The Assistant Secretary of State for Congressional Relations (McFall) to Senator Tom Connolly 1

My Dear Senator Connally: The receipt is acknowledged of your letter of March 13, 19502 requesting the comments of the Department of State on S. 3220, a bill “To amend further the Philippine Rehabilitation Act of April 30, 1946, as amended”.3

The proposed legislation would amend subsection 106a of the Philippine Rehabilitation Act of 1946 to increase the original authorization of $400 million for the payment of private war damage claims in the Philippines to $500 million. It is provided (1) that claimants must use additional funds resulting from the increased authorization in projects to further the rehabilitation or economic development of the Philippines; (2) that $10 million of the money shall be set aside for the restoration, in so far as the sum authorized permits, in full at postwar costs of non-profit educational, welfare and health institutions; and (3) that any unexpended balances may be allocated and paid to the Republic of the Philippines for public projects in the Philippines under such terms, provisions and conditions as the President of the United States may approve.

The proviso requiring investment of the new money in the Philippines would appear to be highly desirable if this bill is to be enacted. In previous consideration of the possibility of an additional authorization for war damages the most troublesome aspect was the prospect [Page 1439] that most claimants having already restored their property would be free to withdraw the money from the Philippines whereas the whole theory of the original act was to restore the economy of the Philippines.

It might be somewhat difficult to insure absolute and complete compliance with the proviso regarding reinvestment and the Department suggests that the proposed legislation might be even further strengthened in this regard.

In connection with the clause providing for $10 million for nonprofit educational and welfare institutions, it should be noted that a bill, S. 1033,4 has already passed the Senate and is now before the House which provides for the restoration of non-profit welfare and educational institutions on the same basis as this bill but without any limitation as to amount. The Department is on record as opposing S. 1033 because it provides that the necessary funds to accomplish its objectives are to come from money already authorized, that is, by reducing amounts payable to ordinary claimants. As it is proposed to restore these institutions in full on the basis of postwar costs whereas other property is to be restored only in part on the basis of depreciated prewar value, the Department believed that the bill (S. 1033) was highly discriminatory in favor of one class of claimants. This proposed legislation by the authorization of new money would remove the objections previously made to S. 1033 and would appear to be an acceptable substitute therefore. The third provision that unexpended balances be used for public projects in the Philippines under such terms as the President may approve might also afford this Government an opportunity to undertake programs in the Philippines which would in the judgment of the President be in the best interest of the two countries. The amount of money which would be available for this purpose is not known.

The Department recognizes that for reasons set forth above this legislation has much to commend it the Philippines undoubtedly suffered heavily during the war. While this Government has assisted substantially in the rehabilitation work there is undoubtedly a widespread feeling in the Philippines that we have a commitment to do more than we have done. This point may be debatable, but a fairly strong argument can be made in support of this point of view.

It should be noted, however, that despite the payment to public and private interests and individuals in the Philippines since the war of large sums of U.S. dollars, the Philippine Government has recently been faced with serious difficulties resulting from the rapid decline of U.S. dollar reserves, with continuing large unfavorable trade balances and has been forced to impose rather rigid import and [Page 1440] exchange controls. The rapid falling off of U.S. dollar expenditures in the Philippines in the near future is likely to still further aggravate the present difficulties of the Philippine Government.

It is our opinion that substantial economic benefits will flow from the additional payments: the rehabilitation of the Philippines will have been further fostered, and the dollar exchange resulting from the measure should strengthen the presently perilous foreign exchange and balance of payments position of the Philippine Government. This is not to say however that this measure can be justified solely on economic grounds. It can not. It is one way of financing additional rehabilitation but not the most direct, least wasteful way. It does not strike directly at the root of the rapid decline in Philippine holdings of foreign exchange or at the fundamental causes of disequilibrium in the balance of payments. For these it is only a palliative. For these, other measures may be necessary and are being considered by both the United States and Philippine Governments. But the considerations of equity, arising out of the position of the unsatisfied but approved claimants, and our general policy of maintaining good relations with the Philippines may be regarded by Congress as sufficient additional justification for the measure. While the Department is of the opinion that this proposal will at best only alleviate, not cure, the fundamental economic problems of the Philippines it does believe that the measure would be of benefit to our foreign policy and of benefit to the Philippines.

If the Congress, in the light of the foregoing and taking into consideration the debatable question of the extent to which we may have a commitment, should decide to take favorable action on this proposal the Department would offer no objection to such action.

The Department has been informed by the Bureau of the Budget that there is no objection to the submission of this report.

Sincerely yours,

For the Secretary of State:
Jack K. McFall
  1. This letter was drafted by Richard R. Ely, cleared by the Office of Financial and Development Policy, and personally approved by Assistant Secretary of State Rusk. The letter was directed to Senator Connally in his capacity as Chairman of the Senate Committee on Foreign Relations.
  2. Not printed.
  3. For the text of the bill as introduced in the House of Representatives as H.R. 7600, see To Amend the Philippine Rehabilitation Act of 1946, p. 215. For the text of the Philippine Rehabilitation Act of 1946 (Public Law 370), approved April 30, 1946, see 60 Stat. 128.
  4. For the text of the bill under reference here, see To Amend the Philippine Rehabilitation Act of 1946, p. 1.