L/UNA Files
The Deputy Director of the Office of Special Political Affairs ( Thompson ) to the Under Secretary of State ( Lovett )
Subject: Financing Construction of United Nations Headquarters
Pursuant to your request I am submitting a statement of the considerations which have led the Department to conclude that construction of the United Nations headquarters should be started promptly and that the United States should make the proposed interest-free loan.
At a time when we are so vitally concerned with the reconstruction of devastated Europe, the expenditure of United States funds and use of United States materials for the construction of office buildings for the United Nations may invite some criticism. These and other important considerations may be urged in favor of continuing to operate in the present temporary headquarters, inconvenient and inadequate as [Page 69] they are, until construction costs may be lower, materials more easily available and Member Nations in a better position to contribute their respective shares promptly. Faced with the factors outlined below, however, the Department has concluded that the importance of concrete demonstration of the faith of this Government and of the other Member Nations in the permanence of the United Nations and of its establishment on our soil outweighs considerations which might otherwise operate in favor of delay.
Psychological and Political Factors Bearing on Confidence in Future of United Nations
The desirability, from the point of view of the United States, of beginning promptly, or alternatively, postponing construction of the headquarters has been considered in the light of the general international situation as reflected in the United Nations. Recent deterioration of relations between the Great Powers has led to serious concern among the Member Nations as to whether the Organization will survive. In this atmosphere, any action which might be misconstrued as showing lack of confidence on the part of the United States in the permanence of the United Nations might add immeasurably to the growing pessimism among governments and especially among peoples, perhaps including those of this country. Failure of the United Nations to proceed promptly with the construction of the permanent headquarters because the United States preferred postponment, would thus have demoralizing political and psychological repercussions out of proportion to the possible advantages of delaying construction. The reaction would probably be the sharper since all the necessary steps toward construction have been taken except for determining the method of financing.
Possibility of Reopening Decision To Locate Permanent Headquarters in United States
Another factor with which the Department has been concerned is the possible reopening of the controversy over the permanent site which preceded the decision to locate the permanent headquarters in this country. Although an actual reversal of this decision is not anticipated, the mere consideration of such action might have serious effects from the point of view of the United Nations and of this Government.
The United States has from the outset attached great importance to the location of the permanent headquarters of the United Nations in this country. Although our delegations to the Preparatory Commission of the United Nations and to the first meeting of the General Assembly abstained from taking a position on the question of the location of the headquarters, they made it very clear that the United States [Page 70] would welcome warmly a decision to locate in this country. The United Nations’ decision to do so was made in the light of the unanimous concurrent resolution adopted by the Congress on December 10 and 11, 1945, inviting the Organization to make its headquarters in the United States.
When the choice of the precise site within the United States was to be made at the second part of the first General Assembly session last fall, the Soviet bloc, aparently regretting its previous support of location in the United States, came out in favor of Europe and, in particular, Geneva. The United Kingdom, however, and several other countries which had previously favored Europe, now took the position that it would be a fatal blow to wholehearted United States participation in the United Nations if the latter were to move its headquarters to Europe. The very fact that the USSR apparently wanted the headquarters in Europe, probably induced some states to oppose any such proposition.
Difficulties in reaching agreement on a specific location were finally resolved when Mr. John D. Rockefeller, Jr., and The City of New York offered to make the East River site available without cost. The Assembly promptly accepted the offer and authorized the Secretary General to acquire the land, undertake demolition, and, with the assistance of a Headquarters Advisory Committee, to prepare plans for the construction and financing of the headquarters. The site was acquired after the Congress had passed the necessary legislation exempting the gift from Federal Gift tax; demolition of existing structures has been completed with the exception of a small office building which is suitable for use by the United Nations.
Preliminary construction plans have been completed through the joint efforts of internationally famous architects from several Member Nations. There is every indication that these plans will be approved without objection at the current session; they have already been modified to reduce the estimated cost from $85,000,000 to $65,000,000.
There are indications that many delegations will favor holding the next General Assembly in Europe, probably Paris. Other delegations are strongly opposed to such a proposal on the ground that the influence of the United States in the Assembly would be decreased and that of the Soviet Union correspondingly increased. A recent confidential despatch indicates that Mr. Bevin himself feels very strongly on this matter, being of the opinion that the whole move to hold the next Assembly in Europe is a Soviet maneuver designed to get the United Nations away from the influence of the United States and from the United States press.
[Page 71]In spite of such doubts, the United States delegation has taken the position that we will be glad to have the next Assembly held in Europe. This, however, has been on the assumption that the construction of the permanent headquarters would be definitely under way so that there could be no question of the European session affecting the ultimate question of the permanent location.
Certainly a decision to postpone construction would greatly increase the possibilities of the entire matter being reconsidered. This would involve a serious threat not merely to the prestige and leadership of the United States in the United Nations but to the growth and strengthening of the entire Organization, the morale of the Secretariat and the faith of the Member Nations in the future of the Organization itself.
Importance of Maintaining Co-operation of New York City
The City of New York, in addition to acquiring, at its own expense, and conveying to the United Nations a substantial portion of the site needed to round out the properties acquired with Mr. Rockefeller’s gift, has authorized and is ready to proceed with plans involving the expenditure of some $20,000,000 by the City for the development of the approaches and improvement of the surroundings.
The Mayor has expressed to Senator Austin his serious concern as to whether he can maintain the necessary support to carry through this essential program unless there is unmistakable evidence that the headquarters will be promptly constructed. He made these representations in connection with an urgent request that the Department try to arrange for financing through the International Bank, the Reconstruction Finance Corporation or the Export-Import Bank so that it would not be necessary to wait for Congressional action at the forthcoming regular session. (Conversations with officials of these agencies have clearly indicated that they lack authority to make the loan.) The Mayor felt that New York City’s part of the project might be jeopardized if it were necessary to wait even a few months before construction could start. If construction were to be postponed until 1949 or perhaps several years more, it may be assumed that the situation with regard to the City’s participation would be much more precarious.
Alternative Methods of Financing
Assuming, as it appears we must, that it is important to begin construction of the headquarters promptly, the question remains how such an operation can be most appropriately financed. The Department has given careful consideration to this question in consultation with the Treasury Department, the Bureau of the Budget and other interested Federal agencies. The whole matter was again reviewed at a meeting in the Secretary’s office on September 4.
[Page 72]Financing by outright Member contributions seems to be out of the question in view of the dollar shortage.
At the request of the United States, the Secretariat carefully explored, among financial circles in New York City, the possibilities of a private loan. The Secretary General reached the conclusion that the most favorable private arrangement obtainable would be one under which the loan would be confined to $25,000,000 out of the total of $65,000,000, the balance being met by having the United States pay up at the outset its entire share of the total cost (approximately $26,000,000), the other Members paying $14,000,000 at once and the balance of their shares when the private loan was to be paid off at the end of ten years. Interest would be at approximately 3 per cent.
Any plan of private financing on reasonable terms must of course be confined to a portion only of the total cost, the remainder being made available in cash. This involves either a special advance by the United States or a call on other Member Nations for additional dollars which they are not in a position to furnish. Protection of the legal position of the lenders would involve difficult arrangements for the waiver of the United Nations’ immunity from suit and possible additional complications in the architectural program to satisfy the lenders that the buildings would be adaptable for other use in the theoretical contingency of a foreclosure. Furthermore, there are indications that many Members would consider it harmful to the prestige of the United Nations if it were under obligation to private financial interests.
Advantages of an Interest-Free Loan
In view of such considerations, the Treasury Department advised this Department that the most appropriate arrangement would be a loan by the United States Government. Although the Department at first had in mind an interest bearing loan, the ultimate conclusion, in agreement with the Treasury Department, was that a loan without interest would not only have the advantage of constituting an acceptable gesture of hospitality to the United Nations, but would probably in the long run actually be to the advantage of the United States from a strictly financial point of view. The Department concluded that the waiver of interest would greatly strengthen the hands of the United States Delegation in resisting the inevitable efforts to call upon the United States for the payment of a bigger share of the costs of construction than its share of the regular budget of the United Nations.
The argument has often been made to the effect that the United States derives an economic advantage from the expenditure in this country of nearly all the regular budget of the United Nations. The United States has been able so far to avoid an increased contribution on this account; we are in fact working for a decrease. The principal [Page 73] argument of the United States has been that it would not be consistent with the sovereign equality of Members if the Organization were dependent upon one Member for an excessive proportion of its revenue. This argument, however, will not carry so much weight in connection with the construction of the headquarters, since it will be urged that this is an isolated transaction not establishing any precedent. Other Members may call this Government’s attention to the generosity which has already been evidenced by a private citizen and by The City of New York. Attention may also be called to the fact that substantially the entire cost of construction will be expended in the United States to the benefit of American business and American labor and also that this Government would have a substantial additional cost on account of travel and communications expense if the headquarters were located elsewhere. (The Department estimates this amount at $300,000 a year if the headquarters were located at, say, Geneva.)
It appears that the definite economic advantages accruing to the United States as a result of the location of the headquarters in this country—entirely apart from any consideration of the desirability of a generous gesture by the host state—would fully justify the United States Government in making a special contribution towards the construction of the headquarters. If this contribution is made in the form of a waiver of interest, it has the great advantage of not prejudicing the position of the United States with regard to its contributions to the budget of the Organization. The loan would be repaid in annual installments out of the regular budget of the United Nations.
Statics of Question in the United Nations
While the question of financing was being considered in this Government, the Headquarters Advisory Committee which had been named by the General Assembly to assist the Secretary General in preparing architectural and financial plans for the construction of the headquarters discussed the matter at several meetings. Senator Austin, the United States Representative and Chairman of the Committee, and Mr. Ross, who sat for him on some occasions, were careful to avoid committing this Government in any way. The alternatives of outright cash contributions from Members, a private loan and a United States Government loan were fully discussed. The Committee was of the opinion that a United States Government loan would be the best solution and requested the Secretary General to ascertain from the Government of the United States whether it would be prepared to make such a loan.
After the interdepartmental consultations referred to above, it was decided that the United States Delegation should not take any initiative [Page 74] in favoring one method of financing as against another but that the only practicable course to follow if construction were to be started in 1948 would be a United States Government loan. With reference to an inquiry addressed to the United States by the Secretary General, the Department, with the approval of the President, authorized Senator Austin to notify the Secretary General that the President would be willing to request the approval by the Congress of an interest-free loan not exceeding $65,000,000 repayable in annual installments from the ordinary budget of the Organization. A copy of Senator Austin’s letter to this effect, dated October 29, is attached. Its delivery was announced to the press.1
The ad hoc Committee on Headquarters, created by the current session of the General Assembly, has unanimously adopted a resolution authorizing the Secretary General to negotiate an agreement for such a loan. This action will presumably be ratified at the next plenary meeting.2
- Documentation and events described in this memorandum are fully covered in L/UNA Files in a folder entitled “Financing Construction of United Nations Headquarters.”↩
- The General Assembly took action on November 20 authorizing the Secretary-General to negotiate a loan agreement with the United States; see GA (II), Plenary, pp. 1187–1194.↩