711.45/1–2648
The Chargé in India (Donovan) to the Secretary of State
No. 71
Subject: India’s Reaction to Financial Aid to Pakistan
Sir: I have the honor to refer to secret despatch no. 21, from the American Embassy at Karachi, dated January 13, 1948,1 suggesting that consideration be given to providing some financial aid to Pakistan in connection with negotiations with that country of a treaty of friendship, commerce and navigation.
The difficulty of proceeding with negotiations except on such a basis is fully appreciated. The situation is somewhat similar here, except that the Government of India has not asked for a loan. India, as in the case of Pakistan, is not in a position at this time to avail itself of many of the mutual benefits to be derived from a treaty of friendship, commerce and navigation with the United States and has shown no eagerness to begin discussions of such a treaty.
It is hardly necessary to point out, however, that any financial aid-given by the United States to Pakistan so long as relations between India and Pakistan continue to be strained, would be regarded by India as an unfriendly act. It not only would prejudice the prospects of negotiating a treaty of friendship, commerce and navigation with India, but also would have an adverse effect on all aspects of United States relations with India and possibly even more far reaching international repercussions. In this connection, attention is called to the recent dispute between India and Pakistan over the cash balances of the former undivided Government of India. India feared that if it paid to Pakistan the remaining share of the balances due to the latter under their financial agreement, the money would be used to support the raiders in Kashmir against India. Hyderabad’s recent loan to [Page 496] Pakistan was regarded somewhat in the light of an alliance, against India (Embassy’s reports nos. 276 of January 2, 1948, 4 of January 9, 1948, and 10 of January 16, 1948; despatch no. 32 of January 9, 1948; and telegrams nos. 39 and 41 of January 13, 19482).
Financial aid to Pakistan might be viewed differently if India were informally approached in advance and the aid were extended in such a way that it could be directed only toward economic ends. However, in such circumstances, India might demand similar aid.
Respectfully yours,