The Secretary of State to the Embassy in Korea
145. From State and ECA for Muccio (Drumright) and Bunce.
Subj is inflation.
Refs: Embdes 835, Minutes Food Sub-Committee, 1 Feb, AMIK Report 49, dated 14 Jan.1
- Pres Rhee shld be most candidly informed that passage on 9 Feb of Bill authorizing $60 mil for Second Period FY 19502 is not occasion for relaxation of AMIK–ROK efforts to curb inflation. Pres shld be reminded that authorization legis passed only after ten months concerted, persistent efforts State-ECA; that very serious questions were raised in House as to ability ROK to control inflation; that serious reservations expressed concerning ability and willingness ROK to utilize ECA program effectively and to promote democratic processes in south Korea; that essential condition of authorization was that it did not constitute any commitment beyond 30 June and that Congress will completely reappraise econ situation before authorizing further aid to Korea; finally that funds were authorized only after Korea aid request was joined to China aid request. Clear implication of Congressional attitude is halfway anti-inflationary measures by ROK cld possibly result in ROK receiving no more than $30 mil to be advanced by RFC total for Second Period.
- Being fully aware of these very real dangers, State-ECA/W view with great concern and disapprobation (a) apparently unrealistic attitude responsible ROK officials toward inflationary situation and tendency shift blame on ECA or US Govt as exemplified by statement of Min of Food in the Assembly regarding rice situation; (b) official distortion of facts concerning financial situation of ROK as exemplified by memo to Jessup from Pri Min as contained in your desp 103 Jan 29, 1950; and (c) President’s act of by-passing ROK–US Stabilization Comite (expressly established to deal with inflation) on 1 Feb in matter of food distribution Seoul and disregarding ECA advice on rationing as reported in desp 123, Feb 4, 1950.3
- Hearings before Fon Affairs and Fon Relations Comites on Korea Aid request for FY 1951 scheduled late Feb. Critically important ECA/W be in position to satisfy these Comites that ROK has demonstrated progress in controlling inflation and rectified administrative weakness resulting in present dangerous situation. Such proof will be required by Congress before authorization FY 1951 aid and demanded by Appropriations Comites when and if FY 1951 aid is authorized. Thus far State and ECA/W in presenting case for Korea Aid can only present to Congressional Comites record of action taken by State-ECA/W and AMIK as proof of action taken by US Gov to make ROK aware of dangerous financial policies tending to undermine Rhee Govt. Record of action taken by ROK thus far and visible effect of such actions not impressive and may be viewed by Congressional Comites with concern. [State and ECA.]