The Ambassador in the Soviet Union (Harriman) to the Secretary of State
[Received January 4—9:15 p. m.]
29. At Molotov’s invitation I called on him last night. He handed me an aide-mémoire dated January 3 the substance of which was as follows:
“In Gromyko’s note of October 31st concerning the fourth protocol,1 it was stated that the Soviet Government would put forward for our government’s consideration its proposals for a long term credit to the Soviet Union. The Soviet Government accordingly wishes to state the following: Having in mind the repeated statements of American public figures concerning the desirability of receiving extensive large [Page 311] Soviet orders for the postwar and transition period, the Soviet Government considers it possible to place orders on the basis of long term credits to the amount of six billion dollars. Such orders would be for manufactured goods (oil pipes, rails, railroad cars, locomotives and other products) and industrial equipment. The credit would also cover orders for locomotives, railroad cars, rails and trucks and industrial equipment placed under Lend Lease but not delivered to the Soviet Union before the end of the war. The credits should run for 30 years, amortization to begin on the last day of the 9th year and to end on the last day of the 30th year. Amortization should take place in the following annual payments reckoned from end of 9th year: First 4 years 2½% of principal; second 4 years 3½%; third 4 years 4½; fourth 4 years 5½%; last 6 years 6%. Soviet Government will be entitled to pay up principal prematurely either in full or in part. If the two governments decide that because of unusual and unfavorable economic conditions payment of current installments at any time might not be to mutual interest, payment may be postponed for an agreed period. Annual interest to be fixed at 2¼%.
The United States Government should grant to Soviet Union a discount of 20% off the government contracts with firms, of all orders placed before end of war and falling under this credit. Prices for orders placed after the end of the war should be left to agreement between the American firms in question and Soviet representatives.”
After reading the memorandum, I stated that there would be no use in my making any general comments thereon and that I would report it at once to my government. I called Molotov’s attention, however, to the fact that at the present time our government has authority from Congress to deal only with that part of this proposed credit which concerns the period of Lend Lease. I explained that this authority stops with the termination of hostilities and that thereafter new authority from Congress would be a prerequisite. I said that as he knew we had been trying for months to come to an agreement with the Soviet Government with respect to financing those requests which we had received from them for industrial equipment under the fourth protocol. I pointed out that the interest rate we had offered was 2⅜ not 2¼. I stated that I did not recall the figures on price adjustments but it was not 20%.
Molotov stated that he understood my position and the necessity for my referring this matter to my government but wished to know whether I personally considered the present moment appropriate for raising this question. I answered, speaking entirely personally, that I thought the moment entirely favorable for arriving at a final agreement about the Lend Lease orders for the war period and for the opening of preliminary discussions on the question of credits after the war. I pointed out that it would take some time to work out an agreement and to obtain the required authority from Congress and that for this reason discussions should be begun before the war was over.[Page 312]
I added that I was sure that my government would wish to divide into two parts the proposal advanced in the memorandum namely the Lend Lease period and postwar. With respect to the Lend Lease period, I was satisfied that our answer would be the final terms that had already been submitted to the Soviet Government.
Molotov agreed that of course the Lend Lease questions must be settled and stated that an answer had been sent through Gromyko that same day but he thought that the remainder of the question should also be given consideration. The future development of Soviet American relations he said must have certain vistas (prospectus) before it and must rest on a solid economic basis. The question of the Lend Lease credit under the fourth protocol was only a small part of the question now before us. The Soviet Government considered the present moment appropriate to raise the broad question of postwar credits in general. The Soviet Government was of course interested in this question itself but it seemed to him that American industry and the American Government must also be interested in knowing in advance what the wishes of the Soviet Union are in this respect.
I asked him over what period the Soviet Government would expect to obtain delivery of these six billion dollars worth of goods. He said over a period of several years, the limits of which would have to be determined by agreement between the two governments.
In conclusion I reminded Molotov that it would take some time to study and work out a solution to this question. In answer to his remark about American industry, I called his attention to the fact that we were now short of labor in the United States and looked at the present Lend Lease requests entirely from the standpoint of giving assistance to the Soviet Union.
I will send the Department in a subsequent cable my comments on this proposal extraordinary both in form and substance.