Foreign Relations of the United States, 1946, Eastern Europe, The Soviet Union, Volume VI

861.51/5–1746

Memorandum by Mr. George F. Luthringer of the Office of Financial and Development Policy to the Assistant Secretary of State for Economic Affairs (Clayton)

[Washington,] May 23, 1946.

1. A draft reply to the Soviet note of May 17th that has been approved by the interested divisions maintains the previous American position that we will discuss a $1 billion loan only in connection with an overall consideration of economic and financial policies.

2. At the present time the Eximbank has only about $200 million that has not been committed, either formally or in effect. It seems clear that even though the proposed request to Congress for $1¼ billion of additional lending power for the Bank is made on grounds of general foreign loan policy, Congress will regard this as authorization for a loan to the U.S.S.R. as long as present negotiations continue. The Congressional hearings and debates will almost certainly be, in effect, on a $1 billion loan to the Soviet Union.

3. The British Financial Agreement²⁶ secured senatorial approval only after an acrimonious debate and it appears that part of the support for this loan came from those who felt that it would strengthen the political position of the United States in relation to the U.S.S.R. In the case of a credit to the U.S.S.R. the opposition to foreign loans in general will be strengthened and not allayed by our current political relations with the U.S.S.R.

4. There is a reasonable doubt whether Congress would approve additional funds for the Eximbank that were clearly intended for the U.S.S.R. Regardless of the final action of Congress, the debates would undoubtedly result in charges and counter-charges in regard to Soviet policy, both in Congress and in the press, that might well worsen our relations with the U.S.S.R. It is probable that such a debate would give wide publicity to many Soviet actions in recent months, including ones that up to the present have not received much public attention. There is a strong possibility that the U.S.S.R. will reject the terms in our proposed reply, and in that case the result would be a needless airing of anti-Soviet opinion in this country.

5. There are two possible alternative actions open to this Government whose advantages and disadvantages should be weighed by higher officers of the Department before we embark on a step that is almost certain to lead to a free-for-all debate in Congress on the U.S.S.R., without any assurance that funds will be available for a loan to the U.S.S.R. or that the U.S.S.R. will be interested in a loan on our terms. These alternatives are:

a) to take advantage that the Soviet reply of May 17th gives to break off gracefully loan negotiations with the Soviet Union;

b) to postpone the $1¼ billion request for additional lending power until we have a clearer picture of the likelihood of successful negotiations with the U.S.S.R. This would involve now asking for a sum of $250–$500 million with an understanding with Congressional leaders that an additional sum will be requested in case we wish to proceed with loan negotiations with the U.S.S.R.

26. The Financial Agreement with the United Kingdom was signed at Washington on December 6, 1945. Provision was made in it for extension of a line of credit of $3,750,000,000 until December 31, 1951. A joint resolution by Congress authorizing the Secretary of the Treasury to carry out the agreement with the United Kindom was approved July 15, 1946; 60 Stat. 535. For text of agreement, see Department of State Bulletin, December 9, 1945, p. 907, or 60 Stat. (pt. 2) 1841.