896.10/8–3150

Memorandum by the Secretary of State to the President 1

secret

Subject: Critical Financial Problems in the Philippines Reported by Mr. Bell

Mr. Bell will submit his report to you when he returns about September 9. He has, however, forwarded a memorandum to the Secretary of the Treasury and myself2 giving his tentative views on a number of urgent financial problems, which are in addition to the problems of economic development.

The Philippines is facing nothing less than a financial collapse in a period of exceptionally high income, and with only approximately six percent of the national income being collected in taxes. Mr. Bell, in his memorandum, has suggested emergency revenue measures that would probably enable the Philippine Government to achieve a satisfactory budgetary position pending adoption and implementation of long-term corrective measures. It is apparent, however, that the Philippine Government will not take adequate action on its own initiative and even with an all out effort to persuade them to do so, effective implementation probably cannot be hoped for before the beginning of the next calendar year.

In the interim, however, the current cash position is so critical that school teachers, and perhaps other public servants, are not being paid. Mr. Bell states that there is obviously a limit to such practices and that limit will be reached when the Army payroll is not met. Even after exhausting all presently available sources of pesos suggested by Mr. Bell, the Philippine Government probably will not be able to meet minimum Treasury payments through December 31, 1950, and would require $20 million to $30 million from the United States in order to do so.

In view of the situation in the Far East and the reaction that could be expected to even a temporary financial collapse, it may be found advisable, when Mr. Bell’s final report has been submitted, to consider temporary budgetary assistance. Such assistance presumably would be conditioned, among other things, on immediate adoption and implementation of adequate emergency revenue measures. In order to [Page 1483] facilitate action, in case this decision is made, as much preparatory work as possible will be completed prior to Mr. Bell’s return.

The Secretary of the Treasury has read and concurs in this memorandum.

Dean Acheson
  1. In a memorandum of September 2 to the Secretary of State, President Truman replied as follows to this memorandum: “I think you are right on the Philippine situation. We will discuss it as soon as we have further information and see if we can’t arrange to save the Philippine Republic.” (796.00/9–250)
  2. Of August 1, p. 1468.