Foreign Relations of the United States, 1950, East Asia and the Pacific, Volume VI

896.00/8–1850: Telegram

The Secretary of State to the Chief of the United States Economic Survey Mission to the Philippines, at Manila ¹

secret

Washington , August 18, 1950—7 p. m.

Tobel 22. From State and Treas. Ur memo² rcd Aug. 14. Fol tentative views and technical questions. Understand replacement peso deposits IMF entirely in discretion PhilGov and requires no action here.

While legal position under exam here, assume you interpret Art 1 Para 4 of Trade Agreement³ to permit imposition special import duty. However feel this probably contrary to intent of Agreement and wld appear to be inconsistent with Phil participation in GATT conference convening Sep 28 for purpose undertaking negots for reduction tariffs.⁴ State also concerned that once special duty imposed PhilGov wld try to continue permanently.

Will await your further assessment relative desirability rate adjustment versus special duty or alternative thereto. Assume you are weighing other possible alternatives such as spread between buying and selling rates, tax on sales fon exch, flexible rate, sharper devaluation than level suggested or uniform tax on all sales.

Extremely doubtful if loan cld be obtained from Commodity Credit Corp and ECA does not have available funds. On basis estimates at hearing wld be $15 million surplus if H.R. 7600 enacted which if advanced prior completion projects probably cld be used to help fin Treas payments. Hesitate however to press for full $100 million war damage bill pending decision on basis your report as to assistance which will be needed from US. In view PhilGov reluctance enact adequate tax measures (Belto 19⁵) hope your report will assess practical possibilities and problems associated with adoption and implementation your short and long term tax and budget proposals and conditions that might need to be attached to any possible further US assistance.

Interested appraisal RFC in memo on control of investment aid and technical assistance. Impression here had been that agency had yielded to pressure and allocated disproportionately large amt of available resources to residential construction for those in upper income brackets. Proposed setup PDFC raises question as to how effectively US director cld operate. US subscription to preferred stock wld be a unique arrangement with wide policy implications. Also impressed with magnitude of overhauling entire gamut Govt enterprises as suggested. Entire question this area will require further consideration here after your report submitted.

In view of time required for airmail pouch suggest that summaries be cabled of parts of report concerning immediate problem as completed.

Acheson

1. Messages to the United States Economic Survey Mission, designated Tobel, and from the Mission, designated Belto, were transmitted through the facilities of the Embassy in Manila.
2. Memorandum from Bell to the Secretary of State and the Secretary of the Treasury, August 1, p. 1468.
3. The reference here is to the agreement between the United States and the Philippines concerning trade and related matters, based upon the Philippine Trade Act of 1946, signed at Manila, July 4, 1946, amended by an exchange of notes of October 22, 1946; for text, see TIAS 1588 or 61 Stat. (pt. 3) 2811.
4. The Third Round of Tariff Negotiations, under the General Agreement on Tariffs and Trade (GATT), began at Torquay, England, September 28, 1950.
5. Telegram Tobel 18, August 7, to Manila, from Assistant Secretary of State Husk, not printed, expressed concern over reports from the Philippines indicating the imminence of a serious financial crisis and asked for Chief of Mission Bell’s judgment (896.00/8–750). Telegram Belto 19, August 19, from Manila, not printed, replied with a review of the condition of Philippine finances. The Economic Survey Mission felt that the Philippine Government’s program for a miscellany of taxes to raise about 90–100 million pesos in additional revenues during the next fiscal year was inadequate, that it would increase the burden of tax administration, and was not related to a systematic reform of the tax structure. The Mission estimated that new revenues of 25 million pesos per year were required. There was little indication that the Philippine Government was prepared to ask or that the Congress would vote such a sum in additional taxes. The Mission felt that long term tax reform and emergency levies both required simplification of the tax structure and reorganization of the tax collecting machinery. The Mission further believed that the Philippine Government should institute a sweeping cleanup of the large number of corrupt and inefficient tax administrators and collectors. In addition, the Philippine Government’s activities in banking and business would have to be curtailed in view of its record of waste, corruption, politics, and unsound financial practices (896.00/8–1050).