317. Memorandum From the Director of the Executive Secretariat (Scott) to the Secretary of State and the Under Secretary of State (Hoover)1

SUBJECT

  • Views on Turkey’s Deteriorating Economic Situation

Embassy and FOA Ankara have forwarded their comments on the report on Turkey’s economic situation which was prepared by Heuser, a Federal Reserve official on loan to FOA.2 The report has confirmed our officials’ feeling that the economic situation has deteriorated and will probably continue to deteriorate in coming months.

In light of the report’s conclusions on the advantages of using devaluation as a stabilization tool and of US objectives in Turkey, our officials suggest three possible alternative approaches. The first is to recognize Turkey’s determination to proceed with its development at the highest rate possible and assist with such means as we have at our disposal. This would probably require some increase in US aid and would certainly require frank discussion and acceptance by the Turks of economic policies designed to permit the best use of aid to the most advantage. The second is to influence the Turks to adopt economic policies more consistent with the presently scheduled aid. This would imply reducing the rate of economic growth admittedly below the level necessary adequately to support and maintain Turkey’s defense effort in a period in which NATO force goals are to be achieved.

The third alternative is to have a direct and frank expression of the official US view that unless Turkey adopts and implements a policy of greater internal stability and external solvency, the US has no choice but to reexamine its support of Turkish efforts in military and economic build-up. In considering this third alternative, the US would have to keep in mind our commitments to Turkish defense build-up, our acceptance of NATO force goals, unilateral Turkish commitments to the US, our encouragement of Turkey to assume [Page 610]leadership in the Balkans and the Near East, and of efforts made by Turkey to become independent of aid.3

WKS
  1. Source: Department of State, Central Files, 882.00/1–555. Secret. A note on the source text in an unidentified hand indicates that the Secretary saw the memorandum.
  2. Transmitted in telegram 692, January 3. (Ibid., 882.00/1–355) The Heuser report has not been found.
  3. A joint State–Treasury–Defense–FOA message to Ankara, January 12, noted:

    “Believe our military and other objectives coincide Turks objective strengthen economy and attain sound economic development at maximum rate. Turks should understand attempt force development through inflationary means retards overall expansion production, diverts resources to uneconomic and less essential uses and tends defeat purpose. Although certain projects may be completed damage to overall and balanced development occurs, private investment discouraged, capital formation reduced, hampering controls instituted and economy distorted. Mistaken policies and efforts obtain through accumulation commercial arrears and inflation more resources than otherwise available may appear yield temporary gain, but Turkey is now at stage of real damage to economy.” (Telegram 772; ibid.,782.5–MSP/1–555)