Foreign Relations of the United States, 1958–1960, Japan; Korea, Volume XVIII

238. Telegram From the Embassy in Korea to the Department of State⁰

Seoul, August 22, 1958, 10 a.m.

79. Joint Embassy–CINCUNC–OEC message. Deptel 57.¹ In absence President Rhee in Chinhae, General Decker, Warne,² and I met yesterday³ with Ministers Defense, Agriculture, Reconstruction, and Commerce-Industry, Vice Minister Finance at our request to inform them of Washington’s fears revised 1958 and proposed 1959 budgets would imperil economic stabilization, we stressed fact that ROKG could not expect increased US aid to counter further inflation, as well as arguments set forth reftel, and put before them proposed stretch-out idea for implementing ROKG pay raises by 60 percent increase October 1, etc.

Ministers countered by saying 1958 revised budget irrevocably committed in National Assembly and politically impossible withdraw 100 percent pay raise principle. Argued that by best calculations such increase only provides living wage in most cases and that elimination corruption not feasible with less than whole measures. Pointed out proposed 1959 budget now in hands OEC and willing to consider counter proposals resulting from OEC study.

Ministers insisted they were optimistic 1958 and 1959 budgets could be balanced, although admitting this possibility depended upon ROK Govt performance in implementing proposals to avoid deficit assured they would positively take steps cut personnel and other measures reduce expenditures.

We expressed full sympathy US Government and people to pay raise goal ROKG but indicated nothing said or done by ROK in recent past had inspired confidence ROKG would really take strong measures necessary effectively balance budget. Stressed that Ministers must be willing take politically unpopular steps or ROK will wind up in deep trouble, pointing out propensity already apparent of ROK Ministers “chip away” at agreed measures make budget balance and achieve other economic goals.

Meeting not conclusive but did result in Ministers’ strong assurances they would do utmost achieve budget balance and have already established plan inaugurate nation-wide austerity program. We are satisfied ROK leaders now convinced of US concern re further inflation, and that ROKG itself must find ways meeting pay raise without further US aid.⁴ At Ministers’ request, we shall meet again on budget, related issues after they have had chance for discussion among themselves. Memo conversation follows.⁵

Dowling

0. Source: Department of State, Central Files, 895B.10/8–2258. Confidential.
1. Telegram 57 to Seoul, August 12, expressed the Department’s concern that “Finance Minister unwilling take firmer stand on pay raise and budget issue.” Department officials felt that the Republic of Korea had no “realistic” plan to bring the 1959 budget into balance, and Ambassador Dowling was instructed, “in view of peril to stabilization program, threat to common US-ROK objectives, and establishment undesirable precedent future ROK action” to consider presenting the case to higher authority in Seoul. If it proved impossible to persuade the Korean Government to accept less than a 100 percent pay raise, Dowling was instructed to suggest that application of the raise be spread out over a year. (Ibid., 895B.10/8–1258) See Supplement.
2. William E. Warne, Economic Coordinator of the United Nations Command.
3. The meeting was held in Dowling’s office on August 20.
4. Despite U.S. representations, the Korean Government budget, as passed by the National Assembly on August 25, provided for a doubling of pay for all government employees and for members of the armed forces. (Telegram 89 from Seoul, August 27; Department of State, Central Files, 895B.10/8–2758) See Supplement. In telegram 80 to Seoul, August 29, Departmental officials indicated that they were “greatly disappointed” that the approved budget contained a 100 percent pay increase with no indication of delay in implementation. Dowling was instructed to seek further meetings with government ministers and with President Rhee to reiterate U.S. concern over the implications of the pay raise proposal. (Department of State, Central Files, 895B.10/8–2758) See Supplement.
5. Transmitted in despatch 104 from Seoul, August 26, 1958. (Department of State, Central Files, 895B.10/8–2658) See Supplement.