800.51W89 U.S.S.R./48: Telegram
The Ambassador in the Soviet Union (Bullitt) to the Secretary of State
[Received 9:25 p.m.]
79. Your 69, May 7, 6 p.m. I called on Litvinov this afternoon and discussed with him a number of relatively minor matters, then rose and said goodbye; whereupon he asked me to remain and discuss the question of debts and claims.
Litvinov first said that he had sent Troyanovsky a severe reprimand for having failed to take up with the President the main disagreement in principle. He explained that he had given Rubinin a letter to Troyanovsky ordering him to discuss this question in detail with the President saying “agreement in regard to the form of credits is an essential aspect of any discussion of details such as total amount of payment on debts or interest rates”. Litvinov added that he feared Troyanovsky’s faulty knowledge of English rendered him incompetent.
He then read me a long telegram from Troyanovsky which purported to give an account of a conversation at the Department on May 7. Troyanovsky cabled if Litvinov’s transliteration was accurate that the Department had expressed the opinion to him that the question of the form of the credits was merely a minor matter; that the total sum to be paid was the only stumbling block; that the Department had offered to have the Export-Import Bank issue credits to three times the total to be paid by the Soviet Government in settlement of debts; that the Department had informed him that I would receive instructions [Page 92] that were entirely new proposals to Litvinov. I replied that I had received no new instructions. Litvinov then said: “Don’t be afraid that I shall hold your Government to the proposal of credits three times the amount of our debt payments. We ask for credits only twice as large”.
I then reproposed the Department’s draft agreement. Litvinov replied that the difference between his proposal and the Department’s was a difference of 15 percent on all Soviet purchases in the United States; that the price for cash would be 15 percent lower than a credit price.
After a long discussion Litvinov made a new alternative proposal. He suggested that the Export-Import Bank should undertake to discount for a period of 2 or 3 years bills of exchange issued by Amtorg or any other agency of the Soviet Government in payment of goods purchased in the United States for the Soviet Government to the amount of X million dollars at the rate of Y percent the bills of exchange to mature in Z years.
Further discussion revealed that Litvinov was ready to agree that all purchases to be covered by credits thus extended should be made within the period of 2 or 3 years. He insisted that the amount X should be double the amount to be paid in settlement of debts. He said that he was reluctant but ready to recommend that his Government should pay $100,000,000 in settlement of debts. He repeated his old offer of 4 plus 3 percent as the Y interest rate but inadvertently began to discuss this figure as 5 plus 5 percent confirming my guess that he is ready to accept a 10 percent total interest rate. He again insisted that the maturity period Z should be 20 years but indicated that he was ready to discuss X, Y, and Z provided agreement could be reached in regard to the form of credit. He also said that the notes of the Soviet Government could be issued in the form of readily saleable or negotiable obligations and that the bank would be at liberty to dispose of such obligations at will.
Litvinov informed me that he would leave Moscow on either the 13th, 14th or 15th to take a brief holiday on the Riviera and to participate in the disarmament discussions at Geneva. He added that he would not return to Moscow for a month and that he hoped that before his departure I might obtain from my Government a definite expression of opinion as to this proposal. I hope that the Department will be able to give me the benefit of its instructions at the earliest possible moment.
It occurs to me that although Litvinov’s proposal is clearly inacceptable in its present form it might be so interwoven with the State Department draft that our interests would be adequately safeguarded. For example, an agreement might be made that the Export-Import Bank should discount notes only in cases of contracts which have been submitted to it in advance for approval and that notes left in the hands [Page 93] of American exporters should be discountable only at the Export-Import Bank.
I am under the impression that the Soviet Government is most anxious to arrive at agreement and that this desire will not diminish as time goes on. At this distance I am in no position to judge the major elements of our national policy which may make it desirable to reach an early settlement. If the Department should be able to transform this proposal of Litvinov’s into an acceptable agreement I should be delighted. If that should prove to be impossible I feel that we would lose little by prolonging for some months our recent policy of tranquil amiability.