Memorandum by the ECA Mission in Italy to the Italian Government 1
Since the Italian Government has evidenced its intention to undertake an increased program of military expenditure in accordance with its commitments under the North Atlantic Treaty, the United States Government is prepared to grant further aid to offset the increased demands on Italy’s gold and dollar resources which this program will make. From discussions with the Italian Government we understand that it is its intention to spend an amount of 250 billion lire above the normal military budget by the end of the calendar year 1951.
The United States Government is prepared to allocate funds from both the Economic Cooperation Administration and Military Defense Assistance Program appropriations up to a total of $100 million in the fiscal year ending June 30, 1951 for release to Italy in case they are required. This will include all remaining allotments to Italy under the Economic Cooperation Administration Program for the current fiscal year. The United States Government intends to consider together and as a unit all financial assistance to be given to Italy under both the Mutual Defense Assistance Act (with the exception of the Training and End Item Programs) and assistance under the Economic Cooperation Act.
For the United States fiscal year 1951–52, no commitment of funds can be made at the present time, but the United States Government is now preparing to ask Congress to appropriate funds making it possible to continue the support of the Italian defense effort in amounts ranging from 150 to 275 million dollars. We contemplate that these funds will be made available in accordance with criteria similar to those suggested below for the present fiscal year. The United States Government expects the Italian Government to recognize that its commitments under the North Atlantic Treaty will require an additional expenditure of the same amount [Page 567] or more in the calendar year 1952 and subsequent years until Italy’s deficiencies under the Medium Term Plan have been met.
This aid will be made available to the Italian Government upon evidence of execution of a military program consistent with Italy’s military assignment by the North Atlantic Treaty Organization, upon the execution of an import program to make possible this military and other essential production, and upon evidence that effective use is being made of Italy’s own resources.
Since funds can only be released to the Italian Government upon evidence of actual need, we suggest that the following criteria be agreed by both governments as the basis on which aid will be made available.
i. execution of an agreed military program
- The actual letting of contracts, production of military goods, and making of substantive improvements in the armed forces will be taken as evidence of the rate of carrying out of the program.
- Aid will be granted only against those military expenditures
which conform to the Medium Term Plan, and subject to such
inspection and review as may be required by the United States
- Advice as to the military suitability of the program for the purposes of United States aid will be given by the United States Military Assistance Advisory Group in the absence of formal action by the North Atlantic Treaty Organization.
- The suitability for production in Italy will be determined upon submission of programs and projects for sectors and subsectors of military production, taking into account the efficiency of use of both Italian resources and United States aid for this type of production.
ii. the efficient use of italian and united states resources
United States aid under either the Economic Cooperation Administration or Mutual Defense Assistance Programs takes the form of authorization to purchase specified goods and services from dollar markets. Under present conditions when the use of scarce materials is being controlled in the United States and in many of the North Atlantic Treaty countries, such authorization can only be given upon evidence that Italy is doing its utmost to increase production and control non-essential consumption of such goods. Since many of the goods required by Italy will be under allocation in the United States, a priority must be established in order to obtain an allocation for export of such goods. (In accordance with established principles for ECA and MDAP assistance, goods available from non-dollar sources will not be eligible for dollar financing except as [Page 568] they may necessitate a net payment of gold to the European Payments Union after utilization of non-dollar means of financing.)
Evidence of the efficient use of Italian resources for the European defense effort should include the following:
- Allocation of funds and taking legislative and other measures to increase the production of materials in short supply in Italy or the North Atlantic Treaty countries, such as sulphur, lead, zinc, cadmium, antimony, mica, mercury, etc., and such auxiliary materials as natural gas and electric power.
- The adoption of an allocation system for materials in short supply based on a program for the limitation of non-essential uses of such materials.
- Measures to channel investment funds into sectors having the highest priority in supporting the defense effort and producing essential consumer goods, and also measures to limit the credit available for non-essential investment.
- Efficient use of the enterprises under state control in supporting the defense effort through specialization of output and coordination of production.
- Undertaking measures to control inflationary pressure, including the import and production of goods consumed by the low-income groups.
- The existence of gold and dollar reserves above the level existing on June 30, 1950 (taking into account any reimbursement due the Italian Government against United States aid) will be taken as evidence that maximum effective use is not being made of Italian resources. Similarly, any undue increase in stocks of basic commodities will not be considered as justifiable use of aid funds.
- Transmitted to the Department of State as an enclosure to despatch 2263 from Rome, February 2. According to the despatch, this memorandum would be given to the Italian Government early in the week of February 4, as a response to telegram 3143 to Rome, January 23 (Document 246).↩