Foreign Relations of the United States, 1947, The Far East, Volume VI

894.50/3–1247

Memorandum by the Chief of the Division of Japanese and Korean Economic Affairs (Martin) to the Assistant Secretary of State for Occupied Areas (Hilldring)

secret

[Washington,] March 12, 1947.

Subject: A Positive Economic Program for Japan.

I am enclosing three documents:³⁹

1. The report of the Japanese Reparations Policy Committee appointed by you and Assistant Secretary Thorp on January 15.

2. An outline of an export-import program for Japan for the calendar years 1948–50, designed to make Japan self-sustaining in the latter year (and including a more tentative projection for 1952).

3. An economic program for Japan integrating conclusions of the two previous documents and taking account of other related considerations.

The economic program for Japan proposes steps designed to accomplish the following purposes:

1. To eliminate United States expenditures in support of the Japanese economy as soon as possible and facilitate Japanese repayment of those expenditures.

2. To create a viable Japanese economy such as would be conductive to the emergence of a peaceful and democratic Japan.

3. To permit a substantial Japanese contribution to the economic recovery of the Far East, which is desperately in need of the products of Japanese industry.

These purposes must be accomplished in cooperation with our Allies and in such a way as to avoid charges that the United States is building up Japan, either as a buffer against the Soviets, or as a replacement for a currently disorganized China as our principal friend and customer in the Far East.

The course of action proposed for accomplishing these purposes is as follows:

1. Future Japanese Imports. Food and raw material imports in excess of disease and unrest requirements should be provided in 1948 and 1949 on the scale necessary to “crank up” the Japanese economy within the limits of world food and commodity shortages. The cost of these additional imports should be met:

(a) By active promotion of barter arrangements or short-term financing of Japanese imports to be used to produce goods for export, a portion of which would be assigned to pay for the necessary imports. These arrangements should be encouraged particularly with countries which do not require repayment in dollars.

(b) To the extent that credit from private sources is not available for the purpose described above, the liquid assets available to SCAP in Japan should be converted into a revolving trust fund to finance such transactions, and if necessary RFC and Export-Import Bank financing should be sought.

(c) Japanese liquid resources should also be considered available to pay for imports such as food, which cannot be incorporated, in the self-liquidating program.

2. Future Japanese Exports. The proceeds of future Japanese exports and their contribution to the revival of the Japanese economy should be maximized by the following steps:

(a) SCAP should, with the aid of the Allied Trade Representative in Japan develop a detailed export-import and production plan under which Japan might use the increased imports to be made available during 1948 and 1949 to achieve self-sufficiency by 1950, assuming no reparations removals beyond Interim levels and restrictions on Jap consumption of items other than food, especially of textiles.

(b) SCAP should implement this plan by appropriate steps, including controls over the distribution of food imports designed to maximize industrial production, and restrictions on the domestic consumption of exportable items. The goals of this plan should be made public to the Japanese people, and their responsibility for and interest in its success emphasized. They should be notified that U.S. Government import advances will cease after 1949.

(c) Sales of Japanese goods should be facilitated by resumption of controlled private trade, including travel of business men to Japan and probably travel—but not permanent residence—of Japanese business men abroad.

(d) The United States should be repaid for imports financed from War Department funds by a first charge on any liquid assets remaining in Japan on January 1, 1950, and by a lien on all proceeds of raw silk exports—silk being generally sold for dollars.

3. Inducements to Other Far Eastern Countries.

(a) The support of other Far Eastern countries for the program outlined above should be enlisted, as recommended in the report to the Japanese Reparations Policy Committee, by assigning them current reparations credits in an amount equal to twice the value of the unclaimed part of their share of the Interim Reparations Program. These credits should not be realized while U.S. advances to Japan are continuing, or out of Japanese export proceeds which are to constitute the U.S. repayments described in the previous paragraph. If, by some given date (e.g., 1955) Japan has not furnished the required amount of current reparations, the claimant countries should be authorized to remove Japanese capital equipment equal in value to one-half the Japanese default.

(b) Security fears of these countries should also be forestalled by revealing in detail the U.S. plan for control of Japanese rearmament after the peace treaty.

39. First two documents listed not attached to file copy; third not printed.