McGhee Files: Lot 53D468

Memorandum by the Director of the Office of South Asian Affairs ( Mathews ) to the Assistant Secretary of State for Economic Affairs ( Thorp )

secret

On the matter you mention in your memorandum of February 5 to Mr. McGhee,1 a reported offer by Pakistan to barter 100,000 tons of rice for Indian coal, one point needs to be emphasized at the outset. The Indian Government’s grain request is based on the premise that they need to import two million tons in addition to the supplies they can finance. We have been informed that they have yet to make procurement arrangements for a large tonnage—some 800,000 tons—with their own funds. Thus, if Pakistan’s exportable surplus of rice, and possible later availability of wheat, should be verified, India’s remaining needs are such that they must explore all available sources of supply. Embassy New Delhi reports that Indian officials recognize the advantages of easier transport and earlier delivery from Pakistan, if firm arrangements can be made. I readily agree as to the urgent need for persuading the Government of India to take up all firm offers of grain from Pakistan for which terms are at all reasonable. Once United States assistance is assured, the “benefit of doubt” should generally be resolved in Pakistan’s favor.

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As regards the aforementioned specific offer, Embassy New Delhi quotes Indian officials as denying that this offer had been made by the Government of Pakistan. The Indians’ version is that they informally suggested to trade coal for 100,000 tons of rice and 300,000 bales of jute, and that GOP officials countered with an offer of 50,000 tons of rice and 30,000 bales of jute for coal (tonnage not reported). GOI countered with a proposal that a separate barter agreement involving rice be arranged.

The Indians claim that the maximum quantity offered on a firm basis was 50,000 tons by a private trader in Pakistan.

Several recent messages from New Delhi contain definite indications that the Indian authorities are amenable to recognizing the Pakistan exchange rate, thus opening the way for an increased volume of trade.

  1. The memorandum read as follows: “I am greatly disturbed by the report that Pakistan offered to barter 100,000 tons of rice for Indian coal, and the proposal was turned down. I recognize the political problems but if India is really concerned about starvation, this seems inexplicable. I think we should take a strong position on requiring India to get all she can from other sources, no matter how distasteful to her. Furthermore, how do we handle Pakistan’s surplus (her harvest starts in May) in our calculations?” (NEA files, lot 53D468)