Foreign Relations of the United States, 1951, Europe: Political and Economic Developments, Volume IV, Part 1

No. 88

750G.00/1–551

The Chief of the ECA Mission in Trieste ( Galloway ) to the Administrator for Economic Cooperation ( Foster )

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Trieste, January 5, 1951.

Dear Mr. Foster: Attached you will find a report prepared by this Mission in which we recommend the elimination of ECA aid to Trieste at the end of the present fiscal year, June 30, 1951. The basis of this recommendation is the fact that Trieste does not need any actual dollars. It has available for dollar needs the free dollars which are created by troop pay and port services, which are turned over to Italy. These free dollars are ample for Trieste requirements since most of its purchases are made in Europe, largely in Italy. Our foreign purchases are now confined largely to petroleum and wheat, the petroleum being processed and the finished product moving into Italy, the result being that we use our dollars to create lire counterpart.

I have discussed this proposed elimination of aid with the Director of Finance and Economics of the Allied Military Government but have not as yet submitted it to General Airey, the Zone Commander. Unfortunately, he has been on leave and will return next week, at which time I will go into the matter with him thoroughly. This is being mailed prior to submitting it to General Airey in order to have it mailed via official pouch. There will be objections, of course, to such a move but this is to be expected.¹

Sincerely,

Robert Galloway

Annex No. 1

Report Prepared by the Chief of the ECA Mission in Trieste ( Galloway)²

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Trieste, January 4, 1951.

A Report Recommending the Elimination of ECA Aid to Trieste for the Fiscal Year 1951–1952

It is evident that in view of the improved economic condition of the Zone and the surplus of funds that will become available, ECA aid can be eliminated with the close of the fiscal year, June 30, 1951. This can be accomplished (with the minimum of comment) without disturbing the economic and political aspect of the Zone.

In reviewing this recommendation, consideration must be given to the fact that Trieste has enjoyed a larger per capita dollar aid from ECA than any other participating country. Not only has this aid been made available, but under the Italian Peace Treaty and, specifically, under the Finance Agreement of March 9, 1948, section (ii) article 1: “The Command of the Zone and the Italian Government agree on the necessity that the latter should receive adequate financing for the particular needs of its administration. The Italian Government declares itself ready to supply such financing.” In view of this second source of financial assistance, the ECA counterpart fund has lost, in Trieste, its essentiality and no longer occupies the position of prime mover in the Zone’s economy. The Territory is supported on one side by the Italian Government meeting the budgetary deficits and on the other by ECA furnishing dollar aid for economic recovery.

This double income has resulted in the ability of the Allied Military Government to switch projects from ECA sources to inclusion in its budget almost at will. Financing by the Italian Government has grown to the extent that industrial loans made with these funds are in excess of the loans made from ECA counterpart funds.

This Mission believes that all investment funds available to AMG—counterpart, Italian Government financing and operational revenues—should be treated as a unit. Investment projects should be accepted or rejected on an overall priority basis with a single set of criteria in order to give proper direction to overall investment.

In view of the substantial quantity of free dollars made available to the Zone by Italy in return for foreign exchange earnings in Trieste, there is no further need for ECA dollars to overcome a dollar shortage. ECA dollars now being provided are used for the creation of lire funds largely by procurement of commodities which are processed in Trieste for the Italian market. It has recently been proposed that ECA dollars be used exclusively for the purchase of petroleum and wheat, all other dollar purchases to be made from these free dollar sources. These free dollars, derived principally from troop pay and dollar service collections in the port of Trieste, average in excess of seven million dollars annually. It is felt that this sum is adequate to provide currency to cover dollar expenses for the Zone.

One fundamental reason for the recommendation for the elimination of further dollar aid is due to the successful manner in which the officials of the Allied Military Government have carried out the administration of the Zone. Revenues have been substantially increased each year; unemployment has been reduced; under normal government operations a balanced budget and an operating surplus have been obtained. A successful housing program has been undertaken. New industries are entering the Zone. Despite the lackadaisical, yet acquisitive, attitude of some of the Territory’s wealthier inhabitants, the Military Government administration has achieved substantial and constructive results.

Robert E. Galloway

1. In telegram Torep 879 to Paris, February 7, Foster replied to Galloway’s letter by pointing out that termination of aid to Trieste after June 1951 could not be decided independently of the economic interrelationship between Italy and Trieste and the political factors deriving from the special position of the United States in Trieste. (ECA message files, FRC 53A278, Paris)
2. The covering sheet and eight other annexes which provided supporting financial data, such as the “Trieste Lire Counterpart Investment Program” or an “Analysis of the AMG Revenue and Expenditure,” are not printed.