882.00R/2–1450
Memorandum of Conversation, by the Officer in Charge of Turkish Affairs (Moore)
Subject: Turkey’s Development Program in Relation to its Fiscal Policy
| Participants: | Mr. McGhee, Assistant Secretary, NEA |
| Ambassador Wadsworth1 | |
| Mr. Russell Dorr, ECA Mission Chief in Turkey | |
| Mr. E. T. Dickinson, Jr., Director of Program Coordination, ECA | |
| Mr. William M. Blaisdell, EGA2 | |
| Mr. Carter DePaul, ECA 3 | |
| Mr. William M. Rountree, Deputy Director, GTI | |
| Mr. George Woodbridge, GTI 4 | |
| Mr. Saul R. Srole, MN 5 | |
| Mr. Mortimer Goldstein, MN | |
| Mr. C. R. Moore, GTI |
Problem: In view of the threat to Turkey’s internal financial stability resulting from its ambitious economic development program, ECA seeks the support of the Department in its efforts to induce the Turkish Government to undertake a development program within its financial capabilities.
Action Taken: General agreement reached on the necessity of obtaining from the Turkish Government a detailed statement of its program with the object of determining with it the relative priority of the component parts and agreeing on those which should be deferred.
Mr. Dorr expressed grave concern over evidences that the Turkish Government is not making a serious effort to carry out its commitment under the ECA Bilateral Agreement6 that it use its best endeavors to balance its budget and to create internal financial stability. He had been particularly aware of this recently when the Minister of Finance7 informed him that he anticipated that the budgetary deficit for fiscal year beginning March 1, 1951 (FY 1951) might be in the neighborhood of TL 250,000,000 as contrasted with the then contemplated budgetary deficit for the fiscal year beginning March 1, 1950 (FY 1950) of TL 155,000,000.8 The Turkish Government is counting on the release of counterpart funds to finance this latter deficit and even though such funds may not reach this figure, the deficit to be met from other sources may not exceed TL 50,000,000 which it is expected can be financed without serious inflationary effect. However, for FY 1951, releases of counterpart funds to finance the considerably larger deficit anticipated cannot be counted on to the same extent, as ECA aid, direct and indirect, will be on a declining scale with the further likelihood that imports of consumable goods financed by ECA grant funds and drawing rights will be substantially reduced. As there is little expectation that the market for government bonds, now extremely [Page 1230] limited, will develop, the larger part of the deficit would probably have to be met by inflationary borrowing, which would tend to have the effect of undermining the objectives of the ECA program in Turkey.
The Turkish budget is characterized by two large categories of expenditures—those for national defense and those for economic development. It was generally agreed that no reductions in the defense budget could be expected during the next few years and that; the economic development budget was the most susceptible of curtailment. Mr. Dorr expressed the view that the budget for FY 195Q as now drawn up contains a number of development projects which might be desirable if the Turks could afford them but which are not essential under present conditions. While this budget has not yet been approved by the National Assembly, it has progressed too far along in the parliamentary process to make it politically feasible for the Turkish Government to eliminate these projects prior to final Assembly action on the budget. He will continue his efforts to persuade it not to proceed with them even after they are authorized although he is not too hopeful of success as budgetary authorizations are generally viewed as commands. In order to avoid the recurrence of the same situation next year, he felt that no time should be lost in impressing on the Government the necessity of limiting the investment program for FY 1951 to those projects which are considered to be the most essential in relation to available financing. One of the most effective means of inducing the Turks to think in these realistic terms lies in our counterpart policy. Agreement by this Government to the release of counterpart funds should be based not only on the justification submitted for a specific project, but also on the broader aspect of the measures being taken to attain internal financial stability. Upon his return to Turkey Mr. Dorr wants to get this point of view over to the Turks and, if necessary, to use the release of counterpart funds for this purpose. Before so doing, however, he wants to be assured that ECA Washington and the Department of State will support him.
Ambassador Wadsworth stressed the efforts that he and Mr. Dorr have made to get from the Turks an adequate statement of their entire development program, which would detail anticipated expenditures by year and by project. It was agreed that efforts to obtain such a statement from the Turks should continue to be exerted. With a statement of this kind, it would be possible to determine with them the relative priority of the component parts and to arrive at agreement on the projects which, in view of financial limitations, should be deferred. [Page 1231] Our willingness to release counterpart funds might depend on the willingness of the Turks to reach such an agreement. Ambassador Wadsworth further advanced the suggestion that were we to inform the Turks that future ECA aid would be on a grant basis, we would give them added incentive to go along with our suggestions. In view of the uncertainty as to Congressional action on the ECA appropriations for the next two years, it was recognized that we cannot now give assurances to the Turks of grant aid.
Mr. McGhee pointed out that it was not uncommon for countries undertaking a substantial program of economic development to resort to deficit financing but that the inflationary effects had to be carefully gauged. He felt that in any event, the rate of planned development was an arbitrary one and that it could be stepped up or slowed down as circumstances dictated. He assured Mr. Dorr of the Department’s support in his effort to induce the Turks to adopt a more realistic development program and to defer those projects which are unessential in relation to their present capacity to finance them.
- Ambassador Wadsworth was in Washington for duty with the Selection Board of the Foreign Service from early January 1950.↩
- Fiscal and Trade Policy Division, Office of the Assistant Administrator for Program, ECA.↩
- Office of the Special Representative in Europe for the ECA.↩
- Officer in Charge of Economic Affairs, GTI.↩
- Acting Chief of Monetary Stabilization Branch, MN.↩
- For the text of the Economic Cooperation Agreement signed at Ankara by representatives of the United States and Turkey, July 4, 1948, see TIAS No. 1794, or 62 Stat, (pt.2) 2566.↩
- Ismail R. Aksal.↩
- Regarding the Turkish fiscal year 1950 budgetary deficit, the Embassy in Turkey recommended to the Department of State that the Turkish Government, which was required by law to present the FY 1950 budget to the Turkish Grand National Assembly (GNA) by February 15, show TL 155 million counterpart funds on the receipt side of the budget with the explanation that the detailed allocation of this money to investment projects remained to be worked out (telegram 58, February 9, from Ankara, 882.10/2–950, not printed). The Turkish FY 1950 budget adopted by the Grand National Assembly on February 27 showed a deficit of TL 173,939,000, of which TL 154,949,000 was slated to be met out of counterpart funds generated by direct ECA aid and OEEC drawing rights. (Despatch 197, March 13, from Ankara, 882.10/3–1350, not printed)↩