800.51W89/912
The Under Secretary of State (Phillips) to President Roosevelt
Washington, October 31,
1934.
Dear Mr. President: It occurs to me that
possibly you may care to have at hand the various suggestions for
handling the war debts which have been received here since the
Department’s letter and memorandum to you of May 22nd last. Some of the
ideas are novel and seem to me to be impractical; others are worthy of
consideration. They include the suggestions of Ambassador Straus,
Ambassador Morris, Shephard Morgan, Judge Manton of New York, etc.
Faithfully yours,
[Enclosure—Memorandum]
Washington, October 27,
1934.
Since the Department’s letter and memorandum to the President of May
22, 1934, setting forth suggestions for handling the war debts,
several other concrete ideas have been received here, which, because
of their source, merit serious consideration. Back of each plan is
the same thought, namely, the great desirability of promptly
settling the debts in the interest of world recovery, if it is
practical to do so.
- 1.
- The most novel of the new ideas is that proposed by Judge
Martin T. Manton13 of New York, to
invoke the jurisdiction of the Permanent
[Page 558]
Court of International Justice by an
action by the United States against one or more of the debtor
countries seeking to collect the debt or debts and possibly
effect their reorganization. The Judge is of the opinion that
the Court has jurisdiction over the applicant and the debtor in
each case and that there is a cause of action and that relief
can be effectively given.
- 2.
- Ambassador Straus14 suggests that the debts
be refunded on the basis of payment of 1% of principal a year
with a low interest rate—1 to 2%; that bonds representing the
settlement be delivered to the Treasury and thereafter sold for
dollars and be used by the buyers in paying for goods bought
from France, and for tourist expenditures and immigrant
remittances. There are some important economic objections to
using the French bonds in this manner, which are suggested in
our memorandum of May 22, 1934.
- 3.
- Ambassador Morris15 suggests the refunding
of the post-Armistice Belgian principal debt on a 99 year basis;
cancellation of interest on their debt; and probable
cancellation or great reduction of pre-Armistice debt; that the
debt refunded on the 99 year basis be discounted to date and
paid—20% gold; 20% silver at 15½ to 1 of gold; 60% in Belgian
Treasury notes, payable in agreed installments, to be paid into
a trust fund to be held by the Bank for International
Settlements and used to secure an international loan, the
proceeds to go to us. This method would result in around a 70%
reduction.
- 4.
- Mr. Shephard Morgan, Vice-President of the Chase Bank,
suggests the following:
-
a.
- The present agreed payments be made by a debtor
country to the Bank for International Settlements and
the fund left at a minimum sum equal to 2 years
installments.
-
b.
- The Bank for International Settlements be authorized
to invest the fund in the short-term negotiable bills of
the paying country, bearing a nominal interest and
discountable at the central bank of the country.
-
c.
- Withdrawals from the fund by the United States to be
made only in the currency of the debtor country and only
when for three successive months, the balance of
merchandise trade between the country and the United
States is unfavorable to the United States, in the
manner set out in (d).
-
d.
- Under these circumstances, the United States to have
the right to sell drafts on the Bank for International
Settlements to its own nationals or draw on the fund for
purchases made for its own account, up to amount of
adverse balance. Proceeds from sale of drafts covered
into the United States Treasury. With respect to our
heavy debtors who normally have an adverse balance with
the United States, the additional item be proposed that
10%, say, of the whole debt be paid now in bonds
saleable in our markets.
- 5.
- Mr. J. G. Rovensky, Vice-President of the Chase Bank, suggests
that all debts be refunded on a 100 year basis, payable 1% a
year, with nominal interest, and the payments made in New York
funds as they mature. He believes that the exchanges will stand
this. Such an operation would work out favorably except as to
Italy, Yugoslavia, Czechoslovakia. Modifications are possible to
make it work generally.
- 6.
- Mr. S. O. Levinson of Chicago,16 has
resubmitted his plan of combining a war debt settlement with
disarmament which, among other things, embodies the idea of
lumping the payments and permitting the debtors to agree among
themselves as to the proportion which each will pay. In the net,
the United States will receive in cash over 12 years, about
$4,000,000,000 and save large sums annually on armaments.
