Memorandum by Mr. Edward S. Mason, Deputy to the Assistant Secretary of State (Clayton)12

Subject: The Treasury Proposal for a $10 Billion Credit to the USSR.

1. The Treasury Proposal. The Treasury proposes that a $10 billion credit be extended to the Russians to finance purchases on their part of reconstruction goods in the United States. An interest rate of two per cent is proposed, and amortization would be over a 35 year period. It is proposed also that payment be chiefly in strategic raw materials in short supply in the United States plus gold production.

2. Russian Need for Credits. The Soviet Union is in a position to take a highly independent position in the negotiation of foreign credits. The success of Russian reconstruction will depend only to a very limited extent on foreign loans. Consequently, the question of credits probably offers a bargaining point of only limited value in the settlement of vital political issues, though it may carry some weight in negotiations of an economic character or of a subordinate political character.

3. Effect on the United States Economy. Purchase of $10 billions in capital goods during the transition period would provide a healthy stimulus to capital goods industries in the United States and would facilitate the maintenance of a high level of employment.

4. The Credit Terms. The two per cent interest rate proposed by the Treasury is slightly below the average rate the United States Government is now paying on long-term debt and only half the rate currently charged on long-term development credits by the Export-Import Bank. The proposed rate is also considerably below the rates to be charged by the Bretton Woods Bank.

Since the proposed lending rate is below the United States borrowing rate, the loan would involve an element of subsidy. Strong pressure would certainly be brought by other borrowing countries on the Bretton Woods Bank and the Export-Import Bank to obtain terms as favorable as those given the Russians. If a two per cent rate granted to the Soviet Union results in a general reduction in the interest rates on inter-governmental loans, it will have acted as a strong stimulus to state socialism, by enabling governments to undertake developmental investment on more favorable terms than those available to private investors.

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5. The Repayment Problem. The Treasury repayment schedule calls for payments rising to $400 millions in the 10th year, $500 millions in the 15th year, and $600 millions in the 25th year. Whether the Russians will in fact be able to meet this schedule (ignoring for the moment the possibility of a special United States import program designed to conserve United States reserves of strategic materials) is entirely conjectural, depending upon the long-run trend of world trade. United States imports from the USSR never rose above $31 millions in the 1930’s. Assuming a United States national income after the war of $140 billions, imports from the USSR may rise as high as $100 millions, of which $75 millions would be in forest products and furs. If to this sum is added Russia’s current annual gold production of some $200 millions, a total of $300 millions annually in gold and dollars might be available for servicing the debt. This sum would be adequate only until the 8th year, and until then only if no allowance is made for current Russian imports from the United States.

6. Special Imports for Conservation Purposes. The Treasury proposes that we enable the USSR to service its debt by supplying strategic raw materials to meet our current needs while we conserve our depleted resources. It is suggested that a provision be written into the financial agreement “whereby we could call upon Russia for whatever raw materials we need without giving a commitment on our part to buy.”

Such a provision in the agreement may hardly be regarded as a quid pro quo, since we should be able to buy all the strategic materials we need from Russia and from the rest of the world even if we did not make a loan to Russia.

A proposal to close down United States mines and wells as a conservation measure is probably politically impossible. The fate of the United States–United Kingdom oil agreement13 suggests the reception that such a plan would meet. Stockpiling of strategic materials imported from abroad would not be subject to the same objections, but the Treasury figures appear to overestimate the dollar value to the USSR of United States imports of strategic materials. The figure of $80 millions annually for metals and metallic ores seems completely out of line; the estimate of $50 millions for petroleum is equally hazardous, since there is no assurance that Russia will have a large export surplus; the estimate of $10 millions for oils and oilcake is hard to understand, since we expect to have domestic surpluses of these products.

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Russia is a principal producer of three materials (manganese, platinum, irridium) on the stockpile list of the Army-Navy Munitions Board. If we import half of the ANMB maximum stockpile figures for these materials from the USSR (or slightly more than Russia’s normal share of the U.S. Trade), the total trade would be worth $135 millions to the USSR. This is not an annual, but a total figure.

The Treasury may perhaps contemplate that we shall concentrate in Russia most of our purchases of strategic materials. If we choose to do this, it would not be difficult to provide the USSR with enough dollars to service the loan. The effect on our relations with other countries would, however, be most unfortunate. The reduction or cessation of our purchases (for example) of Canadian nickel and asbestos, Cuban manganese, Chilean copper, and Brazilian mica would raise serious political questions with these countries, and would at the same time involve us in a form of bilateral trading which we have consistently opposed.

7. The Japanese War. If the Russians declare war on Japan, they will probably continue to receive lend-lease shipments after V–E Day. As at present, many types of goods which would be shipped in the interest of increasing Russia’s immediate military capabilities would at the same time help her to reconstruct her economy. Her needs for postwar capital goods imports would accordingly be altered.

  1. Addressed to Mr. Clayton. Mr. Mason was also Vice Chairman of the Executive Committee on Economic Foreign Policy, of which Mr. Clayton became Chairman on January 25.
  2. For documentation on Anglo-American petroleum discussions and agreement signed August 8, 1944, see Foreign Relations, 1944, vol. iii, pp. 94 ff. Concerning revised agreement signed at London, September 24, 1945, see bracketed note, ibid., 1945, vol. vi , section under United Kingdom entitled “Revised Anglo-American Petroleum Agreement Signed at London, September 24, 1945.” Neither agreement was ratified by the Senate.