Foreign Relations of the United States, 1946, Eastern Europe, The Soviet Union, Volume VI

864.51/12–646

Memorandum of Conversation, by Mr. Robert M. McKisson of the Division of Southern European Affairs

confidential

[Washington,] December 6, 1946.

Participants:	FN—Mr. Spiegel1 and Mr. Stibravy2
	ED—Mr. Havlik3 and Mr. Posniak4
	A–T—Mr. Dort5
	SE—Mr. Barbour and Mr. McKisson

Mr. Barbour referred to recent approaches made by the Hungarian Minister to Mr. Matthews and other officers of the Department concerning financial aid to Hungary and stated that EUR believed that a careful review should be made at this time of possible means of extending appropriate economic assistance to that country. In this connection, he pointed out that such assistance would be of great importance in helping Hungary to reestablish a stable economy, develop its political and economic ties with the West, and safeguard its independence from Soviet encroachments.

Consideration was given in the discussion which followed to (1) an Export-Import Bank loan, (2) a US-Hungarian purchase arrangement, (3) an additional surplus property credit arrangement for purchases within the US, (4) a cotton credit, and (5) direct relief assistance.

1. Export-Import Bank Credit. Mr. Barbour recalled that in conversations with Department officials the Hungarian Minister had submitted for consideration a plan, originally drawn up by the UNRRA Mission to Hungary, for the rehabilitation of Hungarian agriculture. This program, which was not adopted by UNRRA, called for delivery of draft animals, agricultural machinery, fertilizer, and seeds in the value of $40,000,000 and, according to the Minister’s proposal, would be financed with Eximbank funds. Repayment of the loan would be made by means of Hungarian food shipments to European areas where the US still has supply responsibilities or interests. It was generally agreed by those present that an Eximbank loan for such a program would constitute the most useful kind of assistance, both from immediate and long-range points of view, which could be given to Hungary at this juncture. Mr. Havlik and Mr. Spiegel pointed out, however, that it was extremely unlikely that the Export-Import Bank would make such a loan since the Bank’s funds were at present very limited and since Hungary was a poor risk because of its dislocated economy and reparations obligations. Mr. Havlik and Mr. Spiegel also stated that the Bank was becoming increasingly loath to make loans which the State Department desired made for broad political reasons but which were not justified according to good banking standards. The thought was expressed, further, that any attempt by the Department to bring the slightest pressure to bear on the Bank for a loan to Hungary at this time might have most unfortunate consequences. It was agreed by all that, in these circumstances, the possibility of an Eximbank loan to Hungary was almost nil.

2. US-Hungarian Purchase Arrangement. A purchase arrangement between the US and Hungary was discussed as a possible alternative to a loan. Under such an arrangement the US would purchase food from Hungary for delivery to US-occupied zones in Europe or to other areas where the US has supply obligations. Hungary could then use the dollar proceeds from such purchases to obtain and ship agricultural equipment, animals, etc., needed for its rehabilitation program. The obvious drawbacks to such a scheme, Mr. Dort and others pointed out, would include the fact that Hungary has little in the way of food surpluses for export at this time, that any increase in Hungary’s agricultural production would be difficult until rehabilitation aid had been received, and that Congress might object to approving a food relief program for Hungary (present indications are that Hungary will ask for such relief from the US) while, at the same time, this Government was purchasing food from Hungary. If the type of food purchased were entirely dissimilar to that provided as relief, the latter difficulty might, of course, be avoided. In general, the alternative of a purchasing arrangement seemed to be of doubtful practicability.

3. Line of Credit for Purchases of Surplus Property in the US. One of the forms of assistance to Hungary proposed by the Hungarian Minister in his talks with the Department had been a credit line for the purchase of surplus property in the US. Mr. Spiegel and Mr. Havlik pointed out during the discussion of this matter that the War Assets Administration credit terms for foreign governments were at the present time the same as those for domestic credit applicants. It was considered probable that the Hungarian Government would find it impossible to meet the conditions of such a credit, which would be of a short-term character. As regards the $15,000,000 line of credit previously made available to Hungary for the purchase of surplus property abroad, it appeared to be the understanding of all present that the Hungarian Government, although able to obtain goods overseas amounting in value to only $10,000,000, could not make use of the remaining $5,000,000 margin of credit to obtain domestic surplus goods controlled by the WAA. All agreed, however, that it would do no harm to suggest to the Hungarian representatives here that they consult with WAA officials regarding acceptable credit terms for the purchase of surplus goods in the US.

4. Cotton Credit. In the spring of 1946 the US had offered to discuss with the Hungarian Government an arrangement to provide Hungary with American cotton in return for textiles. Nothing came of this proposal, because at the time the capacity of Hungary’s textile industry was being fully met by deliveries of cotton under an existing agreement with the USSR. While such an arrangement or some variation of it might warrant renewed consideration at this time, Mr. Havlik and Mr. Posniak thought it probable that the situation had not greatly changed and that, unless we were prepared to supply Hungary with additional spindles and thus increase its textile manufacturing capacity, there was little likelihood that a cotton deal could be made.

5. Direct Relief. Mr. Dort stated that the Hungarian Minister and Mr. Szasz, Financial Counselor of the Legation, had recently called at the Department to discuss the possibility of post-UNRRA relief for Hungary. He explained that the post-UNRRA relief programs contemplated by the US would be strictly confined to relief supplies. Any requirements based on rehabilitation needs would, accordingly, be excluded from consideration. In reply to Mr. Barbour’s question as to how much of the $40,000,000 agricultural rehabilitation plan for Hungary might be justified under a purely relief program for Hungary, Mr. Dort estimated that eligible items would not amount in value to more than $2,000,000. Practically all equipment and animals envisaged under the rehabilitation plan would be excluded under a relief program. Mr. Barbour and Mr. McKisson expressed the view that Hungary’s basic need was not for relief supplies to avoid starvation but rather for supplies which could be used for rehabilitation purposes. There seemed to be general agreement that, according to information available to the Department, Hungary’s food situation was not desperate and that Hungary might even have difficulty in proving a degree of need which would make it an eligible applicant for US relief.

Conclusions: It was agreed by those present that, given the present state of the Hungarian economy and the credit policies of the Eximbank and other Federal agencies, the Department has no available means of extending economic assistance to Hungary and thereby implementing its political objectives in respect of that country. It was the consensus of opinion, further, that if the political aims of this Government are to be carried out in cases such as that of Hungary, attention must be given at high levels of the Department to the mechanism and means of organizing economic support of our political policies. In view of the basic importance of this problem, Mr. Havlik and Mr. Spiegel agreed to see to it that a special memorandum on this problem is prepared in OFD for the information and consideration of EUR.

1. Harold R. Spiegel, Chief of the Division of Financial Affairs.
2. William J. Stibravy, of the Division of Financial Affairs.
3. Hubert F. Havlik, Chief of the Division of Investment and Economic Development.
4. Edward G. Posniak, of the Division of Investment and Economic Development.
5. Dallas W. Dort, Adviser on Relief and Rehabilitation Policy to the Assistant Secretary of State for Economic Affairs.