The Ambassador in the Soviet Union (Davies) to the Secretary of State 72

No. 1348

Sir: Upon the occasion of making my formal parting call upon President Kalinin and Premier Molotov on June 5, 1938, a very interesting situation developed.

When I was in Premier Molotov’s apartment in the Kremlin, and within a very few moments after I had been seated, Mr. Stalin entered the room alone, came forward, greeted me very cordially, and he, Molotov and myself engaged in discussions for two hours and fifteen minutes. Supplementing my telegram No, 143 of June 6, 1:00 p.m., I have the honor to report with reference thereto as follows:

After the usual preliminary amenities incident to the occasion of my call on the Premier by reason of my departure and transfer to Belgium, we entered upon a friendly and interesting talk. Stalin was particularly interested in President Roosevelt and asked many questions [Page 568] about him. He also referred in terms of much admiration to your Washington speech.

We discussed a matter which I am committed to report upon orally only to you and to the President. Stalin also brought up the battleship matter which is now pending in the Department, and finally discussed the possibility of a settlement of the Kerensky debt.

A complete and detailed statement of what occurred is set forth in the memorandum hereto attached and made a part hereof. Subsequent developments with reference thereto are also described therein.

Both this despatch and the memorandum have been dictated under great pressure in the last few hours in Moscow just prior to my departure, and are not at all satisfactory to me as a statement of what occurred, but time presses and I think the memorandum will give you an accurate picture of the situation.

The fact of the conference was announced by the Soviet press and to eliminate the possibility of unwarranted implications I was obliged to issue a short statement to the press, a copy of which I herewith enclose.73

The situation created nothing short of a sensation in the Diplomatic Corps here. It was regarded as a unique occurrence in diplomatic history here. I was overwhelmed with requests for appointments. On the occasion of the dinner which Foreign Minister Litvinov gave on the evening of June 7 in honor of our departure (which was again quite unprecedented) and particularly at the reception to the Diplomatic Corps which followed, I was approached repeatedly and delicately questioned with reference to what had occurred. To all inquiries I answered quite frankly that the meeting had been entirely unexpected and had been a complete surprise to me; that I had enjoyed a very interesting visit; in which we had discussed many matters, of a general nature. I thought it better to say this much rather than to leave the situation clothed in mystery and possibly thereby cause unwarranted implications to be drawn with reference to the significance of the matter in connection with this international situation.

Enclosed herewith and pursuant to the regulations of the Department you will please find a copy of the talk which Mr. Litvinov made upon the occasion of his dinner, and a memorandum which was prepared by the joint secretarial staff of the Embassy setting forth the extemporaneous remarks which I made in reply74 which I asked them to prepare because of the pressure of matters incident to my departure on the afternoon of this day.

Respectfully yours,

Joseph E. Davies
[Page 569]
[Enclosure 1]

Memorandum by the Ambassador in the Soviet Union (Davies)

Arrangements having been made that the writer should make his formal calls prior to departure on President Kalinin and Premier Molotov on this day,75 the writer proceeded to the Kremlin at 4:30 p.m.

Considering that it would be advisable to have some member of the staff who also understood Russian accompany me, I suggested that Colonel Faymonville, who speaks Russian very well, go with me. Mr. Barkov, Chief of the Protocol Division of the Foreign Office, however, advised that that was not acceptable and when the suggestion was then made that the senior member of the staff should go with me, it was intimated that protocol required that on farewell calls the Ambassador would proceed alone. That made no impression on my mind at the time, but later became significant.

At the former Catherine Palace, inside the Kremlin wall, I was met by Mr. Barkov, the Secretary of Protocol, and was escorted by him to the apartment of President Kalinin, where we were received by the Secretary. Upon entering the President’s inner office, Mr. Kalinin came forward cordially to greet me at the door. During our visit President Kalinin sat at his desk. Mr. Barkov, who was also present, Mr. Vinogradov, of the Foreign Office, who acted as interpreter, and I were seated immediately in front of the desk. After the usual social amenities connected with the announcement of my departure were passed, President Kalinin stated that he could quite understand that it might be more agreeable for me at my new post than it would be here. He recognized, he said, that the life of the diplomat in Moscow was not altogether agreeable and had its limitations; for the reason that contacts between officials of the Soviet Union and the Diplomatic Corps did not generally obtain as they did in other countries. He, therefore, could quite understand that I would enjoy the change involved in going to Brussels. I replied that, from an intellectual viewpoint, I had enjoyed this post tremendously. From that angle, I would regret leaving Moscow. Quite frankly, however, the living conditions that obtain in Belgium would be more agreeable. I stated further that I was in entire agreement with his frank statement that the position of members of the Diplomatic Corps here was difficult because of the conditions which he had described. Further, I ventured to say, that while this situation contained disadvantages for the Diplomatic Corps, it also had real disadvantages for the Soviet Government; that there was much wisdom in the statement of the old French philosopher who had said: “You cannot hate the man you [Page 570] know”; that even though certain Ambassadors and Foreign Ministers might be hostile to this regime, if, through contacts, they came to know the men who were running this Government, it might serve to modify the harshness of their judgments; and certainly, that as to those members of the Corps who were friendly this situation placed them at a disadvantage in not being able to communicate from time to time with the heads of government, as was done in other countries, and thus have the benefit of the point of view of the responsible officials. I stated further that the point of view and outside perspective of friendly foreign diplomats might also be of no small help and real value to Government officials here. To this President Kalinin rejoined that the condition which he had referred to was bred by world conditions; that the people of Russia believed that they were surrounded by aggressive and hostile states, particularly Japan and Germany; that in the opinion of his Government such feeling was justified and that this basic fact materially prevented free intercourse with the Diplomatic Corps. Another reason for this condition, he said, was that the men in responsible power here, unlike the governing classes of some of the capitalistic classes [countries?] were “of the first generation”, were confronted with new and great problems, were working overtime and did not have the time for luncheons, dinners or other social engagements which the Diplomatic Corps were accustomed to employ for such contacts. Time, he thought would remedy this condition.

President Kalinin spoke of President Roosevelt’s speech at Chicago and also of Secretary Hull’s speech at Nashville76 and expressed the hope that it was an indication of the United States possibly becoming more active in the protection of the World Peace against the “unruly members of world society”.

In conclusion he stated that he was familiar with the work which the American Ambassador had done in the Soviet Union in connection with studying for himself the various industries and enterprises of the country and of the various phases of Russian life; that they appreciated the objectivity of this attitude; and (to my embarrassment) that he and his associates considered that the American Ambassador, though he might differ from them was, nevertheless, an “honest man”, and that they much regretted that he was leaving this post.

Upon leaving President Kalinin’s apartment I asked Mr. Vinogradov whether he was going with me to Premier Molotov’s apartment. He said, “No”, that another interpreter would be available there. Mr. Barkov, however, accompanied me down the long corridor to another section of the building where he presented me to a secretary of [Page 571] the Premier. Shortly thereafter a Mr. Khaletski (interpreter) came in and I was ushered into the room of the Premier. Here again on entering I found the Premier coming forward from his desk to greet me. Scarcely had we been seated, when I was startled to see the door, through which I had entered, at the far end of the room open, and Mr. Stalin come into the room alone. I had seen him on public occasions heretofore and on one occasion had an opportunity to shake hands with him, but I had never had an opportunity to study the man at close range. As he came in, I noticed that he was shorter than I had conceived and that he was quite “slight” in appearance. He did not look robust, nor strong as he appeared to be on the occasion of the May Day Celebration. There was a suggestion of the sagginess of an old man in his physical carriage. His demeanor is kindly, his manner almost deprecatingly simple; his personality and expression of reserve strength and poise very marked.

As we arose, he came forward and greeted me cordially, with a simple dignity. We then sat down at a large table—a kind of directors’ table.

I broke the ice by stating that I had returned to Russia because of a desire, on the occasion of my departure, to express my respects formally to President Kalinin and Premier Molotov, and to express my appreciation of the courtesies that this Government and its officials had extended to me. Meeting Mr. Stalin, I then said, was a great surprise, and that I was very much gratified to have this opportunity. I then went on to say that I had personally inspected typical plants of practically all of the heavy industries of the Soviet Union, as well as the great hydraulic developments of the country; that these extraordinary achievements, which had been conceived and projected in the short period of ten years, had commanded my great admiration; that I had heard it said that history would record Stalin as the man who was responsible for this achievement and that he would be recorded as a greater builder than Peter the Great, or Catherine; that I was honored by meeting the man who had builded for the practical benefit of common men.

To this, Stalin demurred and stated that the credit was not his; that the plan had been conceived and projected by Lenin, who had projected the original Dnieperstroi Dam project; that the ten-year plan was not his work; that it was due to the three thousand able men who had planned this work and those others of his associates; and above all that it was the “Russian People” who were responsible, and that he disclaimed any personal credit therefor. He gave me the impression of being sincerely modest.

After about twenty minutes of conversation discussing my inspection tours of the industrial regions, in the course of which he displayed [Page 572] a knowledge of my work as Commissioner of Corporations77 and Chairman of the Federal Trade Commission,78 I started to leave. Stalin asked whether I had to keep another appointment. When I said “No”, he suggested that I do not hurry away. I then asked him what were his views on the European situation. He replied that the outlook for European Peace was very bad, and the summer might induce serious trouble. He then went on to say that the reactionary elements in England, represented by the Chamberlain Government, were determined upon a policy of making Germany strong; and thus place France in a position of continually increasing dependence upon England; also with the purpose of ultimately making Germany strong as against Russia. He stated that in his opinion Chamberlain did not represent the English people and that he would probably fail because the fascist dictators would drive too hard a bargain. He said that the Soviet Union had every confidence that it could defend itself. Early in this discussion, I broached the particular matter which President Roosevelt had discussed with me orally during my visit last January. To my surprise, in view of previous information, it was favorably received. I was committed not to disclose these discussions to anyone except the President and the Secretary of State.

He then asked me whether he could ask me some questions, to which I replied, “Of course”.

He then asked whether I was familiar with the pending negotiations which the Soviet Government were having with the Government of the United States in connection with the proposed contract for the construction of a Soviet battleship by an American firm. He said that the Soviet Government had difficulty in understanding why the matter could not go forward; that they were prepared to expend sixty to one hundred million dollars for the building of a battleship, and were prepared to pay cash, both for the battleship to be built in the United States and for the technical aid of American firms to aid them in building a duplicate in the Soviet Union; that this would afford employment to the unemployed, which would be desirable as he was informed that the shipyards were only 60% occupied with present contracts; that the Soviet Government could not understand why the matter could not go forward. To this I rejoined that he was misinformed as to the extent of unemployment as far as shipbuilding was concerned; that the Government of the United States had recently embarked on a huge shipbuilding program which would undoubtedly tax our shipyards to the utmost; that there were also restrictions imposed by law that would prevent the giving of plans for battleships, or giving access to manufacturing plants which were building battleships [Page 573] to foreign countries, unless the Army and Navy would declare that this would not be prejudicial to the military or naval defense of the United States; that I was familiar only in a general way with the negotiations which had been projected entirely in Washington and knew of them only through the reports that had been sent to us as a matter of official routine; that, quite frankly, it was difficult for me also to understand just what the difficulty in the situation was from the reading of the reports, but that I thought the matter had recently given indications of going forward more rapidly. To this Stalin rejoined that if the President of the United States wanted it done he felt sure that the Army and Navy technicians could not stop it, and that it could be lawfully done. To this I rejoined that in all probability the President of the United States knew nothing about the matter; that if he did, it was quite probable that among the many domestic problems which confronted him in connection with the closing session of the Congress, he had not been able to give foreign affairs his personal attention.

I then asked him which agency of the Soviet Government was negotiating this matter—whether it was the Soviet Embassy in Washington, Amtorg,79 or the corporation called “Carp”.80 He asked me whether there was any prejudice against Carp. To this I said that I did not know. He answered that Carp was an American corporation; that its president was an “American patriotic citizen” (a reference, I believe, to Molotov’s brother-in-law), and that it had been considered that it might facilitate the matter, if the contract were executed by such a corporation. I replied that, in my opinion, there was no prejudice against any agency of the Soviet Union, but that as a practical matter it would clarify the situation for the authorities of the United States to know clearly that the agency presenting the matter spoke authoritatively, and had both his confidence and that of the Soviet Government. I then asked the specific question whether the Carp Corporation was the agency to deal with. To this he replied, “Yes”.

Stalin then said that there was another matter that he desired to ask me about; and that was a situation that had to do with the possible settlement of the debt of the Kerenski Government to the Government of the United States. He stated that it was their information that there was a group of bankers who had close contacts with President Roosevelt, who were interested in doing business with the Soviet Government and who were prepared to finance credits to the extent of two hundred million dollars over a period of time for the [Page 574] purchase of goods in the United States by the Soviet Government, provided the consent of the Government of the United States could be had thereto, and provided a portion of it were to be employed in the payment of the Kerenski debt. He said that the amount that had been discussed in settlement of this debt was $75,000,000; that the Soviet Government might pay $50,000,000, provided credits could be arranged upon a reasonable basis of interest and provided the Kerenski obligation could be discharged by a payment of 10% of [or?] 15% of the amount of the credit upon the execution of the agreement with the balance of payment spread over a period of time in annual installments. He suggested originally that the credit terms should be for ten years and that the debt should be extended over a period of twenty years. To this I rejoined that as it appeared to me, the proposition would appear to be more equitable if the proposed liquidation of the debt was to be made in a shorter period and certainly during a period not longer than the term of the credit. Thereupon, with a chuckle, he suggested he might concede the point and make the period of payments of the debt fifteen years and also have the credits term also for fifteen years. With a laugh, in which he and Molotov joined, I suggested that this was most extraordinary as a “concession”. Then, seriously, I said that in a large matter such as this and in negotiation between two “big” principals, I would assume, that if President Roosevelt and his Government could agree upon the larger major issues involved, that there would be no haggling over relatively minor factors, and that I would therefore assume that the proposal made ultimately would provide for payment of the debt during a period which would be at least not longer than the period of the credit term. He smiled and seemed to acquiesce. I then said I first wanted to disabuse his mind of any impression that any private group of bankers was “close” to President Roosevelt in this matter; or in any other public matter.

Proceeding, I stated that I was very glad that he brought this debt matter up; that, with permission I wanted to trespass upon his patience and ask him to listen to my statement as to this debt matter, which was rather a long story of negotiations, which originated with the President and Mr. Litvinov’s agreement in 1933, and which had finally resulted in failure and some misunderstandings and bitterness. I then detailed the facts briefly as follows: That in 1933 when there were many Japanese attacks on the eastern border of the U.S.S.R. and when it was much to the interest of the Soviet Union to secure recognition by the United States, certain agreements were entered into which also served the interests of the United States; namely, an arrangement whereby the Soviet Government would settle the claims of American citizens and those of the Government of the United [Page 575] States against the Soviet Union; that because Mr. Litvinov was obliged to leave before the arrangement could be fully closed, the matter was left to be worked out as to detail; that for guidance, a memorandum in the nature of a gentlemen’s agreement,81 which set forth the understanding in principle was written and was initialed by the President and Mr. Litvinov, which expressed the terms under which these debts were to be paid, and that a loan or credit should be made to the U.S.S.R. by the Government or its nationals; that at the time this memorandum was made and the negotiations were being conducted there was pending in the Congress of the United States a proposal introduced by Senator Johnson, which provided that the Government of the United States should in the future make no loan to any foreign government which had not paid its debt to the Government of the United States; that this was very well known to everyone and was much discussed, and it was in anticipation that this bill would pass and become a law82 that the parties entered into an understanding that the loan or credit which was to be made to the U.S.S.R. would be either by the Government of the United States or its nationals; that the understanding was that the Soviet Union would pay to the Government of the United States a sum to be agreed on somewhere between $100,000,000 and $150,000,000 and that the Soviet Government was to be provided with credits in the nature of a loan to an amount of approximately $200,000,000 to be expended in the United States through some agency; that the Export Bank to aid private nationals to arrange such credits was organized for that purpose;83 that subsequent thereto for a period of a year and a half negotiations were had looking to the implementing of this undertaking and formally concluding this agreement; that there developed misunderstandings in these negotiations; that finally an offer was made by the Government of the United States, which in my opinion fulfilled in all respects every honorable obligation that had been undertaken by the President; that this offer had been rejected by Ambassador Troyanovski upon the direction of his Government in 1935 upon the ground that it was not in accordance with the understanding because it offered not a loan by the Government of the United States but by the nationals of the United States and upon the further ground that the control of the purchases in the United States was not placed in a Soviet agency but that the purchases were subject to the control of this American agency; that what was offered was a credit and not a loan.

I stated further that the total of claims against Russia of both [Page 576] private citizens and of the Government of the United States with interest, which included claims of private persons against the Tsarist regime, the claim of the Government against the Kerenski Government and the private claims against the Bolshevik Government amounted in the gross to approximately $900,000,000 or $1,000,000,000; that the offer of settlement in the sum of $100,000,000 by the United States was most generous as it would provide less than ten cents on the dollar to the private American claimants, particularly in view of the fact that American nationals were providing an agency that would make possible the extension of a $200,000,000 credit for purchases in the United States by the Soviet Government; that the attitude of the Soviet Union in this respect had been a great disappointment to the President of the United States; that this matter was one of the matters in difference pending between the two Governments when I came here and that I would say (with undiplomatic frankness) that my instructions were not to bring up or urge the matter of debt settlement but to strongly take the position that we had done everything that we were honorably committed or required to do and that so far as we were concerned it was a closed book, unless and until the Soviet Union wished to reopen the matter and fulfill its honorable obligations; that I was therefore very glad that before my departure to hear from him that the Soviet Government was seeking to find a way to settle at least a portion of this debt situation.

To this he rejoined that the Soviet Government could not settle with the United States the private claims of American citizens against either the Tsarist regime or against the Soviet Government without being obliged under treaties to make equally favorable settlement with England and France as to similar claims, and that this would entail too great a burden. What he had in mind was a formula that would eliminate this difficulty. The Soviet Government could differentiate a debt of the Russian Government to the United States Government from a debt claimed to be due to private citizens of the United States. Therefore the Soviet Government could settle the Kerenski debt without such incidental and attendant difficulty with France or England.

I then asked him exactly what the proposition was; and asked him to please state it in detail. It was to pay $50,000,000 on the Kerenski debt, provided a credit, above referred to, were extended to the U.S.S.R. for a period of ten years in an amount of at least $150,000,000, or more if possible. Payments on the debt to be 10% of the total amount of the credit to be paid upon the execution of the contract and the balance to be paid in equal annual installments over a period of twenty years. The rate of interest would be the usual going rate, both as to credits and also on the debt obligation. I asked whether he knew what the amount of the Kerenski debt was; that [Page 577] I did not have it in mind. He replied that he did not know; that the Kerenski records were not clear; to which I rejoined that I could readily ascertain because I knew our records were clear because it was our money that they had received. This caused a general laugh.

Upon my inquiry Stalin stated that this payment would have to be in complete liquidation of all claims. To this I rejoined that if that was the proposition, in my opinion, it would be useless to even think of submitting it because the sum was even less than the amount of the previous proposed agreements. I then asked whether it would be possible for them to confine the proposal to the Kerenski debt as a governmental debt and leave the other claims for the future. To this he at first demurred. I then said that my only object in bringing this point up was to frankly give them my view as to what, in my opinion, would make it useless to even submit a proposal, and that the proposal, in my judgment, would not even be considered unless the arrangement could be made without prejudice to other claims. I explained that in our practice in drawing contracts we frequently resorted to that principle, namely, that a single matter in difference between parties could be settled, with an express reservation that such settlement did not prejudice, or estop either party from asserting any other claim in the future. He said that was agreeable.

Of course, throughout this discussion it was understood that the remarks and inquiries I made were designed simply to explore the exact terms of the offer. It was clearly stated that I, of course, was not purporting to say what would or would not be acceptable to my Government.

[Enclosure 2]

Memorandum by the Ambassador in the Soviet Union (Davies)

Following the meeting with Stalin and Molotov and the discussions then had on June 5th, I took counsel with Secretary Henderson and Counselor Kirk. We discussed the situation from all angles.

It was fortunate that Mr. Henderson had participated in the original debt negotiations and was personally familiar with all phases of the matter, and that some time ago he had also, at my request, prepared an able epitome of the history of the negotiations, together with a very clear analysis of the difficulties which arose, and upon which the negotiations foundered.

It was apparent that if this debt development were to be successfully worked out, it would be necessary to obviate those difficulties which prevented former success, and that therefore the proposal [Page 578] should be clarified and amplified to disclose exactly how it was proposed to work out the arrangement.

Accordingly, on June 8th, I asked for another conference, which was arranged for one o’clock of that day. In order to prevent possible publicity which might arouse speculation on the part of the press and unwarranted assumptions, I asked Colonel Faymonville, driving his own car, to take me to the Kremlin, rather than use one of the chauffeurs here. I saw Mr. Molotov alone and explained the situation as above, and suggested that I desire to clarify in my own mind certain phases of their proposal and for that purpose had prepared two memoranda as a basis of discussion. These are hereto attached, Nos. 1 and 2.

The conference lasted about an hour and fifteen minutes. Mr. Molotov stated that he would wish to give the matter some more thought and that he would let me hear from him later. I left Memorandum No. 2 with him.

Before leaving, I suggested that in as much as my relations with his Government had been entirely with the Foreign Office, I desired to have his consent to my taking the matter up with Foreign Minister litvinov, to explain the situation to him, so that after my departure negotiations could be conducted through regular diplomatic channels on both sides. To this he said he had no objection and that he would ask Mr. Litvinov to get in touch with me.

On the following morning, June 9, I received a telephone call from Mr. Molotov’s secretary asking whether I could come over to see the Premier, as he had an answer to the “proposals” which I had left the day before. I immediately (and quite sharply) said that I had made no proposals, that I had simply asked questions and left a statement of what I understood the terms of their proposal were and had asked them to verify that understanding and that the memorandum which I had left with them would disclose that very clearly; that I was neither empowered to make a proposal nor would I make a proposal. He apologized profusely and stated that his English was faulty and understood thoroughly that it was not a proposal that we had made; that what he had meant to say was that Mr. Molotov wished to discuss the questions raised in my memorandum further.

Pursuant to this telephone call, I again called upon Premier Molotov at seven o’clock on the evening of June 9. Colonel Faymonville again drove me over to the Catherine Palace, which is inside the Kremlin walls. Premier Molotov said that he had taken up the questions which I had submitted with all of his government associates and that they had agreed upon the terms of a definite proposal, which he had set forth in a reply to my questions. He handed to me a letter signed by himself, which was in the Russian language and addressed [Page 579] to me, setting forth seriatim the terms of the offer. After the memorandum had been translated, I stated that frankly I was very much disappointed by the document; that it was not either in terms of credit or amounts what I had understood the original proposal made by Mr. Stalin to be; that I feared it indicated a disposition to introduce a bartering or trading atmosphere into the negotiations, which, in my opinion, would be fatal, certainly if projected at this stage of the developments; that the only hope of getting anywhere, in my opinion, was to project this matter on a basis where the desirability and feasibility of the proposal could be established between the heads of the governments on broad lines in principle, and that if that were accomplished there was no reason to believe that a large-minded approach between two big principals would not permit relatively small matters to prevent the accomplishment of the main objective and that they would not permit antagonisms over small matters and conflicts in personality to develop through a desire to “outtrade the other fellow.”

The Premier then stated that the memorandum was not in any sense a hard and fast proposition; that he agreed with me as to how the matter should be projected; that he would keep the situation from developing into a hardened state; that this would serve to make a start and to clarify the situation until he had heard further from me.

I then asked to have the Russian memorandum translated by them into English so that I could have their version of the meaning. They said they would have it for me and would deliver it promptly.84

Premier Molotov then went on to say that the U. S. S. R. was in no serious need of credits; that they had been offered very large credits by Germany in the very recent weeks, which they were not going to accept under any conditions; that their balance of trade was favorable, etc.; that his Government and Stalin were, however, really desirous of getting this debt matter cleared up because of their high regard for the United States, etc., and that therefore they were initiating the matter in this manner; that they would like to know from me as soon as possible what the reaction of the President and the Secretary of State would be to the possibilities of some arrangement along the general lines of our discussion; that, in any event, whether it was finally successful or not, one thing at least would have been accomplished, to wit, the manifestation of their good will and, finally, in any event there would always be a kindly feeling in their minds with reference to these discussions and these negotiations which had been discussed by the heads of the Government and by Mr. Stalin with the American Ambassador.

[Page 580]

Then to my surprise, he said that he thought it would be better if the matter were kept out of the usual diplomatic channels for the present. He stated that the matter had originated on the business side of the Soviet Government’s activities in the United States with Mr. Rossov, head of Amtorg, and that he thought it would be better to hold the matter exclusively in that atmosphere until it had progressed into stages where there was a possibility of having a definite agreement made. He therefore stated that the matter would not be taken up by Ambassador Troyanovski and he would prefer not to have it discussed with him or with the Embassy in Washington. He also said that they desired that I should not take up the matter for the present with Foreign Minister Litvinov. To this I demurred on the ground that it would be difficult for me to communicate with him, except through our diplomatic channels, or through their Foreign Office. He said for the purpose of the immediate present he would find means of communicating with me and that I could communicate with him through Mr. Rossov in New York.

Again I suggested that I felt that both the conventionalities and in fact my personal obligations required that the matter should be projected through our regular staff and through Mr. Litvinov. He stated that this would come in good time if the matter developed and that he would assume any responsibility for the situation so far as Mr. Litvinov was concerned; that he would take the matter up and explain it to Mr. Litvinov himself, if necessary.

In order that they should not obtain the idea that I had returned for details because of any possible lively interest on the part of the Government of the United States on the assumption that I had communicated the matter to the President and to the Secretary of State, I stated to Mr. Molotov that I had not set forth the details of the debt proposal but had covered it and the discussions generally in my cable to the Department; that I had requested the Secretary of State and the President personally to be permitted to return to the United States to take my oath there and receive instructions before going to Brussels; that I had received such permission and was, therefore, going to the United States and would report the entire situation to my Government, in the hope that it would start negotiations that might finally be successfully concluded.85

[Page 581]

He stated that his Government and he were very glad that I was returning to the United States and would explain not only the proposal but interpret the spirit which actuated his Government.

He also emphasized that at present he thought that the less publicity had and the fewer people that knew about this situation until the matter were agreed upon in principle, the better. With this I agreed heartily.

There will be attached hereto as Enclosure No. 3 the translation of the memorandum furnished to me as soon as I receive it.86

Joseph E. Davies
[Subenclosure 1]

Memorandum by the Ambassador in the Soviet Union (Davies)

The proposal, as I understand it, is as follows:

A group of American bankers is willing to extend credits up to $200,000,000 to the Soviet Government for the purchase in the United States of American products; the credits to cover a period of ten years, and to bear a fair and usual rate of interest;
That this group of American bankers is prepared to extend such credits independently of the Government of the United States and without resort to any aid from the Export Bank or other Government agency in the discounting of the promises to pay of the buyer;
That if an agreement with such American bankers could be entered into under certain terms to be agreed upon, the Soviet Government would be prepared to settle the Kerenski indebtedness to the Government of the United States on the following basis:
It would agree to pay in full settlement of the Kerenski indebtedness the sum of $50,000,000 in the following manner:
Ten or fifteen percent of the total amount of the credit obtained as above would be paid to the Government of the United States upon the execution of the agreement, the balance of the payments would bear a normal rate of interest (to be agreed upon) and would be paid in equal annual installments spread over a period of twenty years or spread over the period covered [Page 582] by the term of the credit agreement (the alternative is—would be paid over a period of twenty years);
That such settlement of the Kerenski debt would be without prejudice to either party. In other words, the American Government would be free to press private claims against the Soviet Government without prejudice if a suitable occasion should arise, on the one hand, and on the other hand, that the action of the Soviet Government in settling the Kerenski debt would not constitute an admission of any obligation to pay any such private claims.

  • Query (1): Is the credit to be a revolving credit or a single time credit?
  • Query (2): Is the American Group to depend on the Export Bank?
  • Query (3): Is the Banking Agency to have any control over the purchases or whence purchases are to be made?
[Subenclosure 2]

Memorandum by the Ambassador in the Soviet Union (Davies)

Stalin’s suggestions with respect to loans as understood by me were as follows:

A group of American bankers with whom the President is acquainted would extend credits of $200,000,000 to the Soviet Government for the purchase in the United States of American products;
A part of this credit would be used by the Soviet Government to apply on an agreement of settlement of the Kerenski indebtedness to the United States;
The credit would be for a term of ten years and would bear a “normal rate of interest”. However, the payments of the $50,000,000, which were to be used to settle the Kerenski indebtedness would be made over a term of 20 years, 10% to be paid upon the issuance of the credits;
As a result of certain remarks made by me Stalin stated that it might be possible to have the credits made for a term of 15 years and to have the debt paid within the same period;
No statement was made as to whether the credits were to be guaranteed by the American Government;
I obtained the impression that the credits would be of a revolving nature, although Stalin made no definite statement to this effect;
In reply to certain comments made by me Stalin made some statements which I understood to mean that the Soviet Government would be willing to settle the Kerenski debt without prejudice to the claims of American firms or persons against the Soviet Government. In other words, apparently the American Government would be free to press these claims later if a suitable occasion should arise.

  1. The file copy is a carbon with the notation: “Pres[ident] has original,” The date of receipt is not indicated.
  2. Not attached to the file copy.
  3. Neither enclosure attached to the file copy. For texts, see Joseph E. Davies, Mission to Moscow (New York, 1941), pp. 364–368.
  4. June 5, 1938.
  5. For text of speech, “The Spirit of International Law,” delivered before the Bar Association of Tennessee, June 3, 1938, see Congressional Record, vol. 83, pt. 11 (Appendix), p. A2341.
  6. 1913–15.
  7. 1915–16; thereafter Vice Chairman until resignation in February 1918.
  8. Amtorg Trading Corporation, official purchasing and sales agency in the United States of the Soviet Union, 261 Fifth Avenue, N. Y.
  9. Carp Export and Import Corporation, New York, N. Y., Sam Carp, president. Mr. Carp’s sister was married to Premier Molotov.
  10. Memorandum of November 15, 1933, p. 26.
  11. Approved April 13, 1934; 48 Stat. 574.
  12. The Export-Import Bank of Washington was organized pursuant to Executive Order No. 6581, dated February 2, 1934.
  13. The translation of Molotov’s letter of June 9, 1938, is enclosure 2 in Ambassador Davies’ unnumbered despatch from Brussels, January 17, 1939, p. 599.
  14. For additional information not in the files of the Department on the reception of this debt settlement proposal within the administration, and for the decision temporarily to defer further discussion of it, see Joseph E. Davies, Mission to Moscow (New York, 1941), pp. 370–374, 430–432. See also the unnumbered despatch of January 17, 1939, from Ambassador Davies, by that time Ambassador in Belgium, p. 594.

    In June 1939, Secretary of the Treasury Morgenthau expressed an interest “in further action to clear up the Russian debt with a view to extending credits that would assist American exports.” He informed the Secretary of State on June 30, 1939, that he had requested the Soviet Ambassador, Konstantin Alexandrovich Umansky, to call and had told him that “we were ready to take up the question of the Russian debt and I would like to have him inquire of his Government whether they would care to do likewise.” On July 7, 1939, the Secretary of State replied that “Since the debt problem is closely interwoven with other problems affecting American-Soviet relations, I would be grateful if you would keep me fully informed regarding any developments which might follow your talk with the Ambassador.” (800.51W89 U. S. S. R./248)

    Meanwhile the Soviet Ambassador had sailed on vacation to the Soviet Union. Upon his return on November 10, 1939, there is no indication that he took up the subject.

  15. See footnote 84, p. 579.