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106. Telegram From the Department of State to the Embassy in the Republic of China 0

594. Embtels 7371 and 716.2 Department agrees imperative induce GRC curb military spending but recognizes appeals to GRC economic officials of limited effect. Therefore Charge should request immediate appointment with Vice President who concerned Taiwan economic development and may be able induce President to exert restraint on military spending. Charge should make following points to Vice President: [Page 220]

United States Government deeply concerned over threat to economic stability of Taiwan posed by alarming increase in military expenditures now taking place and proposed. Such spending cannot in our view be justified on ground of military necessity. While we appreciate GRC desire to be prepared for eventual return to mainland, our best intelligence convinces us that Chinese Communist security controls have not yet deteriorated to point where attacks at present time or in immediate future could have any hope of success. Current and projected military spending could in fact seriously damage GRC base on Taiwan and impair GRC efforts achieve ultimate goal. (Might recall Chen’s theme that efforts Taiwan’s economic development justified by importance as base for mainland recovery.) Emphasize loss of confidence in currency that can result from inflation threat, possible undoing of fiscal and exchange reforms of last several years, impact of diversion of resources from development purposes, undermining of program induce foreign investment, and adverse effect Four Year Plan and Accelerated Development Program. (We believe Vice President much concerned all these points.) He undoubtedly mindful that all Chinese bear scars disastrous war and post-war inflation on mainland, and that resumption sharp inflation could have grave repercussions public confidence in government.
United States Government deeply disappointed over failure of GRC to keep it adequately informed concerning recent increased military expenditures despite repeated requests by United States officials for such information. United States Government also disturbed over apparent intention of GRC to confront United States Government with plan of military preparedness as fait accompli in disregard of close US-GRC partnership that has hitherto existed in matters affecting security of Taiwan.
In view extent United States commitment in building GRC military and economic bastion on Taiwan we consider it our duty as well as right to insist that:
Formal adoption of plan of military preparedness described Embtel 737 be deferred until United States Government can have adequate opportunity to express its views.
GRC inform United States Government fully on extent and nature recent and proposed extraordinary military expenditures.
Mutual consultations be held as soon as possible with view toward minimizing adverse effect recent increase this spending on economy and limiting level of spending in future months.

Immediately following Charge’s talk with Vice President, Commander Taiwan Defense Command, Chief MAAG, AID Mission Director, [less than 1 line of source text not declassified] should brief their principal GRC contacts on points made by Charge to Vice President and emphasize seriousness with which United States Government views recent [Page 221]sharp increase in military spending. Chief MAAG and AID Mission Director should express as personal opinion view that failure to check such spending may force re-examination of United States aid programs. If question arises [less than 1 line of source text not declassified] USG position on mainland operations recently conveyed to President Chiang [less than 1 line of source text not declassified] remains unchanged.

To further impress GRC with urgency we view this problem, Harriman will call in Ambassador Tsiang and make demarche parallel to that of Charge. Charge should inform Department in advance time his appointment with Vice President.

FYI: Department and other agencies concerned are considering additional steps that may be required if approaches described above do not produce desired results. Country team recommendations are requested in this regard. Also, additional information on level and nature of GRC military spending beyond that reported Embtel 737 should be reported as soon as it becomes available.

AID Mission should assess effects on economy and make appropriate recommendations soften impact military spending. Pending outcome of discussions on military spending, nothing should be said to GRC concerning prospects for $30 million non-project loan. End FYI.

Defense and AID concur in this message.

  1. Source: Department of State, Central Files, 793.5/4-2662. Secret; Niact; Limit Distribution. Drafted by Herbert E. Horowitz of the ROC desk and Yager; cleared in draft by Harriman and with the Agency for International Development, in substance with the Department of Defense, and by U. Alexis Johnson and Bundy; and approved by Rice. Repeated to CINCPAC.
  2. Telegram 737, April 26, reported that GRC leaders had approved a military preparedness plan which would cost NT $2.48 billion and special taxes and other revenue measures to finance it. Clough commented that the program violated a basic commitment of the accelerated development plan and created a completely new setting in which to consider applications for AID financing. (Ibid., 793.5/4-2662)
  3. Telegram 716, April 20, commented on a situation reported in telegram 713, dated April 19. The latter reported that the Embassy had learned that during the previous year, the Ministry of National Defense had been allotted approximately NT $1 billion in special advances, about half of which had been spent on “extra preparedness measures.” (Ibid., 793.5/4-1962) Telegram 716 commented that the problem was not only the threat to economic stability and growth posed by these expenditures but how to respond to the GRC decision that the prospects of relatively early action against the mainland were good enough to warrant urgent and extensive preparations, even at the risk of substantial damage to other GRC objectives. (Ibid., 793.5/4-2062)