800.51W89 U.S.S.R./188

The Chargé in the Soviet Union (Wiley) to the Secretary of State

No. 378

Sir: Confirming my telegram No. 50 of February 5, 9 p.m. I have the honor to report that, in my conversation yesterday with the People’s Commissar for Foreign Affairs, which followed an appointment of a purely routine nature, he gave no indication of perturbation over the rupture of the negotiations in Washington for a settlement of debts and claims nor any reason to believe that he contemplated a change of front.

Indeed, Mr. Litvinov calmly stated that he thought it was a good thing for the negotiations to be “put on ice” for a while; that at some future time they might be resumed with greater hope for successful conclusion. He suggested that the political situation should in the meantime alter in such a way as to make it easier to reach an agreement. Outside of assurances that he did not have the United States in mind in connection with the anticipated political change, I was unable to elicit any clarification of his somewhat veiled allusion. My only and somewhat obvious conjecture is that he hopes, through the development of the Franco-Soviet rapprochement and his negotiations with the Japanese Government, to effect a political détente which would serve to improve substantially the credit position of the Soviet Union.

The Moscow factors which have obstructed a successful conclusion of the negotiations appear mainly to be:

An eastern or even Asiatic mentality in respect of financial and economic negotiations.

Policy of caution in respect of extensive foreign commitments, in the form of short or middle term credits, in excess of normal trade exchanges.*

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Disinclination to recognize even tacitly debts and obligations not directly incurred by the Soviet regime.

Fear of the possible resuscitation of dormant claims in third countries.

Resistance to any attempt at or implication of regimentation of foreign trade by other countries as a counterpoise to Soviet regimentation by means of the Soviet trade monopoly.

My impression from Mr. Litvinov’s remarks and attitude is that significance at this moment may be attributed chiefly to the first and last of these factors. The trading instinct predominates in Mr. Litvinov. While there is, of course, reluctance to settle “bourgeois” debts and claims, even more in evidence is resentment that, according to the American proposal, the American Government would not extend loans or credits direct to Soviet agencies but would make loans to manufacturers and producers, which in turn would extend credits to the Soviet Union. This has undoubtedly implied, to the Soviet mind, the intention of the American Government to exercise an effective—and repressive—control over the business to be transacted by virtue of such credits. The Soviet mind envisages authority only as an agency for repression.

As the Department is aware, the Soviet Government has consistently refused to admit that what was sauce for the goose was admissible for the gander. While Soviet exports and purchases are strictly regimented by means of the Soviet foreign trade monopoly, the Soviet Government has resolutely resisted any attempt at counter-regimentation elsewhere. The Department may recall the success with which the Soviet foreign trade monopoly combatted various specific examples of this; for example, the efforts of the Russische Ausschuss of the Reichsverband der Deutschen Industrie to act as a counterpoise to Soviet state control.

I have observed no indications that the Soviet Government has recently been under any pressure from third states to restrain it from concluding a settlement of debts and claims with the United States.

From various sources, I have been informed since the beginning of November that Mr. Litvinov was under fire; that his prestige was waning. This has been reported to me on many occasions by Soviet and foreign diplomatic contacts. From various reliable sources, I have now been told that the rupture of the negotiations in Washington has been grist to the mill of his opponents. Moreover, I have been given to understand that his veracity has been questioned in high Soviet quarters which seem to doubt that, on his return from Washington, he reported accurately regarding his commitments to Mr. Roosevelt. I must add, however, that he gives no impression of being perturbed or in any fear that he would not, if necessary, defend his position. In fact, I believe he is convinced that, if any attempt were made to put his good faith in question, he could readily vindicate himself. [Page 180] He has intimated to me, when insisting on his good faith, that his position was juridically impeccable.

Though I have been assured by Soviet contacts that the Soviet Government is most desirous of concluding an agreement with the United States and that it was not impossible that a “directive” might be given by the Kremlin for Mr. Litvinov to alter his position, I am not particularly sanguine that this will be the case in the near future. The Soviet Government has recently been waging a determined fight, probably at considerable sacrifice, in Germany, France and England in order radically to improve the Soviet credit position and to relax credit terms. The results, so far, have been most unsatisfactory. Important credit negotiations in Germany, instead of advancing, are reported to have been retarded. The French attitude in respect of credits has, as previously reported to the Department, changed from positive to negative within the last few weeks. In Great Britain, the Soviet Government has paid cash rather than accept British credit terms. It may, therefore, be assumed that, until this credit struggle has been decisively concluded, the Soviet Government might be averse to setting the precedent, so long resisted, of accepting controlled credits, such as those offered by the American Government.

Despite Mr. Litvinov’s attitude of indifference, even satisfaction, the breaking off of the negotiations must represent a grievous disappointment to him. Credit negotiations in third countries will become more difficult and credit terms will stiffen; opponents in France to rapprochement with Russia will be encouraged and the Japanese may readily become more exacting.

Respectfully yours.

John C. Wiley
  1. This factor will be the subject of a separate despatch. [Footnote in the original.]