895B.00R/11–151: Telegram
The Acting Secretary of State to the Embassy in Korea
348. With further reference urtel 386 Nov 1 and desp 116 Oct 161 and with special reference to fon exchange provisions of Aid Agreement [Page 1111] of Jul 10, 1948. Ur reply to Pres Rhee of Oct 9 wholeheartedly supported by Dept. In view continuing substantial econ relief aid and recent partial payment for won advances to UN forces, proposal dollar bond issue and ltr of Pres Rhee of Oct 1 requesting automatic cancellation of ECA agreement disappointing.2 Wash agencies assumed that $12,155,714 ROK fon exchange resources wld be utilized by ROK to finance imports of essential consumer goods beyond those supplied by UNCACK in accordance with Dept press release of Oct 103 and consistent with antiinflationary program. ROK proposals if pressed further in Wash for making additional payments for personal use in future will receive little consideration unless an integrated program is developed rapidly.
Emb shld frankly convey these views to Pres Rhee and proper ROK mins and shld encourage immed initiation of import program involving use of ROK fon exchange for imports of essential consumer goods and scarce items which can be sold for revenue and sop up expanded currency in circulation. These discussions should be coordinated with CINCUNC, and UNKRA. Emb shld indicate to ROK that as long as US or UN continues to finance deficits in Korean economy it will be necessary for either appropriate US auth, CINCUNC or UNKRA to maintain supervisory control over allocation of fon exchange. Depts of Def and Army concur.
- Neither printed. In despatch 116, Ambassador Muccio had transmitted an exchange of letters with President Rhee dated October 1 and 9 (neither printed) wherein he rejected a proposal by Rhee that in view of the termination of the ECA Mission in Korea the clause in the 1948 aid agreement requiring ECA concurrence in the allocation of the Republic of Korea’s foreign exchange was automatically cancelled. Mr. Muccio pointed out that the U.N. Command had taken over unspent ECA funds and provided ECA-type services; as long as this situation prevailed, the terms of the 1948 agreement remained in effect. (895B.00R/10–1651)↩
- In telegram 318, October 26, to Pusan (not printed), the Department had informed Ambassador Muccio of the inadvisability of a Korean proposal for a bond issue by the ROK Government using as collateral the $12,155,714 recently received as partial payment for won advances to the U.N. forces. Among other things, the Department felt, the proposed bond issue might result in undesirable speculation and possible flight of capital from Korea. (895B.00R/10–1551)↩
- See telegram 276, October 10, to Pusan, p. 1010.↩