893.51/7773
Memorandum by the Adviser on Far Eastern Investment and Finance, Division of Financial and Monetary Affairs (Remer) to the Assistant Chief of the Division of Commercial Policy (Willoughby)
Concerning the American Loan the correct general statement is that there are no restrictions of a sort that would make the loan a tied loan, nor for that matter are there any other restrictions upon the use of the funds. During the negotiations for the loan suggestions were made for the allocation of some part of the funds to definite purposes. It was also suggested that the United States be informed of the proposed use of funds, so that technical advisors might be provided. Such suggestions were politely rejected by the Chinese and it is my understanding that the final arrangement was that the Chinese Government agreed informally to provide the United States information on the use of the funds from time to time.
Concerning the British Loan it is believed that the Chinese unwillingness to consider any restrictions caused the negotiations in 1942 to come to an end. It was thought at that time that these negotiations would probably not be revived until the end of the war. A communication of April 20, 1944 from the British Embassy in Washington to the State Department (Ref. 493/25/44) carried the information that an announcement was to be made on or about April 22nd regarding a new agreement touching the £50 Million Loan. This new agreement provides for the use of £40 million within the Sterling Area. To this extent the loan may be regarded as “tied”, but this may be regarded as a liberal interpretation of the term. Of the total of £40 million, £10 million is to be for the printing of bank notes in the Sterling Area and for outstanding and future payments on orders already placed. £20 million is earmarked for goods from the Sterling Area for war purposes and £10 million, we are told, is for such purposes covered by the agreement as may prove necessary. The question might be raised as to whether this £10 million might not be spent outside the Sterling Area, but it is probably pointless to raise it. The additional £10 million was said to be to secure an internal loan. As security for such a loan it might well be held in London, there is then no specific provision for the expenditure of any of the £50 million outside of the Sterling Area.