No. 186
751.5–MAP/10–3151: Telegram
The Chief of the ECA Mission in France (Labouisse) to the Administrator for Economic Cooperation (Bissell)1
secret priority
Paris, October 31, 1951—8 p.m.
Toeca 1380. Toisa. ECA/W pass Harriman. Pass urgently to State and Treasury.
- 1.
- French Cabinet and administration are now making basic financial, economic, military and polit decisions relating to 1952 budget and TCC analysis in atmosphere of growing pessimism as foreign payments crisis worsens steadily.
- 2.
- Admin had drawn up dollar import program of around $1,000 million, which was assumed to be volume of imports necessary to maintain, or bring about slight increase in, level of econ activity, and which made allowance for additional imports of wheat and coal needed. In expectation of dollar assistance from US in conjunction with milit program, French were carrying out import program of this magnitude during third quarter 1951 (see part A, para VI of Embtel 1402 Sept 12). Now in absence of aid and in face of imminent exhaustion of gold and dollar assets available to stabilization fund (see Toeca 1324 and Toeca 13763), French admin estimates that after meeting invisible payments, debt service and other unavoidable dollar obligations, it will have only $25 to $200 million in current earnings during 1951/52 to cover import program, even assuming US milit expenditures in franc area of $100 to $150 million. Even if gold and dollar holdings of stabilization fund on June 30 ’51 were used in their entirety, uncovered deficit would still run between $525 and $700 million. Accordingly, admin is now considering reduction in dollar imports for 51/52 from $1,000 to $500 million, as stated by FinMin Mayer in his letter to Harriman (see Toeca 13354). Breakdown of cuts is not yet available, but it is clear that reduction of this magnitude will involve extremely serious consequences for French economy and in turn for social and polit stability of France, as well as for French rearmament effort. Such reduction will inevitably mean heavy cuts in supplies of dollar coal, cotton and POL. To extent available, replacements will have to be obtained from other currency areas, but since prices asked by non-dollar sources are substantially higher than for dollar commodities, [Page 434] this substitution will tend to exert further upward pressure on French price level. What is worse, cuts will mean severe slow-down in level of activity in number of industries, particularly steel, chemicals, rubber, cotton textiles, paper. All industries will be affected by cessation of purchases of dollar equipment and by coal shortage, which will also affect household users.
- 3.
- We have read internal memo prepared by MinFin experts in response to Mayer’s instructions for inter-ministerial discussions today, which sets forth most recent forecast re French B/P prospects for 1951/52. Estimates and explanatory notes are being transmitted in immed following cable in hope they will be useful to you in connection with questions raised Paris Ecato 1408,5 but more importantly as background for economic and financial crisis which is now reaching its peak in France. We do not consider that it would be useful at this time to prepare any new B/P estimates of our own. Recent developments have made all previous estimates completely out-of-date, and situation is now evolving so rapidly that it would be next to impossible for us to come up with any really meaningful figures.
- 4.
- MinFin experts are also engaged in making rough estimate of pattern of payments between now and next Jan 2 (that is, after year-end debt payments). They calculate that on basis of present trends and taking into account all receipts now in sight, they will just about be able to scrape through, provided that Office des Changes is not authorized to license any additional dollar transactions. For last five days MinFin has held up action on all requests from technical ministries for new dollar allocations, including Nov allocations for coal and POL. Interested ministries under chairmanship of Mayer are submitting recommendations to Cabinet for decisions first of next week on reduction in imports and on reductions in govt financed activity, consumption, production and military effort that such import cuts imply. French can be expected to raise immed in Wash urgent necessity of resuming aid allocations even in advance of proposed bilateral talks.
- 5.
- We will cable further developments soonest.
Labouisse