740.00119 Council/4–2246: Telegram
The Minister in Hungary (Schoenfeld) to the American Delegation at the Council of Foreign Ministers in Paris
urgent
Received April 23—12:12 p.m.
748. For Dunn. London’s 28 April 15 repeated to Dept as 4147 and Deptel 393, April 16, repeated to London as 3253.79 This is summary of current situation with respect to American economic interests in Hungary.
Notwithstanding explicit and implicit Three Power understanding [Page 283] underlying American acceptance of Hungarian armistice that rights and claims of American nationals would enjoy equal priority with those of other United Nations nationals, American interests have been steadily relegated to subordinate position during past 15 months. Soviet Govt’s unilateral exaction of its armistice claims against Hungary and its economic penetration of Hungary are leaving that country without ability to discharge its armistice obligations to US, to return American property in complete good order as it existed before the war and to make adequate, effective and prompt compensation for damage inflicted.
Soviet reparation demands Hungary receive priority over both claims of all other United Nations and over Hungary’s own subsistence and rehabilitation requirements. In important instances Hungarian reparations are actually paid in first instance at expense of American nationals. Soviet reparation demands against Germany payable from German assets in Hungary in accord with Potsdam decision80 receive priority over American claims against Hungary and in some instances are actually exacted in form of American owned property. Hungarians were required and agreed to pay USSR Hungarian pre-armistice debts to German creditors on valorized basis corresponding to dollar-pengö exchange rate at time of signing of armistice without assuring equal treatment for larger claims of American creditors. Also on basis of Potsdam decision Hungarians were compelled to transfer to USSR Hungarian property belonging to American owned German firms.
Soviet armistice claims on Hungary are assessed and collected on basis of unilateral Soviet decision, without reference to other members of ACC and, as in case of implementation of Potsdam decision re German assets in Hungary, without regard to US and UK views and in violation of January 1943 London declaration to which USSR is signatory.81
Economic charges imposed on Hungary by USSR in form of reparations, provisioning of occupation follow, looting, requisitioning, economic penetration, interference with internal economic affairs, and restrictions on economic relations with countries outside Soviet sphere constitute burden largely responsible for rapid deterioration of Hungarian economy and for runaway inflation now ravaging country, which render Hungary’s payment of its obligations to us virtually impossible in foreseeable future. Hungary has no foreign exchange. [Page 284] Pauperization of its economy, armistice obligations to USSR plus trade commitments to Soviet-controlled areas preclude possibility of trade which might result in free foreign exchange.
Restrictions placed on movement of American nationals into and out of Hungary handicap representatives of American enterprise whose presence in Hungary is required for protection of American interests.
As result of exclusive administration of Hungarian Government’s economic policy by Moscow-trained Communists, Hungarian Government is adopting measures calculated to injure American interests and to ignore Hungary’s obligation to safeguard those interests.
Value of American economic interests in Hungary is following:
Prewar American dollar loans to Hungary total approximately dollars 75 million. American loans denominated in other currencies equal dollars 15 million calculated at prewar exchange rates. Arrears on debt service accumulated as result of partial or total default since 1932 aggregate about dollars 10 million. Total value of American loans including accumulated arrears is approximately dollars 100 million.
American investments in Hungary amount to approximately dollars 100 million. Most important individual investments with approximate values are Standard Oil of New Jersey 58 million, Socony Vacuum 12 million, IGE (International General Electric) 10 million, ITT (International Telephone and Telegraph) 5 million and Kodak 3 million.
Total amount of war damage suffered by American interests is estimated at dollars 35 million and arises from state management of American military properties, damage due to bombardment losses ascribable to fighting, losses due to depreciation of blocked bank accounts and removal of property from Hungary by Germans. In accord with Departmental instructions filing of damage claims with Hungarian Govt has been postponed.
Damages to American property incidental to occupation of Hungary by Soviet forces may exceed $25,000,000. These arise from looting, requisitions, confiscation of materials and equipment as war booty, and from provisioning and servicing occupation forces. Most important are losses suffered from mismanagement of American oil properties taken into direct Soviet control and from inadequate compensation paid by Hungarian Govt for oil used for supplying Soviet forces, paying reparations and for state controlled bilateral foreign trade. Several representations to Soviet Govt and ACC Hungary for return of control of properties to representatives of American owners have not been successful.
[Page 285]Damage suffered by American owned enterprises whose total capacity is utilized for reparations and who receive compensation only in Hungarian currency with result that material and equipment cannot be obtained abroad and export markets are lost, cannot now be estimated. Representations have been made to ACC and Hungarian Govt to enable one American firm to use part of its production for export but no reply has been received.
Land reform program carried through in Hungary in 1945 involves American owned farm properties valued at approximately $3,000,000. Hungarian Govt has recognized its obligation to compensate American owners but no claims have been filed on behalf of American interests.
Hungarian Govt’s announced intention to nationalize underground resources would affect two small American owned coal mines and important American oil properties. American Govt’s view that during armistice Hungarian Govt’s right to nationalize property representing United Nations interests is not recognized has been communicated to Hungarian Govt but no reply has been received.
In summary, Soviet domination of Hungary for little more than a year has seriously damaged American economic interests in this country and its continuation will almost certainly destroy remaining American interests. Prerequisites of restoration of American interests in Hungary are: (1) country’s economic rehabilitation; (2) termination of Soviet domination of Hungary’s governmental policy (3) termination of unilateral Soviet action in phases of armistice directly affecting interests of American nationals.
Sent Paris as 91; repeated to Dept as 748.
- Neither printed; they were concerned with the request by the American delegation to the Council of Foreign Ministers for information on the current economic situation in Hungary, Bulgaria, and Rumania and the position of American interests in those countries (740.00119 Council/4–1546).↩
- For the Potsdam decisions regarding reparations from Germany, see Foreign Relations, The Conference of Berlin (The Potsdam Conference) 1945, vol. ii, pp. 1485 and 1505.↩
- Reference is to the United Nations declaration on looted property, January 5, 1943, Department of State Bulletin, January 9, 1943, p. 21.↩