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895B.13/4–350

The Secretary of State to the Korean Ambassador (Chang)

Aide-Mémoire

The Secretary of State wishes to take this opportunity to express to His Excellency the Ambassador of the Republic of Korea, prior to the latter’s return to Seoul, the deep concern of this Government over the mounting inflation in Korea. The Secretary of State wishes His Excellency to convey to the President of the Republic of Korea the view of this Government that the communication of March 4, 19501 from the Korean Prime Minister to the Chief of the Economic Cooperation Mission in Korea, in which the view was expressed that there is no serious problem of inflation in Korea, but rather a threat of deflation, indicates a lack of comprehension on the part of the Korean Government of the seriousness of the problem and an unwillingness to take the drastic measures required to curb the growing inflation.

It is the judgment of this Government that the financial situation in Korea has already reached critical proportions, and that unless this progressive inflation is curbed in the none too distant future, it cannot but seriously impair Korea’s ability to utilize effectively the economic assistance provided by the Economic Cooperation Administration. [Page 44]Government expenditures have been vastly expanded by bank overdrafts without reference to limits set by an approved budget. Tax collections have not been increased, aid goods have been under-priced, and governmental subsidies have been expanded. The dangerous practice of voluntary contributions has been used as an inefficient substitute for a sound taxation system. These uneconomic practices have in turn served to expand the currency in circulation, unbalance the Korean national budget, and cause a sharp rise in wholesale and retail prices, thereby strengthening the growing forces of inflation.

The Secretary of State must inform His Excellency that unless the Korean Government is able to take satisfactory and effective measures to counter these inflationary forces, it will be necessary to reexamine, and perhaps to make adjustments in, the Economic Cooperation Administration’s assistance program in Korea.

The Secretary of State wishes to inform His Excellency in this connection that the American Ambassador in Seoul is being recalled for consultation within the next few days regarding the critical problems arising out of the growing inflation in Korea.

Of equal concern to this Government are the reported intentions of the Korean Government, as proposed by the President of the Republic of Korea in a message to the National Assembly on March 31, to postpone the general elections from the coming May until sometime in November. The Secretary of State wishes to draw to His Excellency’s attention the fact that United States aid, both military and economic, to the Republic of Korea has been predicated upon the existence and growth of democratic institutions within the Republic. Free, popular elections, in accordance with the constitution and other basic laws of the Republic, are the foundation of those democratic institutions. The holding of the elections as scheduled and provided for by the basic laws of the Republic appears to this Government as equally urgent with the taking of necessary measures for the countering of the inflationary forces already discussed.

  1. Not printed.