861.24/8–244: Telegram
The Acting Secretary of State to the Ambassador in the Soviet Union (Harriman)
1834. Stepanov at the Monetary Conference6 told Acheson before returning to Moscow he desired to discuss the proposed 3–C Lend-Lease [Page 1109] agreement in order to take advantage of his presence here to expedite the negotiations.
Acheson and appropriate Lend-Lease officials have had two talks with Stepanov on this subject. For your information the following is a summary of points raised in these discussions:
1. Stepanov stated that he desired to discuss the draft agreement submitted to the Soviet Government on May 24 but that the Soviet authorities in Moscow desired to negotiate the contents of schedules annexed to the proposed agreement. It is not clear just what negotiations regarding the schedules Stepanov desires to have discussed in Moscow. We are endeavoring to obtain clarification and will inform you on this point in a subsequent telegram.
2. Stepanov suggested that the proposals for payment contained in Articles II and III should be changed to provide that payment could be made at the option of the Soviet Government either in dollars or in gold at the rate of $35 an ounce. This question is being studied by Treas[ury].
3. Stepanov observed that the reference to the Third Protocol contained in Article I might be eliminated in as much as the Protocol period had expired and suggested that Article I be rewritten to refer to the Fourth Protocol. A tentative redraft of Article I was submitted to Stepanov for study. As soon as an agreement is reached on this point the text will be transmitted to you.
4. Stepanov indicated that while he did not object to the language of Article IV he believed that it was somewhat one-sided since the Soviet Union would have to pay cancellation costs in the event they did not desire to accept delivery of supplies under Articles II and III. He stated that the Soviet Union would have to bear certain losses in the event that we determined to cancel part of our obligation for security reasons, and he indicated that the existing language of Article IV does not provide for consultation with USSR before cancellation by United States.
It was explained to Stepanov that our right to cancel was based only on security reasons while the Soviet right was unlimited and that in any event the President did not have power under the Lend-Lease Act to pay for any losses which the Soviet Union might feel it had sustained from failure to obtain Lend-Lease supplies. It was further explained that under the Protocol full cognizance is given to the needs of the USSR before supplies are diverted to other claimants or for other purposes. Stepanov was informed that we would endeavor to clarify the language of Article IV to bring it more into conformity with the desire of the Soviet representatives. These changes have not yet been agreed upon.
[Page 1110]5. As was expected Stepanov brought up the question of the term “cost” and asked for a clearer definition. We promised to study this matter and to submit a definition of the term as soon as possible.
6. In regard to the proposed interest rate Stepanov stated that the Soviet Union desired to have a fixed rate for the entire period and suggested that since the average rate for United States Government loans at present time was 1.97 he felt that a rate of 2% would be equitable.
This question was taken up with Treas[ury] and discussed with Soviet representatives at second meeting yesterday. They were informed that in event they could not accept original proposal the interest rate would have to be 2.50%, the rate at which US Government can today sell 30-year bonds. It was explained that it would be necessary to have this rate in order that American Government could protect itself, if it felt it necessary, by floating an equivalent loan at that rate in the market today.
After considerable discussion during which Stepanov argued that the rate should be 2% he stated he would have to study the question further before making a reply.
7. In regard to the amortization payments Stepanov stated that the Soviet Government felt that the 3-year period of grace was too short since the Soviet Union would be very hard-pressed during the early period after the war and might not be able to meet the amortization payments. He suggested, therefore, that the first 5% payment should become due 10 years after the cessation of hostilities with the balance to be paid over the ensuing 20 years.
After discussing this question with Treas[ury] Stepanov was informed yesterday that while Treas[ury] felt that 3 years was a sufficient period of grace they were willing to extend the period of grace to 5 years with amortization payments being made over ensuing 25 years. Soviet representatives were also informed that it might be possible to work out a sliding amortization rate which would be comparatively low during the first years of repayment with a gradual increase to a higher amortization rate to the end of the loan period.
Stepanov replied that he still felt that a 10-year period of grace should be granted but said he would study this question and give us a reply later.
8. Stepanov also suggested that consideration might be given to including a provision in the agreement to cover assistance in transportation of supplies. We promised to give this matter consideration.
Dept will keep you currently informed of negotiations as they proceed.
- The United Nations Monetary and Financial Conference met at Bretton Woods, New Hampshire, from July 1 to 22, 1944. For correspondence, see vol. ii, pp. 106 ff.↩