895.51/12–2746
The Economic Adviser in Korea (Bunce) to the Secretary of State
No. 75
[Received January 10, 1947.]
Sir: I have the honor to transmit two reports2 prepared by members of my staff. The first is, “Review of Fiscal Operations of the United States Military Government in Korea,” prepared by Dr. Paul J. Sturm. This report has been presented to General Hodge and the Military Governor for their consideration.
In the preparation of this report, Dr. Sturm had the cooperation of Mr. Allan Loren of the U.S. Treasury Department and the various agencies of Military Government concerned in these problems, as well as other members of my staff.
The report indicates that Military Government in Korea has largely financed its operations through the printing of money and that the currency in circulation is increasing at a rate approaching one billion yen per month. This is largely the result of expanded costs of government with a drastic decline in receipts from taxes and sales by the Monopoly Bureau. These conditions are a result of the chaotic situation existing at the time of liberation and the inflationary effects of the increase in currency that occurred during the last few months of Japanese control.
The budget and fiscal operations of Military Government have not been subject to an adequate system of checks and audits; these need to be developed as rapidly as possible together with an increase in government receipts from various sources and a curtailment of expenditures.
The report lists a series of recommendations on pages 18–21 and considerable progress is being made by Military Government to implement these recommendations. For example, a new tax program is being prepared to increase receipts from this source and special efforts are being made to increase governmental income from government-owned services and industries. A special committee has been appointed to study the organization of Military Government with a view to curtailing unnecessary expenditures, and Provincial Governors have been instructed to tighten their budget controls and submit all changes to the Budget Bureau.
The second report, “Food Position Report in South Korea, 1 December 1946 to 30 November 1947,” was prepared by Mr. Robert A. Kinney and Miss Marion L. Worden of my staff, in cooperation with the National Economic Board.
This report indicates that because of the large increase in population and reduction in grain production due to lack of fertilizers and other [Page 784] factors, the food situation for the coming year will be quite critical and will necessitate substantial imports of grains from the United States. A schedule of domestic stocks and minimum import requirements by month and categories of grains is presented in Table VI which gives an over-all summary picture of the anticipated import needs for South Korea. As of 23 December, about 300,000 metric tons of polished rice (or its equivalent) had been collected under the Rice Collection Program, and it is expected that total rice collections will exceed 400,000 metric tons. If a total of 480,000 metric tons is collected and if indicated imports are made, it will be possible to ration all non-producers in South Korea approximately 2½ hops (about 1,300 calories) of cereals per day throughout the year. Although still a bare subsistence ration, it is far more adequate than has been available during the past year. This ration will be sold at government-controlled prices so that the cost of living of non-producers will be very greatly reduced. In the past these people have had to buy a substantial part of their grain, which comprises about eighty per cent of their total caloric intake, on the black market at highly inflated prices. A more adequate ration at reasonable prices will minimize the necessity for purchase of grains outside government-controlled channels. Already the black-market price of rice and other grains has been reduced considerably below their previous levels. Success in this over-all food collection and distribution program will be a major step towards stabilizing economic conditions in South Korea. The program is a part of the over-all plan which includes, in addition to rice collection, budget and fiscal reforms, increased production, improved distribution of consumers’ goods, a reconversion program associated with the blocking of large holdings of currency, and an emergency import program directed at attaining all these ends.
I recommend that the Department support the requests of Military Government for the Food Import Requirements as outlined in this report.
I suggest that copies of these reports be forwarded to the Treasury Department and the Board of Governors of the Federal Reserve System, in addition to the interested divisions of the War Department and the Department of State.
Respectfully yours,
Minister
- Neither printed.↩