751.5 MSP/9–2754: Telegram
The Acting Secretary of State to the Embassy in the United Kingdom 1
priority
1765. For Secretary and Merchant. Limit distribution. Subsequent Saturday meeting with Secretary, FOA prepared position paper2 for aid talks with French interpreting Secretary’s policy guidance as designed to “slow down flow US aid and other extraordinary dollar payments to France so that total effect which US will endeavor realize is to gradually decrease French gold and dollar reserves rather than continue to increase them which has been effect over past year of such US payments.”3 Paper sets forth for presentation to French US position that we must review in detail specific problems connected aid program and must undertake thorough consultation with Congress before reaching any conclusions. Meantime aid payments will of necessity be delayed but we will endeavor keep delay at minimum. Paper then poses series questions for French to answer.
FOA paper states for US internal use only that in implementation this policy it is anticipated ceiling will be placed on rate of dollar flow to France from OSP and Indochina aid programs in months immediately ahead and until further decision. Also anticipated rate dollar payments to France for NATO infrastructure and US military construction will be kept at minimum until further decision. Not anticipated there should be any slowdown in flow of FOA pipeline commodities to France. Implicit in this policy is that preparations must be made for direct US aid programs to Associated States to commence promptly.
FOA paper gives breakdown $427 million extraordinary French dollar receipts first six months calendar 1954 from FOA paid shipments, [Page 1280] troop pay and construction, NATO infrastructure, OSP and Indochina aid.
Department notes that some portion this amount represents Defense payments to Eximbank for French deliveries under former Lisbon contracts and while reducing outstanding French obligations did not result in current cash accrual to France, and that undetermined portion FOA pipeline payments went to US banks and exporters in those cases where French did not prefinance with their own dollars. Available French Finance Ministry figures show increase in French dollar reserves by $150 million during first seven months calendar 1954 during which period French also paid off some $200 million in long-term and short-term obligations and EPU debts.
Embassy Paris study indicates if US expenditures on troop pay, construction and French OSP deliveries reach proportions predicted by US military services for 1954, French could earn $800 million this calendar year from these US military programs while flow from Indochina program would go entirely into French reserves.
If these estimates correct slowdown in US aid program might retard rate further buildup in French reserves but would not appear likely reverse trend remainder this year. Since French monthly receipts from US military programs and OSP fluctuate widely (23, 14, 24, 12 and 46 million during first five months 1954) French may not readily discover we are slowing down such payments, and desired effect could be lost. What corresponding actions US military services will have to take to slow down payments must also be examined.
On other hand slowdown in Indochina budgetary support program would directly affect internal position French Treasury and could have considerable political impact. Ramifications would appear be broadest from slowdown in reimbursements on French procurement contracts for either Indochina or NATO forces.
FOA now preparing details on how implement slowdown US military programs in France and French Morocco and how deal with immediate French requests for reimbursement under Indochina program.
Economic talks with French here now scheduled for Tuesday afternoon.4
Foregoing sent for your information and any comment you may have.5
- Drafted by Beigel; cleared with Barbour, Robertson, MacArthur, Nolting, and Jones; and repeated to Paris.↩
- The position paper under reference was not found in Department of State files; however, a letter from the Director of the Foreign Operations Administration, Harold E. Stassen, to the Secretary of Defense, dated Sept. 29, outlines the highlights of the new policy on aid to France. (751.5 MSP/9–2954)↩
- The Secretary of State had responsibility for providing further guidelines on the matter of aid to France, based on paragraph 9 of NSC 5433/1 of Sept. 25; for the text of NSC 5433/1, see p. 1268. Further documentation concerning U.S. aid policies toward France is presented in volume vi.↩
- Documentation concerning these talks in Washington is presented in volume vi.↩
- In telegram 361 from Paris to London, not repeated to the Department of State, Achilles noted that this policy “will presumably have major impact here” and that its coincidence with the opening of the London Conference “seems to us unfortunate”. Achilles recommended that every effort be made to clearly indicate that this action was “in no sense punitive” (Conference files, lot 60 D 627, CF 372). In a memorandum to Merchant on Sept. 27, Wilson recorded that he had spoken with Achilles on the telephone and had confirmed Achilles’ view that they should not make an issue of the stoppage (Conference files, lot 60 D 627, CF 372).↩