894.50/9–1348
The Assistant Secretary of State for Occupied Areas (Saltzman) to the Under Secretary of the Army (Draper)
Dear Mr. Draper: Restoration of Japan to self-support is a major objective of U.S. foreign policy. The “Policy Recommendations With Respect to Japan” presently before the National Security Council provide that, as an important step to this end, the Japanese Government and people should assume increasing responsibility for Japanese economic recovery. However, a major obstacle to effectuation of this recommendation may well arise, namely, the apparent expectation of the Japanese Government and people that they can rely upon continued U.S. aid to relieve them of the results of any failure on their part to initiate or carry out effective economic policies.
An opportunity for disabusing the Japanese of this expectation will shortly present itself. SCAP has recently been requested to prepare, in conjunction with the Japanese Government, a long-range economic recovery plan, which will include realistic economic goals that can be accepted by the U.S. and Japanese Governments. SCAP is expected to forward that plan to Washington in October, for review and approval by the U.S. Government. I suggest that the State and Army Departments, after approving that plan, communicate the following policies concerning its execution to SCAP, and ask SCAP to make them known to the Japanese Government and people:
- (a)
- full responsibility for execution of the plan to be assumed by the Japanese Government;
- (b)
- SCAP continuously to inspect Japanese economic performance under this plan, and to forward quarterly reports thereon to the U.S. Government;
- (c)
- consideration of these reports by the State and Army Departments to serve as a basis for periodic decisions by the U.S. Government concerning both the amount of Japanese appropriated aid to be requested of the Congress during the next fiscal year and the extent to which appropriated aid made available by the Congress for use in the occupied areas is to be assigned to Japan during any given period of the current fiscal year.
The adoption of these policies will place our Japanese aid program on somewhat the same basis as our aid programs in other parts of the world. They will, of course, diminish SCAP’s immediate control over the economic administration of the Japanese Government. However, basic economic policies in Japan can still be powerfully influenced by the U.S. Government if it clearly fulfills its announced intention of directly and continually relating the amount of U.S. aid to the caliber of Japanese economic performance.
Effectiveness of this policy would, I believe, be enhanced if the United States simultaneously announced its intention to pay to the Japanese Government, beginning in the fiscal year 1950, the dollar equivalent of all yen costs incurred by that Government in meeting the needs of the occupation forces—less a suitable allowance for capital installations of permanent value to the Japanese. The introduction of this pay-as-you-go arrangement would not affect the total amount of funds to be requested of the Congress for Japan in FY 1950, since the appropriation for Japanese import procurement could be reduced by the amount of dollars made available to Japan to cover occupation costs. However, the net amount of U.S. aid being furnished to Japan would be made more clear both to the Japanese and to ourselves than it is at present, and, as a result, execution of a policy relating the amount of that aid to Japan’s economic performance could be more easily effected and more generally understood. In particular, the Japanese would no longer be able to depreciate the significance of U.S. aid by indulging in loose allegations concerning the heavy counter-vailing burden of occupation costs.
Since payment for Japan on a current basis of the dollar equivalent of yen costs incurred by the Japanese Government in support of the occupation would reduce Japan’s dollar deficit, this proposed policy would also have the effect of reducing future appropriation requests for aid to Japan, as distinct from appropriation requests to meet occupation cost payments. This would have beneficial diplomatic consequences, since the smaller appropriation requests for Japanese aid would arouse less Far Eastern antagonism towards the United States and Japan.
I am aware that this pay-as-you-go arrangement, although followed in Austria and Korea, is not in effect in Germany; it does not seem to [Page 1013] me, however, that the German and Japanese situations are necessarily comparable, in view of the existence of a central Japanese Government, of SCAP’s undivided executive responsibility in Japan, and of the revised policy to be followed towards Japan during the pre-treaty period under the terms of the above-mentioned NSC policy paper.
I would appreciate hearing from you concerning these proposals at your earliest convenience, so that appropriate officials of the State and Army Departments may consult concerning them. I hope that it will be possible for the State and Army Departments to reach agreement on these proposals in the near future, as the Department of State would be assisted in determining its position in regard to future Japanese appropriation requests by knowledge of the course to be pursued with respect to these proposals.
Yours sincerely,