795B.5 MSP/5–2452
The Chief of the Unified Command Mission to Korea (Meyer) to the Secretary of State
My Dear Mr. Secretary: I have the honor to refer to your letter of 10 April1 advising me of my designation by the President to head a special mission to negotiate financial, economic and other appropriate agreements between the United States or the Unified Command and the Republic of Korea.
I now have the honor to report the negotiation with the Government of the Republic of Korea of an “Agreement on Economic Coordination Between the Republic of Korea and the Unified Command,” signed at Pusan, Korea, on 24 May 1952. In addition, certain financial arrangements between the Republic of Korea and the Unified Command were accomplished in an exchange of notes effectuated the same day at Pusan.2
The terms of reference incorporated in your letter of 10 April directed negotiation of agreements with the Republic of Korea on measures which would promote the stability of the Korean economy and facilitate the military operations of the United Nations Command in Korea. With particular reference to financial and economic agreements, these terms of reference, as subsequently amended, stressed the importance of agreement on (1) continued adherence to the terms of the Financial Agreement of 28 July 1950 between the Republic of Korea and the Commanding General of the Armed Forces of the Member States of [Page 239] the United Nations;3 (2) establishment of measures for effective joint efforts to stabilize the Korean economy; (3) appropriate arrangements for control and/or coordination of the foreign exchange resources of the Republic of Korea; and (4) conclusion of arrangements for settlement by the United States for certain of the won drawn in accordance with the Financial Agreement of 28 July 1950.
The Agreement on Economic Coordination and the exchange of notes, copies of all of which are attached,4 establish agreement between the Government of the Republic of Korea and the Unified Command on each of the above numbered points as follows:
- 1.
- It is specifically provided that the Agreement on Economic Coordination does not supersede in whole or in part any existing agreements between the two parties; in addition, there is specific provision that certain settlements by the United States for advances of Korean currency will be made under the terms of the Agreement of 28 July 1950.
- 2.
- With regard to effective joint efforts to stabilize the Korean economy the Agreement provides for the establishment of a Combined Economic Board, comprised of one representative each of the Republic of Korea and of the Commander-in-Chief, United Nations Command. The primary function of the Board will be to promote effective economic coordination between the Republic of Korea and the United Nations Command; the Board’s recommendations will be directed toward the development of a program designed to provide maximum support to the military effort of the United Nations Command in Korea, to relieve the hardships of the people of Korea, and to develop a stable Korean economy.
- 3.
- With respect to foreign exchange and foreign credit resources of the Republic of Korea, the Government of Korea undertakes to make prudent use of such resources and to utilize them to the extent necessary, first towards stabilization (by prompt importation into Korea of saleable essential commodities), and then toward revitalization and reconstruction of the economy of Korea. The use of all foreign exchange of the Republic of Korea will be coordinated by the Board in order to integrate the use of such exchange with United Nations Command assistance programs. In addition, all foreign exchange, from whatever source acquired, now held by the Republic of Korea and all foreign exchange which subsequent to the effective date of the agreement is derived by the Republic of Korea from any settlement for advances of Korean currency to the United Nations Command will be used only as recommended by the Board.
- 4.
- Arrangements for settlement of won drawings provide for full payment in dollars for all won sold or to be sold to United States troops. With respect to won used for military purposes the arrangements vary according to periods of time. In conformity with our terms of reference we have made no commitments with respect to settlement for advances of Korean currency made to United States forces for official expenditures prior to 31 December, 1951. For the period 1 [Page 240] January 1952 to 31 May 1952, in order immediately to provide the Republic of Korea with substantial foreign exchange resources, we have arranged for prompt repayment at the existing military conversion rate of 6000 won to $1.00 for all won drawn by United States forces during the period and used for bona fide military purposes. For the future it has been agreed to pay to the Republic of Korea the sum of $4,000,000 per month on account to be applied in settlement for Korean currency used for bona fide military requirements of United States forces. This amount will be subject to revision upon material change in volume of won drawings or other factors and will be contingent upon continuation of reasonable efforts on the part of the Republic of Korea to achieve economic and financial stability. In addition, as soon as practicable after 31 March 1953, the United States will make full and final settlement at realistic conversion rates for any won used between June 1, 1952 and March 31, 1953 for bona fide military purposes and not previously settled for. Similar procedures will be applied in succeeding years. In this connection, the Government of the Republic of Korea has agreed that currency used for bona fide military requirements of the United States shall be considered as 90% of the total amount of Korean currency advanced and used by the United States for all purposes other than for sale to personnel of the United Nations Command. The remaining 10% of such total amount shall be regarded as having been properly expended as a contribution of the Republic of Korea to the combined effort in Korea.
It is my belief that the above agreements provide the basis for counter-inflationary actions which can greatly reduce the current inflationary pressures which now plague the Korean economy. It cannot be too strongly emphasized, however, that the effectiveness of the agreements and of our relief and economic aid programs depends entirely upon the manner in which they are implemented. Until the price level has become more stable, and indeed, if it is to become more stable, the understandably strong pressures for premature substantial reconstruction and development—with their further inflationary effects—on the part of both the Republic of Korea and our own forces in Korea must be resisted. We must make every effort to minimize our military expenditures of won. In addition, greater efforts must be made than at present to sell more of our aid goods and to sell these goods at prices approximating those of the free market in Korea if won are to be withdrawn from circulation at a fate which even approximates our military expenditures of won. Similarly, the Republic of Korea, consistent with the terms of the agreements, must take appropriate internal measures to stabilize the economy and, in particular, must make every effort to utilize its earnings of foreign exchange so as to achieve the maximum counter-inflationary effect. The war devastation suffered by the nation and the destitute condition of the Korean people both tend to evoke great sympathy for measures which can only result in greater inflationary pressures carrying with them the threat of complete economic collapse. Effective counter-inflationary action at this time, and I emphasize [Page 241] this point, of necessity requires a tough-minded approach to the problem and a point of view which extends beyond the immediate future. Fuller recommendations on this subject by the mission will be presented in a separate report in the near future.
In addition to the negotiation of economic and financial agreements with the Republic of Korea our terms of reference directed that we investigate the relationship between forces under the Commander-in-Chief, United Nations Command and the Republic of Korea to determine to what extent negotiation of an agreement on civil affairs matters would be desirable during the course of our mission. Further, after our arrival in the Far East Command, the Commander-in-Chief, United Nations Command, recommended that we seek to negotiate an agreement with the Republic of Korea with respect to the support the Government of Korea would furnish for the armed forces of the Republic of Korea and for prisoners of war, based on the present strength of Korean armed forces under current conditions.
The Agreement on Economic Coordination contains certain broad and general agreements in these two fields. With respect to civil affairs matters the Republic of Korea undertakes to grant to individuals and agencies of the Unified Command, except Korean Nationals, such privileges, immunities and facilities as are necessary for the fulfillment of their function within the Republic of Korea under pertinent resolutions of the United Nations, or as have been heretofore granted by agreements, arrangements or understandings or as may be agreed upon formally or informally hereafter. The Republic of Korea also undertakes to provide logistic support to the armed forces of the Republic of Korea to the maximum extent feasible and to furnish to the United Nations Command timely information concerning the details of this support in order to permit coordinated budgetary planning.
In our explorations of these two subjects with the Republic of Korea, it became apparent that any endeavor to conclude more definitive arrangements might lead to a counter proposal on the part of the Republic of Korea for the conclusion of a mutual security agreement with the United States. Consequently, it was the opinion of our mission, in which Ambassador Muccio and General Clark concurred, that it would be desirable to defer recommending the negotiation of a civil affairs agreement until the matter could be studied further by the Commanding General, Eighth United States Army, and the United States Ambassador to the Republic of Korea in the light of the situation which develops in the implementing of the Economic Coordination Agreement.
In conclusion, I wish to express on behalf of the members of the mission and myself our sincere appreciation to the United States Ambassador to the Republic of Korea and to the Commander-in-Chief, United Nations Command. Both the Ambassador and the Commander-in-Chief, as well as the individuals and agencies functioning under their direction, [Page 242] have given us every cooperation and service throughout the course of our studies and negotiations. Their advice, counsel, and guidance proved of invaluable assistance in bringing to successful fruition the tasks and objectives of our mission. I would also like to express the gratitude of our mission to the Departments of State, Defense and Treasury for their splendid support from Washington of the work of our mission.
Respectfully yours,
- Not printed (795B.5 MSP/4–1052), but see telegram 2450 to Vienna, Mar. 28, p. 121, for the terms of reference for the Meyer Mission.↩
- For texts, see TIAS 2593; 3 UST 4420.↩
- For documentation on this agreement, see Foreign Relations, 1950, vol. vii, pp. 271 ff.↩
- Not printed, but see footnote 2, above.↩