860S.51/7–3148: Telegram

The Chargé in Italy (Byington) to the Secretary of State


3246. For Dowling and Unger SE from White. Agreement between AMG Trieste and Italian Government in English and Italian language texts initialled Rome July 31. English text follows:

Part One. Local currency requirements. In pursuance of Article III of the Agreement on Finance of March 9, 1948, the Italian Government and the Command of the Zone agree as follows: Sub-item follows:

1. The agreed budget of the Zone for the period July 1 to December 31, 1948 is:

a. Ordinary expenditures—lire 8,259,889,335.
b. Ordinary receipts—lire 7,000,000,000.
c. Ordinary deficit—lire 1,259,889,335.
d. Extraordinary expenditures (net)—lire 5,700,000,000.
e. Movement of capital—lire 2,968,507,000.
f. Total net lire requirements—lire 9,928,396,335.

The foregoing estimate of revenues is based on the assumption that tax legislation and administration will be improved. Allied Military Government in pursuance of this objective will bring its revenue practices into line with those prevailing in Italy.

2. The Italian Government has suggested certain possible economies in the ordinary budget and agrees that such savings as may be effected in such budget may be applied by the Command of the Zone to provide the capital for a loan fund for small and medium-sized enterprise.

[Page 570]

3. The Italian Government will meet the lire requirements specified in section 1(F).

4. The Italian Government, effective immediately, will supply the lire necessary to bring Allied Military Government’s cash balance to 4.5 billion lire. Such portion of such funds as does not constitute a settlement of previous AMG budgets, will be considered a payment against the agreed budget listed in Section 1 above.

5. Additional payments within the limitations of the agreed budget will be made as follows:

AMG undertakes to notify the Italian Treasury when its cash position falls below 4.5 billion lire;
Upon receipt of this notification and before the cash balance falls below 4 billion lire, the Italian Treasury will advance additional funds to AMG.

6. The Zone Command undertakes to limit the use of funds received from the Italian Government under Section 1(E) above to the following purposes:

reconstruction of shipbuilding and ship repair facilities, and
operating capital for the shipbuilding and ship repair industries.

7. Repayment of advances made under Section 6 above will, when received by AMG, be treated as a budget receipt for the budgetary period in which such repayments are made.

8. The Command of the Zone agrees in principle to the desirability of modifying its price policy, as affecting food and other essential commodities, to conform with that of the Italian Government, insofar as the special conditions prevailing in Trieste permit. To this end it undertakes to conduct an immediate examination of the problem. The Italian Government stresses the necessity and urgency of reaching a solution of this problem. It is mutually understood that the advance listed in Section 1(E) above is limited to the six months’ period and does not constitute a precedent.

Part Two. Foreign exchange requirements. In pursuance of the terms of Article I of the agreement on foreign exchange under which the Italian Government has declared its willingness to satisfy the foreign exchange needs of the zone, under conditions no less favorable than those applying in Italy, it is agreed that:

The Italian Exchange Control authority will meet the legitimate foreign exchange requirements of the zone, ERP industries included, as provided in the said Article I of the agreement, and
The Italian Exchange Control will grant a general license to the Command of the Zone, under which, for the year beginning 1 July 1948, [Page 571] the Allied Military Government may, for its own account, or for the account of any ERP industry in the zone draw dollars and sterling up to a total of $6 million or sterling equivalent for the purposes outlined in Paragraph 4 below.
Allied Military Government in any one month will not draw more exchange than $500,000 provided, however, that additional sums may be drawn equivalent to unutilized balances from any previous months.
Allied Military Government will utilize these resources on the basis of the following procurement schedule (in dollars or dollar equivalents of sterling):
steel, iron and steel products and tin plate—$1,800,000;
Douglas fir and hardwoods—$400,000;
non-ferrous and ferrous alloys—$400,000;
machinery, equipment and miscellaneous industrials items—$1,000,000.
Within the foregoing limitation of $6 million, AMG is authorized to draw exchange to meet its contribution to the organization for European Economic Cooperation and a sum not to exceed $10,000 to meet its representational expenses at the site of OEEC or in connection with the European Recovery Program outside zone or Italy.
It is agreed that as procurement conditions vary, AMG may vary the pattern of its procurement expenditures outlined above in an amount not to exceed 50% in the case of any one category.
Although in the normal course of business practices the zone’s industries would be expected, on their own volition, to buy the items listed above in the Italian market whenever competitive drive and other conditions pointed to this course, AMG undertakes use due diligence to ascertain that no dollars or sterling are made available for specific purchases in cases where it can be determined that procurement can be made in the Italian market or through Italian trade agreements under equally favorable conditions, taking into account prices, dates of delivery, and quantities available.
During period covered by this understanding, the Command of the Zone will not ask for the settlement of the question of troop pay and services to the British and US forces, referred to in the protocol of signature which accompanied the agreement on foreign exchange, and the present procedure will remain in force.
Whereas, the US Government has determined that blocked dollar assets in the US of residents of Trieste are not to be considered as current earnings in the sense of the Foreign Exchange Agreement of [Page 572] March 9, 1948, the determination of the utilization of such assets is a responsibility of AMG. In pursuance of Section 115 of the Economic Cooperation Act of 1948, the Allied Military Government will place dollar receipts from the liquidation of assets in the US in a revolving fund in the name of AMG for the financing of those of the zone’s processing industries included in the European Recovery Program. This fund will be utilized for the financing of commodities not included in the schedule outlined in “4” above. In accordance with the suggestion of the Italian Government, the Allied Military Government will use Italian legislation as a pattern for the liquidation of blocked dollar assets in the US.

In the administration of this fund, it is mutually understood that:

All net foreign exchange earnings of the fund, other than a 20% reserve against losses, will be sold to the Italian Exchange Control.
The Allied Military Government will request the assistance of the Bank of Italy in the operational work of the fund.
Allied Military Government will submit a monthly report of the activities of the fund and will discuss future fund operations with the Italian Government at the monthly meetings of the mixed commission to be established under the terms of this agreement.

The Italian Government agrees that the zone command may avail itself of the provisions of Article I of the Agreement on Foreign Exchange of March 9, 1948, to obtain such currency as is necessary to meet the service of dollar advances or loans received by the zone from ECA or the Exim Bank.
The Italian Government recommends to AMG the extension to imports of ERP goods into the zone of the same treatment accorded to imports of ERP goods into Italy. AMG is prepared to make such extension, subject to the obligations assumed by the Zone Command under the Economic Cooperation Act of 1948. The two governments undertake to discuss through the medium of the mixed commission referred to below, the means of implementing this arrangement to conform with Italian practice.

Part Three. Mixed commission. The Government of the Italian Republic and the Command of the Zone agree to participate in a mixed commission, which should meet once monthly in Rome to discuss economic and financial matters of mutual interest. The mixed commission will also have the responsibility of coordinating the respective ERP programs.”

Foregoing subject ratification Italian Cabinet which will consider in next few days. I believe foregoing meets our requirements and unless Joyce receives telegram from you next few days indicating contrary we shall recommend ratification to General Airey. [White.]