Foreign Relations of the United States, 1946, The Near East and Africa, Volume VII

890.51/6–446

Memorandum by the Director of the Office of Near Eastern and African Affairs ( Henderson ) to the Under Secretary of State ( Acheson )

[ Washington ,] June 4, 1946.

Subject: Export-Import Bank Loans for the Near East

I would be derelict if I did not point out to you that we are not bringing to bear upon Near Eastern problems one of the most important political weapons employed by this Government in Europe, the Far East, and South America. Without a strong army backed by compulsory military training the weapons with which the Department of State is supposed to conduct a forward-looking foreign policy dedicated to keeping the peace are feeble enough. What we have left are diplomatic representations backed by such prestige as remains from our erstwhile military strength, support of the principles and procedures of United Nations and, last and least, loans by the Export-Import Bank.

The United States’ position in the Near East area is in some ways worse than in Europe and the Far East. American troops are still present in the latter areas, and, moreover, plans are under way to give European and Far Eastern countries Eximbank or other loans on a basis which would further our policies in those areas. Eximbank loans are also made frequently to South American countries.

NEA believes that Eximbank loans also can and should be employed as an instrument of American foreign policy in the Near East, but approaches to the Bank have led to the information that this Government has no facilities for political loans. In general statements are made along the following lines:

(a) the Eximbank is governed by banking rules;

(b) the Eximbank is not designed to serve political purposes;

(c) the Eximbank, in any case, does not have funds to lend to Near Eastern countries, because of loans earmarked for devastated Europe, the Far East, and South America.

In contrast to this, however, NEA has observed sizable loans either authorized or in negotiation to Poland ($40,000,000), Czechoslovakia ($50,000,000), China ($500,000,000), Netherlands ($50,000,000), France ($650,000,000), Italy ($100,000,000), and the Philippines ($50,000,000).

NEA feels that it is in the interest of the defense of the United States that the Department take the responsibility and see to it that if the Eximbank has any funds over and beyond the most pressing and urgent needs of Europe and Asia, these should be earmarked to the extent of at least $120,000,000 for construction and development loans to Near Eastern countries without demanding excessive assurances that every cent loaned will be repaid in dollars. The financial risk involved in such loans in the Near East would certainly be no greater than the risk involved in loans to some of the countries listed above.

I regret that I cannot say that loans in the Near East will be enough to revive our waning prestige: I do say, however, that judicious loans will go far to bolster our deplorable position in the Near East area. I fail to see how we can justify our failure to employ such loans, particularly in the face of the disturbing fact that the Near East is now a major political battleground.

It would be most helpful if we could interest in this matter the Secretary, the Secretary of the Treasury, the other members of the National Advisory Council, as well as the President, whose words in his Army Day speech on April 5 [6] have a bearing on the matter:

“If peace is to be preserved and strengthened in this important section of the world, however, we cannot be content merely to assure self-government and independence. The people of the Near and Middle East want to develop their resources, widen their educational opportunities and raise their standards of living. The U.S. will do its part in helping to bring this about.”¹⁰

An extension of my views on this important matter appears in the enclosed copy of a memorandum addressed by me to Mr. Luthringer of FN [ OFD ]; Subject: “Political Justification for a $120,000,000 Eximbank Line of Credit to Near Eastern Countries.”¹¹

[Mr. Henderson’s memorandum of June 4, 1946, to the Director of the Office of Financial and Development Policy called for a tentative, credit ceiling of $25,000,000 each for Turkey, Egypt and Palestine; $10,000,000 each for Iraq, Iran, and Saudi Arabia; $5,000,000 each for Syria and Lebanon; $3,000,000 for Ethiopia; and $2,000,000 for Yemen. The memorandum also stated: “NEA does not wish to argue at this time for a political fund to be administered by the Secretaries of State, War, and Navy, which would be used to assure peace so far as possible in backward areas. The British Foreign Office has such a fund and has demonstrated its utility, but the American system of government does not lend itself to such a program. NEA urges, however, the Export-Import Bank to adopt with regard to the Near East the same flexibility of attitude which has enabled this Government to employ the power of its resources in diplomatic negotiations” with China, France, Czechoslovakia, the Netherlands, Poland and Italy. “NEA believes that it should not be denied at this crucial time the important diplomatic weapon of loans which have so far been used only in other areas.… NEA is convinced that under certain conditions NEA could gain important U.S. diplomatic objectives through the judicious use of credits to countries deserving the good will and support of the U.S. and of the U.N. Some of these loans might not be repaid in full in dollars, but the greater part of them probably would be repaid: the risks in the Near East are no, greater than the risks in China, Poland, Italy, and Czechoslovakia. Such losses as might occur would have to be charged up to the cost of a positive and forward-looking American foreign policy in the Near East dedicated to the cause of peace and the implementation of the Four Freedoms, of which the Second Freedom clearly calls for economic and financial aid to help the recipient countries banish the spectre of want. The expenditure of a few millions of dollars to help secure the stability of backward countries by raising the standard of Hiving would be a sound investment for the American taxpayer who would thus be buying in the Near East the same form of anti-war insurance which he is purchasing in Europe and the Far East.… What NEA would like to do is to attempt to stem at once the rising tide of distrust for the U.S. in its area by giving concrete evidence of U.S. confidence and faith in the future of the Arab countries. This can be done by conveying to Arab governments informally, as suitable opportunities arise, the fact that in principle the U.S. is willing to aid them with prompt loans on projects which meet the Bank’s standards.” (890.51/6–446)]

10. For full text of President Truman’s speech, including his additional observations on the Near and Middle East, see Department of State Bulletin, April 14, 1946, p. 622.
11. Not printed, but see bracketed note infra. Mr. Acheson inquired of Assistant Secretary of State for Economic Affairs Clayton whether the Export-Import Bank under its forthcoming appropriation would have $120,000,000 available for credits to Near Eastern Countries. Mr. Luthringer, in a memorandum of June 14 to Mr. Clayton, stated that: “the Bank would have this amount of money available for such a purpose if it wished to put itself in a completely loaned up position and if it wished to utilize nearly one half of the $250 million remaining after $1 billion is set aside for the USSR. The Bank would of course find it necessary somewhat arbitrarily to disregard the possible claims of other geographic areas and of American exporters requesting export credits.” (890.51/6–1446) This memorandum was sent to Mr. Acheson. For information on failure to supply such credit to the Soviet Union, see bracketed note, vol. vi, p. 839.