895B.10/8–3051
The Acting Secretary of Defense (Lovett) to the Secretary of State
My Dear Mr. Secretary: As I wrote you in my letter of 16 July 19511 regarding your proposal of 10 July2 that certain funds be released to the Government of the Republic of Korea from a Suspense Account in the Treasury Department, we referred the proposal to the three military departments for an expression of their views.
After full consideration of these views, I wish to propose that the matter be deferred until a later date. The reasons for this counterproposal are as follows:
- (a)
- Under the terms of the financial agreement of 28 July 1950 between the Government of the United States and the Government of the Republic of Korea, settlement of any claims arising out of the use of Korean currency for U.S. troops are to be negotiated at a time which is mutually agreeable to both Governments. While the amount in question might be considered a debt to the Republic of Korea by the United States, there has already been accrued, as a result of direct military aid, an amount due from the Korean Government to the United States in far greater amount, and it is considered appropriate that any sums owing to the Republic of Korea should be set off against this larger amount as an incident to final settlement. Any earlier liquidation of a portion of the overall debt might prejudice the chances of the United States to settle by offset. This raises a serious question as to whether partial settlement now is “mutually agreeable”.
- (b)
- On previous occasions, when U.S. troops were engaged in combat operations on foreign soil, the United States Government has negotiated final settlement for the use of currency only after the cessation of hostilities. In these settlements, no distinction has been made between currencies used for official military purposes and currencies [Page 865] sold to troops for their personal use. We believe it to be to the best interests of the United States that this pattern be continued.
- (c)
- The amount of money is not large enough to provide appreciable improvement in the present inflationary or economic conditions in Korea.
- (d)
- Any partial settlement at this time by the Government of the United States in a unilateral action before cessation of hostilites might provide a source of pressure on the governments of the other member states of the United Nations operating in Korea, to settle for the currencies they have been acquiring for use of their troops. Any pressure of this kind might be looked upon as premature and result in embarrassment to those governments. Such embarrassment should, in our opinion, be carefully avoided because of its possible effect on future military operations where joint United Nations action is desirable.
If there are any political considerations of sufficient weight to override those presented above and make the release of funds desirable from a political standpoint, we would defer to your evaluation of these considerations.
It has been suggested, however, and I concur, that should it be decided to release these funds because of overriding political considerations, the funds should be released only after appropriate Congressional committees have been consulted. In our opinion, furthermore, the funds, if released, should be made available subject to certain controls by the United States Government covering the use to which the funds are put. These controls and conditions could be worked out by representatives of our respective departments in consultation with those of the Department of the Treasury.
Faithfully yours,