860F.51/9–646: Telegram
The Ambassador in Czechoslovakia ( Steinhardt ) to the Secretary of State
us urgent
[Received September 6—5:25 p.m.]
1634. Dept’s 1075, August 29. I am wholly in accord with Dept’s view that the attitude of Czechoslovakian Govt in Praha as distinguished from the attitude of Hanč in Washington evidences increasing intransigeance and little urgency with respect to the Eximbank reconstruction loan. This attitude doubtless reflects lack of an urgent necessity for the loan in a country only slightly damaged by war, where much plant and equipment was added by the Germans, which is enjoying a bountiful harvest and which at the same time has effected a reduction of 15 percent in its total population to 12 million and has confiscated without compensation the property of these expellees valued at one-fourth of the wealth of all of its inhabitants. In addition 65 per cent of the entire industry of the country has been nationalized.
The increasing hostility of the party-owned left wing press and recent articles critical of the United States in other party newspapers indicate that the radical members of the Govt either regard the loan as already assured or as not immediately essential. I am, therefore, pleased to note that Dept intends to maintain its position on all major questions as stated in its 912, July 19 and will not reduce any major conditions.
Insofar as concerns the opening of negotiations for compensation to American citizens for their nationalized properties, the assurance given me by Masaryk and Clementis jointly as reported in my 1214, July 361 that the negotiations would start before August 3 was based [Page 218] on the expectation that either or both of them would be available at that time. Officials of the Ministry of Finance and Foreign Trade and Kunosi, Acting Chief of Economic Section of Foreign Office to whom we have expressed our desire to open the negotiations immediately exhibit confusion and have expressed opinion that certain principles must first be settled between the Minister Foreign Affairs and the Embassy before negotiations can commence. These principles no one in Foreign Office seems disposed to discuss pending the return from Paris of either Masaryk or Clementis.62
Furthermore, I am becoming increasingly concerned at the steadily mounting currency in circulation. As Dept is aware when bank deposits were frozen last November and a new currency placed in circulation, the amount thereof was approximately 24 billion crowns. For some time thereafter the increase in currency in circulation appears to have been accurately reported by the National Bank. During the past month, persistent rumors, some of which have emanated from high sources, place the currency in circulation at from 50 to 55 billion crowns as against the last weekly report of National Bank indicating somewhat over 34 billion crowns. There seems little doubt that the increase in currency in circulation reflects the continuing huge losses resulting from Govt’s operation of the nationalized industries, losses which it has thus far made no serious effort to curtail. The indifference of Czechoslovakian Govt during past year to providing compensation for the vast amount of foreign property nationalized by it and its failure to make partial provision therefor or even reference thereto in the proposed budget, coupled with its failure to take the necessary steps to prevent an unreasonable increase in the new currency in circulation thus risking a financial collapse at a future date, makes it all the more imperative, in my opinion, that we secure satisfactory assurances of adequate and effective compensation for American property interests before the loan is made. The assurances received to date insofar as they are known to me are not, in my opinion, adequate.