Foreign Relations of the United States, 1955–1957, Korea, Volume XXIII, Part 2

20. Memorandum From the Far Eastern Regional Director, Foreign Operations Administration (Moyer) to the Director of the Foreign Operations Administration (Stassen)¹

Washington, February 15, 1955.

SUBJECT

• Proposed Revision of Korea FY 1955 Program

Problem: To obtain Congressional approval of a proposal for shifting $47.1 million in the FY 1955 Korea program from consumption goods to investment, including agreement to a second fertilizer plant estimated to cost $20 million, subject to finalization of the contract for the first fertilizer plant and to satisfactory action by the ROK Government on economic and financial reforms. This would raise the investment component to $156.8 million, or to 56 percent of a total program of $280 million.

Discussion: This is strongly recommended by the Economic Coordinator, Mr. Wood, and by the U.S. Ambassador. CINCUNC concurs. Representatives of State, Army and Treasury and the Budget Bureau have indicated their approval.

From the beginning of the Korea program it has been U.S. policy to assist in the rebuilding of Korea’s economy to the extent practical, in order to help that country provide a larger part of the cost of its defense establishment from its own resources and revenues. This also has been urgently desired by Pres. Rhee.

Mr. Wood contends that our agreement to increase the investment component in the FY 1955 program would commit the ROK Government to a number of basic reforms including: realistic pricing, private ownership of investment projects, credit reform, suppression of black markets, an improved utilization of ROK foreign exchange, expediting an implementation of the aid program, and the initiation of a national austerity program in the interests of reconstruction. Mr. Wood and the Ambassador see this as a hopeful means of getting maximum ROK self-help, and of establishing relations with the ROK on a more cooperative basis.

Of the $47.1 million to be shifted into investment, $27 million or more can be derived from materials in Army depot stocks valued at $43 million that have been approved for purchase. The balance, of $20 million, would be devoted to a second fertilizer plant. This plant, together with the $23 million urea fertilizer plant to be built from FY 1954 funds, will produce only two-thirds of Korea’s nitrogenous fertilizer requirements.

It is recognized that this shifting from consumption goods increases the inflationary danger. This danger will be at least partially offset by advantages gained through ROK self-action. A condition of going ahead with this revision is that if prices rise by more than 25 percent between now and the beginning of FY 1956, the FY 1956 investment program will be reduced.

1. Source: Washington National Records Center, FOA/ICA Files: Lot W–1444, FRC 56 A 632, Korea. Confidential. Sent through Dennis A. FitzGerald, Deputy Director of FOA. This memorandum grew out of an interagency discussion of the subject on February 14, among working-level officials of the Departments of State, Defense, and the Treasury and the Bureau of the Budget and a large contingent of FOA officials, including Stassen, FitzGerald, and Moyer. A memorandum of the discussion is ibid.