Foreign Relations of the United States, The Soviet Union, 1933–1939

800.51W89 U.S.S.R./247

The Ambassador in Belgium (Davies) to the Secretary of State

Brussels, January 17, 1939.

Sir: With reference to the above-entitled matter,³ I have the honor to report as follows:

(1) The purpose of this despatch is to supplement and complete the reports heretofore filed and to provide in single compass a complete account of the conference held with Messers. Stalin and Molotov, a history of subsequent developments relating thereto and the status of the negotiations up to the end of my tenure as Ambassador of the United States to the Soviet Union.

(2) Reference is made to the following: (a) my telegram number 143 of June 6, 1938; (b) my despatch number 1348 dated June 9, 1938 and (c) my letter from New York dated July 5, 1938 addressed to the Secretary of State, together with a copy of a letter addressed to the President⁴ which enclosed a memorandum transmitted by me upon the direction of the President and the Secretary of State to Mr. Rosoff.⁵ Copies of the documents enumerated under the designation “C” are enclosed herewith.

(3) On June 24, 1938, I returned to the United States upon the direction of the Department and conferred with the President, the Secretary of State and the Under Secretary of State, after which I had several conferences with Mr. David Rosoff, the head of Amtorg, the Soviet business agency in the United States, who was authorized to discuss the matter with me. At that time I submitted to the Department the proposal of the Soviet Government as authorized by Mr. Stalin and executed in written form by Mr. Molotov under date of June 9, 1938 at Moscow, together with an English translation furnished by the officials of the Soviet Government at my request.⁶ The originals thereof are herewith enclosed.

(4) After my discussions with the President, the Secretary of State and the Under Secretary of State I was authorized to explore the possibility of securing a modification of the Soviet proposal, through discussions with Mr. Rosoff, with a view toward arriving at a project which could be recommended to the respective Governments as affording a basis of discussion. In this connection, I was authorized to procure the advice and counsel of a prominent New York banker, Mr. Sidney Weinberg. Extended discussions were had with Messers Rosoff and Weinberg looking toward the possibility of obtaining a modification of the Soviet proposal along the line that a settlement would be confined to the payment of the Kerensky debt without prejudice to other claims, on a basis where compensating credits to be advanced to the Soviet Union through low rates of interest would make the settlement attractive to the Soviet Government as well as to the Government of the United States. During these discussions, it became quite apparent that it would be impossible for the Government of the United States to consider a settlement on such a basis until the Senate of the United States had passed upon a somewhat similar proposal put forward by the Hungarian Government.⁷ It was considered advisable, therefore, to await the outcome of the Senate’s consideration of the Hungarian proposal. Pursuant to instructions, I advised the Soviet Government through Mr. Rosoff in the manner as set forth in my letters of July 5, hereinabove referred to.

(5) As a matter of good faith in my relations with the officials of the Soviet Government it is incumbent upon me again to call to the attention of the Department the understanding that the entire matter is to be held in the strictest confidence, without publicity, until it is finally disposed of. I was also authorized to convey personally to the representatives of the Soviet Government the information that the President and the Secretary of State were gratified at this gesture of friendship and the manifestation of good faith on their part to compose the differences and misunderstandings with reference to the debt settlement which had arisen subsequent to the Litvinov agreement.

(6) In order that the files of the Department shall contain a full and complete record of all that was discussed in my conference with Messrs. Stalin and Molotov, and for the guidance of my successor at Moscow, I consider it necessary to incorporate herein the details of a matter which is referred to only in general terms in my despatch number 1348 hereinabove referred to, in which I stated: “Early in this discussion I broached the private 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.”

(7) In January, 1938 and prior to my departure for the Soviet Union, the President directed me to explore the possibility of securing a liaison between the military and naval authorities of the United States and the Soviet Union with a view to the inter-change of information as to the facts with reference to the military and naval situations of the United States and the Soviet Union vis-à-vis Japan and the general Far Eastern and Pacific problem.

(8) The President made it explicitly clear that it was not in his contemplation that there should be involved any pact of mutual support, or of aggression or defense, either directly or by the remotest implication; that it could be pointed out, however, that without any such commitment by either government, it would be the part of prudence and wisdom on the part of each government to familiarize the other with facts which might be of substantial value in the future by reason of similarity of purposes and necessities even though each power were pursuing separate and independent courses.

(9) Pursuant thereto I explored the situation with Commissar Litvinov, who pointed out that the Soviet Union was surrounded by enemies who were exceedingly hostile and anxious to obtain information for military advantage and who constantly distorted the facts as to real conditions in the Soviet Union; that any such informative reports to the United States might involve leaks to enemies of the Soviet Union through discussions by subordinates in the United States and that unless the understanding were in the nature of a definite pact or agreement, there seemed to be no particular purpose to be served so far as the Soviet Union was concerned. Litvinov stated, however, that his mind was entirely open; that he was by no means opposed to the idea, but that the Soviet Government itself would have to pass upon it.

(10) Thereupon, I reiterated the statement I had made at the beginning of our conversation—namely that I was unofficially and personally exploring the situation and that the suggestion was not formally projected by my Government and that my interest was aroused by what appeared to me to be the logic of the Far Eastern problem insofar as it involved the common interests of both Governments.

(11) On the 5th day of June, 1938, when I had a conference with Messers. Stalin and Molotov, I embraced the opportunity to tell them that the President had discussed this matter with me personally and had authorized me to personally explore the situation. I outlined what, in my personal opinion, were the advantages which might accrue to both countries by reason of such exchanges of information, provided that such information came only within the knowledge of not to exceed four men as far as the United States was concerned—the President, the Secretary of State, the Under Secretary of State and the Liaison Officer—and the “opposite numbers” persons in the Soviet Union.

(12) In view of my previous discussion with Litvinov, I was surprised to find the suggestion most favorably received by both Messrs. Stalin and Molotov. Their comments, however, were made with the understanding that they would be disclosed only to the President, the Secretary of State and, of course, their immediate advisers.

(13) They then asked me who would be the liaison officer for the United States in Moscow. They intimated a lack of confidence in the good-will or the disinterestedness of some diplomatic representatives toward the Soviet Union, which I suggested was entirely unwarranted so far as our Government representatives were concerned. I stated that my thought, in view of First Secretary Henderson’s imminent return to the United States, turned to Lieutenant Colonel Philip R. Faymonville, the American Military Attaché, whose familiarity with Soviet conditions made him clearly available. In Lieutenant Colonel Faymonville’s good judgment, intelligence and character I had every confidence. They spoke very highly of Lieutenant Colonel Faymonville’s fairness, objectivity, ability and intelligence and stated that they found no objection to him.

(14) My judgment on the situation is that the present Soviet Government was, in June, 1938, sincerely desirous of clearing up the misunderstanding and bad feeling which was engendered by the failure of the debt payment negotiations under the Litvinov agreement. The principal difficulty lies in the fact that, practically, it would be impossible for the Soviet Government to pay the pre-war Russian debt without being obliged to give similar favorable treatment to 27 other different nations under its general treaty and contractual obligations. As a practical matter, this was financially impossible. The Kerensky debt situation is unique and is differentiated from other obligations, and therefore affords an avenue for partial composition. The difficulty arose primarily out of the fact that this situation was not frankly and unequivocally stated and recognized at the beginning, with the result that recriminations were indulged in and intense feeling was engendered on both sides.

(15) A distinct advance was recorded in the fact that Messrs. Stalin and Molotov frankly made this statement to me and said that they desired to meet the Government’s obligations under the Litvinov agreement to the limit of the practicabilities.

(16) During my stay in Russia, in interpreting the good neighbor policy of the President and under express instructions from the President and the Secretary of State, I exerted every effort to cultivate mutual respect and good will between the two Governments to the farthest degree consistent with the maintenance, firmly and aggressively, of the rights of the United States and the principles of democracy. The result was very satisfactory, for there was no doubt that when I left Russia there was a better understanding between the two Governments than had existed for some time previously.

(17) The responsible authorities of the Soviet Government have stated openly that in a world where they are surrounded by enemies, they have complete confidence in the objectivity, fairness and honorable intentions of the Government of the United States.

(18) In my judgment, so long as the policy of the United States is to maintain relations with the Soviet Government, it is desirable that these relations should be of a friendly character. The manpower, resources and strength of both the Soviet Government and the Soviet people, their military and naval defenses and their present economic and moral purpose of preserving peace constitute a factor which may be of great value in the maintenance of law and order and a moral concept as between nations, particularly in view of the aggressive disposition now apparent in the combined authoritarian states.

(19) For reasons with which the Secretary of State is familiar, the appointment of my successor at Moscow has not yet been made. It was generally considered to be advisable, when I left, that such an appointment should be tendered to a man of the successful business or banking type who would be characterized not only by a familiarity with industrial and business problems but who was also known to be liberal in his political ideology, although not swayed by any communistic or extreme leftist attitude. I cannot recommend too strongly the advisability of pursuing such a policy in the interests of the United States. It was most unfortunate that the gentleman to whom it was decided to proffer the appointment could not find it consistent with his personal business interests to accept. In view of subsequent international developments, it seems to me that a broad-minded, friendly type of independent personality, who would not needlessly offend the leaders of the Soviet Government, would be most helpful in the maintenance of friendly cooperation to a degree that would appear necessary in view of the situation in the Pacific. In that connection, I beg leave to direct the Department’s attention to the fact that, in the absence of some specific request on the part of the President or the Secretary of State, Lieutenant Colonel Faymonville’s assignment as Military Attaché at Moscow expires this spring. If it is considered advisable to keep him there in view of the discussions previously referred to, it will be necessary to take prompt action.

Respectfully yours,

Joseph E. Davies

[Enclosure 1]

Memorandum by the Ambassador to Belgium (Davis)⁸

1 —The matter was thoroughly discussed at length with the principal⁹ and his chief assistant.¹⁰

2 —The principal and his chief assistant have been very much gratified by the gesture of friendship, good faith and good will which the discussions have called forth; and the situation has been productive of much good.

3 —It was, however, considered advisable by the principal and his chief assistant to leave the matter open for the present, to be taken up subsequently if considered desirable.

4 —That the reason for this was because of the particular internal conditions which exist now, particularly because of the proposal now pending.

5 —That after that proposal is disposed of we will all know what is possible.

6 —That when that time comes, if it is desired to take the matter up again, the principals here are most friendly and hopeful that some formula can be worked out that will be helpful to both parties.

7 —That at that time, if desired, the same agents can take the matter up with a view toward trying to arrive at a solution that will be possible of accomplishment and helpful to both parties.

8 —That the matter is understood to be held in the strictest confidence and precautions have been taken that only the immediate principals with their present agents have any knowledge of the facts at all.

[Enclosure 2—Translation]¹¹

The President of the Council of People’s Commissars (Molotov) to the Ambassador in the Soviet Union (Davies)

Moscow, June 9, 1938.

Memorandum

In the interests of exactitude, I deem it necessary to put in written form the terms of the Soviet Government which I communicated to you in the presence of Mr. Stalin.

1. With respect to the debts of the old Russian Government to the Government of the U. S. A. as well as to the private claims, the Government of the U. S. S. R. is keeping to its former attitude, i. e. it declines to pay.

2. The Government of the U. S. S. R. agrees to settle the indebtedness of the Kerensky Provisional Government, considering that the amount of this indebtedness is to be reduced to $50,000,000.

3. The payments for the settlement of these $50,000,000 will be made by the Soviet Government in equal installments spread over a period of twenty years, not bearing any interests, the first payment, however, amounting to 10% of the whole sum, to be made upon the signature of the agreement.

4. The above-stated points 2 and 3 are effected by the Government of the U. S. S. R. only in the case of the Government of the U. S. A. guaranteeing to the Government of the U. S. S. R. a credit for the purchase in the U. S. A. of American products to the amount of $200,000,000 for a period of 10 years, bearing a rate of interest usual in the money market.

5. In the case of the Government of the U.S.A. agreeing to the terms of the Government of the U.S.S.R., the Soviet Government proposes to conclude a single joint agreement between the two Governments, covering the obligation of the Soviet Government to settle the indebtedness of the Kerensky Provisional Government and the obligation of the Government of the U.S.A. to secure the extension to the U.S.S.R. of a credit for $200,000,000 to cover a period of 10 years.

V. Molotov

[Enclosure 3]

The Ambassador in Belgium (Davies) to President Roosevelt

Brussels, January 18, 1939.

Dear Chief: With reference to the establishment of a secret liaison for the inter-change of military and naval information with the Soviet Government, upon which I reported to you personally, the matter was left open pending the appointment of my successor at Moscow.

Messrs. Stalin and Molotov, as I stated to you, were both most cordial and friendly in their desire to effect such an arrangement but were deeply concerned (and I can understand their reasons therefor) lest through leaks, the information might be obtained by their enemies. They were desirous that all such information should be kept between the heads of the Governments and only the immediate chiefs thereof.

They expressed confidence in the judgment, capacity and fairness of our Military Attaché, Lieutenant Colonel Philip R. Faymonville. The personality of our representative there under such an arrangement is a matter of vital consequence to them.

Last year, you gave orders to keep Lieutenant Colonel Faymonville in Moscow another year. That assignment by the War Department expires in March. It occurred to me that you might wish to extend his duty there for another period. In any event, I felt that it was incumbent upon me to call this matter to your attention.

It is my judgment that both the Soviet Government and its army are a great deal stronger than is generally recognized in certain European quarters. The Government is now, at least, devoted to international peace. Moreover, for many years its economic necessities will require peace if that is possible.

The leaders of the Soviet Government have stated to me that there is only one Government in the world that they trust and that is the United States Government under your leadership.

In the event of so dire a calamity as an international conflict between the totalitarian and the democratic states, the Soviet Government is, in my opinion, a much more powerful factor than the reactionaries of Europe concede, and might be of the greatest value.

With devoted affection and great respect from both Marjorie¹² and myself, I am

Faithfully yours,

Joseph E. Davies

3. i. e., supplementary and final report on discussions with Stalin and Molotov prior to the Ambassador’s departure from the Soviet Union.
4. Neither letter printed.
5. Memorandum printed as enclosure 1.
6. Translation printed as enclosure 2.
7. The Hungarian proposal of February 8, 1938, for a possible basis for a new debt settlement arrangement in connection with amounts due the United States under arrangements effected by the World War Foreign Debt Commission was transmitted by the President on March 28, 1938, for the consideration of Congress; see Department of State, Press Releases, April 2, 1938, p. 423.
8. Handed by the Ambassador to David Aronovich Rozov, president of the Amtorg Trading Corporation, New York, N. Y., July 5, 1938.
9. President Roosevelt.
10. Secretary of State Cordell Hull.
11. Official translation of the Russian original supplied to Ambassador Davies upon his request.
12. Mrs. Joseph E. Davies.