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

90. At Department’s suggestion Turkish Ambassador brought Finance Under Secretary Ergin and colleagues to call on Assistant Secretary Allen July 9.2

Allen expressed surprise and concern at memorandum from Prime Minister urtel 57.3 He said US officials had great confidence in IMF and believed their recommended measures essential element in progress toward economic recovery Turkey.4 On understanding Turkish Government would proceed with the reforms developed in consultations with IMF US had extended extraordinary emergency aid $25 million in support Turkish modification exchange rate system. He made clear this sum not available as additional aid if Turkish Government did not carry out this exchange reform. In serious questions affecting monetary rates no question Turkey has [Page 687]sovereign right and sole responsibility make decision it considers in its best national interest. However Allen pointed out if Turkey disregards considered recommendation IMF and US authorities and rejects program, Turkey should not expect come to US for help to solve resulting difficulties.

Ambassador Gork said he believed some misunderstanding existed. Application national protection law in recent weeks had changed situation from that existing at time agreement reached with IMF and Turkish Government merely wished discuss changed situation. He had no indication Government did not intend eventually carry out IMF recommendations, perhaps in exactly same form they now exist, but it wished discuss new circumstances with IMF authorities. IMF might be able convince Turkish Government recommendations should be instituted in present form. Gork said could not understand why IMF unwilling hold further discussions. (This refers to July 7 conversation Gork with Cochran.)5

Department officer pointed out his understanding Cochran and IMF officials fully aware present conditions in Turkey and did not consider situation had changed in any way to invalidate recommendations made late May. National protection law had been under discussion for some months and its probable effects had been taken into account by IMF in making present recommendations for multiple rate structure.

Gork gave impression he did not know in detail what lay behind his Government’s desire for delay but implied perhaps it feared announcement such time would have adverse effect on Turkish public opinion. Implication was rate changes could be made palatable only if accompanied by simultaneous announcement larger aid from various US sources.

Ensuing discussions with Ergin elicited information his instructions on leaving Ankara were to work out details for implementation IMF recommendations and simultaneous announcement Washington and Turkey of new rate structure July 13. To date his instructions had not been changed and he had not been formally notified of Turkish position as outlined Prime Minister’s memorandum presented Embassy Ankara.

Conversation along same lines held with Gork and Turkish delegation same day by Treasury, ICA and Cochran.6

You are authorized in your discretion urge appropriate Turkish officials consider very carefully adverse reaction IMF and US circles to what appears to be unwillingness face up to serious situation and carry out agreement which in view of all concerned necessary to [Page 688]improve Turkish economic situation and allow US aid make most effective contribution to lasting progress.

On July 10 Minister Finance cabled IMF requesting postponement formal Fund consideration Turkish exchange reform with period not specified.

FYI only. Nevertheless Turkish delegation instructed about same time to continue discussion with IMF staff. Believe it important Turk Government not learn we aware these instructions. Would appreciate your estimate of factors underlying Turkish tactics. End FYI.7

Dulles
  1. Source: Department of State, Central Files, 782.5–MSP/7–756. Secret. Drafted by Baxter and signed by Allen for the Secretary.
  2. A more detailed record of the meeting is in a memorandum of conversation by O’Grady, July 9. (Ibid., 882.10/7–956)
  3. Telegram 57, July 7, transmitted a memorandum from the Turkish Government informing the United States that Turkey had decided to reevaluate the advisability of changing the exchange rate system due to the favorable effects on prices of the National Protection Law. In the Embassy’s view of the Turkish Government’s recent action, the Law would not make an important contribution to correcting Turkey’s balance of payments problem. (Ibid., 782.5–MSP/7–756)
  4. The IMF proposals focused on reestablishing price stability and adjusting exchange rates.
  5. Not further identified.
  6. No record of this discussion has been found.
  7. In telegram 119, July 14, the Embassy informed the Department that Menderes’ decision on the exchange rate was partly a result of the influence of his associates who were opposed to the IMF recommendations. The Embassy noted that the Prime Minister’s initial acceptance of the new exchange rate was a result of his belief that its inducements were greater than those contemplated by the United States and that the level of future US assistance might be based on Turkish action in this area. According to the Embassy, Menderes was more concerned about his personal popularity and “effective party control” than about stabilizing the Turkish economy. (Department of State, Central Files, 782.5–MSP/7–1456)