840.50 Recovery/8–2348

The Under Secretary of State (Lovett) to the Administrator of the Economic Cooperation Administration (Hoffman)

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My Dear Mr. Hoffman: I should like to call to your attention the problems raised by the dependence of the Austrian economy for certain basic industrial items on sources of supply within Austria which are controlled by the Soviet Union. The most important of these commodities are petroleum products. Precautionary measures would appear necessary to prevent the Soviet Union taking advantage of this situation and endangering the success of the European Recovery Program as it applies to Austria.

In estimating the Austrian import requirements under the European Recovery Program it was assumed that certain indigenous production from the eastern zone in Austria would continue to be available to the Austrian economy. However, it should be recognized [Page 1409] that Austria is unique among the ERP beneficiaries in that certain important fractions of its indigenous supplies are controlled by the Soviet occupation forces. Since it is the expressed intention of the Soviet Union to sabotage the implementation of the European Recovery Program, the possibility that important supplies may be withheld from the Austrian economy must be carefully considered. Account must also be taken of the possibility that the Soviet Union might seek to extort concessions from Austria in the form of excessively large portions of its limited supplies of raw materials or semi-finished goods as a consideration for delivery by Soviet-controlled sources of other essential supplies.

Accordingly, in the case of the more critical items, the withdrawal of which by the Soviets would result in an immediate detrimental effect on Austrian recovery, it would seem desirable to provide for emergency commodity reserves covering 60 to 90 days requirements. The availability of a reserve would mitigate the immediate effects of such a withdrawal, and afford an opportunity to develop alternative sources of supply. In view of the primary interest of the ECA in this matter it is, therefore, recommended that the ECA take steps to assure the establishment of such a reserve. Preliminary estimates by officers of the Department and the Department of the Army indicate that the funds necessary for this purpose would amount to approximately $5,400,000 for a 90 day reserve of the more highly critical items.

It is essential not to disclose the fact to the Austrian Government or its representatives that such a plan is under consideration. If it should be decided to create such a reserve, its existence should not be revealed in order to avoid Austrian pressure for releases from these reserves.

This letter has the concurrence of the Department of the Army and Officers of the Department and the Department of the Army will be available for consultation at your earliest convenience regarding the details of the problem, and for such assistance as may be necessary in devising a plan for its solution.

Faithfully yours,

Robert A. Lovett