325. Telegram From the Department of State to the Embassy in Turkey1

1509. Assistant Secretary Allen and other Department representatives held first meeting with Zorlu and Esenbel May 19.2

Zorlu made clear his main purpose in coming United States at this time was to discuss loan and he prepared to stay as long as necessary. He repeated well known Turkish arguments previously presented in Ankara Consultative Group meetings and Turkish memorandum. Turks fully aware their economic plight and do not want to find themselves in same situation again. He convinced that if requested aid extended Turkey could bring its economic situation into balance within few years. He believed problem simple one, i.e. United States must make decision in principle as to whether or not it prepared help Turkey.

Allen stated record clearly showed years of United States assistance to Turkey. Normal military and economic aid will continue and United States policy toward Turkey unchanged. As for loan request, careful study being given by all interested Washington agencies to Turkish memorandum and report developed by United States members Ankara Group. Holcombe report still missing element but [Page 638]expected next week. United States Government position, Allen explained, still same as outlined to Esenbel April 27 (Deptel 1396).3 United States not convinced Turkey has yet taken measures aimed at stabilization its economy and controlling inflation and therefore believes present economic difficulties are not of temporary nature susceptible correction by large cash loan. In any event United States Executive not prepared support extraordinary loan request before Congress.

As difference of opinion existed whether measures already taken by Turkey adequate prevent serious recurring financial difficulties, Allen suggested meeting following morning for discussion specific issues with working level representatives all interested United States agencies.

Zorlu agreed and concluded with plea for serious consideration political aspects of question as purely budgetary approach could jeopardize Turkey’s future.

At meeting May 20 4 with Defense FOA and Treasury representatives present Allen informed Zorlu he wished make clear no hope for United States loan magnitude $300 million. If any loan forthcoming it would be much smaller, but any extension credit would depend entirely on United States evaluation Turkish plans for creation proper climate of economic stability. He reiterated deep concern over inflationary trends in Turkey and over-ambitious long-range investment projects.

Zorlu repeated theme immediate remedy was $300 million after which further study could be given Turkish projections and future plans. Smaller loan would only be half measure. Said he recognized there is inflation in Turkey and Turks prepared to take corrective steps, but receipt of loan basic.

In reply specific question re subsequent lifting credit restrictions initiated last July, Zorlu attributed relaxation to wheat failure which created immediate imbalance of 300 million Turkish liras. Moreover, credit restrictions created bankruptcy threat many businesses. Zorlu added application 13% GNP to investment did not appear abnormal.

State representatives expressed appreciation Turkish potential but commented inflation core of present problem and high prices and costs making Turk exports noncompetitive. Zorlu countered price issue not primary in intra-European trade. In response Treasury query Zorlu gave assurances United States loan would not be used pay European debts.

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Zorlu and Allen then left meeting to see Secretary and Hoover.5 Secretary opened and closed discussion with warm expression appreciation excellent work of Turks at Bandung. Re Turkish economic situation he said both Turkey and United States want to see sound Turkish economy on which to base strong Turkish army. However $300 million loan far exceeded any amount that might be considered. If any additional aid proved feasible amount would be far less. Secretary stressed that prerequisite to any additional aid would be United States satisfaction that present difficulties not of recurring nature. Zorlu assured Secretary “Draconian” measures would be taken to meet emergency. 6

Dulles
  1. Source: Department of State, Central Files, 882.10/5–2155. Confidential. Drafted by Brewster, Baxter, and Snyder and signed by Allen for the Secretary of State.
  2. The full record of the meeting is in a memorandum of conversation by Brewster, May 19. (Ibid., 882.00/5–1955)
  3. Dated April 28. (Ibid., 882.00/4–2855)
  4. A record of the May 20 meeting is ibid., 882.00/5–2055.
  5. According to Dulles’ Appointment Book, the Secretary met with Zorlu, Allen, and Hoover in the latter’s office from 12:36 to 12:50 p.m. (Princeton University) No memorandum of conversation of the meeting has been found.
  6. In a May 19 memorandum for the record, Hoover reported on his conversation that afternoon with Robert Anderson, regarding the talks with Zorlu. According to Hoover, Anderson had discussed the question of Turkish aid with Wilson, Hensel, and Radford and all had agreed that a “firm approach” to Zorlu was required. All reportedly agreed that an “eventual showdown” was unavoidable and believed that it would be better if it occurred now than in the future when the situation might have deteriorated further. (Department of State, Central Files, 882.00/5–1955)