imports in order to maintain their balance of payments.

It is generally admitted that without the recovery of Central Europe, the whole process of economic restoration would be greatly impaired and delayed. Czechoslovakia undertook most drastic measures to reduce her budgetary expenditures and to maintain the soundness and stability of her currency in the interest of this part of Europe and in the interest of international trade. It is the profound conviction of the Czechoslovak Government that just now on the eve of the forthcoming World Economic Conference, it is in the common interest of all nations to maintain and support the stability of those currencies which remain in the present crisis intact and sound, based on gold standard.

In the face of the foregoing facts and observations, the question occurs whether not only the capacity to pay should be taken into most careful consideration, but also the advisability of receiving large transfers of payments without present consideration or any present equivalent in manufactured goods, raw-materials and services, especially in the actual state of the already so dislocated and paralyzed trade relations and world economy.

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The Czechoslovak Government, therefore, ventures to hope that the United States Government in this most serious moment will not refuse to grant this present request.

Accept [etc.]

Ferdinand Veverka
  1. For text of agreement, signed October 13, 1925, see Combined Annual Reports of the World War Foreign Debt Commission, 1922–1926 (Washington, Government Printing Office, 1927), pp. 195–199.