ECA Telegram Files, FRC Acc. No. 53A278, Paris Torep: Telegram

The Administrator for Economic Cooperation (Hoffman) to the United States Special Representative in Europe (Harriman), at Paris


Torep 4720. Re Repto 3753 April 201 and Torep 46962 following is our summary U.S. views on revision of payments plan and approach to negotiations by ECA. This is fully consistent with reftels and your discussions with Bissell and McCullough.3 We are sending it to you in hope that it will prove useful for you to have full statement U.S. position.

We must insist that substantial further progress towards multilateralization should be made. It would be out of the question for us to accept the point of view that for the second year of a four-year program nothing better than the original payments plan was feasible.
Our first alternative is full convertibility of drawing rights at debtor’s option into currency of any member of scheme or into dollars. This alternative would offer all the advantages of offshore procurement with full dollar area competition and would not involve the difficulties of dollar invoicing in intra-European trade.
We are afraid, however, that this alternative without modification would be too strong a medicine for Europe to take at the present time. It would in effect require general convertibility of European currencies into each other and into dollars in respect of part of European trade at a time when general convertibility is far from being attained. Europe must adjust itself to full dollar area competition [Page 384] at the earliest possible date but we do not want to press this objective too vigorously at the present time.
An acceptable modification of the first alternative would be to permit the conversion of drawing rights into dollars only as an administrative decision by ECA. The countries would be required to submit evidence to ECA that the goods they needed could not be obtained at reasonable prices in Europe and could be obtained at lower prices in the United States. ECA would then consider the question from the point of view both of debtor and creditor countries.
Our second alternative is transferability of drawing rights at the debtor’s option with no convertibility into dollars. We would support full transferability of drawing rights but may have to settle for transferability only of a substantial part of them. In the latter event we feel that a uniform percentage of the drawing rights extended by all creditors should be transferable rather than separate negotiated percentages for individual creditors. It seems to us that once we begin to admit negotiation on an individual country basis there is serious danger of the substance of the proposal being whittled away.
It is unlikely that creditors would agree to accept transferability without some dollar compensation. We believe this compensation should be kept as low as possible and should not exceed 50 percent of value of transferred drawing rights.
We believe that there would be crippling delay and argument if the compensation to be paid to one creditor had to be obtained by reducing funds already allocated to other European countries. Consequently some ECA dollar funds should be retained unallocated and should be used during the year to make compensations.
Dollar compensation could where necessary be supplemented with intra-European credits but the aggregate compensation to creditors in all currencies need not be 100 percent of the value of transferred drawing rights. The most convenient method would possibly be an undertaking by the countries to hold each others currencies, but this could usefully be supplemented by negotiated long-term credits. In particular we believe that it would be highly desirable for countries that are overall creditors, such as Belgium, to agree to an extension of long-term credits unassociated with any dollar compensation. We must emphasize that these matters must be settled in the Payments Agreement itself, and thereafter the system should work automatically. Otherwise administrative delays could make transferability little more than a fiction.
Any provision for partial convertibility of drawing rights into dollars that could be agreed upon would of course be an improvement of the second alternative.
We have tried to set out these requirements in general terms. We refer you to the staff suggestion already discussed with you as an illustration of a scheme that is worked out in detail, but are not in any way committed to that particular scheme. All proposals for mechanisms should be left to OEEC initiative.
  1. Not printed; it transmitted the position of the OSR Policy Board on a new payments agreement designed to (a) continue efforts to expand intra-European trade and restore its equilibrium, (b) contribute to the maximum practicable competition in European markets, and (c) provide incentives for Europeans to earn dollars through exports to the Western Hemisphere. This would require maximum transferability of drawing rights within Europe and a substantial amount of convertibility into dollars. (ECA Telegram Files, FRC Acc. No. 53A278, Paris Repto)
  2. Not printed; it stated that the ECA approved the positions outlined in Repto 3753 subject to certain minor clarifications, (ibid., Box 47)
  3. James A. McCullough, Director of the Fiscal and Trade Policy Division of ECA.