Foreign Relations of the United States: Diplomatic Papers, 1945, Europe, Volume IV

740.00119 EW/12–944: Telegram

The Secretary of State to the Minister in Sweden (Johnson)

Washington, December 19, 1944—10 p.m.

2550. Reurtels 5049¹¹ and 5060,¹² December 9.

1. Following is for guidance of Legation with regard to loans and assistance to nations endeavoring to meet reparations payments.

2. Department believes that:

(a) it would be most unwise for this Government to adopt a policy of assisting countries which have heavy reparations obligations to pay such obligations;

(b) substantial financial assistance to such countries for reconstruction, particularly early in the reparations paying period, is largely precluded by existence of heavy reparations obligations.

After the last war the United States in effect financed the transfer of reparations by Germany by the large credits granted that country. Consequently repudiation of these credits meant in effect that the United States assumed the burden of reparations.

3. It is in part because of the foregoing that this Government strongly favors payment of reparations in kind for direct delivery to receiving countries to be used for reconstruction and rehabilitation if reparations from current output are imposed on defeated powers. It is the opinion of the Department that if the reparations burden is excessive the reparations claims of the receiving countries should be reduced and that neither the reparations paying or receiving countries should be led to believe that the United States will again undertake to finance reparations transfers. It would appear a wiser policy for this Government to assist reparations receiving countries directly, if they need assistance, and if this Government believes it to its advantage to grant such assistance, rather than to grant such assistance indirectly through reparations paying countries.

4. The principal reason for the position expressed in 2(b) is that although the assistance might be directly aimed at assisting reconstruction in the reparations paying country, the indirect effect would be to finance the transfer of reparations. Even though reparations deliveries are made in kind, they directly affect the balance of payments of the paying country and make it almost impossible to differentiate whether outside assistance is going to reconstruct the country or to facilitate the transfer of reparations. In addition, of course, heavy reparations payments may gravely jeopardize the ability of the borrowing country to repay.

5. It would appear to the Department that any suggestion that this Government intended to assist substantially reparations paying countries would operate to encourage attempts to collect excessive reparations claims, even if the request for assistance were based on reconstruction needs. In the case of Finland this position would appear to be particularly pertinent in view of the uncertainties as to the real amount of reparations which follow from the attitude of the USSR with regard to valuation of reparations deliveries.

6. Although the foregoing outlines the general policy which the Department believes advisable, it is possible that in some circumstances relatively small loans might be made for specific projects which would facilitate the production and export of specific goods not involved in reparations payments. In circumstances such as the foregoing, it might be safely assumed that the projects would be self-liquidating in the sense of providing foreign exchange for the service of the debt. It will be appreciated that such projects would not be numerous and that because of the balance of payments effects of reparations cited above, would necessarily be of limited extent relative to the economy of the country, particularly in the earlier phases of a reparations period when the remaining reparations obligations were still large. After a reasonable lapse of time, however, during which a paying country has demonstrated that payments are well within its capacity, this Government might consider more favorably requests for more substantial assistance for reconstruction or developmental loans.

7. It is suggested that the Legation not initiate discussion of loans or assistance by this Government to Finland. If, however, these matters are discussed with officers of the Legation or in their presence on the initiative of others, it is suggested that without attempting definitive answers they assume a discouraging attitude with regard to the possibility of any substantial assistance by the United States. You should, of course, continue to report fully to the Department any such discussions or proposals. The Department would be glad to receive any comment on the foregoing which you would care to make.

Stettinius

11. Not printed; it reported that since the Finns were required to deliver as reparations products which they could not produce without outside help, they would inevitably ask for the assistance of the United States. (740.00119 EW/12–944)
12. Not printed; it informed the Department that Soviet authorities in Finland took the matter of Finnish reparations most seriously. There was to be no question of “non-fulfillment.” 740.00119 EW/12–944)