860F.51/5–947: Telegram

The Ambassador in Czechoslovakia (Steinhardt) to the Secretary of State

secret   priority

508. I appreciate Department’s comprehensive telegram 390, April 24 setting forth Department’s views respect to credits or loans to Czechoslovakia and requesting my views before action taken.

I agree the present is appropriate time review our policy of credits to Czechoslovakia. In principle I favor relaxing severity of policy adopted by US in September 1946 which was definitely serving purpose. I doubt, however, the wisdom relaxation on our part at present moment. As Department aware there are settlements pending in following matters: (a) The lend-lease account; (b) acquisition by the US Government of real estate to be charged against surplus war material credit; (c) mutual claims by War Department and Czechoslovak Government for PX supplies, coal deliveries, tort claims and excess Czechoslovak crowns held by War Department; (d) transfer of a small balance of Sudeten Germans; (e) transit charges through American zone in Germany; (f) claims of American citizens for nationalized and seized property.

Settlement matters above has been pending for over a year. Recently Czechoslovak authorities have shown a disposition to terminate protracted negotiations in most of these matters by agreeing to settlements satisfactory to US. In my opinion if we are able to induce War Department to meet Czechoslovaks halfway and not insist on hard bargain which it continues to strive for, it should be possible to dispose of most these matters in near future.

In view foregoing would seem more desirable that we hold out to Czechoslovaks the promise of review of possibility obtaining credits in US as soon as the pending settlements have been consummated and few of our large claims for nationalized properties disposed of rather than that we should first relax which might well cause Czechoslovaks to further delay closing settlements. Unless Department instructs me to contrary I contemplate telling Foreign Office that if it will close [Page 209] such of pending settlements as can be disposed of in next few weeks, I would be prepared to recommend to Department review of our credit policy. I [am] convinced that this course will accelerate closing at least some of pending settlements thus permit Department review matter of credits in near future.

I may add that should Czechoslovak Government dispose of most pending settlements to our satisfaction, I would favor extension of a 20 million dollar domestic surplus property credit and unfreezing of unused portions FLC surplus property.

As concerns American claims for nationalized and seized property, I do not favor withholding credits till all these claims have been disposed of. It important to bear in mind that we have reached critical stage in these negotiations. The next month or two will probably disclose extent to which Czechoslovak Government seriously disposed to settle all of these claims. It seems desirable not to commit ourselves to relaxing our present position respect to credits until we know a little more of disposition of Czechoslovak Government towards some of our larger claims.

Based on past experience in dealing with Czechoslovaks, I am of opinion that holding out promise of relaxation our position re credits in order to bring about a speedy settlement of pending matters will have far more effect in inducing Czechoslovaks to terminate these lengthy negotiations than would relaxation before the matters are settled. Once we have achieved settlements and when relax our position on credits the political effect in Czechoslovakia will be more to our advantage particularly if the extension of credits is widely publicized following an announcement of the settlements. There little doubt that with Czechoslovak trade shifting more (to West (see Embassy’s 507, May 91) announcement of extension of credits by us following announcement settlements will accelerate this movement while at same time position of moderate [apparent garble] Czechoslovakia will be strengthened by reason of improved relations between Czechoslovakia and US.

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