Foreign Relations of the United States, 1958–1960, Eastern Europe; Finland; Greece; Turkey, Volume X, Part 2

319. Memorandum for the Files⁰

Washington, October 17, 1958.

SUBJECT

• Review of Turkish Debt Conference¹

PARTICIPANTS

• Mr. Murat W. Williams, Deputy Director, GTI
• Mr. Francis F. Lincoln, GTI
• Mr. A. Guy Hope, GTI
• Mrs. Louise Sissman, GTI
• Mr. Robert Yost, RA
• Mr. Robert Meyer, ED
• Mr. Maynard Glitman, FN
• Mr. Vinton Mitchell, Department of Treasury
• Mr. Howard J. Ashford, Jr., GTI

Mr. Hope opened the meeting with a review of cables recently sent from Paris by members of USRO and himself² concerning plans for the consolidation and scheduling of Turkish debts. He noted in passing the British approach with regard to oil indebtedness, the position of the United States in the conference, and the activities of the statistical working party. Commenting upon the atmosphere of the conference, he said that there was no doubt that it would be a laborious operation, that there was difficulty in relating facts as understood by the individual delegations, and that there was still work to be done in smoking out unilateral positions. He noted that at one point of the conference, the Turks had indicated a sensitivity to the effect that they were being treated as the “vanquished”. He referred to the distractions occasioned by disagreement as to the interest rate to be charged on the new loans from OEEC countries and noted the British position re 6 percent. In this connection, it was reported that the German delegation had earlier supported 5-1/2 percent but now appeared to support 6 percent in view of evident British pressure which turned on a quid pro quo re discriminatory shipping practices. The recent cable from Mr. Dillon³ while visiting in Turkey, noting the apparent unreasonableness of the 6 percent position, was cited.

Mr. Hope cited the Turks’ obvious concern over ship mortgages, payments on which become due in November of this year, held by the Maritime Administration and the Transatlantic Finance Corporation. The Turkish delegation has pleaded that the Government of Turkey not be pressed for current payments on this indebtedness at this time on the argument that to do so might prejudice the entire program. Mr. Hope reviewed the participation of Mr. Kearns, Assistant Secretary of Commerce, and said that Mr. Kearns had made an excellent appearance at the conference, and in conversation with the Turks had stressed the desirability of scheduling reasonable payment terms with private creditors, including interest payments.

Mr. Hope passed on to a discussion of the desirability of forming a creditors’ organization, the resolutions of which might be made morally binding on American creditors. Mr. Williams asked whether or not the United States Government would in principle be opposed to such a conference. Mr. Hope replied that there were many issues to be worked out including representation. Mrs. Sissman noted that perhaps one approach might be to seek some means in which to induce the idea of a spokesman for the American creditors either as a whole or as individual groups. In this connection, Mr. Hope referred to the European system of export guarantees in which the British and Germans have been particularly active. He noted that the Germans were now engaged in compiling the results of a polling of 2,000 German creditors to ascertain the level of German commercial debts.

Reference was made to the move within the OEEC group for a Steering Committee to be comprised of the British, French, and German chief delegates and the Dutch conference chairman. Mr. Hope noted that while the United States representatives had not been invited to participate in the smaller group, there is not much doubt that we could join if we so desired. There are two sides to this issue. If we were willing to participate in such a group we could, on the one hand, keep the conference from moving away from us and would be in better touch with developments, but on the other hand, the United States Government might find itself rigidly bound by decisions taken within the Steering Group. The atmosphere of the Steering Group, if formed, would probably be initially dominated by the British “hard” position. Mr. Hope cited then the other side of the issue: we could preserve greater flexibility and our position as amicus curiae to the parties might be more respected if we did not become a part of a “bloc”.

Mr. Hope then continued by reporting on a conference he had with Mr. Stanley Metzger of the “L” area. On anti-trust aspects of a creditors’ committee, Mr. Metzger felt there would be no problem involved. On an oil company proposal for settlement, there might be questions if cooperation among the oil companies were to be fixed on a basis of a quid pro quo with the Turkish Government but not if the plan was followed only in order to reduce arrears. As to the question as to what action the United States could take at the conclusion of the conference, since it is evident that the Europeans want some sort of conference agreement or bilateral understandings to emerge from the conference, it was Mr. Metzger’s feeling that, in the manner of the Italian debt settlement,⁴ we could write a letter to the Government of Turkey stating that we found the final settlement proposals fair and equitable. With respect to the U.K.-Dutch scheme to pay creditors from a special account, Mr. Metzger felt that a Turkish fund in the United States for commercial accounts might be liable to legal attachment. Mrs. Sissman queried whether or not a Swiss depository could be used. Mr. Hope answered he assumed no legal objections. The key to the U.K.-Dutch scheme was to have an account established in a British bank and presumably thus be readily accessible to the British Government for checking on Turkish payments.

Mr. Mitchell asked what were the Government of Turkey’s views with regard to infringement of its national sovereignty in a debt settlement. Mr. Hope replied that Turkish sensitiveness was excited by a French idea for a set-aside of a percentage from Turkish exports to meet scheduled indebtedness. The Turks had made invidious comparisons of this idea to the Ottoman Debt Commission.⁵

Mrs. Sissman noted that it could well be that the British creditors are free from their real arrears problem with the U.K. Government picking up the check. It was noted, however, that this amounted to a transfer of the debt and was not a true solution in itself.

Mrs. Sissman asked whether there had been any discussion as to the definition of the types of debts to be included, for example, those not represented within the present make-up of the conference. Mr. Hope said that a delegate had made a reference to this matter and had said it would be thought about “at some appropriate moment”. Mr. Mitchell asked why the British position on the 6 percent interest rate was so firm and Mr. Hope replied that it seemed to hang on the Indian Commonwealth Loan which was reportedly “in that area”. Mr. Hope referred to the German idea of a possible tie-in with a munitions loan in which Germany would take part of the proceeds and use them, half and half, for Germany and for the other European creditors. Mr. Mitchell asked re the magnitude of the debt. Mr. Hope replied that figures which had been developed so far were being reported from Paris. He discussed some of the projections of debt and repayment which had been prepared by various delegations and the Secretariat.

Mr. Yost inquired further as to what might be the nature of the Steering Group, insofar as it may be a part of European backstage planning. Mr. Hope referred to the dinner of the delegates in which the British, French, German, and the Dutch chairman had evidently given some initial thinking to this course. Mrs. Sissman raised the question as to whether we should permit a Steering Group, should it be formed, to apparently dominate the thinking of the conference in view of the size of the conference itself. Mr. Hope said that the U.S. position in the conference is still not well-defined. The German delegate had stated that the Steering Group would advise the United States delegation of its decisions, then communicate them to all OEEC members, and finally to the Turks, acting as a restricted Working Party. He felt that the Steering Group as such would probably not be a formally constituted body.

Mr. Yost also raised the question as to whether Messrs. Kaplan and Sanderson needed help in the conduct of the negotiations. Mr. Hope said that some consideration would probably have to be given to this matter but that it would hinge in part on the role any Steering Group might take, and that the question should be left open for the time being.

Mr. Mitchell asked in what connection the Maritime Administration loan had come up. Mr. Hope replied that in the process of making our position clear to the Turks as to secured creditors, Mr. Kaplan had mentioned claims secured in various ways, and the Turks had then pressed the ship mortgage question, stating the Germans had agreed to the Weser mortgage payments being deferred during the moratorium. Mrs. Sissman suggested that the Weser position was probably now that of being a German guaranteed credit.

0. Source: Department of State, Central Files, 782.00/10–1758. Secret. Drafted by Hope and Ashford.
1. Representatives of the European nations that had contributed to the Turkish stabilization loan met with U.S. and Turkish representatives in Paris October 8–10 to work out a repayment schedule and an interest rate.
2. USRO reported on the conference in Poltos 944 and 946, October 11. (Both Ibid., 882.10/10–1158)
3. Document 318.
4. Presumably a reference to the 1925 settlement of Italian debts to the United States arising out of World I.
5. Reference is to the Council for the Administration of the Ottoman Public Debt, established in December 1881 by European creditor nations to liquidate the outstanding debts of the Ottoman Empire and encourage new investments.