Foreign Relations of the United States, 1949, Western Europe, Volume IV

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

secret

Washington, May 23, 1949—9 p. m.

Torep 5418. We have given extensive thought to all arguments on new Payments Plan. Following are our general proposals which appear to be in close agreement with your own carefully prepared recommendations:

1. We feel that Western Europe is still not ready for full impact of dollar competition and that any attempt to impose full dollar competition at this juncture would probably lead to a complex system of bilateral deals seeking to circumvent effects of our proposals.

2. Impressed by arguments in favor of a combination of bilateral and multilateral drawing rights with marginal convertibility into dollars. We feel strongly however that multilateral and convertible drawing rights be established on gross basis to insure dollar pool of substantial proportions. If multilateral drawing rights placed on net basis dollar pool might be so small that there would be little uncertainty on part of large creditors concerning ultimate dollar receipts from ECA through working of Plan.

3. As to distribution of drawing rights among categories, we suggest that not more than 50 percent of total should be purely bilateral. Of the balance, we suggest half should be freely convertible into dollars at the option of the debtor and the remainder should be convertible with ECA approval under condition specified Para 5 below.

4. As to administration, our suggestions are as follows. Bilateral drawing rights should be set up through same procedure as followed last year with provision only for administrative changes. Specified amounts of multilateral drawing rights would be assigned to every gross debtor (which would include almost all countries). Against these multilateral drawing rights ECA would create on its books a payments plan dollar pool. Debtor would be allowed to assign any part of its share of this pool to any other participating country in exchange for drawing rights received from that country. Debtor would also have right to convert into direct dollar aid up to one-half (or other agreed convertible portion) of its share of pool. Debtor could convert additional amounts to direct aid subject to Para 5 below.

5. We suggest that part of any such arrangement should be an agreed statement of principles covering the conditions in which any country will take advantage of convertibility provision. We believe basic principle should be that participating countries will give preference to European or Sterling Area sources of supply over dollar sources where goods are available from both on equally favorable terms or even where they are available on slightly more favorable terms from dollar source. On the other hand, countries will take advantage of convertible provisions to use dollar sources in preference to European and Sterling Area sources where goods are available on decidedly better terms from former. Our suggestion is that, in accepting this principle, participating countries would agree not to convert into direct aid full permitted portion of multilateral drawing rights unless prices or availabilities require. Conversely, ECA should agree to permit conversion into direct aid of more than permitted portion of multilateral drawing rights in case of any country experiencing demonstrable difficulty with prices or availabilities of goods from non-dollar sources.

6. Sincerely hope Payments Committee of OEEC will soon come to an agreement on principles of scheme along lines you have developed possibly with amendment suggested Para 5 preceding. In any case we must insist that estimates of bilateral surpluses and deficits be prepared to meet June 15 deadline in advance of agreement and on distribution of dollar aid.

7. In unfortunate event that Payments Committee cannot agree on new principles we will reluctantly take unilateral action to set up scheme along above lines. If participating countries would not cooperate in using shares of payments plan pool to purchase drawing rights, we would seriously consider earmarking pool for offshore purchases. Must warn you there would be considerable Executive Branch support for a thoroughgoing offshore procurement plan event OEEC fails to produce a plan consistent our major objectives.

8. There is no objection to letting our views on subject be known if this should prove useful in hastening negotiations.

Hoffman