860S.00/2–1348
Memorandum by the Assistant Secretary for Economic
Affairs (Thorp)1
to the Under Secretary of
State
confidential
[Washington,] February 13, 1948.
Subject: Trieste Aid Program
The Problem
Trieste does not now have a viable economy; it needs economic assistance
both for current relief and for rehabilitation. While a permanent
solution of Trieste’s economic problems can probably only be found in a
revival of trade with both eastern and western European states, the
United States is committed to keeping Trieste on its economic feet in
the immediate future.
Shipments of food and certain other essential civilian supplies to the
portion of the Free Territory of Trieste which is under US–UK
administration are now being financed out of the post-UNRRA relief appropriation (Public Law
81).2 Available funds will cover shipments through the first
quarter of 1948, but fresh funds will be needed for at least part of the
second quarter and for the next fiscal year.
No provision for financing supplies for Trieste beyond March 31 has been
made in our current legislative program. The Department has informed the
War Department that it will assume responsibility for doing so. It has
also included an estimate of Trieste’s needs in the supplemental aid
program estimates submitted to Senator Vandenberg and Representative
Eaton.
The Free Territory of Trieste is to be named in the ERP legislation so that it will qualify for
aid after acceptance as a participant in CEEC (either as a US–UK zone of occupation, like Western
Germany, or after a Governor is appointed). Funds for Trieste supplies
are not, however, included in the $6.8 billion for ERP. Even if they were, it would probably
be inadvisable to suggest that CEEC
accept Trieste without adequate discussion. Moreover, it is imperative
that funds be obtained for Trieste by April 1, without waiting for the
completion of action on ERP.
The Facts
A statement of the facts bearing on the problem is attached as Tab A.
[Page 554]
Discussion
Discussion of the problem is attached as Tab B.3
Recommendations
- 1.
- It is recommended that authorization be sought for a separate
supply program for Trieste. Financing for this program could come
from funds ($57 millions) authorized under the Foreign Aid Act of
1947 (Public Law 389), but not yet appropriated. The amount required
(estimated on an ERP level) has been
tentatively estimated at 833 million for the 15 months beginning
April 1, 1948, the estimated deficit of Trieste with the Western
Hemisphere countries for the period in question (see Tab C for
details). If Trieste is subsequently admitted to CEEC, the funds would be transferred
to the ERP appropriation. This
program would be submitted to the NAC and the Budget Bureau.
- 2.
- It is recommended that this authorization be sought in the form of
a bill simply amending Public Law 3894 to cover Trieste, to extend the
period during which aid might be provided, and to make possible the
provision of funds for recovery purposes. The amendments required
are indicated in Tab D.
- 3.
- It is also recommended that the following steps be taken to bring
Trieste within the ERP (it is
already being named in the ERP
legislation).
-
a.
- The US–UK military authorities in Trieste should be
instructed to request the CEEC countries to permit the participation of
the US–UK zone of Trieste in the European Recovery Program
and should prepare the necessary supporting data.
-
b.
- The concurrence of the British to such instructions should
be obtained and the support of other CEEC countries should be
elicited through diplomatic channels.
Attachments: Tabs A, B, C, D.5
Tab A
Funds for Trieste Supply Program
The Facts
- 1.
- The aid being furnished to Trieste at the present time
involves shipments at an annual rate in the neighborhood of
$12,000,000. The [Page 555] exact
rate is not entirely clear because of differences in the area
covered and increases in the ration scale during the present
fiscal year.
- 2.
- The amount of assistance being furnished under the present
program will theoretically cover consumption requirements until
about the end of June. However, if funds are not made available
for use during the second quarter, the pipeline would run dry
and stocks in the area would be entirely exhausted at that
time.
- 3.
- There remains unallocated from the Foreign Relief
Appropriation about $1,000,000, to which may be added another
$1,000,000 which the Department hopes to recover from the Army.
These sums might be used to meet the needs of Trieste in the
second quarter. However, there are other demands on these sums,
particularly for coal for Austria. Furthermore, even if the
whole sum should be available, it would be inadequate to meet
Trieste’s needs for the second quarter, which are estimated at
about $4.8 million.
- 4.
- Tab C contains an estimate prepared in the Department of
Trieste’s requirements and balance-of-payments deficit for the
15 months period beginning April 1, 1948. These requirements
have been based on an ERP
standard. Briefly, they show a deficit in the
balance-of-payments of $40.9 million. This total represents a
deficit with the Western Hemisphere of $33 million, a deficit
with CEEC countries of $8.5
million, and a surplus with countries not participants in CEEC of $0.6 million. The major
part of the deficit with CEEC
countries is with Italy. Total requirements of food, medical
supplies, fibers and fuel amount to $40.6 million, of which
$22.6 million is from Western Hemisphere sources.
- 5.
- The estimates contained in Tab C are somewhat tentative. In
particular, it should be noted that a small Anglo-American
mission is now examining the requirements for recovery. The
needs shown for raw materials and equipment for reconstruction
will have to be reviewed in the light of the report of this
mission, which will not be available for some weeks.
- 6.
- Trieste’s financial problems were examined early in 1947 by a
Four Power Commission established by the Council of Foreign
Ministers. The Commission drew up a tentative estimate of the
balance of payments of the Free Territory for the fiscal year
beginning July 1, 1947, on the assumption that the Italian Peace
Treaty would have entered into force prior to that date. The
estimate showed a slight surplus in the balance of payments for
the year as a whole, but the British, French, and American
members reported that there would probably be a deficit of
$5,000,000 in the first quarter of the year. At the Moscow
meeting of the CFM, the Council
agreed to recommend to the United Nations that the sum of
$5,000,000 be advanced by UN [Page 556] to the Governor of the Free Territory of
Trieste if requested. Provision for such an advance was made in
the UN budget for 1948.
- 7.
- The assumptions made in the report of the Trieste Commission
of Enquiry were at the time clearly optimistic. Moreover, there
were various points on which the Commission frankly admitted
that its estimates were little better than guess work and would
depend much on the attitude of other countries. In practice, the
situation of Trieste has not developed in the manner
foreshadowed in the Commission’s report. The economy of the area
is depressed, there is a large volume of unemployment, and the
area continues to maintain a precarious existence only by reason
of subsidies furnished by the United States and to some extent
by Italy. With the end of UNRRA, port activity has slumped. Industrial
production is understood to be about 40% of capacity. Employment
is being maintained through a work relief program.
Fundamentally, the solution to the economic problems of the area
depends upon the restoration of active trade with countries in
both the eastern and western orbits. However, the economic
position of the city would be considerably improved if a greater
volume of raw materials could be obtained for its industry and a
certain amount of money invested in reconstruction.
- 8.
- Provision of dollar funds to cover Trieste’s estimated $33
million deficit with the Western Hemisphere countries would not
provide for the $8.5 deficit with CEEC countries. It is hoped that coverage of this
deficit, which is largely with Italy, can be worked out in
negotiations with the Italian Government.
- 9.
- The Peace Treaty with Italy provides that, pending the
establishment of a separate currency for the Free Territory of
Trieste (FTT), the lira will
continue to be legal tender, and Italy is to meet the lira and
foreign exchange needs of the area on a basis no less favorable
than that accorded its own nationals.6 The provision of lira currency for
the area is now under negotiation between the Allied Military
Government and the Italian Government. Largely because of the
low level of economic activity in the area, Military Government
is confronted with substantial expenditures for work relief and
has a large budgetary deficit. The Italian Government does not
admit that it is obligated to meet this deficit under the
Treaty. The outcome of these negotiations will have considerable
bearing upon the extent to which it will be possible to obtain
supplies from Italy by the expenditure of lire during the period
immediately ahead.
- 10.
- Until such time as the Security Council appoints a Governor
for FTT, governmental authority
will continue to be exercised by the US–UK military authorities
and Yugoslav military authorities in their [Page 557] respective zones. It seems
unlikely that agreement on a Governor will be reached in the
immediate future.
- 11.
- The $5,000,000 which the General Assembly of the UN has
authorized to be advanced to the FTT Government to meet the balance of payments
deficit will not be available until the Governor is appointed.
In view of the present situation in Trieste, these funds will be
clearly inadequate to cover the deficit for more than a short
period of time.7
