861.01/1968a

The Secretary of State to President Roosevelt

My Dear Mr. President: In connection with the question of the extension of loans by agencies of the United States Government to facilitate Russian purchases in the United States, I would like to bring to your attention the following important considerations:

As you know, recognition of the present régime in Russia has been withheld by the Government of the United States on account of the failure of the Soviet government to carry out certain international obligations which are considered essential to the maintenance of friendly and mutually advantageous relations between the United States and Russia. The Soviet government, for instance, has repudiated Russian obligations held by the United States Government and by American citizens, and has confiscated the property of American citizens invested in Russia. More important still, the present régime in Russia has been unwilling up to this time to discontinue its interference in the internal affairs of the United States. Furthermore, there are a whole series of questions arising out of differences between the economic and social structure of the United States and Russia, especially the existence of a State monopoly of foreign trade in Russia, which require settlement by agreement. I think that there is no question that until these fundamental problems have been settled through agreement in a manner satisfactory to the United States, there will be lacking any sound basis for friendly cooperation between the Governments of Russia and the United States and for the development of mutually beneficial trade and intercourse between the two countries.

At the present moment the Soviet government is very eager to obtain two things from the Government of the United States: namely, credits or loans, and recognition.

With respect to the first, it may be pointed out that the foreign debt situation of the Soviet government presents at the present time great difficulties. The Soviet government, for instance, was unable to meet its obligation which fell due in Germany in February of this year, and the German Government was obliged to come to its financial assistance and arrange a bank credit of approximately $50,000,000. It is generally believed in German Government circles that the Soviet government will be unable to meet its obligations falling due in Germany next year, and that a similar arrangement will have to be made. At the present moment the German Government, it is understood, is unwilling to increase the amount of Government-guaranteed credits now available to Russia in Germany.

With regard to the second, it is to be noted that recognition by the [Page 790]United States is greatly desired by the Soviet authorities, since they are apparently convinced that recognition by the United States would be a factor in preventing a Japanese attack on the Maritime Provinces. The Soviet government also appears to believe that recognition by the United States would open the private banking resources of the United States to the Soviet government and facilitate the obtaining of credits in other countries. Finally, there is no question but that the Soviet authorities realize that recognition would strengthen the prestige of the Soviet government not only abroad, but also at home, where it is faced with tremendous difficulties in carrying out its industrial and agricultural programs.

Thus at the moment, the Government of the United States has two powerful weapons which can be used to bring about a favorable settlement of some, if not all, of our outstanding problems with the Soviet government. I am convinced, from the experience of other countries, that, unless we utilize every available means of exerting pressure on the Soviet government in order to obtain a settlement of outstanding problems, there is little likelihood that such problems can be satisfactorily solved. It is evident that if loans of any considerable amount should be extended to the Soviet government except as a part of an agreement involving a satisfactory settlement of such problems, one of our most effective weapons would be taken from our hands,—possibly the most effective,—since the Soviets, it is believed, prefer at the moment credits to recognition.

It would seem, therefore, highly undesirable that any loans should be extended to facilitate purchases by the Soviet government in the United States, except as part and parcel of a general settlement of our relations with Russia.

Faithfully yours,

Cordell Hull