Foreign Relations of the United States, 1951, The Near East and Africa, Volume V

Ankara Embassy Files: Lot 58 F 33: 501 Financial Matters General 1950

The Assistant Treasury Representative in Cairo (Ghiardi) to Judd Polk ¹

secret

Cairo, September 15, 1951.

Dear Judd: The Ankara conference on military and ECA assistance, at which ECA/W, State, and OSR were represented, covered almost the entire range of problems encountered in administering the present ECA–Defense aid to Turkey and the contemplated step-up in the program of military support.² The agenda included everything from a discussion of U.S. defense and economic objectives in Turkey to procedural problems in creation and use of counterpart funds; in addition, the external financial and internal monetary and fiscal situation was very thoroughly discussed and some thought was given to the probable implication of Turkey’s admittance to NATO.

At the close of the meeting, we attempted to put down on paper very briefly the main areas of agreement on the major topics discussed. When I left Ankara, this paper was still in the process of being cleared by Ambassador Wadsworth and Russ Dorr. I shall send you a copy as soon as I receive it.³ In general, ECA’s immediate objective has been, and will continue to be, the direct support of an expansion of the Turkish military program within the limitations of existing legislation. For some time, the Mission has already sought, wherever possible, to favor those economic projects which would also have useful byproducts in regard to the military program. The supplementary military program, which involves the training of career and specialist NCO’s, the expansion of the Turkish army by 40,000 men, and provision of certain capital improvements to the Turkish military establishment, is estimated to require an expenditure of roughly TL 100 million annually, which should be supplied from the counterpart to be deposited against U.S. fiscal year 1951–52 grant aid. As you know, ECA undertook to finance these programs in April of this year. If a lower level of aid results from the bill now before Congress, then some reduction of the materials component will be possible.

In addition to the present military program, JAMMAT representatives outlined other possible areas where, with U.S. financial assistance, the Turkish military effort could be further increased. I am enclosing a memorandum from General Arnold which summarizes these points.⁴ Throughout the meetings, in the background and perhaps in the minds and sometimes implicitly in the discussions, there hovered the prospect that the U.S. Government would seek to secure additional military effort from the Turks, specifically possibly another brigade for use abroad and a step-up in manpower requirements under NATO. Inasmuch as the specifics as to number of men and equipment required are not yet known, it was practically impossible to assess the amount of aid which would be necessary to maintain stability in Turkey under such an expanded program.

One concrete result of these meetings was that the Mission was to make a genuine effort to get the Turkish Government to develop and implement a realistic total import program. As a matter of fact, the Turks have already been working on what they call an overall import program for the remainder of this U.S. fiscal year. Whether this new program represents any basic improvement over the “cooked up” program presented to the Mission last spring by Zorlu remains to be seen. The Turks, of course, maintain that their recent deficits under EPU are largely due to the trade liberalization provisions. I shall postpone discussion of EPU until my next letter, in which I will try to cover Turkish external and internal situation.

A large part of the Ankara discussions centered around the problem of counterpart, particularly as it affects the program in Turkey during the remainder of this US fiscal year. A complication in all discussions, of course, is the fact that present Turkish fiscal year ends February 29, 1952; hence, the lag in depositing counterpart is of extreme importance. The Mission stated that anticipated deposits and anticipated releases indicated that there might well be a deficit of roughly TL 40 million by the end of the Turkish fiscal year. Accordingly, the Mission explored with us the possible lines of action to overcome this deficit. Lines of action suggested were the following:

(1) The Turks should be urged to speed up procurement and speed up presentation of documents for reimbursement.

(2) To the extent that the Turks are on a reimbursable basis, they should be urged to switch to direct-payment procurement.

(3) Acceleration of counterpart deposits could be achieved by making retroactive allotments in the EPU during the surplus months to cover deficits incurred during the earlier months of the fiscal year. Allotments could be made during the surplus months and the Turkish account credited retroactively upon express instructions from ECA for any uncovered deficits during the earlier months of the fiscal year, these requiring the immediate deposit of counterpart. Since the approximate gap between anticipated deposits and suggested releases of counterpart is estimated at around TL 40 million, of which the release of TL 10 million could be somewhat postponed, the allotment of roughly 10–12 million in the EPU before the end of the Turkish fiscal year would appear sufficient to cover the shortfall in counterpart generation prior to February 29, 1952.

(4) Although the Turks have been willing in the past to proceed with various programs on the basis of a commitment that counterpart would eventually be released, both the Mission and the Embassy believe that they would be unwilling to have such obligations carry over the end of their fiscal year.

At the conclusion of the meetings it was agreed that ECA/W would look into the question of how counterpart deposit procedures could be improved in order to reduce the time lag in deposits; in addition, both ECA/W and the Mission will make a study of PA’s to determine whether the problem was actually as serious as the Mission had anticipated.

The Mission estimated that roughly TL 440 million will be generated by the end of June 1952, of which only TL 363 million have been programmed for release. Furthermore, an additional TL 40 million is anticipated to be generated after June 1952 which have not yet been programmed. It is anticipated that the total program, including the balance of counterpart generated by U.S. aid but not yet programmed, would be developed for the entire Turkish fiscal year 1952–53, ending February 28, 1953.

Among the other interesting points which were discussed at the week-long meetings were general questions of strategy which might be followed to secure the maximum self-help by Turkey, a cursory examination of the Turkish dollar and EPU program, as well as some analysis of the investment program and methods for achieving maximum mobilization of Turkish resources consistent with the maintenance of internal financial stability. This last item was considerably mulled over after meetings by Ivor Olsen, Ted Hadraba and myself. Ambassador Wadsworth, in particular, is extremely concerned that U.S. aid be forthcoming to support the heavy Turkish military program to the utmost in order to avoid a disastrous inflation in Turkey. Inasmuch as the shortfall in the Turkish budgetary situation is now financed largely by Central Bank credit, any appreciable expansion in the Turkish military budget would have to be met largely from recourse to further deficit financing. The Turkish internal situation will have to be watched rather carefully in the ensuing months. In particular, it will be important to assess the inflationary impact of financing the deficit for Turkish fiscal year 1951–52, this deficit being estimated variously from TL 450 million up to TL 730 million. There is a large element of uncertainty in the Turkish budgetary estimates for TFY 1951–52, inasmuch as it appears improbable that the budget, as drawn up, includes expenditures for financing the government purchase of wheat and other items.

For your information, I append some information on the 95 per cent counterpart funds⁵ and General Arnold’s memorandum.

Sincerely,

John F. L. Ghiardi

1. Chief of the British Commonwealth and Middle East Division of the Office of International Finance in the Department of the Treasury.
2. The conference was held in Ankara, August 28–31, 1951.
3. Not printed; a preliminary draft of the paper, entitled “Conclusions Reached At Joint Conference, August 28–31, 1951,” may be found in the Ankara Embassy Files: Lot 58 F 33:501 Financial Matters General 1950.
4. Not printed.
5. Not printed.