865.51/8–2847
The Italian Ambassador (Tarchiani) to the Acting Secretary of State
No. 7734
The Italian Ambassador presents his compliments to the Hon. the Acting Secretary of State and has the honor to draw his kind attention to the following:
The seriousness of the Italian financial situation has been repeatedly pointed out to the attention of the competent American Agencies and has been illustrated in detail by the Italian Economic and Financial Mission during the meetings held in Washington during the past months of June and July. In such meetings it was demonstrated how the Italian Government has to face a deficit in its balance of payments of about 236 million dollars, in the second half of the current year, in spite of the generous assistance granted by the American Government, with the troop and non-troop pay funds and the “grant-in-aid” concession.
The recent decision of the British Government, arrived at in the course of the Anglo-American negotiations on the convertibility of the pound sterling, will now deprive Italy of a substantial availability of dollars which had been taken into account among the receipts in the projection of the balance of payments for the second half of the current year.
Such a decision has brought about a complete lacking of dollar availability for the Italian Government, which cannot but view with the utmost seriousness and deep preoccupation the situation which is developing for Italy in the financial field in the coming months.
Due to such severe dollar shortage, instructions have in fact already been sent to the Italian Purchasing Mission in Washington to stop all purchases of coal in September and to utilize the remaining balances available to the Mission only for the payment of the transportation of coal acquired under the grant-in-aid program.
[Page 960]It would be difficult to conceal the very severe consequences in the economic and social fields of any interruption of the flow of basic supplies to Italy. The process of reconstruction in which the Italian Government and people have been so far engaged would receive a fatal set-back and unemployment and hunger would prevail in a very short time in Italy.
The Italian Ambassador finds himself compelled to stress, with the greatest emphasis, the necessity of meeting such a situation with immediate steps, such as to allow the continuance of the flow of supplies to Italy.
In this respect, the Italian Ambassador has the honor to point out that the Italian Government is in these days approaching the British Authorities in order to obtain that the sterling balances accrued in favor of Italy up to August 20th, 1947, be made convertible, in line with the Anglo-Italian agreement of which a most important clause was related to the convertibility of such balances. The Italian Government is, in fact, pointing out in this respect to the British Authorities that the insertion of such clause was the outcome of negotiations relating to the settlement of all pending questions between Italy and the United Kingdom and that, should the convertibility of the said balances not be allowed, this would constitute a very hard blow on the Italian economic situation, which is already very serious.
The Italian Ambassador has the honor to request in this respect that the United States Government kindly give all its support to the action taken by the Italian Government described above. The Italian Government is relying on the understanding of the American Government and on its kind interest and intervention in order to secure the availability, so badly needed, of the dollars corresponding to the balances in question.
Some other steps which could bring, however, minor results but would provide some immediate availability of dollar funds, could also be taken, i.e.:
—further consideration could be given as urgently as practicable to the possibility of making available to the Italian Government the balance of the “suspense account”.
—Consideration could be given to the possibility of making available to the Italian share under the grant-in-aid program, an increased dollar allocation in order to make it possible to have during the coming months a larger amount of coal shipped to Italy and the related necessary freight expenses paid out of the same “grant-in-aid” funds.
—UNRRA is now considering the refund to various countries of advances made by them for the procurement of essential raw materials at the time when, for administrative reasons, UNRRA had no available funds. So far, with the liquidation of its administration, UNRRA has refunded out of the 22,7 millions disbursed by Italy for the reasons [Page 961] above mentioned, only an account of 2,1 million dollars. UNRRA could be urged to refund the highest possible balance with the utmost speed.
The steps which the Italian Ambassador has deemed it fit to suggest above, are, however, related to the problems of the immediate dollar availability.
While the Italian financial situation is already presenting itself under the most precarious circumstances in the present impact, making it necessary to take recourse to emergency measures, no favorable prospects can be envisaged also for the following months and the next year 1948.
In fact the deficit already foreseen for the second semester of the current year will be far greater in the next year, when the income of certain proceeds, like the troop and non-troop pay and the grant-in-aid, will not recur.
Moreover, the difficulties so far encountered by Italy in receiving essential basic supplies, like coal, from central Europe, the persistent need of obtaining wheat supplies from the Western Hemisphere, the practical impossibility of restoring normal trade relations with the German market, will characterize again the structure of the Italian economic situation in the future.
The Italian Government has taken note with the greatest appreciation of the suggestions brought up by the Secretary of State in his Harvard speech, and has tried, with constructive proposals, to give its utmost contribution to the work entrusted to the Conference of the 16 European countries in Paris.
The Italian Government is, however, aware that, even if the problems which the Conference will bring to the attention of the American Government will receive a favorable solution, there will be a considerable lapse of time before any suggestion for assistance to the European countries will be put into practise.
The Italian Council of Ministers has therefore decided to take the following steps, in order to obtain the dollar funds which are necessary for maintaining the present rate of production, so that the process of recovery be not undermined:
—an application has been filed with the International Bank for obtaining an interim line of credit of 250,000,000 dollars. This loan is being now negotiated with a view of assisting Italy in continuing and increasing the maintenance, development and reconstruction of productive facilities and activities. In such negotiations the Italian Government will try to focus on the financing of projects of national importance.
—steps are being taken in order to ascertain the possibility of obtaining from the Export-Import Bank of Washington a second line [Page 962] of credit of 100 million dollars, for satisfying the request of the qualified Italian industries, engaged in export activity, which will not benefit of the credit granted under the first line of credit of 100 million dollars.
—consideration is being given for the filing of applications with the competent American Agencies for the purchase of surplus materials both in the United States and in Germany.
The steps above mentioned are meant not only to provide the necessary dollar funds for the purchases of supplies essentially needed but also to give to the Italian Government a breathing space for increasing the chances of a satisfactory development of the budgetary situation, through the receipts in lire accruing from the utilization of such credits.
Such decisions have been taken by the Italian Government in the intent of avoiding any collapse of the economic situation in the coming months and in the awareness that, without the assistance accruing from the implementation of such requests, it would be difficult to avoid a deterioration of the psychological situation in Italy and a further increase of the inflationary process.
The Italian Ambassador, in calling the kind attention of the Acting Secretary of State to the seriousness of the conditions described above, requests his kind assistance for obtaining that the applications filed or to be filed by the Italian Government and the steps which will be taken in their connection, receive all possible support and assistance by the United States Government.
The Italian Ambassador thanks in advance the Hon. the Acting Secretary of State for his kind interest in the matter.