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

3. Telegram From the Embassy in Korea to the Department of State¹

Seoul, January 8, 1955—2 p.m.

757. Department please pass FOA for Tyler Wood² and DA. Tokyo pass General Hull. During meeting with President Rhee yesterday afternoon he brought up question of scheduled third auction next week of $2,500,000 to provide Hwan for UNC,³ declaring this method obtaining local currency “is ruining our economy” and that he is again considering presenting proposal to General Hull that monthly requirements of Hwan be advanced by Bank Korea and repaid “at any rate Hull considers fair—300, 400, 500 or even 600 to 1.”

There follows recital along familiar lines of adverse effect on economy of fluctuating rate which Rhee still convinced is principal cause of inflation. During conversation President resurrected plan referred to last November (Embtel 583, November 17 Tokyo 400)⁴ providing for presidential declaration that only permissible rate is 180 to 1 (which Rhee considered might after trial period, have to be slightly raised) with all transactions of every kind to be fixed by fiat at 180 to 1 and heavy penalties imposed on any company or individual exchanging Hwan at any other rate. Rhee also spoke of writing letters outlining this project to whom unspecified, and said he had pigeonholed plan two months ago greatly against better judgment but that ROK economic situation so impaired by exchange rate fluctuation, especially as promoted by auction UNC dollars, that this arrangement not to be endured any longer.

I believe I succeeded in talking him out of immediate action but it is obvious from Rhee’s remarks that he is as unreconciled to exchange provisions of agreed minute as he was prior to initialing thereof and that we shall have to contend further with this attitude at early date (if not in connection with forthcoming third auction). The President’s plan is of course economically fantastic and situation complicated by fact that he honestly and sincerely committed to views outlined above. He is however aware that his plan would violate agreed minute, hence this reference to “writing a letter” which would request modification of minute. His attitude also bears directly on prospects of obtaining Rhee’s support for various ROK collateral economic measures that must soon be taken pursuant to minute if program is to succeed. For example, during same conversation with President, Mrs. Rhee made point that ROK budget being prepared on basis 180 to 1, which if true, indicates difficulties ahead on that front also.

Likewise of interest in connection with foregoing, Governor Kim⁵ of ROK recently informed Embassy in confidence of his unsuccessful efforts auction 3 million dollars of ROK funds at time of December UNC auction. As reported today Weeka l⁶ rumors in trade circles indicate similar plan under discussion at present but judging from my conversation with President there is small chance such auction can materialize unless without Rhee’s knowledge.

CINCUNC telegram C–71034, January 7, to DA,⁷ and received after this telegram drafted, likewise bears on same subject.

Briggs

1. Source: Department of State, Central Files, 611.95B/1–855. Secret. Repeated to Tokyo.
2. C. Tyler Wood, Economic Coordinator on the Staff of the U.N. Commander in Chief in Korea. His responsibility was to coordinate the various aid programs for Korea under economic and fiscal policies established by him, and to advise the Republic of Korea on its fiscal and economic policies. To facilitate coordination with the Republic of Korea, a Combined Economic Board was established, composed of Wood and a representative of the South Korean Government.
3. There was no fixed exchange rate for dollars and Hwan in January 1955. In an Agreed Minute of Understanding between the United States and the Republic of Korea, covering the entire range of U.S. Korean relations, signed on November 17, 1954, it was agreed to move toward a more “realistic” exchange rate by allowing the United States to sell dollars through the Bank of Korea to obtain the Hwan necessary to meet the operating needs of U.S. forces. In the first dollar auction held on November 29, 1954, all the bids were rejected as too low. In the second auction, held on December 12, $1,958,000 were sold at an average rate of 426 Hwan to the dollar. (Intelligence Report No. 6956, June 16, 1955, prepared in the Office of Intelligence Research; Department of State, FE Files: Lot 56 D 679, Korean Econ)
4. For text, see Foreign Relations, 1952–1954, vol. XV, Part 2, pp. 1921–1923.
5. Kim Yu-t’aek, Governor of the Bank of Korea.
6. Not printed. (Department of State, Central Files, 795B.00(W)/l–755)
7. This telegram also dealt with the Hwan–dollar exchange rate problem. The conclusion drawn within the staff of CINCUNC was that maximum efforts should be directed to the successful implementation of those aspects of the Agreed Minute which dealt with the question. (Department of Defense Files)