796.11/2–250

Memorandum from the Secretary of State to the President 1

secret

Subject: Topics which may be discussed by President Quirino during his visit to the United States for medical attention.

President Quirino comes to the United States at a time in his development when it will be difficult to persuade him to that action which the United States believes may reverse the current trend of economic and financial deterioration. There is doubt that he yet understands fully the difficult dilemma in which his country finds itself. He is also surrounded by advisers who, for the most part, are little more understanding than he is. Furthermore, he has just won a presidential election which, despite known corruption and instances of dishonesty, has filled him with confidence that he has the internal Philippine situation well under control. His not unnatural pride in his accomplishment of having risen to the Presidency from humble origins sometimes obscures in his mind the heavy responsibilities with which he is charged. Typical of his political mistakes have been his ill-considered meeting last summer with Chiang Kai-shek2 largely for internal political reasons, his manipulation of the Presidential election, his excessive concern with his own political position, attempts to persuade the Philippine electorate that the United States supported his election campaign, and, more recently, his suggestion that the United States bribe him into not appointing the Japanese collaborator Senator Madrigal, as ambassador to the United States.

To these discouraging factors must be added the quite natural Philippine sensitivity over its recently acquired sovereignty. Typical of this reaction which Ambassador Cowen has characterized as “morbid psychology” is the reaction to my recent statement at the National Press Club in which I expressed the regret of this Government that the Philippines had failed to make the best use of its available resources.3 This statement was interpreted in high quarters, including President Quirino himself, as a charge of dishonesty and corruption which, of course, was the last thing which I or anyone else in the Department intended.

It is necessary to give due account to this natural sensitivity unless we are to have a stubborn and resentful impasse with the Philippines [Page 1404]in our attempts to persuade them to reform. On the other hand, I am convinced that the time has come to explain to President Quirino that Philippine performance must precede consideration of any additional American aid if the current trend of deterioration is to be arrested and the Philippines placed on a sound and self-supporting basis. This will mean, I believe, that he must be talked to in simple, firm, and forth-right but tactful terms. The specific problems outlined below and the recommendations thereon will explain in more detail the foregoing generalities.

In a recent telegram Ambassador Cowen has expressed his serious concern of the consequences which might arise if President Quirino should receive any specific assurances of American aid which he could take back with him.4 Under instructions from the Department the Ambassador has been using his influence to persuade the Philippine Government to attempt those reform measures which must come first if any further possible American aid is to be utilized effectively. These efforts have so far been only moderately successful, but progress is being made. The Ambassador fears if President Quirino finds he can come to Washington and secure what he wants without fulfilling certain precedent conditions then the influence of the Embassy in Manila will be to a large extent nullified. This is a classical Philippine maneuver, playing off one part of the American Government against another part, which President Quezon in particular used with marked success. The Department fully agrees that President Quirino should not gain any impression that he can bypass the Ambassador in Manila to suit his own purposes, and it is recommended that if he makes any proposals which might be acceptable to the United States Government he should be informed that he should first discuss them with Ambassador Cowen.

President Quirino will undoubtedly wish to discuss a number of military, political and economic questions which are of concern to the Philippines and the United States. These problems and the suggested replies are as follows:

A. Military

1. Defense of the Philippines. With the spread of Communism in Asia, President Quirino has on several occasions expressed to Ambassador Cowen his concern over the future security of the Philippines. In the course of such conversations he has requested an expression of what the United States might do in the event of an attack on his country.

recommendation

It is recommended that you reply with the substance of a letter of September 16, 1949 from the Secretary of National Defense to the [Page 1405]Secretary of State, appropriate paragraphs of which are attached as tab (1).5 Reference might also be made to my recent statement to the National Press Club that the United States would not countenance any external attack on the Philippines.

2. Guerrilla Recognition. There is some evidence that President Quirino may attempt to reopen the question of guerrilla recognition for his own political purposes. You will recall that he discussed the question during his visit to Washington last summer and that he was informed the question was a closed one.

recommendation

It is recommended that you inform President Quirino the United States still considers the issue a closed one and perceives nothing to be gained by discussing it further.

B. Political

1. A New Philippine Ambassador to the United States. During recent weeks there has been speculation that President Quirino would appoint Senator Vicente Madrigal as the next Ambassador to the United States. Senator Madrigal has a record as a collaborator, not only with the Japanese during the last war, but also with Germany during the first war. He has also been deeply involved in financial corruption. Because of his record, his appointment as Ambassador would be a source of embarrassment to the United States Government, and in time, to the Philippine Government also. Ambassador Cowen has discussed this question with President Quirino who at first gave an appearance of irresoluteness and then asked the Ambassador not to report the matter to his Government. President Quirino then brought up the question of the very large claim Senator Madrigal has with the War Damage Commission6 which has been held up pending investigation of the collaboration charges, and finally made the offer that if the Ambassador would guarantee payment of this claim then he, President Quirino, would not appoint Madrigal as Ambassador. Ambassador Cowen of course, replied that this Government does not make this kind of deal.7 It is possible, however, that President Quirino may attempt to secure your concurrence for this appointment in order to discharge his political obligations to Madrigal.

[Page 1406]

recommendation

It is recommended that if President Quirino raises the question of Senator Madrigal you point out to him the serious embarrassment which Senator Madrigal would be to our two countries and if he persists in his request, that you inform him the United States would regretfully be compelled to refuse an agreement.

2. Pacific Association. Last summer, as the result of an ill-considered meeting with General Chiang Kai-shek, President Quirino, partly for his own internal political purposes, proposed some kind of Pacific association as a means of defense against the spread of Communism. Because of the connection with Chiang Kai-shek and because of the diversity of interests among the Southeast Asian nations, the response in Asia was only lukewarm. Attempts to secure public American approval for the proposal have elicited from this Government the statement that although the United States would look with favor upon the principle of such an association, based on the independence, integrity, and welfare of the peoples concerned, the United States will reserve judgment on the specific development of the proposal until it has had an opportunity to observe its specific application. President Quirino may attempt to secure American assistance to get him out of the uncomfortable position in which he finds himself in being publicly committed to a proposal which lacks general enthusiastic appeal. There is attached as tab (2) a memorandum dealing in greater detail with this subject.8

recommendation

If President Quirino raises the question of a Pacific association it is recommended that you say the United States looks with favor on the principle of a Southeast Asian regional association but that to be effective it must be a spontaneous movement dedicated to the independence, integrity, and welfare of the participants, and that until there is evidence that these conditions have been fulfilled the United States can express no opinion any specific implementation of the principle.

3. Recognition of the Vietnam Government under Bao Dai.9 The Government of the United States plans to extend recognition to the new states of Vietnam, Laos, and Cambodia. The French Assembly [Page 1407]has now ratified the Agreement already in effect between those states and France. Similar acts of recognition by other Southeast Asian states would be most helpful in assisting the new states to establish and maintain their independence and stability. It is recognized that the degree of independence being transferred to the Vietnam Government under Bao Dai is somewhat less than the independence granted to the Philippines by the United States. This somewhat lesser degree of independence has been granted because Vietnam for sometime will require assistance from France, and because the peoples of Indochina are not as advanced as the Philippine people and can only hope to approach the Philippine level of absolute self-government after more experience. Furthermore, there is a present Communist threat in Indochina which has been reenforced by the recent debacle in China. As the most stable nation in Southeast Asia, Philippine recognition of the three new states would be a concrete confirmation of the anti-Communist stand already so effectively taken by the Philippine Government.

recommendation

It is recommended that you seek an opportunity to discuss the foregoing with President Quirino and urge on him the desirability that the Philippines recognize Vietnam, Laos, and Cambodia.

C. Economic

The principal problems confronting the Philippines today are economic and financial. These problems arise largely from Philippine ineptitude and wastefulness. Since its liberation in 1945, the Philippines has benefited by U.S. Government aid and expenditures of over $1,500,000,000, including transfers of civilian aid goods, military equipment and surplus property valued at over $300 million, and cash expenditures of over $1,200,000,000, including war damage payments, veterans pay and benefits, wage payments, credits and tax refunds. Effectively utilized these resources could have made a significant contribution to increasing the capital investment in the country and restoring the economy to a more prosperous condition.

The Joint Philippine-American Finance Commission report of 1947 blocked out a broad program to achieve this purpose. Sound fiscal and financial policies, however, have been ignored. Much of the Philippine financial resources have been squandered on unnecessary luxury imports. Imports and transfers of capital out of the Philippines have consistently exceeded exports and American aid by a large margin, and insufficient progress has been made in increasing export crops or in making the Philippines self-sufficient in its rice supply. As a result, [Page 1408]dollar reserves during 1949 dropped by 40 percent from $400 million to $230 million. To stop the drain the Philippines drastically reenforeed the inadequate import control regulations which had been in effect since January 1948. Shortly thereafter exchange control was imposed with your consent. Although it is premature to express an opinion on the effectiveness of the regulations now in force, the previous record gives little reason for encouragement that a further loss of foreign exchange can be arrested by these measures.

To make matters worse there is a serious budgetary deficit and every indication that it will increase. The tax laws are inadequate, badly enforced, and revenues are the object of a disturbing amount of graft and corruption of which President Quirino must be aware. Perhaps the most serious aspect of this problem is the seeming lack of understanding by responsible Philippine officials as to their predicament and the unwillingness to take the necessary drastic measures to remedy it. Back of this attitude is the firm Philippine conviction that they need not worry because if worse come to worst they can always count on the United States to bail them out when the borrowed time of American governmental expenditures runs out. President Quirino must somehow be persuaded that this is not necessarily so and that American aid can be effective only if it is preceded by drastic reforms undertaken by the Philippines itself. It is probable that President Quirino can be persuaded of this only by very firm and plain speaking, and even then he may understand it only when the situation has become decidedly worse than it is now. Having failed to secure what he wants through Ambassador Cowen in Manila, he will undoubtedly attempt to secure some kind of commitment from you, … For example, President Quirino has refused several requests of Ambassador Cowen and our Commanding General in Manila for the repayment now past due of some 70 million pesos left over from a fund set up to meet back pay claims of Filipino troops, and has indicated that he wishes to discuss this matter with you. He is also attempting to have this claim offset against certain extraneous Philippine claims whose validity the United States cannot admit.

recommendations

It is recommended that when President Quirino raises the question of American aid, the substance of the foregoing be conveyed to him in no uncertain terms, and that emphasis be laid on the fact that no further American aid could be considered unless and until there is tangible evidence that the Philippines has taken steps to put its house in order and that it would then need and be in a position effectively [Page 1409]to use additional aid. It is further recommended, in discussing any requests for aid that:

1.
A United States Economic Survey Mission composed of top level American experts as outlined in the attached tab (3)10 be discussed with him for the purpose of obtaining a current appraisal of the problems which have been created by the mismanagement of affairs since independence; that
2.
If he raises any exchange or currency stabilization fund problems he be advised to have his experts talk with Secretary Snyder11 about them; and that
3.
He be advised in no uncertain terms that this Government is disturbed by the Philippine failure to repay the pesos advanced by the U.S. Army which are excess to back pay claims and due to be returned.

Additional War Damage Appropriations. President Quirino will probably ask specifically for an additional war damage appropriation to bring payments up to the statutory limitation of 75% on approved claims. The War Damage Commission also favored such an appropriation and estimates that approximately $80,000,000 would do the job. The Department of State last summer favored an additional proposal but the Bureau of the Budget opposed it. The Department now inclines to change its position on the grounds that any such appropriation would probably eliminate the possibility at some later date of securing anything else from the Congress for the Philippines at a later date which would be more economically productive. While the Department would not, however, actively oppose any additional war damage [Page 1410]legislation introduced into the Congress it would consider its passage as unfortunate.

recommendations

If President Quirino raises the question of additional war damage payments it is recommended that no commitments be made to him and that he be informed this is a question for the Congress to decide.

Dean Acheson
[Enclosure 1]12

Extracts From Letter Dated 16 September 1949 From the Secretary of Defense to the Secretary of State

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The United States has evidenced, by its very great expenditures in men and materiel for liberation of the Philippines in World War II its deep concern in the freedom and well-being of the Filipino people. This concern has in no way been lessened by recent and current developments in the international field nor is it anticipated that it can be altered by future developments.

United States military interest in the Philippines, consequently, is strong and durable. From the military viewpoint, the strategic importance of the Philippines is not open to question. In the event of war, the United States must insure that control of the Philippines not be taken by an enemy power and present base rights in the Philippine Islands must therefore remain available for military use in defense of the Philippines in war emergency.

Our military interest in the Philippines has not been decreased by current trends on the Asiatic mainland. Rather, such trends have served to focus the attention of the Military Establishment of the United States on the Philippines and have emphasized the strategic importance of the Philippine Islands.

United States determination to support Philippine independence in the event of war cannot be measured in terms of the numerical strength of United States forces basing there now or later. Under essential peacetime restrictions on military expenditures, it is impossible for the United States to have available in all key areas those forces which would be needed in an emergency. In fact, it is impossible to have forces of such strength deployed in such areas anywhere in peacetime.

It is the intention of the United States, however, to retain some [Page 1411]of its forces in the Philippine Islands and to maintain United States base areas there in readiness for emergency use.

  1. This memorandum, which was drafted by John F. Melby, was transmitted to the Secretary of State on January 31 by Deputy Assistant Secretary of State for Far Eastern Affairs Livingston T. Merchant with the recommendation that it be signed by the Secretary of State and sent to the President.
  2. For documentation on the meeting under reference between Philippine President Quirino and Generalissimo Chiang Kai-shek, President of the Republic of China, held at Baguio in the Philippines in July 1949, see Foreign Relations, 1949, vol. vii, Part 2, pp. 1115 ff.
  3. Regarding the speech under reference here and the Philippine reference thereto, see telegram 195, January 17, from Manila, supra.
  4. See telegram 75, January 8, from Manila, p. 1399.
  5. See p. 1410.
  6. The Philippine War Damage Commission was created by the Philippine Rehabilitation Act of April 30, 1946, to make compensation for physical loss or destruction of or damage to certain kinds of property, public and private, in the Philippines occurring after December 7, 1941, and before October 1, 1945, as a result of World War II.
  7. President Quirino’s conversation with Ambassador Cowen on January 6 described here was reported upon in telegram 73, January 7, from Manila, not printed (601.9611/1–750).
  8. “Tab 2” of the source text, not included here, was a copy of Assistant Secretary of State Butterworth’s memorandum of January 16 to the Secretary of State, p. 1. For additional documentation regarding the attitude of the United States toward regional security arrangements in the Southeast Asian area, also see pp. 1 ff.
  9. For documentation on the question of the recognition of the Viet-Nam Government of Bao Dai, see pp. 690 ff.
  10. “Tab 3” was a memorandum of January 26 from Deputy Assistant Secretary of State Merchant to the Secretary of State, not printed, it recommended that President Truman be advised of the Department of State’s view that no further American grant assistance to the Philippines was warranted until the Philippine Government itself took steps to improve its domestic finances and foreign exchange position and until a more definitive analysis could be made of the means whereby American aid could be effectively utilized in helping stabilize the Philippine economy. The memorandum recommended that President Truman inform President Quirino that United States consideration of the problem of further aid to the Philippines was hampered by some doubt as to the exact requirements and the extent to which proper corrective measures could and should be taken by the Philippine Government. It was suggested in the memorandum that President Truman might intimate that Quirino should consult with Ambassador Cowen on the question and that, if the latter concurred, the United States would send a topflight mission to survey the Philippine economic situation. It was envisaged that the recommendations of this mission would be for self-help measures which the Philippine Government could undertake itself, but any acceptable recommendations for American action would be given careful consideration. Merchant’s memorandum concluded by expressing the hope that such a mission would consider the possibility of recommending the establishment of a continuing joint United States-Philippine commission which might exercise final control over any developmental funds which might later be placed at its disposal (896.00/1–2650).
  11. John W. Snyder, Secretary of the Treasury.
  12. In the source text this enclosure is labeled “Tab 1”.