Foreign Relations of the United States, 1951, Asia and the Pacific, Volume VI, Part 2

896.00–R/3–2351: Telegram

The Secretary of State to the Embassy in the Philippines

confidential
niact

Washington , March 23, 1951—7 p. m.

2208. Cowen from Melby. Most grateful for your recent mil econ tels to me which have been most helpful to us. You are about to receive joint State–ECA request for joint views on grant versus loans problem.¹ FYI only you may find fol helpful in coordinating reply.

Grant versus loan argument arose over sudden Treasury concern at rate at which US gold reserves diminishing and prospects trend will continue as Jap and Ger situations develop. Treas then adopted rigid view grant aid must be denied any country having favorable balanced payments picture. Treas prepared however recede from this position whenever we believe pol considerations sufficiently compelling override econ factors. This particularly true in case Phils. In addition Budget Bureau received its instrs scrutinize grant aid programs to Asia with view maximum reduction. Defense not adverse reduction econ programs presumably with idea such trend wld increase prospects for mil aid. Although we agree plausible case can be made for reducing grants on econ basis fact remains we do have certain commitments explicit or implicit wherein failure to perform will damage our position.² If you and Checchi can present sufficiently strong case likelihood is aid will be grant for FY 52 with shift into loans subsequently.

Present inquiry arose yesterday in Interdepartmental Steering Comite for aid programs which tentatively took the position for Phils of 25 million grant and 25 million loan which Export Import indicated it was prepared undertake at once. In preparing your reply you may wish advance as your suggestion that if some compromise is necessary most acceptable formula wld be total FY 52 aid program of 50 million on which an unspecified portion cld be loans for specific projects if US and Phils subsequently agree desirable for specific purposes. [Melby.]

Acheson

1. The request was contained in Ecato 236, also of March 23, not printed.

2. In a memorandum of March 22, to Mr. Rusk, Mr. Lacy had stated in part: “PSA will support the present ECA proposal for $50 million in grant aid to the Philippines on the following hasis:

   (a) There is as yet no firm military program, and the development of one would be merely one of many contingencies which may require a revision of our position on economic aid to the Philippines;

   (b) It is politically intolerable to propose that the $50 million or any part thereof be made the subject of loans rather than grants.” (896.00R/3–2251)