No. 461
Memorandum of Conversation, by the Ambassador in Turkey (McGhee)1


I met today with the Prime Minister, Foreign Minister, and Mr. Fatin Zorlu at the Prime Minister’s request. The meeting lasted 2½ hours. It had been agreed that we would discuss the Turkish economic situation.

Iran: At the outset the Foreign Minister stated that he and the Prime Minister had greatly enjoyed our discussion of the previous day, particularly that part dealing with Iran.2 He had since given more thought to this question and was seeking more precise information from the Turkish Ambassador at Tehran. The possibilities of what might happen in Iran in a relatively short time were so disturbing that he wished to give careful thought to the situation and to plan jointly with the British and ourselves what should be done in the light of various eventualities. The Prime Minister stated, “We must not remain a spectator” but must do something about the situation.

I replied that I agreed the situation was too dangerous to allow to drift, and that we must attempt to determine, rather than merely react to the course of events. I added that if the matter [Page 874] could wait my return from Istanbul next Friday, I would be delighted to discuss it further. I pointed out that our Ambassador in Tehran, Mr. Loy Henderson, had spoken highly of the Turkish Ambassador, who, he reported, had given him valuable support. The Prime Minister added that the instructions to their Ambassador are to support the U.S. Ambassador.

Economic Situation: We then discussed the economic question. The Prime Minister observed that I had been given a memorandum by the Foreign Minister on the question of United States aid to Turkey.3 He wished to know my reaction thereto. I explained that I had studied the memorandum carefully, as had the Mutual Security Mission, and that although we had not prepared a formal reply, I would be pleased to give my reactions to the memorandum and such further observations as I could on the general question of our aid.

I pointed out that as they were probably aware, there was great pressure on our Congress to seek all possible savings in our budget, which as proposed by the President had now reached an all-time post-war high $85,000,000,000. Our people are paying crushing taxes, up to 88 cents on the dollar. Our budgetary deficit in Fiscal Year 1953 is estimated at $15,000,000,000. Our postwar budgetary deficits have already produced a noticeable inflationary effect in our country, actually much worse than in Turkey and many other countries. The Congress is seeking ways to reduce our deficit and still maintain a high level of defense expenditures, which constitutes some ¾ of our budget. The favorite target is, therefore, non-defense expenditures, particularly foreign economic aid. Congress feels that since the United States is making such great sacrifice in the economic field, other countries should do likewise. Many members of Congress would like to eliminate foreign economic aid entirely. This feeling led last year to a reduction of approximately $1,000,000,000 in economic aid requested by the President, which had to be apportioned among the participating countries. As a result Turkey received only $45,000,000 out of the initial amounts allocated. Subsequently, it had been possible to take advantage of the provision of our Mutual Security Act authorizing transfer from military to economic aid, and the Turkish share of this, which was only recently announced, is approximately $25,000,000, which raises Turkey’s total to $70,000,000.

Unfortunately, the aid question is so complicated that it is difficult for the average person to understand. For example, publication [Page 875] of the recent allocation to Turkey must have led many Turks to believe that Turkey was given only $25,000,000 this year, whereas Turkey will actually receive in military and economic aid some $300,000,000. The military aid which Turkey receives is very large, comparing favorably with any other country, but unfortunately the actual figures are confidential and cannot be announced. There is no real distinction between economic and military aid from the standpoint of the American taxpayer; indeed, if Turkey were forced to buy its military equipment, even from a Turkish standpoint.

Over the whole period of our aid programs Turkey had in my judgment done extremely well, having received over a billion dollars in aid. In the last few years, Turkey had averaged $100,000,000 a year in economic aid alone. Although in the present there will be a reduction, it is less than the reduction other countries have received. England received at one time a billion dollars a year in economic aid but this year, even though she is running a trade deficit at the rate of $4,000,000,000 a year, England received no economic aid until the recent allocations from transfer from military funds. Since the Marshall Plan was originally scheduled to terminate altogether in 1952, reductions were to be expected. Those of us dealing with Turkey feel fortunate that Turkey is receiving $70,000,000. In view of the lateness in the fiscal year, the critical economic situation in other participating countries and the fact that funds are already earmarked, it is unlikely that the allocation to Turkey will be increased.

I stated that I had been disturbed to read the criticisms of United States aid in the Turkish press, I realized that this was not the attitude of the Government, indeed, I had read the excellent speeches made by the Prime Minister, Foreign Minister and others in the Assembly expressing appreciation of American aid and explaining how substantial it had been. The average man, however, was inclined to draw over-simplified comparisons and to feel that Turkey had been slighted. We, of course, were not able to meet all needs in the world, even those of our best and most valuable friends, since our resources are limited. We are not able to meet all balances of payments deficits or to balance all budgets. In England and France there are very serious budgetary and balance of payments which we are not able to meet. The sterling area, for example, is losing dollars and other hard currencies at such a rapid rate that they will, if adjustments are not made, soon be exhausted. The Prime Minister of France recently stated that they had foreign exchange for only three days trading. These countries must themselves take the measures necessary to bring their economies into balance. Our aid can play only a small part in achieving that balance.

[Page 876]

If one looked at population alone, India with 350,000,000 peoples gets only $50,000,000 in aid from the United States in 1952. One might say that India is not making a great enough military effort to justify more, but on the other hand if India went Communist, they would agree that Asia would be lost.

Greece might appear to be favored. However, the Turks know well that Greece must be given large scale aid in order to survive. Unfortunately, the rocky hills of Greece cannot support the 7½ million people of Greece, and imports of food, fuel and other necessities are required to prevent a complete collapse of the Greek economy. Western Europe have very large national incomes, budgets, and external trade in comparison with Turkey. As a consequence, if they get out of balance, they can get out of balance to a much greater degree than Turkey. Turkey is indeed fortunate among the countries of the world in that it suffered no damage nor loss of working capital from the war, is able to feed herself and has, consistently over a period of time, been approximately in balance budgetwise and in its foreign exchange.

I traced briefly the history of our economic aid to Turkey. When the allocations were made for the first year of the Marshall Plan, many economists in Washington, on balance of payment figures, had calculated that Turkey should be willing to grant assistance to other countries. It was with great difficulty that those of us dealing with Turkey had managed to obtain a ten million dollar token load that first year. Subsequently, we have justified economic aid to Turkey on an increasing scale until this year on a purely development basis, which has been unique in our programs of assistance to the entire world. We do not regret doing this since it has proven a good investment. We have been able to demonstrate to the appropriate authorities that it has assisted Turkey to support a larger military effort.

It should be kept in mind, however, that it was only this year that we initiated for the first time a general program of development assistance under the Technical Cooperation Act. This program is, however, on a much reduced scale compared to assistance which has been furnished to Turkey. For example, India is receiving only $50,000,000, Pakistan $15,000,000, and Iran $23,000,000. I pointed out that since no other country in history has ever given aid on such a scale, we have no competitor with whom our efforts can be compared. His Excellency could be assured that we who deal with aid to Turkey would continue to do all we can to bring Turkey’s needs to the attention of the proper authorities. Since the funds are limited they will inevitably be less than what is wanted and we must all reconcile ourselves to this. We are confident that the Turks will do so in good spirit.

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The Prime Minister then made an extended and effective presentation of Turkey’s case. He pointed out that Turkey is the bulwark of defense in the Middle East. The Turkish army has saved the Middle East up to this point. If the Turks are to continue to resist successfully the threat presented by Russia, and to continue to inhabit Anatolia, it is necessary that they increase their economic strength. Unfortunately their industrial potential and standard of living are low, and must be increased to insure their own survival and that of other Middle Eastern countries. Greece and Turkey together, he stated, constitute the key to the Eastern Mediterranean—the only barrier against Russian domination in this area.

Of all countries in the world he felt Turkey offered the best opportunity for America to invest aid assistance. Turkey has great potentialities and resources. Turkey is capable of doubling and trebling its national income within a relatively brief period. It need not take Turkey so long to develop as it had taken other countries, in view of recent technological developments such as tractors, transportation, etc. The Prime Minister pointed out the greatly increased agricultural production which had resulted from importation of tractors, and stated that this production was capable of even greater expansion. The stronger Turkey was economically and industrially, the stronger would be its military force. Turkey spends now some 40 percent of its budget in military preparedness, resulting in a military budget of some 600,000,000 lira. If the budget of Turkey can be increased, and he thought it could be increased to 3 billion lira in a few years, the amount allocated for military purposes would be proportionately increased. He knew of no place in the world where a similar opportunity existed.

The Prime Minister stated that from my presentation it would appear that the United States realized this fact. That is why we had given Turkey exceptional treatment in granting a development program. He and his government were appreciative of what we had done, even though they sometimes had difficulty in answering the questions raised by the people. He hoped, therefore, that we would give consideration to increasing the $70,000,000 allocated.

I promised that we would at all times do the best we could to get Turkey as large an allocation as possible, but I doubted that the allocation to Turkey could be further increased this year. I did not believe that the additional $16,000,000 under discussion could be a critical factor in the Turkish economic picture. I had, for example, studied the import and export program which had been submitted, and congratulated the Foreign Office and Mr. Zorlu on the excellent work done on this program. The import program was, however, some 40% to 50% above last year’s program at a time when most countries in the world, noticeably the UK, were reducing imports [Page 878] and pursuing a policy of increased austerity. We would like for the Turks to be able to obtain everything on their import list, indeed, most of the items were vital to the economy; however, I do not believe that it can be proved that a cut in the import list would have a disastrous effect or result in a collapse of the Turkish economy.

With respect to the Turkish export program, we had noted with satisfaction that it provided for substantial increases over last year. However, some of our economic staff have noticed a tendency to withhold certain export goods from the market in order to obtain higher prices. Although one understands the desire to take advantage of normal seasonal and demand factors, nevertheless, I was sure that Their Excellencies would agree that it was inconsistent with out mutual objectives that scarce commodities be held for speculative purposes, or for anticipated raises in world prices. Not only are the proceeds needed to balance Turkey’s EPU account, but Turkey’s grain, cotton, coal and chrome are vitally needed in the recipient countries.

The Prime Minister then made an extended talk on export prices, in which he appeared to have considerable interest and knowledge. He stated that Turkey did not hold its commodities for speculative purposes, but merely to obtain existing world prices. In the case of wheat they had already sold 500,000 tons. They would, within a month, realize an additional 150,000 tons and ultimately expected to sell 800,000 tons. In the case of cotton there was a situation which had led to Turkish cotton being underpriced in comparison with world cotton prices. He pointed out the large increase in Turkish cotton production from some 50,000 tons to the present 160,000 tons, which he predicted would increase to 200,000 tons. Although Turkey once received good prices for her cotton, a careful study of world markets indicated that they were now consistently offered less than the value of their cotton, considering quality and transportation. I queried the Prime Minister as to whether this was not due to the difficulty of standardizing Turkish cotton, stating that I was under the impression that the world cotton market was so competitive that any discrepancies in prices which existed would soon be leveled out. In fact, the price in such a market should be what one is offered.

The Prime Minister explained that the Turkish situation is due to a monopoly of the market by one or two purchasers, acting in behalf of German interests. The German consumers had gotten together in a cartel-type arrangement, as Germans usually do. The purchases in Turkey, because of this monopoly arrangement, had been able to hold off of the market and depress the prices. They [Page 879] had in this way made fabulous middle man profits. What was needed was competition in the purchase of cotton in Turkey.

I referred briefly to Anderson Clayton Company, who had expressed interest in coming into Turkey. I stated that a firm like Anderson Clayton could not only process cotton and cottonseed, but could help standardize and sell Turkish cotton in the world market. Such firms bought and sold on a very large scale at small unit profit, and had access to all the world markets. The Prime Minister stated that he was much interested in the possibility of Anderson Clayton coming to Turkey, and asked me to extend his personal invitation to Mr. Clayton to visit Turkey. He regretted that when Anderson Clayton had written a letter a little over a year ago expressing similar interest, their Government had just come into power and the importance of the inquiry had not been grasped.

This led to a brief discussion of the role of free enterprise in Turkey, and the possibility of United States private investment. The Prime Minister stated that his policy was one of free enterprise and declared that his party had come to power on such a policy and that steps had been taken to carry it out.

I replied that I understood it to be the policy of his government to encourage free enterprise and congratulated him on the steps taken to carry this policy out. The Prime Minister, the President and other members of the party were successful businessmen who understood the principle of free enterprise. I then summarized briefly the discussion which had taken place on February 1 with the Foreign Minister. (Reference Embassy Despatch No. 424 of February 7, 1952).4 I stated that I agreed heartily with his optimistic interpretation of Turkey’s economic future. Turkey was almost unique among the countries of the world in having great undeveloped resources in comparison with its population. The present economic improvement is largely the result of the policy of the Turkish Government. Turkey appears to me to be on the verge of an economic “boom” which could experience a “snowballing” effect. It is essential to provide the maximum freedom for the individuals engaged in business without competition from the Government, indeed, with encouragement from the Government.

If the Turkish economy develops in this way I believe the interest of potential United States investors will be greatly increased. In a few firms, such as Anderson Clayton, can get a start and be successful, others will follow. I reminded the Prime Minister of the proposal I had made to the Foreign Minister, that we jointly explore some means of propagandizing the opportunities for United [Page 880] States investment in Turkey. This could be done through speeches, articles, visits of businessmen, perhaps through a joint commission of businessmen of both countries, visiting both countries.

The Prime Minister replied that he had mentioned this same possibility to Mr. Dorr. He assured me that he would welcome foreign investment in Turkey, and urged that we jointly map out in great detail just how to go about interesting private United States investors. He said that he hoped this conversation was only the beginning of conversations on this subject. I expressed willingness to meet with the Prime Minister at any time on this question.

I noted that under the provisions of the Mutual Security Act it was necessary that certain percentages of economic aid during Fiscal Year 1952 be extended in the form of loans, and stated that we had no alternative except to include some 10% to 15% of the Turkish economic assistance in the form of a loan. Mr. Zorlu, rather weakly, asked why it wouldn’t be possible to put Turkey’s portion of the loan on other countries. I replied that this surprised me in the light of the very optimistic statement just made by the Prime Minister as to the future of Turkey which would, of course, reflect its future ability to repay loans. I stated that it would appear, from what the Prime Minister had said, to which I agreed, that Turkey had such a bright future that it had excellent collateral for loans. Would Mr. Zorlu think that France and Britain in their present situations were in a better position to borrow than Turkey. All present laughed heartily at this.

Mr. Zorlu raised the question of the possible necessity of increasing the military budget in order to provide counterpart to compensate for common use items, purchased in economic aid dollars for the military program. He stated that since the military budget had, in agreement with our Missions, been fixed at 600 million liras, it would throw their entire budget out of line if this figure now had to be increased. He suggested the possibility of effecting some type of “wash” transaction. I replied that we were, as the Turkish Government was aware, required to obtain counterpart from the Turkish Government for all economic aid extended. There were various ways, however, of dealing with this matter and I was certain the Mutual Security Agency Mission, which was immediately responsible, would be glad to discuss this question with Mr. Zorlu so as to minimize the impact upon the Turkish budget.

I then suggested that, owing to the lateness of the hour, I take my leave. We ended on a cordial note. I advised the Foreign Minister of my trip to Istanbul, but that I would be pleased to return any time he needed me.

On the way out Mr. Zorlu, in a rather pleading voice, said “Couldn’t you just increase the aid a little, say $8 million?”

  1. Transmitted as enclosure 1 to despatch 450 from Ankara, Feb. 18.
  2. A memorandum of this discussion was transmitted as the enclosure to despatch 439 from Ankara, Feb. 13. (611.82/2–1352)
  3. The memorandum requested $86 million in economic assistance for fiscal year 1952 to cover Turkey’s deficit balance of payments. A copy was transmitted as enclosure 2 to despatch 450.
  4. Not printed. (882.00/2–752)