Foreign Relations of the United States, 1952–1954, Korea, Volume XV, Part 2

895.00/10–2753

Memorandum by the Deputy Director of the Office of Northeast Asian Affairs (McClurkin) to the Assistant Secretary of State for Far Eastern Affairs (Robertson)¹

confidential

[Washington,] October 27, 1953.

Subject:

• Status of Korean Aid Program.

I. Negotiations

Economic Coordinator C. Tyler Wood has been negotiating for several weeks with the Korean Government on basic economic policies to be pursued by the Republic of Korea under the economic aid program. On October 24, Mr. Wood reported that he apparently had reached the final stage of his negotiations. It appeared that questions relating to the exchange rate, credit, budgetary, and pricing policies, control of the Republic of Korea foreign exchange, and the composition of the import program were nearing amicable solution. Mr. Wood reported that he was amazed by the change for the better of the negotiating atmosphere.

Today, Mr. Wood reported that revised proposals have been made by the Republic of Korea which seem at one fell swoop to destroy all that had been gained during recent discussions. The revised proposals, delivered to Mr. Wood by an American advisor to President Rhee, imply that the United States would virtually guarantee the permanence of the 180/1 exchange rate; cancel the February 25, 1953 agreement on the conversion rate; eliminate the Combined Economic Board coordination of the use of Republic of Korea foreign exchange; eliminate the provision relating to the privilege of the Economic Coordinator to use up to 5 percent of the counterpart fund for administrative expenses; and in general emasculate the stabilization plans.

Mr. Wood suggests that there are two alternative courses of action that can be taken: (1) He can stand firm and insist on an agreement containing the minimum conditions for the effective use of aid funds, or (2) the United States can, in view of other considerations, not insist on any agreement relating to performance by the Republic of Korea or controls by the United States, relying on persuasion and the good faith of the Republic of Korea to take effective action.

Mr. Wood recommends that a firm stand be taken and that he be authorized to tell President Rhee that in view of the new proposals by the Republic of Korea to which he has no authority to agree he would have to return to the United States for consultation. He would base this action on the decision of the NSC that funds be made available only on the basis of an agreement on an effective stabilization plan. He requests advice as to whether he should in addition cease issuing any further firm requests for procurement.

I agree with Mr. Wood that we have reached the point in the negotiations where we should stand firm. I think there is a reasonably good chance that President Rhee will agree pretty much to Wood’s proposals when confronted with his departure.

II. Operations

A. FOA Program

In the meantime, the FOA program has gotten underway, albeit somewhat slowly. Mr. Wood is still operating within the limits of the original $50 million made available to FOA. He has made firm requests for about $34 million and procurement authorizations totaling $13.7 million have been issued. There is no record thus far of any payments made to Japan. Actual deliveries have been limited to grain and possibly some chemical fertilizer. The main items for which firm requests have been made are fertilizer, $12 million; rolling stock, $12 million; grain, $3.2 million; raw cotton, $3.2 million; and raw materials, $2.8 million.

Thus, with almost one-third of the fiscal year elapsed, procurement authorizations equal to about 15 percent of the program have been issued, while arrivals equal about 1 percent of the program.

B. Civil Relief in Korea (CRIK)

For the present, the mainstays of the import program are the CRIK Army relief imports and imports resulting from the expenditures of the Republic of Korea foreign exchange. CRIK arrivals are averaging about $10 million a month and should continue at approximately this rate during the remainder of the fiscal year. CINCUNC has requested that the Department of Army request funds for a relief program for FY 1955. No decisions have been made on this question.

C. United Nations Korean Reconstruction Program (UNKRA)

The UNKRA program of Korea is faced with a real fiscal crisis. Sir Arthur Rucker, Deputy Agent General, has been in Europe soliciting contributions; so far he has obtained no firm promises. The United States has recently disbursed $15 million additional to UNKRA, but cannot make further disbursements from the $51 million appropriation until other nations contribute funds to bring into balance the 65–35 percent ratio between United States and non-United States contributions. UNKRA operations in Korea will grind to a halt within a few months unless substantial pledges can be obtained from other nations during the current session of the General Assembly. A contribution campaign will shortly be undertaken by USDel. A less propitious time to solicit contributions is difficult to imagine.

1. This memorandum was drafted by Howard F. Smith of the Office of Northeast Asian Affairs.