893.24/1628
Memorandum of Conversation, by Mr. Alger Hiss, Assistant to the Adviser on Political Relations (Hornbeck)
In response to a call which Colonel Foster had made yesterday in my absence, I telephoned to him today.
Colonel Foster said that the War Department had given study to the memorandum of July 8 on Reverse Lend Lease which the Department had sent to him about July 20 and wish to consult General Stilwell. He said that he had in mind sending by telegram a summary of the memorandum and of the War Department’s comments thereon. He wondered whether there would be time also to send a complete text of the memorandum and the War Department’s comments to the General.
In reply I said that the Chinese might take the matter up with us at any time and that consequently it was impossible to make any satisfactory estimate of the time element. Colonel Foster indicated that he would send the telegram he had in mind and would in addition send [Page 560] the full text by pouch but would not count upon a sufficient delay ensuing to permit General Stilwell to do more than reply by telegram to the telegraphic communication.
Colonel Foster read portions of his proposed message to General Stilwell which indicated general agreement by the War Department with the views expressed in the Department’s memorandum of July 8. In the portions which he read to me statement was made that General Stilwell would be expected to give priority to troop pay to the extent that adequate Chinese currency was received for such pay and American military personnel were to be prevented from frequenting the “black market” and from investing in the Chinese dollar certificates with the extra Chinese currency made available to them. It was, however, also expressly stated that General Stilwell’s freedom of action was not to be restricted and that in the event of military necessity he would not be bound rigidly to adhere to these procedures. Statement was also made that with regard to use of Chinese currency for contract purposes, the War Department contemplates estimating the total cost of a proposed purchase, construction, or other contract expenditure and would then be prepared to pay to China an amount of United States dollars computed on the basis of the compensation factor which the Treasury Department is to determine with respect to civilian salaries and troop pay. Colonel Foster explained that this represented a change in the War Department’s views (it is to be noted that this change involves a matter as to which the Department expressed adverse comment in the last two pages of the memorandum of July 8). Colonel Foster went on to say that the army would not wish to have any confusion as to a proportionate ownership of any article or facility acquired by it with Chinese currency received through Reverse Lend-Lease. Consequently it had not been considered advisable to adopt in full the suggestion made in the concluding comment contained in the Department’s memorandum. However, it had seemed desirable to adopt some uniform procedure. Colonel Foster also said that in the case of any procurement item which the Chinese were prepared to finance in toto, the Chinese would of course be given entire credit under Lend-Lease for such item (I gathered the impression that Colonel Foster contemplates that items of this kind would be acquired or constructed by the Chinese authorities and then made available to our forces and that all procurement by our forces with Chinese currency received through Reverse Lend-Lease would be on the basis outlined above of a proportionate dollar payment, the Chinese contribution being regarded simply as exchange adjustment and not as a substantive contribution).
I asked Colonel Foster whether he had planned to suggest that General Stilwell consult the Embassy. In reply he said that he [Page 561] thought it would be helpful if he were to add a sentence informing General Stilwell that the latter should feel free to discuss the telegram with the Embassy and with the Treasury representative at Chungking.