Volume 527, May 9 – May 12, 1942

DIARY Book 527 May 9 - - 12, 1942 di - A - Book Page Airplanes Shipments to British Forces - Kamarck report . - 5/11/42 527 131 Argentina See Latin America Australia See Lend-Lease - B - Board of Economic Warfare Meeting - minutes of (May 7, 1942) 26 Brazil See Latin America Business Conditions Haas memorandum on situation, week ending May 9, 1942 - 5/11/42 119 - C - Capital Issues Control See Financing, Government China Adler report - 5/11/42 200 a) All Chinese Government property in Burma destroyed b) Kung thanks HMJr for continued interest in all aid in war effort c) Kung happy at word of Fox's return d) Kung's further message of appreciation - 5/17/42: See Book 529, page 54 Comptroller of Currency See Foreign Funds Control Counterfeiting See Financing, Government: War Savings Bonds Currency, Comptroller of See Foreign Funds Control - E - Ecuador See Latin America - 7 - Book Page Financing, Government Capital Issues Control: Correspondence between Securities and Exchange Commission and Treasury concerning - 5/9/42. 527 10 Conference; present: HMJr, Eccles, Currie, Purcell, Healy, McCormick, and Buffington - 5/12/42 283 a) Minutes 313 Subscriptions to 21% Treasury bonds, 1962-67 - Heffelfinger memorandum - 5/11/42 106 1% Certificates of Indebtedness: Haas analysis of reports concerning subscriptions - 5/11/42. 108 War Savings Bonds: Navy Department: HMJr asks greater cooperation from Knox in connection with rallies - 5/11/42 112 a) Knox's reply - 5/13/42: Book 528, page 47 Counterfeiting stamp ring arrested - 5/12/42 222 Conference: present: HMJr, Mahan, Sloan, Poland, Houghteling, Duffus, Gamble, Graves, Kuhn, Coyne, and McCarty - 5/12/42 244 a) Labor's position discussed by Houghteling b) Mahan asked to improve retail stores display Stokowski, Leopold: Offers services - 5/12/42 260 Post Offices: Desks in lobbies for sale of stamps, etc. - HMJr decides to drop - 5/12/42 264 Issuing Agents - report to date: Haas memorandum - 5/12/42 277 Sales, May 1-11 - 5/12/42 282 Foreign Funds Control Comptroller of Currency: Bank examiners, now replaced by newly employed personnel, to be returned to Comptroller - 5/9/42 23 Motion Picture Industry (RKO in particular): Request for release of funds blocked in Sterling Area - White memorandum - 5/11/42 142 a) Conference: present: HMJr, White, Breckenridge Long (State): Book 529, page 195 b) State Department interest discussed by - Treasury group - 5/22/42: Book 530, page 266 General Aniline and Film Corporation: Alien Property Custodian-Treasury correspondence concerning release of bank accounts - 5/11/42 159 France See Latin America: Argentina; Brazil - G - General Aniline and Film Corporation See Foreign Funds Control Germany Italian sales of gold and cattle to Switzerland in order to acquire free Swiss francs "to satisfy a part of Italy's obligations to Germany for war material deliveries" - cables concerning - 5/12/42. 374 *c) Hays (Will)-White conference - 6/3/42: Book 536, page 72 Regraded Unclassified - H - Book Page Henderson, Leon Attitude toward compulsory savings: Discussed by 9:30 group - 5/12/42 527 224,226 # . HMJr, Graves, Gamble, Kuhn, and Odegard: See Book 528, page 12 a) Newspaper reaction reviewed Henderson's note to HMJr concerning misinterpretation in newspapers - 5/18/42: Book 529, page 62 - I - Itabira Company See Latin America: Brazil Italy See Germany - L - Latin America Argentina: Coordinator of Information memorandum: "Evidence of Cooperation and Non-Cooperation" - 5/9/42 64 Dollar Currency: Shipments to United States by Pan-American Airways System, January 5-April 24, 1942 - 5/11/42 189 France: Statement of account of Chancellery of Buenos Aires - 5/12/42 378 Brazil: United Kingdom-Brazil Iron Ore Agreement: Memorandum concerning British Itabira Company - 5/11/42 139 France attempting to have funds and securities unblocked; State suggests to Treasury telegram encouraging authorities to deny appeal - - 5/11/42 185 a) Finance Ministry, Vichy, message to French Embassy, Rio - 5/18/42: Book 529, page 142 Ecuador: Change in dollar-sucre exchange rate - 5/9/42 98,205 Lend-Lease Report for week ending May 9, 1942 - 5/12/42 345 Australia: Reverse Lend-Lease figures - - preliminary report - 5/11/42. 193 United Kingdom: Vesting order sales - 5/11/42 136,137 British financed contracts taken over by United States: Walsh-Healey complication discussed by McCloy and HMJr - 5/12/42. 242 Delay between payment on contracts and actual shipment discussed in Phillips' memorandum in re taking over of air and ordnance contracts - 5/16/42: Book 528, page 28 *(See also Book 535, page 323.) Regraded Unclassified - M - Book Page Military Reports British operations - - 5/9/42, etc 527 103,105, 216,405 Kamarck summary - 5/11/42 217 Coordinator of Information report: British Political Warfare attitude, European target - - summary - 5/12/42 406 Motion Picture Industry See Foreign Funds Control - N - Navy Department See Financing, Government: War Savings Bonds - 0 - Office for Emergency Management FDR tells HMJr "it no longer exists" - 5/12/42 219 a) Memorandum describing legislation established - 5/13/42: See Book 528, pages 174 and 257 Oil Companies Situation (financial) discussed by Rayburn and HMJr - 5/12/42 326 a) Upham-HMJr conversation - 5/12/42 333 b) Upham memorandum - 5/12/42 335 (See also Book 528, page 168 - 5/13/42; Book 529, page 103 - 5/15/42) c) Rayburn-HMJr conversation - 5/14/42: Book 528, page 209 - P - Philippine Islands Treasury personnel - evacuation discussed in Treasury- State correspondence - 5/11/42 170 Procurement Division Budget Bureau plan to utilize in connection with essential materials discussed by 9:30 group - 5/12/42.. 229 - R - RKO See Foreign Funds Control: Motion Picture Industry Regraded Unclassified - S - Book Page Silver United Kingdom: Coinage supply adequate through October - Phillips memorandum - 5/11/42 527 138 Switzerland See Germany - U - U.S.S.R. Internal loans discussed by Gromyko (Embassy), White, and Ullmann - 5/12/42 344 United Kingdom See also Latin America (Brazil); Lend-Lease; Silver Taxation: Casaday reports on relief provisions for persons with reduced incomes because of war - 5/12/42.. 385 1 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE May 9, 1942. TO Secretary Morgenthau FROM Abbot L. Mills, Jr. & Subject: REPORT ON DETROIT CONTACTS TO ENLIST ISSUING AGENTS IN THE AUTOMOBILE INDUSTRY.* Contact No. 1 - Chrysler Corporation, May 6. The contact was made by Mr. Frank N. Isbey, State Director for Michigan for the War Savings Staff, Mr. A. T. Sihler, Vice President of the Federal Reserve Bank of Chicago, Mr. H. J. Chalfont, Managing Director, Detroit branch of the Federal Reserve Bank of Chicago, and the writer. Representatives of the Chrysler Corporation were Messrs. Davies, Treasurer, and Trouest, Comptroller. Previous consideration had been given by the Company to the program of becoming an issuing agent. Mr. Davies believes that his Company should become an issuing agent and his opinion was shared by Mr. Trouest. In result Mr. Davies gave a firm commitment that the Chrysler Corporation would become an issuing agent and indicated that approval to the program might be expected to be ob- tained at an early meeting of the Company's executive com- mittee. Mr. Davies volunteered to advise other executives in the industry of the Chrysler Corporation's action as a means of assisting the Treasury's recruitment and later developments revealed that Mr. Davies had taken the courteous action that he suggested. Contact No. 2 - Packard Motor Car Co., May 6. The Treasury's presentation was made by the same group as in Contact No. 1. The Packard Motor Car Co. was repre- sented by Treasurer Hugh Fery and Comptroller E. C. Hoelzle. The Packard representatives were both responsive to the Company's becoming an issuing agent, and the matter was left that Mr. Fery would recommend such action for ratifica- tion at an early meeting of the Company's executive committee. It 18 understood that Mr. Fery's recommendation may be con- sidered final. Regraded Unclassified 2 Secretary Morgenthau - 2 Contact No. 3 - General Motors Corporation, May 7. The Treasury's presentation was made by the same group as in Contacts No. 1 and No. 2. The General Motors Corporation was represented by Mr. H. L. Jackson who has been in charge of their Company's savings program for a long period and who now supervises their payroll savings activities as well as the plans that are under way for the Company to obtain War Savings Bonds with which to service their payroll savings plan. Mr. Jackson was entirely 00- operative and appreciated the necessity of his Company's making arrangements that would provide prompt delivery of bonds to employees whose payroll deductions had accumulated to the necessary purchase prices. Exhaustive study has been given the issuing agency program by the General Motors Corporation. In view of their extensive operations, the Company's management apparently does not consider it practicable to become an issuing agent through one central office from which to serv- ice their entire operations. Instead the Company's central office will service its local staff, and it 18 planned to service their other units through arrangements that have been made or will be made with prominent banks adjacent to the respective units, which banks are in all cases issuing agents and are believed to be fully equipped to service the needs of the local General Motors Corporation units. It was indicated to Mr. Jackson that the Treasury has no objection to arrangements of this nature where it is not practicable for the Company itself to become an issuing agent on a broad scale. Mr. Jackson was cautioned, however, as to the desirability of his Company's assuring itself that the issuing agents with whom service arrange- ments are being made are adequately equipped to render the services required. Contact No. 4 - Ford Motor Company, May 8. The Treasury's presentation was made by the same group as in previous contacts, together with Mr. Frank C. Padzieski, a Dearborn representative of Mr. Isbey's War Savings Staff. The Company was represented by its most responsible officials, including Mr. Harry Bennett, who has the last say in everything, Mr. Rausch, Superintendent of Production, and Paymaster Bosardy. The Company is in full sympathy with the payroll savings plan and with the desirability of their becoming an issuing agent. In fact, after a brief discussion the Company proceeded to qualify on the spot and at Mr. Sihler's instance executed the Treasury's application form. Regraded Unclassified 3 Secretary Morgenthau - 3 Contact No. 5 - Hudson Motor Car Co., May 8. The Treasury's presentation in this instance was made by Mr. H. J. Chalfont, Managing Director, Detroit branch of the Federal Reserve Bank of Chicago, Mr. John Carstans, Deputy State Administrator under Mr. Isbey, and the writer. The Hudson Motor Car Co.'s Treasurer was 111 at home and the Secretary absent from the city. The Company's representatives, therefore, were Messrs. Brown, Chief Accountant, and Wilson, Comptroller. The procedure necessary to engage as an issuing agent was discussed at some length and it 1s believed that the Company's representatives favor the idea. A decision will be reached on Monday or Tuesday of next week when the program will be presented for consideration to the Company's executive committee. Favorable action is ex- pected. As shown from the above contacts, the automobile manufacturing industry as practically & unit has agreed to assume the issuing agency functions. There is little doubt but that the approval obtained can be attributed to the Treasury's cooperation in obtaining a simplifica- tion of the industry's accounting practices. The industry's leadership in the issuing agency field will assuredly be helpful in enlisting the cooperation of other industries and companies. It will still be necessary to recruit the remain- ing large corporations located in Detroit which have not yet become issuing agents. Inasmuch, however, as Mr. Isbey was called to Washington and as Mr. Sihler will be absent for the greater part of the coming week at a Fiscal Agency meeting, the final approach is to be deferred for some ten days, by which time all of those present on the original contacts can again assemole. It is now planned to hold a group meeting among the re- maining large corporations and to solicit their general acceptance of the issuing agency function. With the leadership now obtained from the automobile manufacturing industry, little difficulty should be experienced in obtaining the cooperation of the remaining large corpora- tions in the Detroit area. Aboot L. Mills, Jr. May 9, 1942. The Honorable Henry Morgenthau, Jr., Secretary of the Treasury, Washington, D.C. Dear Secretary Morgenthau: As requested by the Secretary of the Treasury, repre- sentatives of the securities industry met in Washington on Thursday and Friday, May 7th and 8th, and the Presidents of the Federal Re- serve Banks met on Friday, May 8th, to discuss an organization to promote the distribution and sale of government securities. After separate meetings the two groups appointed committees of five members each to consult together and with members of the Treasury staff. This joint committee was in general agreement as to the form of organization to be suggested to the Treasury, and it appointed the undersigned to prepare a final draft of recommendations. This procedure was reported back to the two larger groups at a joint meeting, and approved by them. There is attached an outline of the organization which the two groups now propose for your consideration, together with a chart indicating the general form which the organization might take. There is also attached a list of those who participated in the group meetings, and the meetings of their sub-committees. Yours faithfully, Edward Hopkinson, Jr. Allan Sproul. Encs. (3) Regraded Unclassified 5 Suggested Organisation to Assist in the Distribution and Sale of Government Securities 1. National Committee The whole organization would be under the direction of the Secretary of the Treasury. (a) Presidents of the 12 Federal Reserve Banks (b) Liaison between Board of Governors of the Federal Reserve System and the Treasury - Chairman of the Board of Governors. 2. Basis of Organization The organization throughout the country should be set up by Federal Reserve Districts, with a committee for each district under the chairmanship of the President of the Federal Reserve Bank of the district. 3. District Committees The District Committees would vary in size depending upon the geographical extent of the district and the location and number of its financial centers. The personnel of the District Committees would be chosen primarily from the financial community including the securities industry and commercial bankers, but others whose position or personality would make their appointment appropriate and desirable could also be included. The District Committee would be appointed by the President of the Federal Reserve Bank in each district, after consultation with representatives of the securities industry and the banking community, appointments to be subject to the approval of the Secretary of the Treasury. A Secretary of the District Committee (and of Executive Committee if ap- pointed) would be appointed by the Chairman of the Committee. 4. Executive Committee If the circumstances of the district or of the work to be done require it, in the judgment of the District Committee, a small Executive Committee would be appointed from the District Committee membership. 5. Regional Committees Committees for regional areas within districts would be appointed where nec- essary in the judgment of the District Committee. The size of such committees would be determined by the District Committee. Their personnel would be chosen, using the same criteria as in the case of the District Committee. Appointment would be by the Chairman of the District Committee subject to the approval of the Secretary of the Treasury. 6. Headquarters Organization (a) Executive Manager who will have executive direction of the sales effort in each district, under the District Committee and its Executive Committee, if (b) Quarters, any. equipment and staff to be provided by the Federal Reserve Banks on a fiscal agency reimbursable basis. (c) Branch or regional headquarters to be set up on same basis in those districts where this is necessary. 7. Field to be Covered This proposed organization would be designed to assist in all of the finane- ing operations of the Treasury except the sale of Series E War Savings Bonds. In the sale of Series F and G War Savings Bonds it would, of course, work with the existing War Savings Organization. 6 VICTORY FUND COMMITTEES TO BE ORGANIZED BY FEDERAL RESERVE DISTRICTS National Committee Secretary of Treasury, Chairman Presidents of the Twelve Fed. Res. Banks (Liaison with Board of Governors of Fed- eral Reserve System through its Chairman) District Committee members - (Securities industry, Commercial Bankers, Others) Chairman - Pres. F. R. Bank Secretary - Executive Committee members - Chairman - Pres. F. R. Bank Secretary - Executive Manager Regional Committees Regional Committees Regional Committees Regraded Unclassified PARTICIPANTS IN MEETINGS OF REPRESENTATIVES OF SECURITIES INDUSTRY AND FEDERAL RESERVE SYSTEM, HELD AT WASHINGTON, D. C., MAY 7 and 8, 1942, TO DISCUSS AN ORGANIZATION TO ASSIST IN THE DISTRIBUTION AND SALE OF GOVERNMENT SECURITIES. SECURITIES INDUSTRY DEWAR, H. H., Chairman, National Association of Securities Dealers, National Bank of Commerce Building, San Antonio, Texas. FULTON, WALLACE H., Executive Director, National Association of Securities Dealers, 1616 Walnut Street, Philadelphia, Pennsylvania. FLEEK, JOHN S., President, Investment Bankers Association, Union Commerce Building, Cleveland, Ohio. SCHRAM, EMIL, President, New York Stock Exchange, 11 Wall Street, New York, New York. BURNS, JR., JAMES F., President, Association of Stock Exchange Firms, 24 Broad Street, New York, New York. RICH, DOMINIC, Chairman, Government Securities Dealers Group, 31 Nassau Street, New York, New York. GARLAND, CHARLES S., Partner, Alex Brown and Sons, 135 East Baltimore Street, Baltimore, Maryland. BLYTH, CHARLES R., President, Blyth and Company, Inc., Russ Building, San Francisco, California. PATTON, FRANCIS F,, Vice President, Becker, A. G,, & Co., Inc., 100 S. LaSalle Street, Chicago, Illinois. BAIRD, ROBERT W., President, Wisconsin Company, 110 East Wisconsin Avenue, Milwaukee, Wisconsin. Regraded Unclassified 8 (continued) -2- HALL, PERRY E., Vice President, Morgan Stanley & Co., Inc,, 2 Wall Street, New York, New York. HOPKINSON, EDWARD, JR., Partner, Drexel and Company, 1 15th and Walnut Streets, Philadelphia, Pennsylvania. STUBBS, JOHN O., Vice President, Whiting, Weeks & Stubbs, Inc., 36 Federal Street, Boston, Massachusetts. HILLIARD, EDWARD H., Partner, J. J. B. Hilliard & Son, 419 W. Jefferson Street, Louisville, Kentucky. FEDERAL RESERVE SYSTEM Board of Governors of the Federal Reserve System ECCLES, MARRINER S., Chairman RANSOM, RONALD, Vice Chairman SZYMCZAK, M. S. McKEE, JOHN K. DRAPER, ERNEST O. EVANS, R. K. FEDERAL RESERVE BANKS NAME CITY PADDOCK, W. 7., President Boston SPROUL, ALLAN " New York WILLIAMS, ALFRED H. II Philadelphia FLEMING, M. J. II Cleveland LEACH, HUGH " Richmond McLARIN, W. S., JR. " Atlanta YOUNG, C. S. " Chicago ATTEBERY, O. M., Vice President St. Louis PEYTON, J. N., President Minneapolis LEEDY, H. G. " Kansas City GILBERT, R. R. II Dallas DAY, WILLIAM A. = San Francisco Regraded Unclassified -3- 9 SUB-COMMITTEES APPOINTED BY ABOVE GROUPS TO DISCUSS JOINT RECOMMENDATIONS Securities Industry BAIRD, ROBERT W., President, Wisconsin Company, 110 East Wisconsin Avenue, Milwaukee, Wisconsin. BLYTH, CHARLES R., President, Blyth and Company, Inc., Russ Building, San Francisco, California. FLEEK, JOHN So, President, Investment Bankers Association, Union Commerce Building, Cleveland, Ohio. HOPKINSON, EDWARD, JR., Partner, Drexel and Company, 15th and Walnut Streets, Philadelphia, Pennsylvania. SCHRAM, EMIL, President, New York Stock Exchange, 11 Wall Street, New York, New York. Federal Reserve System DAY, WILLIAM A. President, Federal Reserve Bank of San Francisco. SPROUL, ALLAN, President, Federal Reserve Bank of New York. VILLIAMS, ALFRED H., President, Federal Reserve Bank of Philadelphia. YOUNG, C. S., President, Federal Reserve Bank of Chicago. ECCLES, MARRINER S., Chairman, Board of Governors of the Federal Reserve System, Washington, D. C. used at meeting 10 5/12-11:00- MA. 9 1942 Dear Mr. Purcell: On behalf of the Secretary, I an acknowledging your letter of May 6, 1942, enclosing suggested draft of a letter to be sent to the President. Inasmuch as the same group will neet with the Secretary, Tuesday, May 12, 1942, on the same general sub- jest, it is suggested a decision be made at that time with respect to the draft submitted. Sincerely yours, (Stonal) George Buffington George Buffington, Assistant to the Secretary. Mr. Ganson Purcell, Chairman, Securities and Exchange Commission, Philadelphia, Pennaylvania. GB:amo 11 Mr. Buffington: The Secretary did not have an opportunity to read Mr. Purcell's letter and asked me to refer it to you. N.M.Chauncey 12 SECURITIES AND EXCHANGE COMMISSION WASHINGTON OFFICE OF THE CHAIRMAN May 6, 1942 The Honorable The Secretary of the Treasury Treasury Department Washington, D. C. My dear Secretary Morgenthau: Thank you for calling the informal meet- ing last Wednesday of those who have expressed an interest in the use of capital funds during this war period. I appreciated the opportunity of discussing with such a group the matters which have given our Commission considerable concern and which we feel should also be of equal concern to the others. I was gratified that the problems of initial impact in this field aroused the inter- est of this group. I feel that you have brought about a basis for real progress through the formation of the informal committee to handle matters relating to new issues on twenty-four hours' notice. There will be problems of this character to present to the committee from time to time and I will undertake to bring them to your attention. I have already asked Mr. Buf- fington to arrange a meeting at an early date to consider certain proposed issues which have come to our attention since the meeting. It is my hope that this informal ar- rangement will also permit the consideration of other related problems which we feel are an integral part of this question, and that through this process we can develop an effec- tive program to cope with whatever stresses may develop. 13 - 2 - I recall that something was said about informing the President, by letter, about our meeting and the tentative arrangement that has been made. I assume that this already has been done. However, since it may have been over- looked, I have prepared 8. suggested draft of 8. letter from you to the President which may be fil helpful to you. Sincerely yours, Yanon Princil Ganson Purcell Chairman 14 DRAFT My dear Mr. President: On Wednesday, April 29, 1942, 8 meeting was held at my office on the subject of capital funds control. Present were the Secretary of Commerce, the Chairman of the Board of Governors of the Federal Reserve System, the Chairman of the Securities and Exchange Commission, and Mr. Lauchlin Currie, as well as myself. Consideration WAS given to the desirability of instituting some control over capital issues with a view to avoiding competition between such issues and Government financing for the war. In P. rticular, consideration was given to the necessity of controlling the amounts of such offerings and their timings so as not to interfere with Government financing of various types. In addition, there was discussed the need for capital control in preventing the raising and employ- ment of capital for non-essential activities and the consequent creation of competition for labor, materials, and transportation between non-essential activities and activities essential to the war effort. Regraded Unclassified 15 - 2 - It was determined that a substantial problem exists which requires some governmental scrutiny and the persons present agreed to constitute themselves a committee to watch developments in this field and to meet upon call. It is expected that definite rec- ommendations for executive action will be made at the moment the need appears. Respectfully submitted, ONS AVA 1 111 " 51 Regraded Unclassified 16 May 9, 1942 Telegram received from John A. Hartford, President Great Atlantic and Pacific Tea Co. "Consumer reaction to price ceilings continues favorable although volume of comments declining. Evidence continues that many people still believe prices will be uniform in all stores under ceiling. Business generally normal, with some local spots reporting consumers buying lightly in anticipation of lower prices. "Pittsburgh sales Thursday 18 percent over two weeks ago. Accumulated four days sales 5-3/4 percent ahead of same period two weeks ago. Consumer comments fewer but continuing favor- able. New York sales Thursday slightly above week ago. Buying appears normal with consumer comment declining. Boston sales generally normal. Some little evidence buying is lighter in anticipation ceiling effectiveness. Answers to store manager queries show some belief ceiling prices will be uniform. Chicago sales gaining over last week and two weeks ago. The few comments reported are favorable. Philadelphia sales con- tinue slightly under last week and two weeks ago, but not attributable to widespread withholding for imposition of ceilings. Comment declining, answers to queries indicate con- sumers taking ceiling order in stride. Presume today's report completes information you requested." 17 May 9, 1942 Telegram received from Mr. L.A. Warren, President, Safeway Stores, Inc. "In accordance with request for daily report, sales of Thursday show no appreciable change in sales volume due to price order. Indications of more than normal buying of coffee by some customers. Customer comment regarding order generally favorable." 18 May 9, 1942 Telegram received from Mr. R. E. Wood, Sears Roebuck and Company "Mail order sales trend May 6th to 7th: No direct effect of price regulation noticeable. Retail, May 2nd 4th and 5th show definitely a slowing down from previous year, compared with increases during week immediately preceding April 28th of about eleven percent, but this may be due to elimination this year of last year's sales promotion during May, also auto tires and appliances such as refrigerators coming into season in May absent this year. If 19 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE TO E. H. Foley, Jr. May 9, 1942 FROM Maurice Quint George Murnane - Jean Monnet From the Internal Revenue agent's reports delivered to you today on his examination of the records of (1) Monnet, Murnane & Company, the New York partnership, (2) Monnet, Murnane & Company, Ltd. of Hongkong, a corporation whose stock is divided equally between Monnet and Murnane, (3) Jean Monnet, individually, and (4) George Murnane, individually, and from my examination to date of the TFR-300 reports involving Murnane and Monnet, the following facts appear of interest concerning them. 1. Monnet, Murnane & Company, New York. This partner- ship was formed in 1935 under an agreement which up to December 31, 1940 provided that Monnet and Murnane divide the partnership income equally between them. The activities of the firm appear to consist of the financial and business advice given by Murnane to the various clients of the firm. Part of this advice appears to consist of assisting clients in their relations with Govern- ments both United States and foreign. During 1940 the partnership's net income was $78,000 de- rived from 17 clients. Included in this income was $15,000 from the American Bosch Corporation, $10,000 from the National Depart- ment Stores, Trenton, New Jersey, and $6,000 from the Trust Company of New Jersey, paid to Murnane as a director. Most of the rest of the income was based on service contracts with the partnership. It is interesting to note that Murnane turns over to the partner- ship all salary received by him as a director of various corpora- tions as set forth on page 12 of the agent's report. In the year 1941, the partnership had a net income of $110,000 derived in the same manner from 22 clients. The agreement between the partners was changed in 1941 to provide for a division of 75 per cent to Murnane and 25 per cent to Monnet. It should be noted that Monnet apparently devotes no time to the activities of the partnership, while Murnane apparently 20 -2- devotes all of his time to these activities. Nevertheless, the income is divided as before stated. 2. Monnet, Murnane & Company, Ltd., Hongkong. This corporation was organized in 1937 to engage in the same kind of business as that of the New York partnership. The agent con- siders that the probable purpose of organizing this corporation is to avoid paying a United States income tax. Petschek Deal. Through this company in 1937 and 1938 the Petschek interests, Formerly a private banking house of Prague, were enabled to liquidate certain assets in Germany and transfer the proceeds to the United States. The transaction appears to have been handled in the following manner. Petschek and Company was a creditor of certain German coal companies in 1937. An English subsidiary, the Industrial Mining and Development Corporation, owned certain shares in the German coal companies. Fearful of what Hitler might do to his German assets, Petschek in 1937 prevailed on Viscount Strathallan, (son of the Earl of Perth, former British Ambassador to Italy and once the head of the League of Nations, whom Monnet probably knew when he was associated with the League) London agent of Monnet, Murnane, Hongkong, to visit Berlin to pro- tect his interests in the German coal companies. Strathallan apparently advised Petschek to organize a voting trust and to trans- fer all of the stock under his control to that trust. In any event, the trust was organized and Petschek appointed Murnane as a voting trustee. Murnane through Strathallan maintained active contact with the coal company officials in Berlin and was able to sell these Petschek German assets and to transfer the proceeds in an amount over $6,000,000 to the United States. For this service Monnet, Murnane, Hongkong received in 1938 a fee of more than $200,000. 3. Jean Monnet. Monnet's TFR-300 report on himself shows assets in the United States in 1941 of $109,000, of which $99,000 is represented by his interest in the partnership. Monnet's gross 1940 income was $54,000. His expenses for 1940 appeared to be routine, the only interesting item being a final payment of $12,500 to John Foster Dulles on account of a $37,000 loan made in 1937. Monnet's receipts from the United States for 1940 aggregate about $60,000 including $37,000 borrowed from Monnet, Murnane & Company of Hongkong and $15,000 dividend from that Corpora- tion. Monnet withdrew only $2,350 from the New York partnership in 1940 against withdrawals of $70,000 by Murnane. 4. George Murnane. Murnane was born in Brooklyn, New York in 1887. From 1910 to 1912 he worked for the New York Regraded Unclassified 21 -3- Telephone Company and from 1912 to 1919 for H. K. McCann Company. From 1919 to 1928 he was Deputy Commissioner for the French American Red Cross and during the same period was Vice President of the New York Trust Company. From 1928 to 1935 he was a partner in Lee Higginson & Company, and from 1935 to date he has been 8. partner in Monnet, Murnane & Company. In 1940 his net income was about $56,000, of which $39,000 was derived from the New York partnership and $15,000 as dividends from Monnet, Murnane & Company, Ltd., Hongkong. His expenses in 1940 (including a house expense of over $30,000) was in excess of $69,000. In 1941 his income was about $88,000 and his expenses were roughly $77,000. Murnane' Long Island home (title in Mrs. Murnane) is carried on his books at about $474,000 and represents his ma jor asset. There is a mortgage in an amount of $150,000 against it payable to Harry G. Cushing III. Murnane has borrowed approximately $10,000 on his life insurance policies. He owes Jean Monnet over $79,000 which until a recent assignment was a debt due from Murnane to the New York partnership for sums withdrawn from the firm capital. Murnane's expenses appear to be routine. The net worth of Murnane and his wife at the end of 1941 was $232,000, representing mostly the equity in the Long Island estate. From these facts taken together with the other information in our possession, it appears that Murnane has no suspicious assets. Among the more interesting of Murnane's many foreign associations are the following: (a) Solvay-American Corporation. Murnane, together with Eli Whitney Debevoise, New York lawyer and John C. Traphagen, New York banker, as voting trustees, hold 300,000 shares of common stock of Solvay-American Corporation (all common stock outstanding) for the benefit of Solvay & Cie of Brussels. Solvay-American Cor- poration is an investment trust with a portfolio aggregating over $90,000,000. The principal asset in this portfolio is 500,000 shares Allied Chemical and Dye stock having a value of over $76,000,000. Actual ownership of Solvay & Cie is not known and I understand has been a matter of investigation by Foreign Funds for some time. (b) United Continental Corporation. Monnet, Murnane & Company, New York, owns 20,000 shares of this stock which is 22 subject to an option to purchase in Tresno Corporation which is owned by the Petschek interests mentioned above. This corporation is an investment trust having assets of about $6,000,000 in the United States. (c) American Bosch Corporation. Murnane's status as voting trustee for the foreign owned shares of American Bosch Corporation is known. The agent's examination has disclosed further evidence of the close relationship between Mannheimer, principal figure in Mendelssohn & Company, and Murnane. In explaining certain entries in his books, Murnane advised the agent that in 1938 Mannheimer carried a securities account for Murnane in excess of $185,000 under an arrangement whereby Murnane received profits and Mannheimer bore losses. This account was closed out with a debit balance of over $30,000 when Mendelssohn & Company failed in 1939. For some time this debit balance was carried on Murnane's books as a debt due Mendelssohn. Now Murnane claims there never was a debt. (d) York Commercial Corporation. Murnane, together with one Ernest Frohknecht, a Dutch Jewish refugee banker, and Donald Mackenzie as voting trustees hold all of the stock of the York Commercial Corporation which has assets of about $2,000,000 in the United States. The stock is apparently held for the benefit of Frohknecht. As regards Frohknecht it is of interest that in a TFR-300 report he states that he holds funds in the United States which he believes are beneficially owned by Germans. He says he is unable to furnish a list of these owners and that he believes the funds are German owned "because the oral instructions (re distri- bution to the owners) were given to me by a German." It may be noted generally that the agent's examination and my examination have thus far not disclosed any evidence that Murnane or Monnet is presently representing or acting for Axis interests. Maurine Quint pers Regraded Unclassified TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE MAY 9 - 1942 TO Secretary Morgenthau FROM E. H. Foley, Jr. By a memorandum, dated August 14, 1941, Mr. D. W. Bell, pursuant to your instructions, advised Mr. Delano that he-should assign bank examiners and other personnel to assist in supervising foreign-owned banks and other commercial concerns placed under the jurisdiction of Foreign Funds Control, and advised that such supervisory personnel should be responsible to Mr. Delano. In accordance with those instructions several hundred bank examiners were taken from their regular work of examining banks and placed in such foreign business concerns. As rapidly as feasible these bank examiners have been replaced by newly- employed personnel. At present only a very few bank examiners are still being used in Foreign Funds supervision. The bank examiners placed in business concerns were under the direct control of and reported directly to the various chief national bank examiners, rather than to the Foreign Funds Control Division of the Treasury or to the various Federal Reserve Banks as agents of Foreign Funds Control. As bank examiners were replaced by newly-employed personnel, this new personnel has con- tinued to report directly to the various chief national bank examiners. Regraded Unclassified - 2 - The Comptroller of the Currency, his chief national bank examiners and their staffs have played an invaluable role in the supervision of foreign business enterprises. This was especially true immediately after Pearl Harbor when qualified personnel was needed without delay. Much of whatever success we have attained in this field has been due to their cooperation. Since there are now very few bank examiners engaged in business supervision, newly-employed personnel having taken their place, it is believed that the time has come to place the business supervisory personnel directly under the authority of Foreign Funds Control rather than under the chief national bank examiners. This step will make it possible for the chief national bank examiners to return full-time to their regular duties in the banking field. In addition it will remove what is now an unnecessary intermediate step between Foreign Funds Control and the personnel which it has employed to supervise foreign business enterprises. If you concur in the suggestion that the business supervisory personnel, other than national bank examiners, be Regraded Unclassified - 3 - placed directly under Foreign Funds Control, please indicate your approval below. 9.7% h. I APPROVE: Secretary of the Treasury. sub Regraded Unclassified BOARD OF ECONOMIC WARFARE 26 ECONOMIC DEFENSE BOARD WASHINGTON, D.C. OFFICE OF THE EXECUTIVE DIRECTOR May 9, 1942 The Honorable, The Secretary of the Treasury Dear Mr. Secretary: The minutes of the meeting of the Board of Economic Warfare which was held on Thursday, May 7, are enclosed. If there are any corrections which you care to suggest, please let me know. Sincerely yours, nilo Person Executive Director Enclosure WIN уплавет VEGETARD VJ SACI as YAM 8:40 COMMERBONDENCE DIA1210M to apletvi donseasH vistegoM Regraded Unclassified 27 Vinutes of the Meating of the Board of Economic Marfare Hald May 7. 1942 at 10:00 Regraded Unclassifi A meeting of the Board of Economic Warfare was held in the Vice President's office in the Capitol Building at 10:00 4. M. on May 7, 1942. The meeting was attended by the following members of the Boards The Vice President, Chairman of the Board The Secretary of State The Secretary of the Treasury Mr. R. P. Patterson, representing the Secretary of Mar The Attorney General Mr. James v. Forrestal, representing the Secretary of the Havy The Secretary of Agriculture The Secretary of Commerce Mr. Nelson Rockefeller In addition, the following persons were presents Mr. Milo Perkins, Executive Director of the Board of Economic Warfare Mr. Harold Smith, Director, Buresu of the Budget Mr. Deen Acheson, Assistant Secretary of State Mr. Harry White, Assistant to the Secretary of the Treasury Mr. will Clayton, Department of Commerce Mr. Laurence T. Duggan, Department of State Mr. E. W. Gaumnits, Special Assistant to the Executive Director, Board of Economic Warfare The Vice President opened the meeting and announced that until further notice, meetings would be held every two weeks in his office at 10:00 4. M. on Thursdays. He discussed briefly the functions of the Board of Economic Warfare, noting that the Board had certain staff functions as well as at- ministrative functions, the staff functions, as such, being particularly diffi- cult. He indicated that the meetings should have as the principal objectives: (1) Keeping members informed (2) Keeping jurisdictional lines clear and making certain that responsibilities and powers were definitely fixed, and (3) Most important, making certain that all important problems within the broad scope of the responsibility of the Board were being handled. Elimination of Axis influence in Latin America. The Vice President suggested that each of the agencies submit within a week & report with reference to this subject, outlining its responsibilities, programs and relationships with other agencies, with suggestions for additional 28 - 2 - Regraded Unclassifie work appearing desirable whether done by it or other agencies. These reports were to be submitted to Mr. Perkins, who was requested to have them sumarised and recommendations prepared for presentation at a later meeting. These summaries are for the purpose of assertaining particularly the points needing additional emphasis, and of determining whether all agencies were being used to the greatest possible advantage. Relationship of the State Department to the Board of Economic Warfare, Secretary Hull raised the general question of the relationship of the State Department to the Board of Economic Warfare, the Secretary stating that the State Department had for several years directed its energies towards pro- moting a more friendly relationship with South American countries, and that much progress had been made. Extreme care was necessary in order not to die- turb further progress. In building this better relationship, the State Department has cooperated fully with other Government Departments having specific interests and has taken into consideration political, economic, military and cultural phases and interests. While recognising the extreme urgency of action in Latin America, the Secretary indicated that the State Department was charged with the responsibility of handling relationships with foreign Governments. In prosecuting elimination of Axis influence in Latin America, consultation with the State Department, with reference to proposed action, therefore seened essential, and jurisdictional lines should be care- fully followed. The Attorney General stated that two years ago, at the request of the State Department, the Department of Justice had instituted an Intelligence Section in South America and now had about 150 agents. It was his impression that there were many things remaining to be done such as guarding certain strategic points. Freesing Argentina Funds. Secretary Morganthau stated that immediate consideration should be given to the freesing of Argentina funds in the United States, these funds probably amounting to $500,000,000. He suggested that & sub-committee be appointed to consider this subject and make recommendations. It vas decided that representatives of the interested agencies be called together by a rep- resentative of the Board of Economic Warfare, the agencies and representatives being as follows: State Dean Acheson Department of Justice - (To be named later) Treasury Department - Harry White Board of Economic Warfare Frank Goe Coordinator of Inter-American Affairs - John E. Lockwood Commerce Department - W. L. Clayton Mr. Biddle suggested that a representative from the Office of the Custodian of Alien Property be added. 29 Regraded Unclassif Communications System anone the American Republies, The Vice President presented a letter from the President dated May 4 (copies of which were made available to the neubers of the Board) with ref- erence to a survey of Inter-American communication facilities prepared by the Coordinator of Inter-American Affairs. The President stated that the reports should lead to an immediate action program and indicated his desire that the program should be administered under the Vice President as Chairman of them Board of Economic Warfare, utilising for the financial aspects one or nore corporations created under Executive Order No. 9128, and with the assistance of an advisory committee including representatives of all of the interested member agencies and the Federal Communications Commission. The Vice President was requested to discuss the proposals with the Board, appoint an advisory consittee, and arrange for the necessary staff to effectuate the program, The President stated his desire to have & report by June 30 covering the program. All of the agencies had received copies of the Communications Report except Agriculture and Justice. It was agreed that the Board should undertake the general task as To- quested, though it was recognised that the problems presented were especially delicate. Mr. Perkins pointed out that several agencies were directly - cerned in communications, that there was probably a wide difference of opinion as to the methods to be followed, and that it was particularly important that the can selected AS administrative houd should be acceptable to all agencies. He suggested Mr. Rd Love, Vice President of the Chase National Bank of New York as a possibility for administrator. The Attorney General thought Mr. Love's background should be checked, and offered to make available data in the hands of his Department. Secretary Jones wished an opportunity to 600- sult with his staff as to possible candidates and agreed, as did others, to present suggestions within a day or two. Secretary Jones also indicated that the Reconstruction Finance Corporation we financially involved in certain communications companies. Mr. Perkins also suggested the name of Clifford Durr of the Reconstruction Finance Corporation. Secretary Hull indicated that the communications problem was partieu- larly delicate in certain countries and that there would be resentment of out- side financial influence. Mr. Perkins pointed out the difficulty of laying out in advance & single pattern of operation to be followed in all areas, and again stressed the importance of the appointment of a nan acceptable to all agencies. Mr. Perkins raised the question of whether the President's letter in- dieating that a new corporation should be formed net with approval. Before answering, Mr. Harold Emith requested information on the air line program undertaken some time ago, Mr. Duggan indicated that while that program had worked out well, the communications problem vas such more delicate and advised caution. He also stressed the fast that action taken in connection with communications might jeopardise other programs. Attention and directed to the importance of - 4 - 30 severing lines of comminication between certain South American countries and the Axis power. Mr. Rockefeller pointed out that this problem was covered in the Communications Report as was the problem of "outlaw stations". Mr. Acheson stated that the policing job was one not within the scope of the proposed corporation. Mr. Perkins asked for additional discussion on the question of whether the Board of Economic Warfare should handle any general corporation which might be established. Mr. Acheson indicated that any action involving govern- mental agencies in South America was a matter for the State Department. Further discussion developed this thought, that while many agencies were directly concerned with the communications problem in South America, an action agency must of necessity make decisions after consulting the wishes of those involved. Returning to the question of relationship between agencies, Mr. Smith indicated that where several agencies were involved, it was not possible to set forth lines of authority which were final, but that a series of adjust- ments would need to be made. While approciating the apprehension of the State Department in connection with action programs in foreign fields, it was his thought that with full cooperation on the part of all agencies, little real difficulty would be experienced. The meeting adjourned at 12:20. Regraded Unclassified 31 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE May 9, 1942 TO Secretary Morgenthau FROM Mr. White Subject: Outline a1d. of State Department documents on reciprocal Mr. Acheson's letter of May OR encloses the documents on reciprocal aid negotiations between the State Department and the governments of the United Kingdom and Australia. l and 2. The first two memoranda, March 24, from the State Department to the British Embassy and from the State Depart- ment to the Australian Legation propose that the question be discussed, and ask whether the discussion should be joint or separate. The memoranda suggest the following arrangements. a. A1d to American forces in the field. (1) Troop pay Dollars (2) Supplies Reciprocal aid when supplies are locally available, otherwise shipment from the U.S. b. Exports. (1) Military equipment Reciprocal aid (2) Commercial exports Dollars The memoranda also suggest that the dollar position of the British Commonwealth will have to be kept under consideration in making the arrangements. 3. A copy of the third memorandum, April 24, from Sir Frederick Phillips to the State Department was previously received by the Treasury and summarized in my memorandum to you of April 30. It states the British proposals for reciprocal aid. These proposals agree with those of the State Department excepting that the British specify that the United States should pay dollars (1) for items taken from British dollar contracts in the United States, (2) for oil purchased in the Sterling Area but previously bought by the British for dollars, and (3) for certain local troop supplies when "convenient." The British memorandum also discusses arrangements for financing the Regraded Unclassified 32 Division of Monetary Research - 2 - construction and maintenance of bases. The British suggest that the Government making the base should bear the cost with no apportionment of expense on the basis of use and with no Lend- Lease or reciprocal aid obligation, excepting that all dollar costs would be met by the United States or provided on Lend-Lease, and the United Kingdom would provide supplies and service for all projects in the United Kingdom or its colonies. 4. A copy of the fourth memorandum, April 24, from the Australian Legation to the State Department was also received previously by the Treasury and outlined in my memorandum to you of April 30. This memorandum states that the Australian Government agrees in general with the British memorandum of April 24, but that the problem 1s larger in Australia and the Australian Government would like to discuss it further. 5, 6 and 7. The next three memoranda, May 4 and May 6, from the Australian Legation to the State Department present estimates of Australia's receipts and expenditures of American and Canadian dollars and of sterling for the year 1941-42, and estimates of the effect of reciprocal aid on those receipts and expenditures. a. The Australians anticipate a deficit of American dollars of $51 million, of Canadian dollars of $51 million, and of sterling of $105 million. Under existing arrangements the dollar deficiencies will be met by the Sterling Area and additional sterling obligations will be substituted for them. b. On the assumption that the United States will have an average of 100,000 troops in Australia, the Australians anticipate dollar receipts from pay and allowances of $30 million and from incidental expenditures of $15 million or $45 million in all. C. On the same assumption the Australians anticipate local expenditures on account of American troops for supplies and bases of $160 million & year, an expenditure that would be made almost entirely in Australian pounds. d. The amount of this that would represent B. dollar cost to the Australian Government will depend upon the diversion of man-power from export trades to the servicing of American troops, the diversion of food and other materials from the export trade to consumption by American troops, and by the need of increased imports for components of goods provided through reciprocal aid. The Australian memorandum estimates that the first two of these causes will not cost more than $16 million, and that the third should be discussed with the United Kingdom and Canada in order to provide 8. means of financing it. The Australian memorandum therefore concludes that Australia's dollar deficit should be a temporary phase and that later in the year it should be made up. 8. The last item is 8. letter from Mr. Acheson to Mr. Perkins sent as a cover with the same group of memoranda that Mr. Acheson has sent to us. The letter summarizes the contents of the memoranda. Regraded Unclassified 33 ADDRESS OFFICIAL COMMUNICATIONS TO THE SECRETARY OF STATE di di I DEPARTMENT OF STATE WASHINGTON May 8, 1942 Dear Harry: In order to keep you and Secretary Morgenthau informed of the course of the discussion of recip- rocal aid with the United Kingdom and Australia, I am enclosing a copy of a letter to Milo Perkins reviewing the situation and copies of papers which have been exchanged between the Department and the British and Australian missions. I think that it will be desirable for us to meet within a few days to talk this over before my next talk with the British and Australians. Sincerely yours, Azan Richron Dean Acheson, Assistant Secretary. Enclosures: 1. Memorandum of March 24, 1942 to the British Embassy; 2. Memorandum of March 24, 1942 to the Australian Legation; 3. Letter from Sir Frederick Phillips dated April 24, 1942 with enclosures; 4. Letters from Mr. J. B. Brigden dated April 24, May 4, and May 6, 1942 with enclosures; 5. Letter of May 8 (copy) from Mr. Acheson to Mr. Milo Perkins. The Honorable BEBOUT WD FORDEFENSE Harry D. White, BUY Assistant to the Secretary, UNITED Treasury Department. + pobilvid STATES SAVINGS BONDS AND STAMPS COPY:EU:AP) 34 COMP: ame ) MEMORANDUM The United States Government wishes to take up with the British Government and with certain of the Dominion Governments (at present Australia) through whatever pro- cedures are mutually agreeable to them certain questions outlined below which arise from, but are not necessarily related solely to, the presence of American military and naval forces in British and Dominion territory. The first step is to ascertain the desired procedure for these dis- cussions. Should this be by joint discussion or by separate discussions? The Questions to be Discussed The presence of American forces in Australia and in Northern Ireland raises questions as to how these forces are to be supplied and the necessary tasks performed in connection with their operations, including the question as Regraded Unclassified 35 -2- as to how lend-lease and reciprocal lend-lease procedures can be most effectively and equitably utilized. 1. Lend-Lease Agreement. There is a growing neces- sity for the shipment of articles under lend-lease to Australia. It is assumed that the principles governing such shipment and the procedures established thereunder would be consistent with the political, military, and finanoial arrangements between the British and Australian Governments. It is also assumed that any procedures devised should maintain the organization heretofore established in the interest of unity of command and de- cision. The problem here is to devise arrangements for extending to Australia in a manner mutually agreeable the principles contained in the Lend-Lease Agreement recently entered into between the United States and the United Kingdom. 2. Aid to American Forces in the Field. This head- ing involves the implementation of the broader agreement which Regraded Unclassified 36 -3- which may be reached under the preceding paragraph. It is assumed that the efficient use of tonnage requires the shipment from the United States of such articles as do not already exist in Australia or Northern Ireland and that, wherever practicable, the American foroee should look to the authorities of those areasfor such supplies as already exist there and for the performance of such tasks as can be performed there. A further question arises as to the financing of such arrangements. It would seem desirable as a general principle that whatever may be furnished or performed within the area should be furnished or performed as reciprocal aid, and that shipments from the United States for the American forces be limited to such goods as are necessary to supplement supplies of the area. This will leave available the maximum tonnage for Lend-Lease shipments of materials urgently needed by the local authorities. This matter will require mutual study and discussion, and it may be found Regraded Unclassified 37 ÷ found that a certain degree of flexibility 18 necessary. So far as the payment of American forces in the field is concerned, it appears desirable that that should be undertaken by the United States through such financial arrangements as may be mutually agreeable. 3. Shipments to the United States or upon Its Order. When the other Governments concerned may be able to provide military equipment for the use of the United States, it seems desirable that that should be provided as recipro- cal aid. In respect of other imports, it would not seen wise at the present time to disturb the existing arrange- ments for payment in dollars. 4. British Commonwealth Dollar and Exchange Position. In view of the fact that decisions upon the subjects suggested above may affect or be affected by the dollar and exchange positions of the British Commonwealth, that subject will also require consideration. Since the matters suggested above are pressing and since tentative procedures are already being inaugurated in Regraded Unclassified 38 -6- in Australia, it 10 hoped that mutually agreeable procedures for the inauguration of the discussions can be determined upon at the earliest possible moment and the discussions begun. Department of State, Washington, March 24, 1942 insminage A-A:DA:BE 3/22 - - 3/24 Sper 8 YAM to molalvid dossessH visiegoM Regraded Unclassified OPIED: OMPARED: Inces 39 MENORANDUM The United States Government wishes to take up with the Australian Government and the British Government through whatever procedures are mutually agreeable to them certain questions outlined below which arise from, but are not necessarily related solely to, the presence of American military and naval forces in British and Dominion territory. The first step is to ascertain the desired prossdure for these discussions, Should this be by joint discussion or by separate discussions? The Questions to be Discussed The presence of American forees in Australia and in Northern Ireland raises questions as to how these forces are to be supplied and the necessary tasks performed in connection with their operations, including the question as to how lend-lease and reciprocal lend-lease procedures can be Regraded Unclassified 40 can be most effectively and equitably utilized. 1. Lend-Lease Agreement There is a growing neces- sity for the shipment of articles under lend-lease to Australia. It is assumed that the principles governing such shipment and the procedures established thereunder would be consistent with the political, military, and financial arrangements between the British and Australian Governments. It is also assumed that any procedures de- vised should maintain the organization heretofore estab- lished in the interest of unity of command and decision. The problem here is to devise arrangements for extending to Australia in a manner mutually agreeable the principles contained in the Lend-Lease Agreement recently entered into between the United States and the United Kingdom. 2. Aid to American Forces in the Field. This heading involves the implementation of the broader agreement which may be reached under the preceding paragraph. It is as- sumed that the efficient use of tonnage requires the ship- ment from the United States of such articles as do not already Regraded Unclassified 41 already exist in Australia or Northern Ireland and that, wherever practicable, the American forces should look to the authorities of those areas for such supplies as already exist there and for the performance of such tasks as can be performed there. A further question arises as to the financing of such arrangements. It would seem desirable as a general principle that whatever may be furnished or performed within the area should be furnished or performed as reciprocal aid, and that shipments from the United States for the American forces be limited to such goods as are necessary to supplement supplies of the area. This will leave available the maximum tonnage for lend-lease ship- ments of materials urgently needed by the local authorities. This matter will require mutual study and discussion, and it may be found that a certain degree of flexibility is neces- sary. So far as the payment of American forces in the field is concerned, it appears desirable that that should be undertaken by the United States through such financial arrangements as may be mutually agreeable. 3. Shipments Regraded Unclassified 42 3. Shipments to the United States OF used Its Order. When the other Governments concerned may be able to provide military equipment for the use of the United States, it seems desirable that that should be provided as recipre- cal aid. In respect of other imports, it would not seen wise at the present time to disturb the existing arrange- ments for payment in dollars. 4. British Commonwealth Dollar and Exchange Position. In view of the fact that decisions upon the subjects sug- gested above say affect or be affected by the dollar and exchange positions of the British Commonwealth, that sub- jest will also require consideration. Since the matters suggested above are pressing and since tentative procedures are already being inaugurated in Australia, it is hoped that mutually agreeable proce- dures for the inauguration of the discussions can be determined upon at the earliest possible moment and the discussions begun. Instruction quest Department of State, Ster 8 YAM Washington, March 24, 1942. so solatid A-AIDA:BE:PK 3/22-24/42 Regraded Unclassified 43 Willard Notel, Washington, D. C., April 24, 1942. Dear Mr. Acheson, I an sorry that 10 have not been able to neet to-day and I thought that it might help when se de meet next week if you had an opportunity of perusing the on- closed note which sets out our views on the scope of reverse lend-lease in practice. Do not treat it as an Aide Memoire, but as a preliminary paper to help oral discussions. I understand the Australian Legation are sending you 8 note complementary to ours setting out certain important special considerations affecting Australia. Mr. Wash has seen these papers, and 1s, I under- stand in general agreement, though again there are certain points of importance to New Zealand which he will be bringing forward when we get into discussions. Yours sincerely, F. PHILLIPS The Honourable Dean Acheson, Department of State, Washington, D. C. Regraded Unclassified 44 MEMORANDUM 1. MILITARY STORES No propose to supply munitions, military and naval stores (not including local supplies for United States forces abroad for which see below) and associated 107- vices on Lend+lease terms to the United States Govern- sent. These supplies if requested from and furnished through a recognised Government organisation would be made on Lend-Lease terms whether they are issues from stores or whether they involve the placing of special contracts by the supplying Government. They would similarly be made available to contractors working for the United States Government on specific request of the United States Government to that effect, and on the assurance that the contractor is seting on behalf of the United States Government and that steps will be taken to prevent his making an uncovenanted profit. The above offer would not apply to commercial sup- plies or to raw materials except that ainor supplies of raw materials might be more properly dealt with as mili- tary stores and furnished on Lend-Lease terms at the dis- cretion of the supplying Government. Munitions, etc., off United Kingdom dollar contracts would not be transferred under reverse lend-lease, but should be paid for in dollars. We should not, however, claim dollars for materials which had already entered our depots except when they can be distinguished from Lend- Lease or sterling materials. 2. UNITED STATES FORCES IN STERLING AREA United States would purchase the local currency 1'0- quired for pay and allowances and for local cash dis- bursements. As regards supplies other than munitions and strictly military stores for American forces in the sterling srea, it is not possible owing to the variety of considerations which any arise, to lay down precise rules in advance. It would have to be settled on considerations of convenience from the point of view of supply, shipping and administra- tion whether particular supplies should be made available on reverse lend-lease by local purchase or by importation by the United States Government. As regards American forces in the United Kingdom, the arrangements would be settled in London between the Service Departments and the United States Missions who are in daily contact on these matters, and broadly speaking, the sup- plies such as food, fuel, etc., are being treated on the same lines as munitions. Arrangements Regraded Unclassified 45 -2- Arrangements would have to be unde to avoid possible criticism if United States Purchasing Officers paid for particular goods previously received by the United Kingdom under Lend-Lease. This would be done by refunding in any particular cases claimed by the United States authorities. If desired a short list of important articles could be agreed on which a general refund would be made of a propor- tion of the cost corresponding to the proportion of Lend- Lease supplies to the total supplies in the United King- dom. 011 is 8 special case. Broadly speaking, H.N.C. would provide both Lend-Lease and sterling oil on reverse lend-lease, but would expect to be recouped any dollar ex- penditure in the case of oil supplies (e.g., from Bahrein) which had involved the United Kingdom Government in such expenditure. 3. TASKS AND OTHER CAPITAL WORKS The original conception of tasks and other capital works as works carried out on our behalf by the United States should, since the entry of the United States into the war, be revised to a conception of them as joint works carried out for the cutual benefit of the two countries. It is suggested that:- (1) The initial cost should lie where it falls; 1.0., the government responsible for construction, maintenance, and/or operation should bear the cost, including the provision of local currency, except for such supplies and services as it may be convenient for other governments to contribute. Dollar costs would, in all cases, be provided on Lend-Lease. We should be willing to sake avail- able supplies and services for tasks being carried out by the United States Government in United Kingdom and the Colonial Empire. In the Middle East, whichever government has assumed respon- sibility as above should normally itself obtain supplies and services by local purchase wherever expenditure in local currency is involved. (11) The contribution by each government to the capital and running costs should finally dispose of the question of the respective liability of the two countries and no attempt should be made on either side to record Lend-Lease or reverse Lend-lease liabilities or to apportion the 11- ability according to user benefit. This disap- pearance of book records and apportionments might, it is suggested, be made retrospective. H.M.G. would like the above principle of no account and no lisbility in connection with works of mutual benefit extended as widely as possible. 4. PROCEDURE Regraded Unclassified 46 -3- 4. PROCEDURE United States demands for reverse Lend-Lease should be presented not to the Missions in Washington, but to the appropriate department in London by the appropriate United States Mission. In the case of assignable stores the ap- propriate department would keep the London Munitions Assign- ment Board informed, and its decisions would be communicated to the Combined Munitions Assignment Committee in Washington. 14 It is important that the American requests should follow the above channel and not be presented direct to the suppliers. 5. DOMINIONS AND COLONIES Ye will take the responsibility as regards the Colonies and the same principles will be applied as in the United Kingdom. As regards the Dominions and India they have been, and will be, kept informed of our views. So far as possible uniform criteria for reverse lend-lease will be applied, but there will no doubt be difference of detail between the various Dominions. 6. RECORDS We cannot keep complete priced records, and there can be no joint accounts or records. 20 must ask the United States not to expect full records from us. No standardized requisition form is suggested for reverse Lend-Lease. In particular no records are being kept of services (@.6-g re- pairs of army trucks) rendered by British to United States forces. In view of the fact that records of such services must in any case be extresely incomplete we suggest that it is important that the principle should be followed that no record should be kept on either side in the case of mis- cellaneous services. 7. SHIPPING Under the head of shipping, questions of reverse lend- lease depend rather intimately on the arrangements sade as regards direct Leud-Lease, and in view of the complications and technicalities involved, the matter needs direct dis- cussion between the War Shipping Administration and the British Shipping Mission. 1. P. Willard Hotel, Washington, D. c., April 24g 1942. Regraded Unclassified. 47 AUSTRALIAN LEGATION Washington, D. C. April 24, 1942 Dear "T. Acheson, I have to inform you that I have now been authorised by Dr. Evatt and the Australian Prime Minister to represent Australia in discussions on Reciprocal Lend Lease, and it is desired that such discussions should commence jointly with representatives of the United Kingdom. I shall be at your service at any time except that 1 have an old engagement in "ew York on Tuesday next. i understand that Sir Frederick Phillips is sending you some informal and personal notes to assist in the discussions, and 1 attach a similar memo stating briefly the Australian point of view. Appreciating your great assistance in reaching the present stage, 1 am, Yours sincerely, J. B. BRIGDEN The Son. Dean G. Acheson, Assistant Secretary of State, State Department, Washington, D. C. Regraded Unclassified 48 AUSTRALIAN LEGATION Washington, D. C. April 23, 1942 RECIPROCAL LEND LEASE 1. Australia is supplyingewarstores to United States Forces in Australia, and has provided supplies for United States Forces in the Philippines to the value of about 1500,000. It has also approved the construction of special defence works in Australia to the value of about 65,000,000 in excess of the requirements of its own forces, and is considering a much larger programme of the same kind, estimated at present to cost about $50,000,000 and required by the United States Forces. 2. Australia desires to come to an arrangement with the United States on these matters, and to enter into joint discussion on aspects of mutual interest with representatives of the United States and of the United Kingdom, with a view to a common understanding on the principles to be followed based on the terms of the Mutual Aid Agreement of February 23rd between the United States and the United Kingdom, and on views which have been expressed by the Department of State. 3. In the discussions proposed there are certain special considerations which the Minister desired to bring prominently to notice. A memo of current date setting out the proposals of the United Kingdom has been noted, and the Australian view is generally in accord with the suggestions made therein. The following paragraphs state briefly the special problems which concern Australia, and Regrade#Unclassified 48 AUSTRALIAN LEGATION Washington, D. C. April 23, 1942 RECIPROCAL LEND LEASE 1. Australia is supplyingwwarstores to United States Forces in Australia, and has provided supplies for United States Forces in the Philippines to the value of about 1500,000. It has also approved the construction of special defence works in Australia to the value of about L5,000,000 in excess of the requirements of its own forces, and is considering a much larger programme of the same kind, estimated at present to cost about $50,000,000 and required by the United States Forces. 2. Australia desires to come to an arrangement with the United States on these matters, and to enter into joint discussion on aspects of mutual interest with representatives of the United States and of the United Kingdom, with a view to a common understanding on the principles to be followed based on the terms of the Mutual Aid Agreement of February 23rd between the United States and the United Kingdom, and on views which have been expressed by the Department of State. 3. In the discussions proposed there are certain special considerations which the Minister desired to bring prominently to notice. A memo of current date setting out the proposals of the United Kingdom has been noted, and the Australian view is generally in accord with the suggestions made therein. The following paragraphs state briefly the special problems which concern Australia, and Regraded Unclassified 49 -2- its ability to carry out the intentions of Reciprocal Lend Lease. 4. The magnitude of Australian supplies to United States Forces is likely to be proportionately greater than those of the United Kingdom or of any other country, with respect to - (a) the range of supplies, and (b) the population and resources of the country, e.g. (1) The range of stores to be supplied will include prepared foods and personal equip- ment for the Forces, which in other theatres will normally be provided from the United States. It may also include a larger proportion of arms andammunition and other military stores and maintenance than could be provided locally to United States Forces in other countries. (11) The supply of all such stores to United States 'orces in the South-Western Pacific Areas other than Australia may become large also, particularly when & strong offensive is launched with Australia as a base. (111) The Works proposed are such in excess of the needs of Australia, other than as a base for United Nations operations. The addition of these "Tasks" to an already crowded programe will strain the resources of the country and reduce production for commercial export, with consequential reduc- tions in oversea funds. 5. Australia Regraded Unclassified 50 -3- 5. Australia is a debtor country with large annual liabilities for interest, etc. It also has very heavy liabilities in sterling and in U. 8. 4. and Canadian dollars, for special war expenditures both with respect - (a) to the maintenance of its Forces in various theatres of war, and (b) to the purchase of war equipment and components in the United States, Canada and the United Kingdom. Despite certain countervailing credits, which can be discussed, and severe restrictions on civil imports from all sources, Australia is at present faced with a heavy deficit on oversea account. 6. It is the desire of the Australian Government to contribute what is needed in and from Australia to the fullest possible extent, but its circumstances are difficult and peculiar to itself. It is realised that these facts are appreciated both by the United States and the United Kingdom, and it is hoped that & solution satisfactory to all concerned will emerge from the proposed discussions. The State Department, Washington, D. C. Regraded Unclassified (COPY:EuiMEL) (COMP: 51 AUSTRALIAN LEGATION, WASHINGTON, D.C. MAY 4, 1942 Dear Mr. Acheson, I very much regret that you were not sent a copy of our Estimates of Australian Oversea Balances immediately after our meeting last week. I thought this had been done, but I now attach a copy. While sending this I may perhaps attach a draft of a further statement giving rough estimates of the magnitude of Reciprocal Lend-Lease in Australia. I as occupied with our own army in consultation with yours on the scope of supplies that can be provided in Australia. This has no immediate reference to our discussions, but it assists the estimates I as trying to make. Your Army Officers are concerned to get all they can in Australia from a point of view of shipping space and the like, quite apart from any considerations of payment, which is not their affair. The draft notes I attach are quite likely to under- state the values involved. Yours sincerely, J. B. BRIGDEN The Honourable Dean G. Acheson, Assistant Secretary of State, State Department of the United States, Washington, D.C. Regraded Unclassified OPY:EU:MEL) OMP: 52 AUSTRALIAN LEGATION, WASHINGTON, D.C. May 4, 1942 AUSTRALIAN OVERSEA BALANCES 1941-42 (AS ESTIMATED BY THE TREASURY, ganberra, APRIL 6, 1942) ALL FIGURES ARE IN MILLIONS OF AUSTRALIAN POUNDS. U.K. AUSTRALIAN TOTAL AND DEBITS OVERSEA. U.S.A.: CANADA: AMERICAN OTHER: TOTALS: (a) Imports 24 15 39 112 161 (b) War expendi- ture 7 5 12 53 65 Interest etc. 4 - 4 32 36 TOTALS: 35 20 55 197 252 AUSTRALIAN CREDITS OVERSEA (o) Exporte 10 4 14 114 128 Gold 9 - 9 5 14 Capital - - - 10 10 Recoveries - - - 35 35 TOTALS: 19 4 23 164 187 (D) DEFICIENCIES: 16 16 32 33 65 NOTES: (a) The 112 debit for imports from U.K. and other non-American sources includes 8 for motor spirit from the N.E.I., which in future may be a debit in the U.S.A. The 24 from U.S.A. includes oils, machinery, vehicles, etc. and the 15 from Canada includes vehicles etc., all imported by private firms chiefly for war contracts. (b) The previous estimated total was 76. The present estimate is 65 (the same as the Deficiency), and is comprised of 44 for the maintenance of forces and 21 for direct war imports (as distinct from those included in (a) above.) The expenditure in the U.S.A. comprises 3 for Aircraft and 4 for Munitions, plant and materials; total 7 not under Lend-Lease. The expenditure in Canada comprises 3.4 for the Empire Air scheme, and 1.6 for Nunitions, plant and materials. (e) Exports Regraded Unclassified 53 -2- (c) Exports include wool sold to United Kingdom and sent to the United States on United Kingdom account. (d) The total Deficiency of 66 is a minisus. It is esti- mated at from 65 to 70. LONDON BALANCES. No figures are given for estimated sterling funds at the end of the year, but 25 millions are immobilised there as Note Issue Reserve, and there are large short-term debts which need attention. There was about 80 millions credit (Australian value) in London last June. The interest item in the Table includes current debt redemptions due this year as required (e.g.) in U.S. bonds. The Commonwealth Bank in February last considered that no more than 33 million could be provided from its London funds towards any deficiency in 1941-42. The dollar deficiencies on Australian account are net out of Empire dollar pool, and are sterling obligations in Australia. All the figures however are given in Australian Pounds. JBB:G Regraded Unclassified, MPAREDI McA 54 July REGIPROCAL LEND-LEASE - UNITED TATES AND AUTORALIA ROUGH ESTIMATED OF - (A) Annual expenditures in Australia by United States, (B) Annual expenditures in Australia by Australia, (c) Effects of R.L.L. on Australian Oversea Balances. (D) Possible action by U.S. NOTE: The totals will be less inscourate than individual items, based on a rough estimate of the number of U.S. troops in Australia in 1942-43. A. EXPENDITURES IN AUSTRALIA BY UNITED STATES. 1. These will be of two kinds both requiring the sale of dollars and the purchase of Australian currency. They involve - (a) pay and allowances. A minimum average of 60 cents per man per day is suggested, requiring about 18 million dollars & year or (say) LA, 5,700,000. (b) special expenditures, not in R.L.L. (1.0. by local Commanding Officers and incidental to the handling of stores of U.B. origin for U.S. troops, ets). Another 12 million dollars a year may be allowed. 2. The minimum is 30 million dollars a year, or nearly LA.10 millions. D. ANNUAL EXPENDITURES IN AUSTRALIA BY AUSTRALIA. (For U.S. Forces in Australia). 3. The accommodation, transport, and food (provided locally) the minimum cost can be estimated at a dollar per day per man or 6 shillings Australian. The annual cost is therefore about LA, 11 millions. 4. Other supplies will include some elothing, field equipment and Q.K. stores, maintenance, and the like, 9.5. construction of motor truck bodies to save shipping space. 8. TANKS. Constructed works of all kinds as per the LA. 50 million programme, are being pushed ahead. A reasonable estimate of the total of 4 and 5 would be about LA, 20 million a year. 6. Although rough, the preceding ostimates give an order of magnitude totalling some ba, 31 million, or 100 million dollars a year. c. EFFECTS Regraded Unclassified. 55 -2- C. EFFECTS OF R.L.L. ON AUSTRALIAN OVERSEA BALANCES. 7. Australian deficiencies in U.S. dollars should be neglibible in future, and possibly be converted into credits. Australia should get some 30 million dollars a year from the pay of U.S. expenditures outside R.L.L. 8. Recent transfers of procurement in U.S. from cash to Lend Lease may reduce our dollar liabilities at the rate of 30 million per year at the present seale of procurement. These transfere are only now taking effect but will operate fully for 1942-43. 9. Against these credits there will be losses of 02- ports to sterling areas (foodstuffs by diversion to U.S. forces in Australia, and other exports by diversion of war power etc.) The extent of this will probably not exceed the value of LA, 8 millions. 10. These effects will be to reduce the total future annual Australian deficiency, and to avoid it altogether in terms of U.S. Dollars. Questions of Canadian dollars and of sterling in future transactions are to be the subject of arrangement between the United Kingdom and Austrelia. D. POSSIBLE UNITED STATES ACTION. 11. The extent to which R.L.L. can be spplied by Australia is a matter outside these notes, which assume it to apply only to a given number of United States troops in Australia. It is desirable for this coope of R.L.L. to clear the present Australian position as much as possible. The April estimates from Australia indicate a prospective deficit for the year ending June 30th 1942 of LA.16 million in U.S. dollars and a further LA 16 millions in Canadian dollars. Because of recent transfers of procurement in U.S. from each to Lend Lease, the U.S. total may be less. 12. Retrospective action to transfer purchases for cash to procurement under Lend Lease is suggested by Australia. This might cover most of the U.S. dollar deficiency. 13. À simpler possibility might be to transfer the ownership of certain supplies (e.g. aircraft, tanks, vehicles including army trucks from Canada, gasoline and lubricants) to the U.S. and its forces in Australia, for disposal there through the Allied Supply Council. It is assumed that some form of "Supply pool" may be appropriate. 14. To Regraded Unclassified 56 14. 20 some extent 18 may be pessible for the U.S. to advance dollars in U.S. to meet Australian civil liabilities, (interest in New York, and dellars in Canada) against Australian currency to be drawn for pay etc. in Australia leter in the calendar year. JBB10 4, 1942 CH VIHOTA Department sper 8 YAM so moletvid Regraded Unclassified 25 57 AUSTRALIAN LEGATION, WASHINGTON D. C., May 6, 1942. Dear Mr. Acheson, Two days ago I sent you a draft memo on estimates of expenditures in Australia. This was very rough, and it understated the prospective position. I now send herewith a revised memo and would be glad if you would substitute it for the draft you have. Yours sincerely, J. B. BRIGDEN The Honourable Dean G. Acheson, Assistant Secretary of State, State Department of the United States, Washington, D. c. 5/5,401 58 SECRET. AUSTRALIAN LEGATION, WASHINGTON, D. C. May 6, 1942 RECIPROCAL LEND LEASE - UNITED STATES AND AUSTRALIA ROUGH ESTIMATES OF - A. Annual expenditures in Australia by United States. B. Annual expenditures by Australia for United States Forces. C. Effects of A. and B. on Australian oversea bal- ances. Based on an entirely arbitrary assumption of 100,000 U.S. troops in Australia for a full year - A. ANNUAL EXPENDITURES IN AUSTRALIA BY UNITED STATES. 1. There will be three kinds of expenditure, each requir- ing the sale of dollars for Australian currency, 1.0. (a) Pay and allowances. (b) Special expenditures by Commanding Officers outside R.L.L., and (c) other expenditures either incidental to the handling of U.S. stores, or in relation to U.S. forces elsewhere. 2. Estimates of average requirements per U.S. man (all ranks) for local pay etc. vary from 50 to 100 cents per day, having regard to experience to date in Australia and recent increases in rates of pay. 30 million dollars averages 82 cents per day per man. 3. A total of LA.14 million for all three may be a rea- sonable estimate at present, or (say) 45 million dollars. B. ANNUAL EXPENDITURES BY AUSTRALIA FOR U.S. FORCES. 4. These expenditures will include accommodation (some billeting), transport, food, some clothing, some camp and field 59 - 2 - field equipment, Q.M. and Ordnance stores, construction of army truck bodies, etc. and some maintenance. of per- sonnel and equipment. 5. For accommodation, transport and food, the U.K. estimates are a dollar a day. For rough approximation at present the Australian expenditures on all items (other than Tasks) may be assumed at between 2 and 3 dollars a day, or (say) 100 million dollars a year. (In LA. (say) 32 millions). 6. TASKS. The construction of works of all kinds as per the LA 50 million programme is being pushed ahead, but the larger the scale of supply the less may be possible in this field. Works to the cost of LA.18 a year might be the physical limit. 7. TOTAL. These rough estimates gave a total of LA.50 millions or 160 million dollars a year. (This is approxi- mately 22 dollars per head of population. Australian war expenditure for 1941-42, to June 30th next was recently estimated by the Federal Treasurer to exceed LA.300 mil- lions (1000 million dollars). C. EFFECTS OF A. AND B. ON AUSTRALIAN OVERSEA BAL- ANCES. 8. There are problems in Australia of physical capacity and of internal finance, but the effect on oversea balances are of importance here, in view of the present adverse position. 9. The adverse effects on oversea balances will be due to: i (a) restriction on production for normal export by diversion of manpower stc., (b) diversion of food etc. from export to U.K. etc., to consumption by U.S. forces in Australia. (c) greater imports for cash in sterling etc. for components of goods provided under R.L.L. Of these three, the total for (a) and (b) should not exceed LA.5 million. The cost of imports under (c) is a matter for Regraded Unclassified 28 60 - 3 - for discussion with the U.K. and possibly Canada. 10. The present Australian deficiency in terms of U.S. dollars should therefore be a temporary phase. In due course the current account should be in credit, through - (a) The recently extended scope of Lend-Lease, now covering procurements for which dollars were formerly needed, and (b) U.S. purchase of Australian currency as esti- mated above. 61 May 8, 1942 "2" Dear Mile: Thank you very much for your letter of May 5 inform- ing no that you have designated Mr. Frank Goo, Chief of your British Empire Division, as the representative of the Board of Economic Warfare to advise with the Depart- ment upon lend-lease matters. In accordance with our telephone conversation, I am enclosing the papers pertaining to lend-lease in reverse, or reciprocal aid, from the United Kingdom and Australia to this country. I assume that you will wish to look these over and pass them on to Mr. Coe. The following brief resumé of the situation will inform you and Mr. Coe of the present status of the matter. As SOON as you have had an opportunity to discuss the matter with Mr. Goe, I shall be very glad to meet with you or his and get your advice and help in connection with discussions with the British and Australians. The matter of reciprocal aid was precipitated by the arrival of American forces both in Australia and in Northern Ireland. In Australia our Army and Navy created a Joint Purchasing Board for the purpose of local procure- ment for the forces. General Roop, the former Director of the Budget, is the Chairman of this Board and has been designated by the President to sit on what is known as the Australian Supply Council, which is composed of Australian Cabinet Ministers, I believe a New Zealander, and possibly a Duteh representative, although I an not sure about the last. The Honorable Milo Perkins, Executive Director, Board of Economic Warfare, Washington, D. 0. Regraded Unclassified 30 62 + last. The Council is already supplying commedities and services to our forees, leaving the arrangements with- mately to be entered into to be determined in Washington. The Secretary of the Treasury, after several con- ferences on the subject, asked this Department to work out a procedure for disoussing these matters with the British and Australiens and to have an exchange of ideas with them. Accordingly, on March 24 we addressed memoranda to the British and Australian diplomatic missions, raising the question of procedure and outlining the subjects to be discussed. Copies are enclosed. After a very con- siderable delay, during which the British and Australians were discussing the matter of procedure between them- selves, we received from Sir Frederick Phillips and Mr. Brigden of the Australian Legation the memoranda, both dated April 24, copies of which are also enclosed. Under date of May 4 Mr. Brigden furnished some additional information, some of which he corrected by an additional memorandum dated May 6, which I have just received. I am also enclosing a copy of that. The foregoing, I believe constitute all the papers on the subject. Sir Frederick and Mr. Brigden called in person to present their memoranda of April 24 and went over them with no. We have arranged to meet again as soon as we have had an opportunity to analyse these papers and formulate some suggestions. This is being done here and also by Mr. Roker of the Office of Lend-Lease Admin- istration. Within a few days I should like to meet with Mr. Coo and Mr. Eoker and advise with them. In view of the present British need for dollars in connection with pre-lend-lease contracts and other obli- gations in this country which fall outside the scope of lend-lease aid, it does not seen possible at the outset to extend reciproeal aid to cover imports into this coun- try. I believe that the matter of pre-lend-lease contracts Regraded Unclassified 31 63 -3- contracts is receiving periodie consideration by the President and by the Secretary of the Treasury, but up to date 18 has not been thought expedient to change the existing situation. Meet sincerely yours, Dean Asheson, Assistant Sceretary. Enclosures: 1. Nemerandum of March 24, 1942 to the British Embassy. 2. Memerandum of March 24, 1942 to the Ametralian Legation. 3. Fren Sir Frederick Phillips dated April 24, 1942 with enclosures. 4. From Mr. J. 3. Brigden dated April 24, May 4 and May 6, 1942 with enclosures. devisions instruction үшавет SAIT 8 YAM to notatviCI A-A:DA:BE:MCW:SS dossess vistegoM Regraded Unclassified 64 UNITED STATES GOVERNMENT COORDINATOR OF INFORMATION WASHINGTON, D.C. May 9, 1942 Return 212 to Deason The Honorable The Secretary of the Treasury Washington, D. C. Attention: Mr. Andrew M. Kamarck Dear Sir: Enclosed is a memorandum which Dr. James, the Head of our Latin American Section, prepared at my direction in response to your inquiry received yesterday afternoon. Attached is a list of the following documents prepared in this Section with regard to Argentina. Sincerely yours, James Bayta 82 James P. Baxter, 3d Deputy Coordinator Enclosures 65 COORDINATOR OF INFORMATION INTEROFFICE MEMO FROM: Preston E. James DATE May 8, 1942 TO: James P. Baxter SUBJECT: Evidence of Argentine cooperation and non-cooperation Three examples can be cited of Argentine cooperation with the United States in the program of hemisphere defense. The first is the action of the Argentine government in freezing axis funds. The second is the opèning of the Argentine ports to United States warships without time restrictions. The third is the fact that the Argentine delegation to the conference at Rio de Janeiro signed the declarations of that conference together with the other American nations. Unfortunately the examples of non-cooperation speak more loudly than those of cooperation. At least five items can be listed on this side of the ledger: 1. the Argentine government has not broken relations with the axis; 2. the government has taken action against newspapers and political groups which express open sympathy with the United States, while pro-axis expressions are permitted freely; 3. the government has permitted Buenos Aires to be- come the center of axis espionage and propaganda in Latin America; 4. President Castillo has selected several well-known pro-Nazis to act on his advisory council; and 5. the Argentine government has negotiated trade agreements with Spain, and has til undertaken to compete with the United States in the purchase of such essential strategic raw materials Venyro as rubber from sources within the hemisphere. While the government of Argentina has adopted a policy of isolation and non-cooperation, the great majority of the people of the country aré strongly in favor of closer cooperation in the war against the Nazis. Pro-democratic groups take frequent opportunities to express their feelings. There can be no doubt that the government does not represent the wishes of the majority of the Argentines today. P.E.g. 66 Report No. 3 POSITION OF THE CATHOLIC CHURCH IN ARGENTINA Interview No. 9 PRO-AXIS AND ANTI-AXIS FORCES IN ARGENTINA Latin American No. 9 REPORT ON ANTI-ARGENTINA ACTIVITIES Latin American No. 28 THE POLITICAL SITUATION IN ARGENTINA Latin American No. 37 RECENT DEVELOPMENTS IN ARGENTINA 67 CONF IDENTIAL COORDINATOR OF INFORMATION POSITION CF THE CATHOLIC CHURCH IN ARGENTINA Report No. 3 February 26, 1942 Copy No. 68 CONFIDENTIAL COORDINATOR OF INFORMATION Research and Analysis Branch Latin America Section POSITION OF THE CATHOLIC CHURCH IN ARGENTINA Report No. 3 February 26, 1942 69 CONFIDENTIAL Latin American Section Report No. 28 THE POSITION OF THE CATHOLIC CHURCH IN ARGESTINA Recent information regarding the position of the Argentine Cathelic clergy in international affairs has been dis- turbing. & large part of the church hierarchy regularly dissem- inates Nasi propaganda,and it is a strong supporter of the dangerous and anti-democratic "nationalist" movement. This in- formation comes both from our mission in Buenos Aires and from the Catholic organization "Center of Information Pro Deo (C.I.P.). The success of the Nami propaganda effort within the church began with the civil war in Spain when defense of Franco's actions become identified with his political and social ideology as well as his relations with the church. That Hand success be came more notable with the entry of Italy in the war, and has reached its peak since the Germen attack on Russia. The propaganda emanating from the anti-democratic elergy attacks England and the United States as materialistic, Protestant, and Free Mason countries allied with the atheistic Soviet Union. Germany is said to be a friend of the clarch, maintaining good 140 lations with the Vatican. It is held that the German Government pays large subsidies to churches and priests and that only Regraded Unclassified 69 CONFIDENTIAL Latin American Section Report No. 26 THE POSITION OF THE CATHOLIC CHURCH IN ARGESTINA Recent information regarding the position of the Argentine Catholic clargy in international affairs has been dis- turbing. & large part of the church hierarchy regularly disses- instes Nasi propaganda,and it is a strong supporter of the dangerous and anti-democratic "nationalist" movement. This in- formation comes both from our mission in Duenos Aires and from the Catholic organisation "Center of Information Pro Deo" (C.I.P.). The success of the Masti propaganda effort within the church began with the civil ver in Spain when defense of Franco's actions because identified with his political and social ideology as well as his relations with the church. That Nami success be came more notable with the entry of Italy in the war, and has reached its peak since the Gerwin attack on Russia. The propaganda emenating from the anti-democratic elergy attacks England and the United States M materialistic, Protestant, and Free Mason countries allied with the atheistic Soviet Union. Germany is said to be a friend of the clurch, maintaining good - lations with the Vatisan. It is held that the German Goverment pays large subsidies to churches and priests and that only Regraded Unclassified 70 - 2 - CONFIDENTIAL "domocratic" priests invoice punishment by the State. It is oven alleged that Hitler is & good Catholis and attends MMS. Many of the Spanish, Italian and German clergy are being subsidized by their respective embasside, and German priests throughout the country are visited weekly by Gestapo agents. These priests attack democratic ideas in public ser- mone and published writings, and this attitude has been unheeded and unrebuked by the Episcopate, particularly by the Cardinal. On the contrary, the Cardinal has actually condoned these conditions by banning reference to the persecution of the church and the clergy in Europe, particularly in Germany, in public sermons and addresses delivered by members of the clergy. This ben has rendered those members of the clergy who are anti- totalitarian practically helpless to employ defense measures, especially those provided by Papal encyclicals. In fact the Cardinal forbade my reference in sermons to the encyclical "Mit Premender Sorge." These conditions are highlighted by the following specific events: (1) Last fall there were violent protests in clerical circles against anti-Nasi lectures delivered by a Belgian Jesuit, Father Charles. (2) Nasi-Inspired claims that Hyron Taylor tried to emergise pressure on the Pope have been used to arouse personal Regraded Unclassified 71 - 3 - CONFIDENTIAL resentment against President Roosevelt. (3) Father Filipo, parish priest in Buenos Aires, publishes violent anti-democratic and anci=United States articles in the weekly "Clarineta." He has also, with eccles- instical approbation, published a booklet and a book pointing out the "dangers" of an invasion of Argentina by England and the United States. On the other hand, a popular Argentine writer on church subjects for responsible publications, Eugenio Silveyra de Oyuela, was prevented from publishing an article on "The New Religion in Germany" written expressly for la Nacion. The article might have gone a long way toward making the Argentine laity understand the true aims of Nazism in the field of religion. Regraded Unclassified 72 Copy No. 3 CONFIDENTIAL COORDINATOR OF INFORMATION INTERVIEW NO. 9 With: Mr. Duncan Hayms Dates: April 23, 1942 Subject: Pro-Axis and Anti-Axis Place: Washington, D. C. Forces in Argentina Mr. Hayms is an Argentine business man, about sixty years old, head of an export-import company trading mostly with the United States. He gives the impression of being an intelligent and well- informed observer; when asked questions on subjects about which he did not have good information or proof, he refused to make guesses or conjectures. Mr. Hayms is a member of various pro-democratic and anti- Nazi organizations in Argentina, including the Democratic Commission for Aid to Countries Fighting Nazi-Fascism, the Association of the Friends of China, and the Committee Against Racism and Anti-Semitism. His wife is a member of the executive committee of the "Junta de la Victoria." His son, Duncan Hayms, Jr., is representative in this country for the Argentine Merchant Marine. 1/ The following were present at the luncheon meeting: Preston B. James C. O. I. Maurice Halperin C. O. I. John S. Fox C. O. I. Charles Flato Office of Inter-American Affairs Willard Park Office of Inter-American Affairs Joseph Gregg Hemisphere Corporation Eric Beecroft War Production Board David Efron National Planning Association - - 2 - CONFIDENTIAL 73 Mr. Hayms named several people as being key pro-Nazis in high positions in the Argentine Government. These include Judges Repetto and Anchorena, of the Supreme Court. Along with Judge Mejia, who is ultra reactionary but not necessarily an overt Nazi, they form a majority of the Supreme Court of five members. Another key figure is General Martinez, Chief of Police in the Federal Capital, and Postmaster-General Rivarola. The latter is in position to control pro-Nazi and anti-Nazi material passing through the mails. Probably the most important pro-Nazi figure is sub-Secretary of Interior Castells, who is actually the directing figure in the secretariat and who can control both the federal police and the provincial governors. As important anti-Nazis, Mr. Hayms named President Ortiz, General Justo, and former Minister of Finance, Federico Pinedo. Mr. Hayms spoke briefly of the rather well-known pro-Nazi and anti-Nazi organized groups in Argentina, but he laid stress on important sectors of the population which are neither one nor the other, and which both sides are making every effort to penetrate. These include the Agrarian Federation of about 100,000 farmers, mostly tenant farmers; and largé parts of the Union Civica Radical (Radical Party) in the interior of the country, that is, outside of Buenos Aires. Mr. Hayms made a point of distinguishing between the Nazi- inspired neutrality of the Castillo clique, and the genuinely Argentinian neutrality of many of the people. The Radical Party, for example, has a tradition of neutrality remaining from the World War, but the great majority of its members are strongly anti-Fascist. - 3 - CONFIDENTIAL 74 Another point on which Mr. Hayms laid stress was the position of the great meat-packing companies, many of which are British and American-owned, These companies furnish Castillo his greatest support; without their support he would be unable to carry out his program and his government would probably fall, The interest of the meat packers in Castillo lies in his domestic reactionary and repressive policies. Mr. Hayms also spoke about the American newspaper corres- pondents in Argentina, saying that they send badly informed dispatches or else they ignore very important events. He mentioned as an example our complete lack of news about the recent arrest of so-called communists (see below). As a result the American public is badly informed about the situation in Argentina. With regard to recent developments in Argentina, Mr. Hayms said that the March congressional elections were completely fraudulent outside of the Federal Capital and Cordoba. It was his opinion that in a free election the Conservative Party would get only about 30% of the vote. About two weeks ago the Castillo government ordered the arrest and the expulsion or internment of some fifty alleged "communists." Mr. Hayms said this was one of a series of deliberate maneuvers to destroy the militant anti-Fascist leaders and forces. From his personal knowledge he said that eight of the people on the list are leaders in the "Congreso de la Juventud" (Youth Congress), one of the most important anti-Nazi organizations in the country. Two of those arrested are leading anti-Nazi influences in the Agrarian Federation. 75 - 4 - CONFIDENTIAL Another, Creates Chioldi, is director of the newspaper "La Hora," one of the most outspoken anti-Nazi papers in the country. Three of the arrested people are officials of the Democratic Commission for Aid to Countries Fighting Nazi-Fascism, including Dr. Augusto Bunge, formerly a national deputy and president of the Commission. Many of those arrested were in Cordoba province, which has a Radical provincial government and where the Castillo campaign against the pro-democratic forces has been least effective. Mr. Hayms offered as proof of the weakness of Castillo that the governor of Cordoba declared the expulsion decree unconstitutional, refusing to carry it out. Mr. Hayms spoke at length about the "Junta de la Victoria," a woman's organization of over 20,000 members from all classes of the population, including some of the wealthiest and most aristocratic families in Argentina. This organization which started in October 1941, is so powerful that Castillo has perforce refrained from attempting to impose the restrictive measures used against other anti-Nazi groups. The Junta, in conjunction with the Pan-American Commission of Women, held a dinner on April 14th as part of its National Congress. Public support for its fight against Nazism was received from President Ortiz and from important Catholic organizations. When asked about a possible program for the United States to adopt, Mr. Hayms emphasized that basically the Argentine people must be allowed to solve their own domestic problems; that this government should direct its action primarily toward creating a situation in which the Argentines' pro-democratic feelings could find expression; and that the American public should be better informed 76 - 5 - CONFIDENTIAL about Argentina. Along those lines he suggested the following: (1) A publicity campaign to restore civil liberties and democratic government in Argentina. This campaign should not attack Argentina for its neutrality policy, but should let that attack be made by the Argentines themselves. (2) Public opinion in the United States regarding the relations between the Castillo government and the Argentine people should be clarified by intelligent publicity. (3) Argentine anti-Nazi groups need not be helped directly with economic support, but with (a) publicity; (b) intelligent and indirect pressure from this government, for example, to have Castells removed; (c) reform of the American Embassy in Buenos Aires, which ignores most important aspects of the situation; for example, in a recent contact with the Embassy Mr. Hayms was informed that they knew nothing about the existence of the Agrarian Federation.*/ */ The Latin American Section merely reports Mr. Hayms' opinions and recommendations without in any way associating itself with them. Lh no 1 77 SECRET Drafted by latin American Section October 27, 1941 REPORT ON ANTI-ARGENTINA ACTIVITIES Special Situation Memo #1 SOURCES: (Argentina) Chamber of Deputies of the Nation. Investigating Committee of Anti-Argentine Activities. Report No. 1, August 29, 1941 Report No. 2, September 5, 1941 Report No. 3. September 17, 1941 "Mon-American Activities in Argentina Report for September, 1941" by S. Pinekney Tuck, Counseler of U. S. Embasay in Argentina. Report No. 4 of the Argentine Chamber of Deputies In- vestigating Committee was not made available to this Section. Chief points made in the reports listed above are: 1. The Masis are the principal organisers of Axis propaganda activities in Argentina. In number of people affected, in organising ability, and in thoroughness of organisation the Masi groups completely overshadow their Axis partners. Italian activities are suberdinated to these of the Nazis, Japanese activities are confined principally to the commercial sphere. The Spanish groups are still in the process of being organised. According to Mr. Tuck, the Falangist groups may well be expected to take over many of the functions of the German machine in time. However, the Investigating Committee believes it will be the Italian groups which will take over. 2. The Masis are trying to organise both the German born Regraded Unclassified 78 SECRET - 2 population and these of German dessent, basing their appeal - the theory of dual citizenship. The Argentine German National Socialist Party was dissolved by executive decree in May, 1939. Since then may groups have been organized to take over the function of the dis- solved party. These include "bensvelent and sultural" associations, the German Trades Union (to replace the dissolved Labor Front), commercial and industrial federa- tions, regional federations of Germans, children's organi- sations such as Doy Secute, etc. The members of the organisations were regarded as German eitizens regardless of their place of birth or their pre- vious acquisition of Argentine citisenship. Through the German Embassy they were registered both in Argentina and in Germany. When the Union Alemana de Cremios (more than 12,000 members) was organized in 1939 it issued membership cards which were signed by government functionaries in the Reich and which bere characteristic numbers coordinated with numbers in the central records of the German Nasi party. The Committee also uncovered the existence of & military Nasi organization counting more than 64,000 members. 3. These groups are financed by business concerns and individuals having German connections. By such devices as "Winter Help" campaigns, compulsory contributions are dedusted from the pay envelopes of ego ployees in German firms. In the 1940-19/11 collection the German Febassy "mobilized", through these channels, more than 7,700,000 posse. An insignificant amount is used for relief purposes in Argentina, the balance being used for organizational and propaganda activities. 4. The organization of news agencies is another major activity. The Transocean Press, the South American Journalistic Post Information Agency, and a branch of DMB are the prin- cipal propaganda disseminating agencies in Argentina. Chief among these, Transosean provides service for sixty weekly periodicals and seventy daily newspapers in Argen- tina, and supports three regular radio programs. Regraded Unclassified 79 SECRET - 3 - Regraded Unclassifie 5. The news agencies are subsidised by the German Government which makes up their large deficits. The agencies provide their services without east to nows- papers and periodicals, and in many cases pay subsidies to have their material printed (through paid-up advertise- ments which ware not published). Thus they operate under heavy deficits, which are made up by funds sent directly from Germany. Transocean, for example, insurred expenses from January 1, 1937 to July 31, 1941, of over a million poses; their receipts in Argentina for services rendered were less than 27,000 pesos; and more than 800,000 pesos were remittances sent from Berlin. Similar operating de- ficite occur in the operations of the other agencies. N. 3. Manfred zapp, testifying before the Dies Committee, said that Transoseen deficits in the United States were made up out of the "profits" of the company in Argentina. 6. Less important propaganda agencies organized by the Germans include radio and sinema groups, a publishing house, an agency of the German Railways, and a delegation of the Leipsig Fair. 7. Other Axis propaganda nows agencies. These include the Stefani Agency (Italian), and Andi Agency (nationality not defined), and Havas (French). The Committee considers the Stefani Agency as the one most likely to take over the functions of Transosean, should that group be outlawed. At present, however, Stefani is poorly organised and much less efficient than the German agency. 8. Masi organisation activities are directed through the German Embassy. In 1937, the overseas section of "Germans Abroad" became part of the German Foreign Office, with the result that it could work through diplematic channels and take advantage of all diplematie prerogatives of the German Embassy. The Embassy employs a staff of fifty-nine persons, compared with eighteen in the British Embassy, fourteen in the United States, and thirteen in the Italian. In 1940-1941, the expenditures of the German Embassy totaled almost six 80 SECRET - 4 . Regraded Unclassif million pessons the British Embassy spent loss than two million, and the United States about half a million poses. The Press Attache of the German Habasty seens to be the head of Hasi activities in Argentina. Until he fled the country in August 1941, the Civil Attache is believed to have been the Gestape chief of staff. 9. The German Embassy in Argentina is also a headquarters of Masi activities throughout Latin America. Between July 2 and August 13, 1941, the Embassy sent from Buenos Aires to other American countries about 4,400 kilograms of "printed anti-demooratic matter." In the same period the amount of printed matter which passed through the British Hubasay was 700 kilograms. 10. Several high Argentino aray officials are clearly implicated in Nasi activities. in attempt was made by this group to blackmail the Com- mittee and diseredit the United States at the beginning of the investigation. A group of officers including Lt. Cel. Bartolone de la Colina, Chief of Supplies, and a Vajor San Martin, in a demunciation made to the General Staff, accused three Argentines and one British subject of engaging in espionage activities in behalf of the United States. The General Staff promptly rejected the denunoiation. The accusers are supposed to be heavily in debt to the Banco Germanico. 11. The Federal Government has hampered the work of the Com- mittee. The Government has adopted an attitude of studied official indifference to the work of the Committee, thus detracting from the effects of the material uncovered. The Winister of Interier (Dr. Miguel S. Culaciati) withdrew the coopera- tion of the police. Gettfried Sandstede, estensibly employed by a leeal ship- ping firs, Delfino, and attached to the German Embassy as Civil Attache, was the Gestapo chief of staff for Argentina, as mentioned above. When the Committee had orders for his arrest, he fled the country on August 26, 1941, and it is believed that the authorities permitted his departure as the best solution of an embarrassing problem. The 28 81 SECRET COORDINATOR OF INFORMATION Latin American Section Special Memorandum No. 12 THE POLITICAL SITUATION IN ARGENTINA December 3rd, 1941. 82 SECRET Latin American Section Special Memorandum No. 12 THE POLITICAL SITUATION IN ARGENTINA Summary Political tension is increasing to the point of threat- ening the present form of government. The political picture, which formerly could have been presented as a struggle between the Conservative and Radical parties, now is made more compli- cated by the international situation and by the personal am- bitions of certain military officers. These political adven- turers, admirers of Nazi methods and military successes, want to establish a dictatorship. Should they succeed, Argentina's foreign policies will be definitely pro-Axis. The opposing pro-democratic forces are themselves weakened by internal schisms and lack of strong leadership. This weak- ness may make a coup possible. Table of Contents I. Signs of an Impending Political Crisis Page 1 II. Nature of the Political Crisis Page 3 III. Complications in the Political Picture Page 4 Resume Page 6 IV. Leaders and Possibilities Page 7 83 SECRET Latin American Section Special Memorandum No. 12 THE POLITICAL SITUATION IN ARGENTINA I. SIGNS OF AN IMPENDING POLITICAL CRISIS 1. Pressure on Castillo to establish a reactionary dictatorship. About a. month ago a group of Nazi-minded "nationalist" Army officers presented Acting President Castillo with a list of demands which included, in part, the indefinite postponement of the Buenos Aires provincial elections (scheduled for December 7th), the elimination from national politics of General Agustin P. Justo, the suppression of certain newspapers, including the influential La Critica, and the establishment of an open diota- torship. 2. The Air Corps affair of September 23rd. There has never been a satisfactory public statement of the affair of September 23rd. According to an ONI "Intelligence Report", however, it was apparently an incipient attempt of certain high-ranking Air Corps officers (who are identified as reactionaries in domestic affairs and pro-Axis) to effect a coup d'etat directed against Justo, The group of pleten plotters in the affair was headed by General Benjamin Menendez, retired, about whom there is definite and concrete evidence that he takes 84 SECRET - 2 - instructions from von Thermann, German Ambassador in Buenos Aires: Lt. Col. Bartolome de la Colina, Director of Materiel, Army Air Corps, who is supposed to be heavily in debt to the Banco Germanico, and General Avelino J. Alvarez, retired, for- merly director of the Infantry School. The cabal also included several of the highest ranking Air Corps officers. Its focal point was the Aviation School at Cordoba. 3. Recent political maneuvers indicate a heightened tension. Identified as attempts to line up public support for variou forces are recent public political meetings. On November 18th several small pro-Axis parties formed a new united party called Partido Union Nacional Argentina under the leadership of Manuel Fresco, former Conservative governor of Buenos Aires and an avowed Axis partisan. This party has no popular strength, but its formation at the present time when anti-Axis public demon- strations are becoming more pronounced lends it considerable significance. On October 23rd, Castillo issued a decree abridging the right of assembly, and it is considered that this was done to hinder the Radicals' election campaign. On November 28th, Castillo personally (and over the head of Minister of the Interior Culaciati) instructed the police to forbid the pro-Democratic meetings scheduled for the following day. Under the aegis of Accion Argentina, some 5,000 mass Doaradod - 85 SECRET - 3 - meetings were to be held throughout the country, and they had been widely advertised for some time. Castillo's announced reason was that the meetings conflicted with the government's international policies, although the Supreme Court recently de- clared that interference with the people's right of assembly is unconstitutional. II. NATURE OF THE POLITICAL CRISIS 1. The Conservative-Radical struggle for control of the government Fundamentally the political struggle in Argentina revolves around the Radical and Conservative parties' attempts to control the national government. In its present form it dates from 1930 when the Conservatives, in a. military coup, replaced Radical President Irigoyen by General Uriburu and installed a succession of Conservative governments through the widespread use of elec- toral fraud. At present, the Radioal party, undoubtedly the majority party in most provinces, has control of the Chamber of Deputies, but the Senate and the Executive are Conservative- controlled. Because of the December 7 elections in Buenos Aires province and the fact that that province which is so heavily populated can be decisive in the outcome of the 1943 presidential elections, the party struggle is becoming more intense. The Radicals would probably register an overwhelming victory in an honest election, but Castillo gives evidence that he is preparing to steal the 86 SECRET - 4 - elections for the Conservatives. 2. The Current crisis centers in a small group of leaders. There is no general popular support in either party for drastic action in the current crisis. As has been cited above, certain groups are prepared to back Castillo in a coup d'etat, but these are principally political and military leaders with very little popular following. On the other hand, the forces in opposition to Castillo, both civilian and military, are divided, although they have considerably more backing in the general population and the important press of Buenos Aires than the pro-Castillo group. Basically, therefore, should there be an open break the action would be of the nature of a "palace revolution". III. COMPLICATIONS IN THE POLITICAL PICTURE 1. Castillo's foreign policies are unpopular. Castillo has been playing a very cautious game in foreign affairs. Despite a preponderantly popular anti-Axis sentiment, he has been extremely careful not to offend the Nazis who are using Argentina as their chief base for organizational and propaganda activities in South America. The unpopularity of Castillo's foreign policies outs across party lines, and many fellow Conservatives such as Justo and Culaciati are opposed to him on these grounds. Regraded Unclassified 87 SECRET - 5 - 2. Castillo's pro-Nazi advisers. Some of Castillo's closest advisers are avowed pro-Nasis, including General Juan B. Molina, Senator Matias Sanchez Sorendo, and Manuel Fresco. These advisers along with an influential group of Army leaders, are convinced that an Axis victory is inevitable and that Argentina should act accordingly. They have had a tremendous influence on Castillo and his Foreign Minister, Enrique Ruiz Guinazu. 3. Nazi sympathizers in the Armed Forces. The German Army, through long years of an instruction mission, has built a large party of sympathizers in the Argentine Army. This has been reinforced by German military successes in the present war, and El Pampero, the chief Nazi newspaper, has a wide circulation among Army officers. The main strength of this sympathy is found in the Aviation and Cavalry Corps. An example of this is found in an incident at the begin- ning of the Chamber of Deputies Committee investigation of anti-Argentine activities. An attempt was made by certain officers to blackmail the Committee and discredit the United States. These included the aforementioned Lt. Col. Bartolome de la Colina and his assistant, Major Juan San Martin. They accused three Argentines and a British subject of engaging in espionage activities on behalf of the United States. The denunciation, made to the General Staff, was promptly rejected. Regraded Unclassified 88 SECRET - 6 - The accusers are supposed to be heavily in debt to the Banco Germanico, which is closely allied to the German Embassy. 4. The Radical Party may not be strong enough to prevent B. coup. The Radical Party has weaknesses which may make a Conser- vative or pro-Axis coup d'etat possible. These include: (a). Lack of Army support. The Army has become a strong factor in national politics in the past ten years. The Radicals may at the present time count on some support in the Army, but it does not have many partisans. (b). Lack of a popular leader. The Redicals do not have a strong popular leader behind whom to rally, such as Irigoyen was. Former president, Marcelo Alvear, present head of the party, is too old to be very active. This explains, in part, the rise of provincial leaders and branches of the party which has had the effect of dissi- pating its potential strength. RESUME: Thus the traditional domestic struggle between Conserva- tives and Radicals is complicated by international pressures and a strong movement to scrap the Constitution of 1853 and estab- lish a dictatorship. This movement has both Conservative and military backing, but for different ends. The movement is moti- vated partly by 8. desire to retain control of government and partly by desire to establish a military dictatorship. On the Regraded Unclassified 89 SECRET - 7 - other hand, the Radical party is weakened by internal schisms and lack of B. strong popular leader, although it is still the strongest political party numerically. IV. LEADERS AND POSSIBILITIES 1. Military Adventurers. There have already been mentioned in this report the names of several military leaders who are engaged in equivocal poli- tical activities. These include Menendez, Nolina, de la Colina, and Alvarez. In addition, there are others not previously cited, including Captain Leon Scasso, former Minister of the Navy and head of the Legion de Mayo; General Basilio B. Pertine, former Minister of War; and General Angel Zuloaga, Chief of Aviation at the time he was caught in the September 23rd incident. These military leaders have strong personal political ambitions, but mutual jealousies have prevented them from effecting a union which would seriously threaten the present form of government. Should such a union ever be formed, and the German Embassy is trying to do so, it would be extremely dangerous to Hemisphore defense plans because it would be friendly to the Axis powers. 2. Castillo As has been seen, there is considerable pressure on Castillo to effect & coup d'etat. This would be done by Regraded Unclassified 90 SECRET - 8 - finding some pretext to dissolve the Parliament and institute a regime by decree. However, he may not have enough strength both in his party and in the Army to be able to effect B. coup. 3. Ortiz. According to Dr. Damonte Taborda, President Ortiz is well enough, except for his eyesight, to resume the presidency. He has not made this move, however, because of fear that it may force Castillo into 8. political or military adventure, with unpredictable consequences. 4. Justo. Former president Justo is the strongest individual leader in the Army, and he can probably count on the support of the bulk of the armed forces. There is evidence that the Radicals are flirting with the idea of uniting behind him as the least of the possible evils. They would do this only with the greatest reluctance because he is a Conservative and was in- volved in the repressions and frauds which that party has used in great measure in the past ten years. 5. Le Breton. Á possible dark horse in the political race is Dr. Thomas Le Breton, recently returned from his post as Ambassador in London. He has been absent from Argentina in the diplomatic service for some years and is therefore relatively unknown in Regraded Unclassified 91 SECRET - 9 - the country. However, there has been considerable political conversation among party leaders since he returned and he may be found acceptable to a union of anti-Castillo forces. 92 SECRET Sources Interviews with: Dr. Raul Damonte Taborda Dr. Hugo Fernandez Artucio Dr. Alfredo Metraux M. I. D. Reports O. N. I. Reports State Department Despatches Pearedes copy 1924-37 93 156 COORDINATOR OF INFORMATION Latin American Section Special Situation Memorandum No. 21 RECENT DEVELOPMENTS IN ARGENTINA January 10, 1942. secret 94 Latin American Section Special Situation Memorandum No. 21 RECENT DEVELOPMENTS IN ARGENTINA Recent political events in Argentina continue to indicate strongly that Castillo is following the program of pro-totalitarian and "nation- alist" military officers in order to bolster his own weak political position. In October 1941 the "nationalist" army officers handed Castillo a list of demands which included the following items: 1. Dissolution of the Board of Aldermen of the Federal Capital. 2. Withdrawal of General Justo from politics. 3. The dissolution of Congress. 4. Proclamation of a state of seige. 5. The suppression of certain newspapers, including La Critica. 6. The resignation of the Ministers of War, Navy, and Interior. 7. Maintenance of an international policy of strict neutrality. 8. Indefinite postponement of elections in the intervened provinces. Regraded Unclassified - 2 - SECRET 95 This "nationalist" group is the strongest anti-United States force operating among Argentines and, combined with the strength which can be mustered by the German groups, it constitutes a real menace to our interests. One objective, for example, is to halt the building of the Uruguay naval and air bases. A propaganda campaign is under way, largely in the pro-Nazi E1 Pampero, that the United States is trying to obtain military domination over the Estuary of La Plata. El Pampero has a wide circulation among military officers. In recent actions Castillo has already complied with B. large part of the program listed above, On December 16, 1941, & state of siege was declared. Events since that date refute my belief that the state of siege was designed to suppress pro-totalitarian progaganda and sub- versive activities. The application of the restrictive measures has operated to prevent public expressions of support for the United States on the part of the large majority of the public and press which favor the democratic cause. Even if the decree were enforced against pro- totalitarian organs and opinion, the fact remains that these are a. very small minority. Other indications that Castillo is following the "nationalist" program are that he has dissolved the Board of Aldermen of the Federal District and there is strong reason to believe that the Ministers of War and Interior may be eliminated in an impending reshuffling of the Cabinet. Their elimination would involve a curtailment of the influence of General Justo.2/ The state of seige itself precludes the necessity of suppressing the pro-democratic newspapers and of dissolving the Congress. The executive rules by decree. 1/ Despatch No. 3366, Buenos Aires, October 24, 1941 Despatch No. 3740, Buenos Aires, Dec. 24, 1941 Regraded Unclassified 96 - 3 - SECRET Another indication of Castillo's strong ties with the pro-totali- tarian army groups has been the release after a brief period of con- finement of the officers involved in the abortive Air Corps "revolt" of last September. Furthermore, it was announced on December 27, 1941, that two of these officers were restored to active service. Lieut. Col. Edmundo Sustaita was named commander of the San Luis air base, and Major Bernardo Menendez was assigned to the aeronautical supplies division. 3/ Mr. Armour's despatches from Buenos Aires confirm the belief that the Castillo government will continue to follow a policy of procrastina- tion and evasion in questions of continental solidarity, and that a considerable influence is being exerted on its policies by the actual course of the war. The fall of Manila is another event which should be added to the attack on Pearl Harbor as having an adverse political effect for us in Argentina. Mr. Armour summarized the situation in his statement that the Argentine Government ..intends to do nothing more in the direction of full collaboration with us unless and until it feels compelled to do so." The most recent example of the Argentine Government's present attitude in international relations is furnished by a speech and inter- view of Ruiz Guinazu on January 7, 1942. He not only emphasized the wish to continue a policy of neutrality but also stated that Argentina would not perform any acts of "pre-belligerency." That statement is broad enough to preclude any effective continental collaboration. Furthermore 3 New York Herald Tribune, Dec. 28, 1941 4/ Despatch No. 3740, Buenos Aires, Dec. 24, 1941 Regraded Unclassified 97 - 4 - SECRET he rebuked the Central American governments that declared war on the Axis for not having consulted with all the other American republics before taking that step. These announcements can be contrasted with the action of the Uruguayan cabinet on the same day in instructing its delegation to the Rio de Janeiro conference to propose that all American republics sever diplomatic relations with all Axis powers and their allies. The cabinet also urged that all powers fighting the Axis be regarded as non-belligerents. Ruiz Guinazu has made it plain that he would oppose such a decision.5/ 5. New York Times, Jan. 8, 1942 Regraded Unclassified C 0 P 98 Y DEPARTMENT OF STATE Washington May 9, 1942 In reply refer to FD The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury and encloses copies of telegram no. 369 dated May 7. 1942 from the American Embassy, Quito, Ecuador, concerning a change in the dollar sucre exchange rate. The Department's telegram no. 298 of May 5, referred to in the above-mentioned telegram, was trans- mitted to the Treasury on May 6. Enclosure: To Embassy, Quito, no. 369, May 9, 1942. FL copy:kma:5/9/42 Regraded Unclassified 99 GRAY C 0 Quito P Y Dated May 7. 1942 Rec'd. 3:10 a.m., 8th Secretary of State, Washington. 369, May 7, 10 p.m. Referring to Department's telegram 298, May 5, 10 p.m. from the Minister of Finance to the Secretary of the Treasury. The dollar sucre exchange rate was changed to 13.70 buying and 14.10 selling on April 29th. When Dr. Eduardo Salazar brought the stabilization agreement to Ecuador he indicated that consultation was essential in the case of any change in rates "de importancia." He indicated that this referred to changes in rates in excess of 10% since the present change was less than 10% it was not felt that consultation was necessary but if Dr. Salazar's interpretation of Article no. 10 is incorrect I shall be pleased to have your views regarding this point. LONG BB Copytemk:5.9.42 Regraded Unclassified Treasury Department 100 Division of Monetary Research Date May 11, 1942 To: Miss Chauncey From: Mr. Southard Jeneral For the Secretary's Files. Need not be shown to him. MR. WHITE Branch 2058 - Room 214} C 101 o P Y TELEGRAM SENT MJF GRAY May 9, 1942 3 p.m. AMEMBASSY, QUITO, (ECUADOR) 310 Your 369 May 7, 10 p.m. Treasury says: (1) It has no recollection of having indicated to Salizar what it considers to be a QUOTE substantial change END QUOTE: (2) That Treasury in fact regards a change of six per cent as substantial; (3) Treasury asks whether its message has been delivered to the Minister of Finance. HULL (FL) FD:FL:BM Copy:bj:5-11-42 102 HRL Capetown This telegram must be paraphrased before being Dated May 9, 1942 communicated to anyone other than a Governmental Rec'd 4:01 p.m. agency. (BR) Secretary of State, Washington. 74, May 9, 11 p.m. Referring to Department's telegram no. 11 February 9 to the Legation. The Consulate General on May 8 took delivery of United States currency totaling $122,692 from the South African Reserve Bank. DENBY CSB Copy:bj:5-12-42 Regraded Unclassified 103 COPY NO 13 BRITISH MOST SECRET. (U.S. SECRET) OPTEL No. 153. Information received up to 7 a.m. 9th May, 1942. 1, NAVAL. 8th. Six ME's 109 attacked one of H.M. Trawlers off Worthing. The trawlor was damaged but destroyed 1 aircraft and claims damage to another. 2. MILITARY. Burma. Reports are inconclusive. It is probable that our troops are disposed between Pyingaing (30 miles east of Kalewa) and Kalewa and are crossing River Chindwin at Kalewa (some having already crossed) with strengths considerably reduced. Japanese are in You. Chinese troops from Irrawaddy Front are probably moving east to contact the remainder of Chinese forces retiring towards China, 3. AIR OPERATIONS. Western Front. In raids night 7th/8th, 18 R.C.A.F. (1 missing) and 9 New Zealand aircraft took part. 8th, 6 Bostons, supported by 15 squadrons of fighters, attacked the railway centre at Dieppe. No enemy fighters encountered. Hostile activity against United Kingdom was on a small scale. Two Spitfires attacked 12 ME' 109, destroying 1 and damaging another. 8th/9th. Aircraft were despatched, Warnefunde 194, aerodromes in France and Holland 12, Leeuwarden 3, sea mining (Heligoland).3 19 of our aircraft are missing. Our "Intruders" destroyed 1 enemy bomber over Ijmuiden and probably destroyed another. A 7,000 ton ship off Haugestrid was attacked and set on fire. About 35 enemy aircraft were plotted in the Norwich area but no concentrated attack developed and no serious damage reported. One enemy bomber was destroyed by balloon barrage. Malta. Between 2.06 p.m. 6th and 11.26 a.m. 8th, 78 German and Italian bombers, supported by fighters, attacked the Island, Fighters and antiwaircraft guns destroyed 5, probably destroyed 5 and damaged 5. -1- Regraded Unclassified 104 India. 8th. 28 enemy aircraft bombed and machine-gunned Chittagong aerodrome 1 Blenheim was destroyed on the ground and an aerodrome rendered temporarily unserviceable. Burma. 8th. 5 United States aircraft attacked dock area Rangoon and another attacked Mingaladon aerodrome. 105 COPY NO. 13 BRITISH MOST SECRET (U.S. SECRET) OPTEL No. 154 Information received up to 7 A.M., 10th May, 1942. 1. MADAGASCAR The terms of surronder were signed on the 8th. One German and two Italian merchant ships were scuttled at PORT NIEVRE. Our casualties do not exceed 500 and we took over 2,000 prisoners. The occupition of ORONJI. PENINSULA is pro- coeding. Direct communication betwoon the War Office and our land forces has now been established. 2. NAVAL 8th. One of H.M. submarines sank aftor striking a mine when leaving MALTA. Large number of survivors. 3. MILITARY The withdrawal of our forces continues, the majority now being in the KALEWA area. Reports covering poriod up to 0300/8 indicato most formations intact but substantial loss of vehicles must be expected owing to difficulty of ferrying CHINDWIN RIVER. 4. AIR OPERATIONS WESTERN FRONT. 8th/9th. About 222 tons of H.E. and incendiaries dropped on Heinkel Works at WARNEMUNDE and about 60 tons on the town. Searchlight activity was intense and results difficult to observe. 26 R.C.A.F., 5 missing, and 10 R.A.A.F. aircraft took part. 9th. 12 Bostons supported by 35 squadrons of Spitfires bopbed railway centre at HAZEBROUCK and oil cisterns at BRUGES. No diroct hits are claimed. One onemy fighter destroyed, 6 damaged. 8 Spitfires missing. 2 Me. 109's also des-i troyed off PORTLAND. 9th/10th. 20 bombors laid 38 mines off east const of DENMARK and HELIGOLAND. EGYPT. 8th/9th. 35 Wellingtons despatched to attack shipping at BENGHAZI. 1 hit claimed on 5,000 ton merchant vessel. MALTA. Between 1518/8 and 1114/9, 28 bombers with fighter escort nt- tacked. Spitfires destroyed 3 Me 109's, probably destroyed two and damaged three. 2 Spitfires lost. 9th. Roinforcements of Spitfires arrived MALTA having been flown off aircraft carrier. INDIA. 9th. Enemy aircraft made two attacks on CHITTANGONG. Regraded Unclassified TREASURY DEPARTMENT BUREAU OF THE PUBLIC DEBT 106 May 11, 1942. TO THE SECRETARY: Subscriptions to 2-1/2% Treas- ury Bonds 1962-67: Total today: $ 14 M Total to date: 756 M wis D MR. KILBY 107 TREASURY BILLS May 13 May 6 April 29 April 22 Amount offered $ 250 M $ 150 M $ 150 M $ 150 M Bids tendered 546 355 375 333 Low rate 0 2/ .245% 0 1/ .158% High rate .376% .372 .356% .340 Average rate .368% .358 .335 .317 Amount in New York ..... $ 92 M $ 63 W $ 90 M $ 85 W Amount in Chicago ...... 101 58 29 30 Amount in San Francisco. 6 2 4 14 Amount in balance of country 51 27 27 21 1/ $ 50,000 bid at 100.00; $5,000 bid at 99.980, next low rate 0.198% 2/ $5,000 bid at 100.00; $10,000 at 99.985, next low rate 0.245% May 11, 1942 with 108 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE MAY 111842 TO Secretary Morgenthau FROM Mr. Haee Subject: Analysis of reports received concerning subscrip- tions to the issue of 1/2 percent Certificates of Indebtedness. During the past 2 weeks Mr. Buffington has trans- mitted to my office (1) the letters and telegrams received by the Treasury in response to your telegram of April 1, announcing the issuance of 1/2 percent Certificates of In- debtedness, and (2) the reports prepared by members of the securities industry covering their activities in acquainting business concerns with the offering of these securities. An analysis of the letters, telegrams and reports follows. I. The letters and telegrams. (1) Only 1,986 corporations and governmental units out of the 8,256 such organizations to which telegrams were dispatched sent replies. Of those replying, 768 were interested in subscribing to the new issue of certificates, while the remainder expressed either a lack of interest or stated they might be interested at a later date. A summary of the telegrams sent and replies received appears in the table that follows: : : Banks, : : : Non- :insurance: State : : finan- :companies: and : : cial :and other: local : Total : corpo- :financial govern- : rations: corpora- : ments : : : tions : : 1. Number of telegrams sent 6,900 269 1,087 8,256 2. Replies received: (a) Interested in subscribing 664 39 65 768 (b) Not interested now but may be later 666 71 93 830 (c) Not interested.. 342 11 35 388 Total 1,672 121 193 1,986 3. Remainder for which no replies received. 5,228 148 894 6,270 Regraded Unclassified 109 Secretary Morgenthau - 2 (2) The failure of the Department to receive a greater number of direct replies to the telegrams dis- patched is probably accounted for by a number of factors. Among these may be mentioned the following: (a) Many corporations passed their re- plies on to the Treasury through the members of the securities industry who contacted them. (b) Many corporations and governmental units felt no response was necessary because handy arrangements were available for placing subscriptions with their local bank or with the Federal Reserve Bank in their District. (c) Many corporations and governmental units did not wish to put themselves on record as not having been interested in subscribing. (3) Practically all the replies that indicated that the corporation or governmental unit was not interested in the certificate issue gave "lack of funds" as the reason. A few investors stated that the rate was too low and half a dozen or so said they preferred other types of Government se- curities. II. The reports from the securities industry. (1) The members of the securities industry con- tacted approximately 7,000 corporations located in 24 States and the District of Columbia. Some 1,135 of these corpora- tions indicated they would place subscriptions for Certifi- cates of Indebtedness in amounts approximately as follows: Amount Number : (millions) Non-financial corporations 1,009 $ 384 Banks 48 23 Insurance companies 78 296 Total 1,135 $ 703 110 Secretary Morgenthau - 3 (2) In those 21 States and the District of Columbia for which the information was submitted by the members of the securities industry, 635 corporations out of the 6,388 contacted -- approximately 10 percent -- indicated that they were borrowing funds at the present time. They were not, therefore, in the market for a short- term 1/2 percent security. Sales of United States Savings Bonds 111 CONFIDENTIAL From May 1 through May 9, 1942 Compared with Sales Quota for Same Period (At issue price in millions of dollars) I Series I : Series F and G : Total : Actual Sales : Quota, : Sales : Actual Sales : Quota, : Sales : Actual Sales : Quota, : Sales Date # : May 1 : May 1 : to Date : : May 1 : May 1 : to Date : : May 1 : May 1 : to Date # Daily : to # to : as x of : Daily : to : to : as $ of : Daily : to : to : as $ of # : Date : Date : Quota : : Date : Date : Quota : : Date : Date : Quota 1 $ 12.7 $ 12.7 $ 14.0 90.7% $ 7.3 $ 7.3 $ 9.0 81.1% $ 20.0 $ 20.0 $ 23.0 87.0% 2 11.6 24.3 25.7 94.6 7.9 15.2 16.0 95.0 19.4 39.4 41.7 94.5 4 22.3 46.5 47.8 97.3 10.3 25.5 29.5 86.4 32.6 72.0 77.3 93.1 5 8.9 55.5 57.8 96.0 7.6 33.1 37.1 89.2 16.6 88.6 94.9 93.4 6 18.4 73.8 70.5 104.7 15.6 48.8 49.8 98.0 34.0 122.6 120.3 101.9 7 23.2 97.0 84.0 115.5 12.1 60.8 60.3 100.8 35.3 157.9 144.3 109.4 8 17.2 114.2 98.0 116.5 6.4 67.2 69.3 97.0 23.6 181.4 167.3 108.4 9 14.5 128.7 109.7 117.3 5.6 72.8 76.3 95.4 20.0 201.5 186.0 108.3 11 131.8 89.8 221.6 12 141.8 97.4 239.2 13 154.5 110.1 264.6 14 168.0 120.6 288.6 15 182.0 129.6 311.6 16 193.7 136.6 330.3 to 215.8 150.1 365.9 19 225.8 157.7 383.5 20 238.5 170.3 408.8 21 252.0 180.8 432.8 22 266.0 189.8 455.8 23 277.7 196.8 474.5 25 299.8 210.3 510.1 26 309.8 217.9 527.7 27 322.5 230.5 553.0 28 336.0 241.0 577.0 29 350.0 250.0 600.0 Office of the Secretary of the Treasury, Division of Research and Statistics. May 11, 1942. Source: Actual sales figures are deposits with the Treasurer of the United States on account of proceeds of sales of United States savings bonds. Figures have been rounded and will nei essarily and to totals. Regraded Unclassified 112 see has reply of 5/13. May 11, 1942 Dear Frank: I am writing you about a rather serious obstacle that has arisen in our efforts to strengthen the war spirit and to sell War Bonds by means of public rallies in many parts of the country. As you know, the Navy has been most cooperative with us in many ways in making such patriotic rallies possible. We find, however, that the Navy Department will not provide officers and men for parades or color guards, even in small numbers, unless we pay for trans- porting, quartering and feeding them. Since ours is a voluntary effort on the part of communities and individuals throughout the country, this means that the volunteers themselves are being asked to pay the cost, and we are, in some cases, quite unable to have the rallies at all. Almost invariably at these meetings we include a mass induction of recruits and we do everything possible to help the war effort generally, in addition to pushing the War Bond campaign. I wonder, therefore, whether you would mind looking into this matter 80 that we may make some new and more practical arrangement with the Navy Department on the subject. We are most anxious to push this program of public rallies throughout the spring and summer, and I sincerely hope that the Navy Department can change its policy 80 as to make this possible. Sincerely, (Signed) Henry Honorable Frank Knox, Secretary of the Navy, Washington, D. C. n.m.e. capies to Thompson FK/ogk By Messenger Veach 3:40 5/12/42 Regraded Unclassified 113 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE May 11, 1942. TO The Secretary FROM Harold Graves In accordance with your request, I am supplying you the following schedule of State meetings: Monday, May 11 Chicago Tuesday, May 12 Detroit Thursday, May 14 Philadelphia Friday, May 15 Newark, N. J. Monday, May 18 New York City Tuesday, May 19 Hartford, Conn. Wednesday, May 20 Boston Meetings will later be scheduled for Ohio, Missouri, and California. The ten States to be covered by these meetings represent about two-thirds of our total volume of sales. 114 MEMORANDUM To: Secretary Morgenthau From: Mr. Paul May 11, 1942 I thought you would be interested in the attached editorial from the Chicago Sun, written by Irving Brant. It calls a spade a spade. I have ordered more copies but have not received them yet. Attachment 115 CHICAGO (ILLINOIS) SUN - May 9, 1942 Wartime Taxes cheer. That may seem strange, because it is right in line with what the committee Secretary Morgenthau, who asked last has been advocating-namely, that the winter for $7,600,000,000 additional rev! war taxes should reach into lower-income enue, has lifted his figure to $8,700,000,- brackets. It may not be so strange, if 000. The cost of the war this year has you examine the human side of the case. jumped more than ten billion dollars Here are a few facts. A congressman's above January estimates, due to faster pro- salary is $10,000. Secretary Morgenthau duction of munitions. Nobody can deny offered a tax plan which would increase the need of paying at least one tenth of the income tax of a married congressman the added cost by added taxation. with two children from $1,117 to $2,143 To obtain this extra $1,100,000,000, Mr. per year. Lower the exemptions and it Morgenthau would reduce income-tax will go to $2,321. For this and other rea- exemptions from $1,500 to-$1,200 for a sons a powerful group in Congress wants, married couple, from $750 to $600 for an instead, a general sales tax which would unmarried person, and from $400 to $300 fall four times as heavily on a family for each dependent. This would cause earning $500 a year as on a congressman 6,900,000 additional persons to pay income earning $10,000. taxes, but only $100,000,000 would come Facts like these are not talked about out of this very low-income group. The openly in Washington. They are not rest of the $1,100,000,000-an even billion considered decent. But they contain a -would come from reducing the exemp- lot of meat and they affect the well-being tions of those who already pay an income of the great mass of wage earners, small- tax. business men and farmers in America- The House ways and means commit- the little fellows who would bear the tee has greeted this request with a Bronx burden of a sales tax. Regraded Unclassified 116 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE May 11, 1942 TO Secretary Morgenthau FROM Mr. Kuhn I think you will be interested in these items from the Axis radio, picked up by the Federal Communications Commission. 1. An attempt to discourage the buying of War Bonds is being made by both the official German and Japanese short wave radios and the unofficial Nazi station called "Debunk." Berlin tells American listeners that the bonds will have little value when the time comes for them to be turned in, and cites the depreciation of Liberty Bonds to prove its point. The Tokyo radio consistently refers to our War Bonds as "red ink bonds." Station "Debunk" advises listeners to borrow money now and buy things, to ask for higher wages, to make England pay cash, to avoid the buying of War Bonds, and to make periodical searches of houses of rich people to see "if they have more of this or that than you do." 2. Tokyo has devoted two full length commentaries to the subject of Japanese treatment of war prisoners. The broadcasts imply that there are two kinds of prisoners who will be given no mercy: (1) enemy pilots who have landed on Japanese-controlled territory, and (2) any soldiers "who are known to have saved their own necks at the expense of native troops." Regarding the first group, the Japanese radio says: "Least of all, there can be no mercy for those pilots and their navigators who would subject the innocent and helpless to raids over Japan. They may 8.8 well abandon all hopes for a life of ease on this earth. There is no mercy for those enemies who would surrender after committing such atrocious acts." Regarding the second group of prisoners, it seems clear that the Japanese will give harsher treatment to white prisoners than to natives. America is given notice that those captured who are known to have saved their own necks at the expense of the native troops are certainly not going to receive the same kind of treatment as those who were brave enough to come into contact with the Japanese." Practically the whole body of white soldiers on our side is accused of this kind of cowardice. 7.K. Regraded Unclassified 117 May 11, 1942 Dear Henry: I was greatly interested in reading the telegram which you received from the Great Atlantic and Pacific Tea Company. Thank you for your thoughtfulness in sending it to me. Sincerely, Claude Honorable Henry Morgenthau, Jr. Secretary of the Treasury Washington, D. C. 118 May 11, 1942 Telegram received from Mr. R. E. Wood, Sears Roebuck and Company "Mail order May 8th, no sales increase. Retail May 6th, decrease 10 percent from corresponding days last year. This compares with increases during week end- ing April 28th of 17 percent mail order and 4 percent retail. We expect to have details by merchandise groups May 15th to disclose and eliminate the effect of major appliances and other seasonal lines whose present trends are different than last year." 119 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION CONFIDENTIAL DATE May 11, 1942 TO Secretary Morgenthau FROM Mr. Hase Subject: The Business Situation, Week ending May 9, 1942. Summary (1) National income payments rose to a new high in March, attaining an annual rate of nearly $106 billions. This com- pares with annual income payments of $92 billions in 1941 and less than $83 billions in 1929. However, due to the more rapid rise in living costs, the estimated purchasing power of national income payments again declined. (2) The additional restrictions imposed on consumer credit by the Federal Reserve Board last week should accentuate some- what the slowing up in retail trade recently in evidence. Department store sales in April declined contra-seasonally, and by the last week of the month were running only 8 percent above year-earlier levels. (3) In meetings with trade representatives relative to the recent general price order, the OPA has indicated that the March retail price ceiling must be maintained at the expense of other adjustments. Despite the ceiling order, the BLS index of basic commodity prices rose moderately last week, largely as a result of price increases for exempted farm products. Prices for wheat, corn and flaxseed were noticeably higher. (4) The imminent rationing of gasoline has served to intensify consideration of domestic transportation problems. Many local transit companies are expected to be hard pressed to handle the increased traffic, and plans are reported under consideration to restrict passenger traffic by rail. Shipment of grains on the Great Lakes has been banned in order to provide additional shipping space for iron ore. (5) The WPB has clamped down on civilian iron and steel consumption. By progressive stages, iron and steel as well as substitute metals, except gold and silver, will be barred in the fabrication of around 400 specified articles. Regraded Unclassified - 2 - 120 National income at new high National income payments continued to expand in March and attained an annual rate of nearly $106 billions, thus exceed- ing the previous record high reached in February by more than $500,000,000. (See Chart 1.) In contrast, national income payments totalled #92 billions in 1941 and less than #83 billions in the boom year of .1929. The gain in income'in March was parti- cularly noticeable with respect to payments for wages and sala- ries. During the first quarter of this year, payments of wages and salaries ran 25 percent above the corresponding period of 1941, while other payments gained 19 percent. Living costs in March, however, rose at a more rapid rate than national income payments. Ae a oonsequence, the purchas- ing power of income payments again declined. (Refer to Chart 1.) Restrictions on consumer credit tightened Nevertheless, even after allowing for rising living costs, income payments continue at exceptionally high levels. At another step in the program to restrict consumer buying and combat inflation, the Federal Reserve Board last week consider- ably tightened restrictions on consumer credit. In addition to stiffening the regulations on installment selling, and greatly widening the range of articles affected, it also brought open charge accounts under credit control for the first time. Al- though open charge accounts for food will not be affected, those covering such important items as clothing, shoes, hats and haberdashery will hereafter be subject to control. Retail trade slows down This tightening of restrictions on consumer credit 18 likely to accentuate the slowing up in retail sales volume that had been noted even before the recent price ceiling order. Thus, department store sales in April declined contra-seasonally, and ran only OR percent above year-earlier levels, as compared with a gain of 27 percent in March. Moreover, in the week ended May 2, department store sales were only OR percent above the corresponding week in 1941. (See Chart 2.) Since prices of typical department store items at the beginning of April were about 19 percent higher than a year earlier, it will be seen that the volume of goods sold since that time has actually dropped noticeably below corresponding 1941 levels. In commenting on general retail trade last week, Dun and Bradstreet reports that sales barely maintained a margin over year-earlier levels. Further decline was noted in advance Regraded Unclassified 121 - 3 - buying, while wholesale trade was said to be continuing to show the hesitation that followed the general ceiling order. Preliminary reports from the New York area indicated that retail trade last week held around the levels of the previous week. Reports differed on the extent to which customers were withholding purchases in anticipation of the May 18 ceilings. However, it was generally agreed that registration for sugar rationing had out down store attendance in the early part of the week. Commodity prices little changed Commodity prices moved irregularly last week, as the com- modity markets awaited further interpretation of the general price order. The BLS price index of 28 basic commodities ad- vanced slightly despite the ceiling order, largely because of price increases for exempt farm products. Wheat, corn and flax- seed rose noticeably, and renewed strength was shown by cotton, wool, and cotton print cloth. (See Chart 3.) The strength in the wheat market doubtless reflects ex- pectations that the price should eventually advance toward the loan rate. Corn prices made a substantial advance to a new season's high. on reports of large consumption. Flaxseed prices advanced for the first time in a month on report of a large Government purchase of linseed oil for shipment to Russia. Prices for hogs and steers remained practically un- changed. Packers were reluctant to buy hogs and steers at present levels, in view of the price regulations effective to- day on pork and beef, but bought sheep more freely since lamb is exempt from the ceiling order. Butter prices declined somewhat on temporary cessation of Government buying. The BLS all-commodity index moved slightly upward in the week before last (ended May 2) to 98.7. (See Chart 4.) This 1s 31.6 percent above the pre-war level of August 1939, and 7.0 percent above that of the week before the Pearl Harbor attack. General price ceiling developments Clarification of the general price order, at OPA meetings with various trade groups, has been characterized by OPA in- sistence that the March retail price ceiling must be maintained at the expense of other adjustments. Regraded Unclassified 122 A supplemental order for ceilings on seasonal goods, a difficult price problem, has been promised shortly. The need for such an order was emphasized in a meeting of coat and suit manufacturers at New York, where it was stated that the un- certainty over the establishment of "March ceilings" for goods to be made and sold in the fall, had caused retailers in many instances to cancel orders or ask for deferment of shipments. There are further indications that in the canned foods industry prices paid for fruits and vegetables to stimulate this year's production may necessitate a subsidy. Secretary Wickard told a meeting of the National Canners' Association on Friday that it may become necessary for the Government to buy canned products at levels above the price ceilings, and then resell at prices which would permit their distribution at the ceilings. Farm groups oppose out in 110 percent ceiling Representatives of leading farmers' organizations joined the Senate farm bloo last week in opposing the President's proposal that farmers accept a reduction in the price ceiling on farm products to 100 percent of parity. At the conference called by the Senate AgriculturalCommittee, recommendations were made also for legislation to prevent sale below parity of Government-owned or controlled commodities; for continuance of existing ccc loans for one year in order to prevent 1941 loan stocks from being sold by the Government; for & study of parity by Congress to arrive at a higher formula than that employed by the Department of Agriculture; and for more emphasis on price floors, to prevent a post-war depression. Meanwhile two proposals for remuneration to farmers for adjusting production have been under discussion in the press. A British plan proposed for expanding food production in this country is based on certain principles now applied to industry. Under this proposal a differential price would be paid for additional output, without changing the price paid for the rest. Secretary Wickard recently suggested that parity for wheat be maintained only for the output required for domestic flour milling, say from 40 million acres, compared with our present national allotment of 55 million acres. Wheat grown in excess would be sold at a lower price for feed, for in- dustrial uses, and for exports. Stock prices slightly firmer Stock prices have shown some improvement since the President's announcement of the inflation-control program. Regraded Unclassified 123 - 5 - After touching on April 28 a new low since 1934, industrial stock prices as measured by the Dow-Jones averages have since moved gradually upward, and at the end of the week stood about 6 percent above the recent lows. Railroad and public utilities stocks also rallied slightly since the date mentioned, and then moved in a very narrow range during the past week. (See Chart 5.) Trading activity has continued very slow, with daily transactions on the New York Stock Exchange recently averaging around 300,000 shares. Total sales last month were less than 7,600,000 shares -- a figure 32 percent below year-earlier levels, and the smallest April total since 1918. Bond trading on the New York Stock Exchange in April also fell below year- earlier levels, but held up much better than stock trading, thus continuing to reflect a tendency to shift speculative activity from stocks to bonds. Domestic transportation problems to the fore The imminent drastic rationing of gasoline has served to bring into sharper focus the gravity and complexity of domestic transportation problems. In addition to tightening up on gasoline consumption, an executive order has been issued to enable the Office of Defense Transportation to exercise closer control over all rubber-borne transportation. Traffic of most local transit systems has already increased sharply, and it 18 predicted that some transit companies will find it extremely difficult, if not impossible, to handle the traffic when gasoline rationing becomes effective. In San Diego, first quarter transit traffic was 76 percent above year-earlier levels, while the Capital Transit Company of Washington showed a corresponding gain of 44 percent. The Cleveland Railway Company in the first quarter showed a gain of only 9 percent over 1941 levels, but by October the company 6X- pects traffic to be 50 percent above the present rate. Ban on Great Lakes grain shipments Traffic problems of the railroads continue to mount, and the Office of Defense Transportation is reported to be con- sidering plans for restricting civilian passenger travel by railroad. Further freight burdens will be thrown upon the railroads as the result of an order, effective May 15, banning all grain shipments via Great Lakes vessels except by specific permission of the Office of Defense Transportation. This action was taken in order to divert ships to iron ore traffic, in a drive to move an unprecedented volume of ore down the Great Lakes during the current shipping season. Regraded Unclassified 124 - 6 - The forced diversion of freight traffic from ships to more costly rail routes is complicating the effort to impose ceilings on commodity prices. Thus OPA 1s reported to be considering the granting of subsidies to railroads handling coal and petroleum products to New England which formerly moved by ships. These proposed subsidies would enable the railroads to reduce transportation charges, and thus enable dealers to maintain OPA price ceilings. Civilian steel consumption restricted The WPB during the past week moved to out down on iron and steel use for civilian purposes by issuing a broad res- triction order, which will go into effect in progressive stages and become fully effective by August 3. By that date no iron and steel nor any substitute metals except gold and silver may be delivered, processed or assembled for the manufacture of about 400 specified products. In addition to its significance from the standpoint of conserving metal for war purposes, the restriction order may force the eventual shutdown of numerous small plants throughout the country. In connection with the strides made by the metal-working industry in carrying out the war effort, the editor of the "Iron Age" editorially commented last week that "what 18 now taking place in our metal working industry is 80 great and vast and astonishing as to be inexpressible. It leaves no doubt whatever in my mind as to the outcome of this war." Heavy construction awards at record high Further evidence of the vast scope of the war effort came to light in last week's heavy construction contract awards as reported by the Engineering News Record. These awards soared to $435,000,000, or 45 percent above the pre- vious record high set in the week ended July 10, 1941. As a result of last week's heavy awards, our 4-week moving average of contract lettings shown in Chart 6 also moved up to a record high. Due to censorship requirements, details of the various projects making up the record figure are not available. Regraded Unclassified NATIONAL INCOME AND ITS EQUIVALENT PURCHASING POWER 1939 1940 1941 1942 DOLLARS DOLLARS Billions Billions Monthly 115 115 110 110 105 105 100 National Income 100 95 95 90 90 85 85 Purchasing Power of National Income* 80 80 75 75 70 70 A S o N D J F M A M J J A $ 0 N D J F M A M J J A S o N DJFMAMJJASOND 1939 1940 1941 1942 125 *Besed on cost of living index of B.L.S. Aug. 1939-100 Chart 1 Office of the Secretary of the Treasury Division of Research and Statesties C-415-A Regraded Unclass Chart 2 126 DEPARTMENT STORE SALES 1935 - '39 - 100, UNADJUSTED JAN. MAR. MAY JULY SEPT. NOV. PER PER CENT CENT Weekly 260 260 240 240 220 220 200 200 180 180 160 160 140 140 120 120 '41 '42 100 100 80 80 '40 60 60 JAN. MAR. MAY JULY SEPT. NOV. - of the of the Transary - of - - / c 390 Regraded Unclassified MOVEMENT OF BASIC COMMODITY PRICES AUGUST 1939 - 100 PERCENT PERCENT PERCENT PERCENT Weekly Average Daily 220 220 200 200 200 200 190 12 Feedstuffa 190 12 Foodstuffs 180 180 180 180 160 160 170 170 140 140 160 16 Row Industrial 160 16 Raw Industrial Materials Materials 120 120 150 150 100 100 140 140 JUNE AUG. OCT. DEC. FEB. APR. JUNE AUG. OCT. DEC. as 29 7 M - 29 4 II - a . . as 29 - & - FEB. MAR. APR. MAY JUNE 1941 1942 1942 PERCENTAGE CHANGE FOR INDIVIDUAL COMMODITIES Aug. 1939 to May 8. 1942 Dec. 6. 1941 to May I, and May 8. 1942 PERCENT Cottonesed Oil reasex PERCENT 12 Foodstuffs I2 Foodstuffs +40 Hoge NJX Tollow 110.7% 120 Hoge 117.0% Lard m.rx +30 Coooo MM7X Corn 98./X Lard 177% Barley 91.7% Corn 16.9% 80 Coffee 77.2% +20 Barley max Wheat 72.5% Steere 122% Steers 62/X Butter 10/2 Butter 61.6% +10 Tollow 7.9% Super 6.9% 40 Cottonered Oil 43X Sugar 10.8% o Wheat 3.4% Coffee ex Cooso -AX o -10 Aug. May 8 Dec.6. May I May 8 1939 1942 1941 1942 1942 PERCENT PERCENT 16 Raw Industrial Materials 16 Rew Industrial Materials +40 Flamed 39.12 120 / Burlep - +30 Print Cloth pass Flamsed 70/X Cutton 16.78 80 Zine sex +20 Leed HIX Wbat 47.7% Animal Cloth 74% Nideo 86.72 Zine " St. Screptom sex Rubber MAX +10 0% Change Shelloc. Tim. Albain area 40 Cogoar Land 294K Nicles. Silk. se 17.12 o St. Scrap.dom. Copper N.O. Rubber: - NEW St. Scrapexp. Tim 4.42 Nomin -1.88 o -10 AUG. May 8 Dec.6. May I May8 Wibol -14% 1939 1942 1941 1942 1942 Bunkp "Black lines indicante commeditive under price callings or other esetre/ 127 - of - - of - - P-84-2 I - Regraded.Unglassified COMMODITY PRICES 1926=100 PER PER CENT Weekly CENT 106 106 104 104 102 102 100 100 889 Commodities, B.L.S. 98 98 96 96 94 94 92 92 90 90 28 Basic Commodities, B.L.S. 88 88 86 86 84 OCT. NOV DEC. JAN. FEB. MAR. APR. MAY JUNE JULY AUG SEPT. OCT. NOV. 84 1941 DEC. 1942 128 Other of the Secretary of the Treasury Chart 4 - di I - - P-196-D Regraded Unclas STOCK PRICES, DOW-JONES AVERAGES Weekly Range 1940 1941 1942 MAI JULY SEPT. NOV. JAN. NAR. MAY JULY SEPT. NOV. JAN. MAR, MAY BOLLARS DOLLARS 180 30 Industrial Stocks 180 170 170 160 160 150 150 I 140 140 130 130 120 120 110 110 100 100 90 90 55 55 12 50 50 20 Railroads a 45 40 8 35 35 30 30 25 X 20 20 15 15 10 10 35 35 15 Utilities 30 30 25 25 20 20 15 15 10 10 SHARES SHARES Volume of Trading MILLIONS MILLIONS (AVERAGE or MILY) 3 3 2 2 1 I o o MAY JULY JM. BAS. SAVE JULY SEPT. sov. JAB. MAB. BAY SEPT. NOV. 1940 1941 1942 129 Chart Office of the Sentary of the Trumary Regraded Unclassified Diser d Isserá and - HEAVY CONSTRUCTIC CONTRACT AWARDS DOLLARS DOLL ARS Millions Millions Heavy Engineering Contracts 44 Eng. News Rec., Daily Ave. 44 40 40 36 36 1941 32 32 28 28 24 24 20 20 1942 16 16 4940 12 12 8 8 JAN. FEB. MAR. APR. MAY JUNE JULY AUG. SEPT. OCT. NOV. DEC. 130 9 Chart "Four-week moving average pieced on fourth week Office of the Secretary of the Transy - of - and - C-393-A-1 Regraded Unclas 131 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION M DATE May 11, 1942 Secretary Morgenthau TO Mr. Kamarck FROM Subject: Shipment of Planes to British Forces, Week Ended May 5,1942 1. In the week ending May 5, 1942, 8. total of 118 planes of all types (114 combat planes) were shipped to British forces. 2. Since January 1, 1941, the United States has furnished over 7,000 planes to British air strength. The three main categories "hich have been sent are pursuit, 35 percent of the total; light and medium bombers, 33 percent; trainers, 26 percent; and all other types, 6 percent. 3. In surveying the distribution of American planes among the various British fields of action, it is clear that our planes in 1942 have won more important assignments than they had in 1941. In 1941, the following main purposes were served by American planes (a) The Curtise Tomahawk and Kittyhawk fighters and Martin Mary- land and Baltimore bombers were the main-stay of the British Middle Eastern front. (b) In the Battle of the Atlantic, the Lockheed Hudsons and the Consolidated Catalinas and Liberators took an active part. (c) The Douglas Boston (A-20) bombers proved to be efficient in their converted form 8.8 Havoc night fighters. (d) Over 1,500 American trainers, North American Harvards and Cessna T-50's were used to train flying personnel all over the world, but principally in Canada. In 1942, American planes are still continuing in their 1941 roles, but have also won two more important jobs. (a) The Douglas Boston (A-20) bombers are now the most important British day bombers, having displaced the Blenheims for this purpose. (b) In the Bell Airacobra and North American Mustang fighters, the United States 18 finally providing the British with fighters which the R.A.F. considers good enough for use in Western Europe. Regraded Unclassified - 2 - 132 Table A - Shipments by Area Week Total shipped Total shipped Ending in 1942 since May 5,1942 to date Jan. 1, 1941 To the United Kingdom Light and medium bombers 11 236 1,397 Heavy bombers 2 47 151 Naval patrol bombers 0 OR 110 Pursuit 63 642 953 Army cooperation 0 59 90 Trainers 0 0 24 Total to the United Kingdom 76 992 2,725 To the Middle East Light and medium bombers 0 192 522 Heavy bombers 0 O 5 Pursuit 28 194 1,042 Army cooperation O 12 12 Trainers 0 OR 150 Total to the Middle East 28 406 1,771 To the Canadian Forces Light and medium bombers 3 35 203 Heavy bombers 0 1 1 Naval patrol bombers 0 23 31 Pursuit O 30 72 Trainers 4 317 1,558 Total to the Canadian Forces 7 406 1,865 To the British Pacific Forces Light and medium bombers o 121 216 Naval patrol bombers 0 o 27 Pursuit 7 155 323 Trainers 0 O 105 Total to Pacific Forces 7 276 671 To the British Indian Forces Pursuit o 40 40 Total to Indian Forces 0 40 40 Totals Light and medium bombers 14 584 2,338 Heavy bombers 2 48 157 Naval patrol bombers 0 31 168 Pursuit 98 1,061 2,430 Army cooperation 0 71 102 Trainers 4 325 1,837 Grand Total - 118 2,120 7,032 - 3 - 133 Table B - Shipments by Types Week Total shipped Total shipped Ending in 1942 since May 5,1942 to date Jan. 1, 1941 Bell Airacobra 3 314 468 Boeing B-17 o 11 31 Boston III 5 10 34 Brewster Buffalo 0 0 168 Cessna Crane I-A (AT-17) 4 40 40 T-50 0 86 700 Consolidated Catalina 0 31 168 Liberator 2 37 126 Curtiss Kittyhawk 35 383 765 Tomahawk 0 0 544 Douglas Boston I, II, and III 0 0 492 Fairchild 24 R-9 0 61 83 Glenn Martin Baltimore 0 195 263 Maryland o O 150 Grumman Martlet II 1 46 87 Lockheed Hudson 2 269 1,239 Lightning 0 3 3 Ventura I 0 12 12 Ventura Bomber 7 92 92 North American B-25 B o 6 6 Harvard II o 51 948 Mustang 59 315 395 Pitcairn Autogiro 0 0 5 Stearman PT-27 O 148 149 Vought-Sikorsky Chesapeake 0 o 50 Vultee Stinson 0-49 0 10 14 Grand Total - All Types 118 2,120 7,032 Regraded Unclassified Table C - Plane Shipments to the British by Weeks 134 Light and Naval Week medium Heavy patrol Army Ended bombers bombers bombers Pursuit Cooperation Trainers Total Weekly average of shipments in 1941 36 2 3 28 1 30 100 January 6, 1942 24 o 5 30 4 9 72 January 13,1942 3 0 2 58 0 42 105 January 20,1942 8 0 0 14 0 60 82 January 27,1942 24 0 1 100 5 13 143 February 3,1942 9 0 3 10 4 4 30 February 10,1942 33 o 3 59 0 4 99 February 17,1942 12 o 2 41 7 o 62 February 24,1942 33 0 2 86 7 1 129 March 3,1942 26 0 1 80 6 0 113 March 10,1942 29 2 0 78 1 o 110 March 17,1942 34 1 o 94 8 0 137 March 24,1942 94 9 12 79 o 84 278 March 31,1942 49 1 0 58 4 10 122 April 7,1942 69 2 0 OR 4 5 88 April 14,1942 55 7 0 86 6 29 183 April 21,1942 55 11 0 43 15 34 158 April 28,1942 35 10 0 39 0 26 110 May 5,1942 14 2 0 98 o 4 118 Total shipments since Jan. 1, 1941 to date # 2,338 157 168 2,430 102 1,837 7,032 # The cumulative total includes planes shipped in 1942 prior to March 17, which are not listed in the weekly figures. 135 TREASURY DEPARTMENT OFFICE OF THE SECENTARY May 11, 1942 COMPIDENTIAL Received this date from the Federal Reserve Bank of New York, for the confiden- tial information of the Secretary of the Treasury, compilation for the week ended April 29, 1942, showing dollar disbursements out of the British Rupire and French accounts at the Federal Reserve Bank of New York, and the means by which these expenditures were financed. A LAP-5/11/42 Regraded Unclassified 136 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION TO Secretary Morgenthadies FOR Chaunces DATE May 11, 1942 FROM Mr. Dietrich Official sales of British-owned dollar securities under the various vest- ing orders since February 19, 1940: No. of Shares $ Proceeds of Nominal Value $ Proceeds of Sold Shares Sold of Bonds Sold Bonds Sold May 4 - - , - 5 - - - - 6 - - - - 7 - - - - 8 - - - - 9 - - - - - - - - Sales from Feb.22,1940 to May 2, 1942 9,847,610-1/6 281,858,763 45,648,016 37,474,216 Sales from Feb.22,1940 to May 9. 1942 9,847,610-1/6 281,858,763 45,648,016 37,474,216 AS Regraded Unclassified 137 TREASURY DEPARTMENT INTER-OFFICE Chaunoos COMMUNICATION DATE May 11, 1942 TO Secretary Morgenthed Forefiss FROM Mr. Dietrich Official sales of British-owned dollar securities under the various vest- ing orders since February 19, 1940: $ Proceeds of $ Proceeds of Shares Sold Bonds Sold Total May 4 - - - 5 - - - 6 - - - 7 - - - 8 - - - 9 - - - - - - Sales from Feb.22,1940 to May 2, 1942 281,858,763 37,474,216 319,332,979 Sales from Feb.22,1940 to May 9, 1942 281,858,763 37,474,216 319,332,979 319,332,979 $ proceeds of non-vested securities sold April 27, 1942 - May 2, 1942 400,000 $ Proceeds of non-vested securities sold Sept. 1, 1939 - April 25, 1942 247,200,000 $ proceeds of non-vested securities sold 247,600,000 247,600,000 Sept. 1, 1939 - May 2, 1942 GRAND TOTAL 566,932,979 $ 61 Jan. 7. 1942 - Cash Dividend on 156 Shares 125 Jan. 9. 1942 - Partial Liquidating Dividend 9 Units sold from Aug. 18, 1941 - May 9. 1942 for 42 11 Shares Stock Dividend sold Aug. 18. 1941 - May 9. 1942 for 123 56,007 Rights sold from July 24, 1941 - May 9. 1942 for 102,938 R 138 THE BRITISH SUPPLY COUNCIL IN NORTH AMERICA Box 680 TELEPHONE: REPUBLIC 7860 BENJAMIN FRANKLIN STATION WASHINGTON, D. c. May 11, 1942. Dear Dr. White, I mentioned to you a little while back that we were running short of silver for coinage, and might wish to raise later the possibility of obtaining silver on loan. I have now been in- formed that present stocks of silver available for coinage will cover requirements until about the end of October, and we do not propose to pursue this matter further at the present time. Our needs for coinage have been running at about two to two-and-one-half million fine ounces a month. But other uses of silver for war purposes, e.g., in substitution for tin (for solder) have come along, and for non-coinage purposes, requirements are put at five million fine ounces over the next twelve months. We are proposing to put in a re- quisition under lend-lease through the Raw Materials Board for this amount. Yours sincerely, FPhillys Dr. H. D. White, Director of Monetary Research, United States Treasury, Washington, D.C. devision {HREST ster R : YAM to goleivia donsess 139 MEMORANDUM To fulfil their part of the Brazilian Iron Ore agreement of the 3rd March 1942 the British Government have, under Clause 2, to transfer unencumbered to the Brazilian Government the Brazilian property of the British Itabira Company. The Company's issued capital is all sterling capital but a block of the first preference shares (18,663 shares representing about 30% of the prior preference issue) is owned by American citizens living in this country. These shares will, it is understood, be acquired by the British Government under their existing powers over the Company in London. His Majesty's Treasury propose to pay in sterling for the shares owned by non-residents of the United Kingdom, but to allow them a free choice of sterling securities for re-investment of the proceeds. The proceeds of sale of sterling securities by a non-resident are normally payable only to a blocked account, which means that the money is available for re-investment only in certain British Government securities, about 30 in number. Since the Itabira shares are to be acquired compulsorily it is thought fair in this case to allow the holders to reinvest in any ster- ling securities they please. The securities they might so buy would naturally be subject to all the ordinary restrictions. In effect it would be an exchange of one blocked sterling security for another. Willard Hotel, Washington, D.C., May 11, 1942. Regraded Unclassified 140 THE WHITE HOUSE WASHINGTON May 11, 1942. MEMORANDUM FOR H.M. Jr. 1. In regard to the American Bosch ownership, I think you should continue to keep Donald Nelson in touch. 2. After reading your memorandum, I am extremely doubtful as to the free and clear ownership of these shares by Swedes. As long as this question is in doubt, I think the U. S. Government should in some effective way (a) take over the shares in escrow or in trust and (b) place our people in the company in such a way as to have complete information as to operations personnel, etc. F.D.R. HR 141 THE WHITE HOUSE WASHINGTON May 11, 1942. MEMORANDUM FOR H.M. Jr. The American Bosch and other cases impel me to study foreign ownership of American corporations. In 1919 and 1920, for example, Owen Young presented to me a plan to organize an R.C.A. to buy the Navy controlled radio patents and stations. His corporation was to be tied up to the British Marconi Company, the latter to put uo about 49% of the capital and to be given radio control in Europe, Asia and Africa, the radio control in North and South America to be given to R.C.A. I objected strongly to the set-up and when the R.C.A. was actually formed, very nearly all of the capital was American and the exclusive arrangements with British Marconi was abandoned. as I wish you would have some study made to some form of law which would cover the following points: A (a) All American corporations which we have taken over to be divested of 90% of their foreign ownership. (b) Not more than 10% of the stock of any American operation to be held by foreign citizens. The above is Just something to study and there may be many other ways of accomplishing the same objective. For example, I do not want to forbid individual foreigners from owning stock or bonds in American companies as individual investments on the basis of wide diversification, but I do want to prevent any foreigner or any foreign corporation from owning large blocks of stocks or bonds in American corporations. At the same time, it may be worthwhile studying the general subject of interlocking corporations with the object of doing away with all subsidaries. F.D.R. the 142 TREASURY DEPARTMENT M INTER OFFICE COMMUNICATION DATE May 11, 1942 TO Secretary Morgenthau FROM Mr. White Subject: Request of the Motion Picture Industry, and of R.K.O. in particular, for release of its funds blocked in the Sterling Area. The Motion Picture Industry has requested the Treasury's assistance in obtaining the release of its funds blocked in the Sterling Area, on the grounds that they are necessary to compen- sate in part for the revenue formerly derived from Continental Surope and Asia, and R.K.O. has particularly requested our assistance in having its funds released, on the grounds that its financial situation is critical. I attach a memorandum left by Mr. Will Hays on the general request, and & memorandum from the president of R.K.O. on that company's request. 1. Under the terms of an agreement reached last October the British Treasury agreed to permit American motion picture companies operating in the United Kingdom to withdraw up to $20 million of their sterling earnings for the year beginning October 1941, and 50 percent of the balances accumulated to that time. We do not know what rate of withdrawal is permitted by other Sterling Area governments. Mr. Hays' memorandum states that the Industry's blocked funds will be approximately as follows at the ends of the current agreement years: United Kingdom - through October 24, 1942 38.4 million Australia - through February 28, 1943 8.0 million New Zealand - through December 31, 1942 1.6 million India - through October 31, 1942 .5 million Total $48.5 million .hus by the end of 1942 the amount involved will be approximately 50 million. 2. Mr. Hays suggests that the United States buy the blocked sterling balances from the Industry and use them to pay for the expenses of American troops in the Sterling Area. This suggestion raises the following problems: a. Using sterling purchased from the Motion Picture Industry for American troop expenditures will necessitate finding other means of relief for the British Treasury. Dollar receipts from the expenditures of American troops Regraded Unclassified 143 Division of Monetary Research - 2 - have been counted upon in the plans for financing Britain's dollar deficit. To the extent, therefore, that sterling for these purposes is obtained by purchases from the American Motion Picture Industry, the British dollar deficit will increase and, since that position must be maintained, some other source of dollar funds to Britain would have to be found. b. Can the Motion Picture Industry be given special treatment for its blocked funds? Many other American industries have funds blocked in the Sterling Area, and the Treasury has previously had requests for assistance in obtaining their release. If the request of the Motion Picture Industry is granted, it must be done on the grounds that there is a special justification in this case. A special justification may exist, for Mr. Hays states that the Motion Picture Industry is accepting blocked sterling for its pictures only because it believes that American motion pictures are essential to the British war effort, and because the Industry does not want to do anything to hinder that effort. C. Does the American Treasury need 50 million worth of sterling? The American Treasury's need for sterling will depend in part upon the outcome of reciprocal sid negotiations. Sterling required for troop pay, however, which will almost certainly not be provided as reciprocal aid, will amount during this year to more than four times this amount. 2. Since United States Treasury purchase of the blocked sance of the Motion Picture Industry would constitute special treatment for the Motion Picture Industry, it ni ht not be well received by the public. However, the same results might be obtained with a different mechanism: Mr. Hays claims that the Pritish regard American motion pictures as essential, and there- fore the Industry should be able to demaná payment in dollars. In that event, the British could ask our approval of the expend!- ture, and obtain from the Treasury an assurance that, in line with C/D general policy of maintaining Britain's dollar balances, some Method of offsetting her loss would be found. The advantage of this method is that it would & pear to be & private transaction between the British government and the American Motion Picture Industry. 4. The request of R.K.O. for release of its blocked sterling, amounting to about $3 million, arises from the fact that their financial position is very critical. If the funds of the entire otion Picture Industry are to be released, R.Z.O.'s problem will of course be solved. But if it is not feasible to ask for the release of the funds of all the companies, it may be possible to justify assistance to R.K.O. alone on the grounds of its special Regraded Unclassified 144 Division of Monetary Research - 3 - need and of the small amount involved. Since the amount is small, the British government might release all or part of it simply in response to your request Mr. Hays has assured me that, although the Industry is primarily interested in obtain- ing the release of all of its funds, it would not object, if that should prove impossible, to having R.K.O. receive special treatment. If the Treasury is to act on the basis of R.K.O.'s [inancial situation, we should of course 50 into their financial condition very carefully. I have not yet done this. Regraded Unclassified 145 I 1943, s á I I have received your memorander en the financial position of REO and ⑉ serve you - will give the aster our most careful consideration without delay. Sincerely yours, (Signed) H. D. White these, of d' Mrester of Menstary Besearch. if % d President, RED Mills Pictures, Ime., RED Building, How York, New York. 5/8/42 - Mailed by LS (Incoming material to Mrs. Hallock for photostating.) FILE COPY 5/0/42 Regraded Unclassified 146 RKO RADIO PICTURES, INC. RKO BUILDING NEW YORK OFFICE OF THE PRESIDENT May 5, 1942. Mr. Harry D. White, Director of Monetary Research, Treasury Department, Washington, D. C. Dear Mr. White: Pursuant to our understanding, I am enclosing a very brief and simple statement of the necessities with which RKO unfortunately is now confronted. If anything can be done in the direction of relief, it would be very much appreciated. I am familiar with Mr. Hays' visit with you yesterday, and join with the other companies in the hope that the relief asked for may be obtained. In my opinion it is as right in principle as it is necessary, as a practical matter, if the industry's service, which is 80 important, is to be maintained. Sincerely yours, Schaefer GJS:LC davisions Enclosure: Instructional citizent SAPE YAM to motalvid statecoM 147 Memorandum Radio-Keith-Orpheum Corporation is a holding company and its principal subsidiary is RKO Radio Pictures, Inc. which produces motion pictures and dis- tributes them throughout the world. RKO acquired as of Jamary 1, 1940 all the assets of its predecessor at the end of seven years of reorganization proceed- ings in the Federal Courts. After reorganization, the capitalization of RKO consisted of 6% preferred stock and common stock and no debt. No dividends have been paid on any of its stock except $2 per share on the preferred stock paid May 1, 1941 (the accumulations on which will be $11.50 per share on May 1, 1942), notwithstanding that the holders of this stock were bondholders of the predecessor company who received no interest for many years. Under the plan of reorganization RKO was furnished with approximately $2,000,000 cash. After giving effect to cash allowances in the proceedings of $600,000 and reorganization expenses of $150,000, its initial cash balance was from a practical standpoint $1,250,000. This was a minimum cash balance for a parent company in a business as extensive and volatile as that of the EKO enterprise. Approximately $650,000 of this initial cash was utilized by RKO during 1941 in acquiring 7% preferred stock of its principal theatre operating subsidiary, as an incident of the retirement by that subsidiary of about $5,000,000 of such stock. The reorganization of RKO did not furnish the Picture Company with any new working capital, that subsidiary having operated throughout the period of the proceedings on its own modest working capital. The operation of motion picture companies has recently been and now 18 most difficult because of the many uncertainties, both foreign and domestic. The war has had a very adverse effect upon the industry generally. Many foreign territories have been completely lost to distribution of pictures (all of Regraded Unclassified 148 Continental Europe and most of the Far East). In addition, the business has been affected through substantial depreciation in the rates of exchange on foreign currencies and, more seriously, through restrictions placed upon the withdrawal of cash from the more important foreign countries. The dollar receipts of the Picture Company from foreign sources for the year 1941 were approximately $1,000,000 less than during 1940. Prior to the war approxi- mately one-third of the gross income of the Picture Company from distribution was derived from foreign sources, the larger portion from the United Kingdom and Australasia. During the first year of the restrictions upon withdrawal of foreign funds, the major motion picture companies were able to withdraw from the United Kingdom approximately 50% of the average amount withdrawn in the previous three years; during the second year of such restrictions only approximately 30%. It is estimated that the Embassy Agreement of last October with the British fiscal authorities will enable the withdrawal of approximately 45% of the sterling revenues accruing to the major companies during the current year (in addition to the remittance during such year of 50% of the frozen balances remaining due to them on October 25, 1941). The difficulties of operations in the domestic market result from the uncertainties inherent in distributing feature pictures pursuant to the provicions of the so-called Consent Decree. The decree makes it necessary to "trade-show" feature pictures in advance of selling and the distributor is limited in selling to blocks of five. Prior to the decree, film companies could promptly realize cash from their investments in feature pictures by selling them for exhibition as soon as production was completed. As a practi- cal matter, it is now necessary for our Picture Company to accumulate at least five completed but unreleased pictures before a "trade-showing". Since feature pictures are expensive commodities the large increase in required inventory 18 Regraded Unclassified 149 apparent. Moreover, the adverse effect upon the cash position is accentuated by the fact that the distributor must delay actual selling of completed pictures and at the same time continue its production program in order to build inventory against future periodic "trade-showings". The present estimate 1a that our Pic- ture Company must maintain at all times an inventory of approximately ten com- pleted but unreleased feature pictures to meet present selling conditions. In still another aspect the new selling methods affect the cash position of picture companies. Experience definitely indicates that the rate at which income is being received by picture companies from feature pictures sold under the decree is considerably slower than the rate of its receipt prior to the decree. At the present stage, it appears that the cumulative results from distribution by the Picture Company under the new selling methods of the average feature pic- ture will not be equal to such cumulative results under the pre-decree selling methods until a date six to nine months from release. It also appears that the amount of deferred income of the Picture Company is now in excess of $1,000,000 due to the new selling methods, and that, so long 88 they continue, at least that amount of its income will at any given time be deferred. The foreign and domestic conditions have been peculiarly difficult for RKO. Its goodwill and operations were necessarily affected during the long period of administration of its affairs by the courts. It did not build up substantial cash reserves during the period which would have served as a cushion against the shocks of the subsequent conditions. RKO's plan of reorganization was formulated and adopted long before the war or the Consent Decree and naturally did not anticipate, nor provide the organization with adequate cash against, the later uncertainties. The plan was confirmed eight months before hostilities in Europe commenced and was finally consummated by the transfer of assets more than four months after hostilities. Accordingly, Regraded Unclassified 150 from its inception the new RKO corporation was in 8. relatively unfavorable position to contend with the new conditions. The results of operations of the Picture Company after all charges were losses of approximately $1,625,000 for 1940 and of approximately $580,000 (estimated) for 1941. However, during those years charges aggregating $785,000 and $530,000 respectively were made against the profit and loss account of the Picture Company to maintain its reserve for contingencies (created for the pur- pose primarily of providing against the foreign uncertainties, particularly the restrictions upon withdrawal of funds). Accordingly, before taking into consideration the charges to maintain this reserve, the net loss from opera- tions for the two years period was about $890,000. To provide the necessary working capital to finance the initial in- crease in inventory, the Picture Company arranged last year with a bank for a revolving fund credit in the maximum amount of $4,500,000, bearing interest at the net rate of 32% per annum and secured principally by pledged negatives of pictures. In addition RKO has furnished the Picture Company with $750,000 of cash, which has been subordinated to the bank loan. The Picture Company has reached the limit of credit available under the bank arrangement, and RKO is not in a position to furnish additional cash (its cash balance being presently about $500,000). Recently a thoroughgoing and realistic reappraisal of all sources of working capital of the Picture Com- pany has been made. It is estimated that, in order to complete its minimum production program for the current year, the Picture Company needs approximately $2,500,000 additional working capital, after taking into consideration all work- ing capital which will become available to it during the period (including the anticipated funds to be received under the Embassy Agreement). The Picture Company has & complex studio organization at Hollywood Regraded Unclassified 151 and an extensive and efficient distributing organization throughout the United States and other territories in the Western Hemisphere engaged in marketing its own product and that of outstanding independent producers, including Walt Disney Productions. It is important to maintain a fairly even tempo of production at the studio in order to have available completed pictures ready for release at proper intervals in the future and in order to avoid shortages in labor and facilities which would be incurred by "peaks" and "valleys" in production. Unreasonable curtailment of the production program would cause expensive die- locations and impair the value of the producing and distributing organizations. RKO is & well integrated organization for the production, distribution and exhibition of motion pictures and its general administrative expenses are relatively low, including the salaries of its executives. Because of the many uncertainties in the foreign and domestic situa- tion, the present is not the most propitious time to make satisfactory arrange- ments with the usual sources for permanent working capital. It is estimated that on May 2, 1942 the Picture Company will have a balance of approximately $3,000,000 due from its subsidiaries operating in the United Kingdom and Australasia (consisting of accounts receivable and undivided surpluses) which, except for the restriction upon withdrawal of foreign funds, would be available to it. The acuteness of the cash situation and the present difficulty of arranging permanent financing through the usual channels, prompt the respectful and earnest request that some arrangements be made to enable the Picture Company to realize American dollars on these frozen currencies (either by sale or pledge thereof for a loan or in some other feasible manner). Regraded Unclassified 152 MEMORANDA for Hon. Henry Morgenthau, Jr., Secretary of the Treasury In Re: Motion Picture Industry's Frozen Funds in British Empire. 1. The continued presentation of American motion pictures and news reels to theatre audiences in this country and throughout the world must be regarded as one of the services of supply essential to the war effort of the United Nations. Modern warfare is total war involving civilians behind the lines as well as combatants in the front lines and requiring intensive effort on farms and in factories as well as in the trenches. All civilians, as well as enlisted personnel, are subject to physical danger and nervous tension. Wholesome entertainment constantly offered in the motion picture theatres is essential for the maintenance of morale. 2. Several foreign governments have subsidized local motion picture production and controlled content of films. The American motion picture industry has never been subsidized by government or any other agency. It is a free commercial enterprise which can continue its vital and necessary service only by paying its own way. Because the American motion picture became the favorite form of mass entertainment throughout the world, our industry in normal years received from 35% to 40% of its revenue from countries outside the United States. Axis domination of foreign countries, depreci- Regraded Unclassified -2- 153 ation of foreign exchange against the dollar and the freezing of foreign exchange, occasioned by the dislocation of world business, have cut off about 30% of the normal revenue received by American companies from the world market. On the other hand, production costs have increased and standards of quality which audiences have come to expect must be maintained. 3. By agreement with the governments of the United Kingdom, Australia and New Zealand, the American motion picture companies have continued their full service of supply since the outbreak of the war. Because of the extreme scarcity of dollar funds available to the British Treasury, the American companies have allowed a sub- stantial portion of the funds due for rentals to remain in the sterling area in the form of blocked exchange. This mounting total will approximate $50,000,000 by the end of 1942. This imposes a severe handicap even upon the strongest companies. For the smaller companies it has become 8. dangerous strain. 4. It is now apparent that during 1942 our own government will be expending large sums for military purposes in the United Kingdom, Australia and New Zealand. To meet the urgent necessity of the motion picture companies and insure a continuance of their world- wide service, it is suggested that the proper spending agencies of the government be authorized to use blocked sterling belonging to the motion picture companies in the above mentioned areas and re- imburse the companies in corresponding amounts in the United States. This procedure would impose no strain upon the dollar resources of the British Government and it would require no expenditure by our Regraded Unclassified 154 3. own Government. In fact, the additional revenue thus made available to the motion picture companies would produce substantial increases in domestic income taxes payable by these companies during 1942. Also, the motion picture industry is so unique both in the amount of funds now blocked and in the essential character of service rendered, that no embarrassing precedent would be created for applications by other industries. Regraded Unclassified EXHIBIT A 155 DETAILED FIGURES SUPPORTING THE ESTIMATE OF THE TOTAL AMOUNT OF FROZEN FUNDS THAT THE AMERICAN INDUSTRY WILL HAVE IN THE BRITISH EMPIRE AT THE END OF 1942. i. 1. Amounts actually frozen at expiration of past exchange agreements, at present exchange rates: United Kingdom - at end of 2nd agreement year, 10/25/41 $ 18,350,000 Australia, estimated at end of 2nd agreement year, 2/28/42 5,000,000 New Zealand, estimated at end of 3rd agreement year, 12/31/41 1,250,000 $ 24,600,000 2. Estimated additional amounts which will be frozen annually under the terms of the most recent exchange agreements and restrictions at present rates of exchange, (1 year's res- trictions in the case of India), taking into account reported increased business in the territories: United Kingdom - 10/24/42 $ 20,000,000 Australia - 2/28/43; if remittances continued on basis of last agreement 3,000,000 New Zealand - 12/31/42; if remittances continued on basis of last agreement 400,000 India - as of 10/31/42, the end of the first year's restrictions 500,000 $ 23,900,000 3. Estimated total frozen funds in above coun- tries at end of present agreement years, and after 1 year's restrictions in the case of India 48,500,000 Beyond the expiration of the present agree- ment year in the case of the United Kingdom there will be two months until the end of the calendar year 1942, with probable amounts frozen during these two months equaling more than $3,000,000. It is believed therefore that the estimate of $50,000,000 frozen in the British Empire at the end of 1942 is a conservative figure. Regraded Unclassified EXHIBIT B -1- 156 ESTIMATED ANNUAL LOSSES OF WORLD REVENUE TO THE AMERICAN MOTION PICTURE INDUSTRY IN RELATION TO ANNUAL TOTAL PRODUCTION COSTS % of bare cost of production LOSSES ($175,000,000) 1. Annual normal revenue from territories from which all revenue has ceased: (a) Continental Europe $13,804,570 (b) Far East 3,688,100 $ 17,492,670 10% 2. Estimated annual losses in the British Empire due to the decreased value of currencies. $ 10,125,000 5.8% 3. Estimated annual losses due to fall in value of Latin American currencies, restrictions on purchase of exchange, etc. $ 1,000,000 0.6% Total estimated annual losses $ 28,617,670 16.4% 4. Estimated amounts frozen annually in the British Empire under most recent remit- tance restrictions. $ 23,900,000 13.6% 5. Total reduction in amounts available annually to the industry from foreign countries since remittance restrictions and the war. $ 52,517,670 30 $ See following pages for supporting figures. Regraded Unclassified -2- EXHIBIT B 157 (1) ANNUAL NORMAL REVENUE FROM TERRITORIES FROM WHICH ALL REVENUE HAS CEASED: Gross Estimated re- % of bare COS billings mittables: CONTINENTAL EUROPE. in 65% of gross of production (Dollars) (Dollars) ($175,000,000 1. Albania (included with Italy or Greece) 2. Austria (some included with 307,100 Germany) Baltic States: 173,500 3. Esthonia 4. Latvia 5. Lithuania 6. Belgium (some included with 1,633,600 France) 7. Bulgaria 99,200 8. Czechoslovakia 969,900 9. Danzig (included in Poland) 10. Denmark 682,300 11. Finland 326,100 12. France 4,691,700 13. Germany 2,209,800 14. Greece 302,600 15. Holland 1,268,500 16. Hungary 451,100 17. Italy 5,269,600 18. Luxemburg (included with France & Belgium) 19. Norway 758,100 20. Poland 1,276,500 21. Rumania 450,600 22. Spain 2,144,000 23. Yugoslavia 367,600 Sub-totals, Europe $ 21,237,800 $ 13,804,570 7.89 x FAR EAST 24. China 745,000 25. Dutch East Indies 1,079,000 26. French Indo-China 59,000 27. Hong Kong 71,000 28. Japan 1,286,000 29. Philippine Islands 1,593,000 30. Siam 37,000 31. Singapore-Malay States- Straits Settlements 804,000 Sub-totals, Far East $ 5,674,000 $ 3,688,100 2.11 % Total Europe and Far East $ 26,911,800 $ 17,492,670 10.00 & Regraded Unclassified -3- EXHIBIT B 158 (2) ESTIMATED ANNUAL LOSSES IN THE BRITISH EMPIRE DUE TO THE DECREASED VALUE OF CURRENCIES (a) United Kingdom - based on present business- agreement year ending 10/24/42 - pound at $4.00, present rate $ 8,600,000 (b) Australia - based on present business- agreement year ending 2/28/43 - pound at $3.22, present rate 1,000,000 (c) New Zealand - based on present business- agreement year ending 12/31/42 - pound at $3.22, present rate 350,000 (d) India - based on present business- for calendar year 1942- rupee at $0.30, present rate 175,000 $ 10,125,000 (4) ESTIMATED AMOUNTS FROZEN ANNUALLY IN THE BRITISH EMPIRE UNDER THE TERMS OF THE MOST RECENT EXCHANGE AGREEMENTS, (ONE YEAR'S RESTRICTIONS IN CASE OF INDIA) TAKING INTO ACCOUNT INCREASED BUSINESS IN THE TERRITORIES (a) United Kingdom - under terms present agreement ending 10/24/42 $ 20,000,000 (b) Australia - under terms last agreement ending 2/28/42, which will probably be extended 3,000,000 (c) New Zealand - under terms last agreement ending 12/31/42, which is being ex- tended 400,000 (d) India - until end of first year's restric- tions 10/31/42 500,000 $ 23,900,000 Regraded Unclassified 159 MAY 11 1942 Dear Sir: Reference is usde to your letter of May 7, 1942, requesting that the bank accounts of General Aniline & Film Corporation be re- leased under Executive Order No. 8389. Instructions have been sent to the Federal Reserve Bank of New York and the Federal Reserve Bank of Sea Francisco to issue licenses to General Aniline & Film Corporation and its wholly-owed subsidi- aries, Collway Colors, Ins., Agfa Ansee, Ltd., Agfa Film Products, Inc., and Agfa Raw Film Corporation, licensing all such corporations as generally licensed nationals. The Federal Reserve Bank of Cleve- land has also been instructed to issue a license licensing as a generally licensed national Plaskon Co., Inc., which was previously blocked because of the interest therein of General Aniline & Film Corporation. The respective Federal Reserve banks have been in- structed to send copies of the relative licenses directly to you. The license issued to General Aniline & Film Corporation 11- censing it as a generally licensed national will specifically pro- vide that such action shall not affect the status as a blocked national of Alba Pharmaceutical Co., Inc., and Winthrop Chemical Co. (Dela.). Very truly yours, (Signed) acting Secretary of the Treasury. Mr. Junes L. Markham, Deputy Alien Property Custodian, National Press Building, Washington, D. C. JMPehleingt 5/9/42 Regraded Unclassified 160 MAY 11 1942 FOREIGN PROPERTY CONTROL DEPARTMENT FEDERAL RESERVE BANK OF NEW YORK YOU ARE AUTHORIZED AND INSTRUCTED TO ISSUE TO GENERAL ANILINE & FILM CORPORATION, NEW YORK, COLLWAY COLORS, INC., NEW JERSEY, AGFA FILM PRODUCTS, INC., NEW YORK, AND AGFA ANSCO, LTD., CANADA, LICENSES LICENSING SUCH CORPORATIONS AS GENERALLY LICENSED NATIONALS. THE LICENSE ISSUED TO GENERAL ANILINE & FILM CORPORATION SHOULD CONTAIN THE FOLLOWING STIPULATION "PROVIDED, HOWEVER, THAT THE LICENSING OF GENERAL ANILINE & FILM CORPORATION AS A GENERALLY LICENSED NATIONAL SHALL NOT AFFECT THE STATUS AS A BLOCKED NATIONAL OF ALFA PHARMACFUTICAL CO., INC., AND WINTHROP CHEMICAL CO. (DFLA.)." ADVISE BANKS IN NEW YORK AND OTHER INTERESTED PERSONS IN YOUR DISTRICT OF THE ISSUANCE OF SUCH LICENSES. ALSO ADVISE ANY OTHER INTERESTED FEDERAL RESERVE BANKS OF THE ISSUANCE OF SUCH LICENSES AND SEND COPIES OF FACH LICENSE TO JAMES E. MARKHAM, DEPUTY ALIEN PROPERTY CUSTODIAN, NATIONAL PRESS BUILDING, WASHINGTON, D. C., AND TO GENERAL ANILINE & FILM CORPORATION, 230 PARK AVENUE, NEW YORK CITY. REVOKE ALL OPERATING LICENSES OUTSTANDING FOR GENERAL ANILINE & FILM CORPORATION AND COLLWAY COLORS, INC. (Initialed) J. 1. P. JWPehle:mgt 5/9/42 Regraded Unclassified 161 FOREIGN FUNDS CONTROL 200/10120 Salaries and Expenses Foreign Exchange Control 1940 and 1941 MAY 11 1942 FEDERAL RESERVE BANK OF SAN FRANCISCO SAN FRANCISCO, CALIFORNIA YOU ARE AUTHORIZED AND INSTRUCTED TO ISSUE TO AGFA RAW FILM CORPORATION A LICENSE LICENSING SUCH CORPORATION AS A GENERALLY LICENSED NATIONAL. ADVISE BANKS AND OTHER INTERESTED PERSONS IN YOUR DISTRICT OF THE ISSUANCE OF SUCH LICENSE. ALSO ADVISE ANY OTHER INTERESTED FEDERAL RESERVE BANKS OF THE ISSUANCE OF SUCH LICENSE AND SEND A COPY OF SUCH LICENSE TO JAMES E. MARKHAM, DEPUTY ALIEN PROPERTY CUSTODIAN, NATIONAL PRESS BUILDING, WASHINGTON, D. C., AND TO GENERAL ANILINE & FILM CORPORATION, 230 PARK AVENUE, NEW YORK CITY. REVOKE OUTSTANDING OPERATING LICENSE OF AGFA RAW FILM CORPORATION. (Initialed) J. 1. P. J. 1. Pehle Assistant to the Secretary JWPehle:mgt 5/9/42 Regraded Unclassified 162 0 6 Washington, D. c. May 7, 1942 Attentions Edward H. Foloy, Jr. General Counsel By dear Mr. Secretary: Under date of April 24, 1942 you transferred and re- leased to the Alien Property Custodian all supervision, manage- nent and control over General Aniline & Fils Corporation, but I understand that certain freesing orders issued by you are still in effect with relation to such corporation's bank accounts. It would be appreciated if you would de whatever is necessary to release all bank accounts of such corporation from the effects of any and all freesing orders issued by you, and notify the banks involved that you have done so. It would also be appre- ciated if you would send to such corporation and to the under- signed 6. copy of the letter or other instrument executed by you releasing such bank accounts from all such freesing orders. Very truly yours, /a/ James E. Markham James L. Markham Deputy Alien Property Custodian The Honorable The Secretary of the Treasury Washington, D. C. Regraded Unclassified Treasury Department 163 Division of Monetary Research Date May 11 1942 To: Secretary Morgenthau From: Mr. White Original of this report appended to prepared letter to the President. 164 May 11, 1942 Exports to Russia, Free China, Burma and other blocked countries, as reported to the Treasury Department during the ten-day period ending April 20, 1942 1. Exports to Russia Exports to Russia, as reported during the ten-day period ending April 20, 1942, amounted to nearly $67,000,000. Motor trucks and military tanks were the principal items. (See Appendix C.) 2. Exports to Free China and Burna Exports to Free China during the period under review amounted to about $5,335,000. Military equipment accounted for about 80% of the total. (See Appendix D.) Exports to Burma amounted to $639,000. (See Appendix E.) 3. Exports to France No exports to France were reported during the period under review. 4. Exports to other blooked countries Exports to other blooked countries are given in Appendix A. Most important were exports to Switzerland amounting to $2,093,000. Regraded Unclassified STRICTLY CONFIDENTIAL 165 SUMMARY OF UNITED STATES DOMESTIC EXPORTS TO SHAROTED COUNTRIES AS REPORTED TO - TREASURY DEPARTMENT FROM EXPORT INSULARATIONS ADONIVED DURING THE PERIOD INDICATED w July 28, 1941 to April 20, 1942. (In thousands of dollars) July 28 to Period ended Period ended Total Mar. a April 10 April 20 Demostic Emports U. S. S. R. $279,183 $52,698 $65,850 $397,732 free China 60,695 4,836 5,335 70,866 Durns 3/ 11,110 447 639 12,196 France 3/ 6 - - 6 Decupied France 2 - - 2 coupied France 28 - - R Spain 2,833 12 4 2,649 twitzerland 7,679 11 2,093 9,783 Sweden 15,900 1,572 19 17,491 Portugal 7,411 1,077 256 8,744 French North Africa s 6,283 - y 6,283 freasury Department, Division of Monetary Research May 8, 1942. Many of the export declarations are received with a lag of several days or nore. Therefore this compilation does not accurately represent the actual shipment of a particular period. The longer the period covered, the closer will these figures come to Department of Connerce revised figures. From September 11, 1941 to date - 18 is presuned that a large persentage of material listed here, consigned to Burns, is destined for Free China. Includes both Occupied and Unocoupied Prance through vesk ending October 4, 1941. Occupied and Unecoupied France separated thereafter. Includes Horocco, Algeria, and Tunisia. Less than $500. JMVirl 5/8/42 Regraded Unclassified APPENDIX B 166 Exports from the U. 8. to Free China, Burna and U.S.S.R. as reported to the Treasury Department July 28, 1941 - April 20, 1942 (Thousands of Dollars) Exports to Exports to Exports to Free China Burua 3/ U.S.S.R. July 28 - Aug. 2 395 4,523 Aug. 4 - Aug. 9 - 55% Aug. 11 - Aug.16 309 986 Aug. 18 - Aug.23 2 2,735 Aug. 25 - Aug.30 1 1,023 Sept. 2 - Sept. 6 204 4,280 Sept. 8 - Sept.13 2,281 5,217 Sept.15 - Sept.20 3,822 752 Sept.22 - Sept.27 110 449 2,333 Sept.29 - Oct. 4 1,225 684 323 Oct. 6 - Oct. 11 5,312 1,157 6,845 Oct. 13 - Oct. 18 5 35 1,924 Oct. 20 - Oct. 25 269 403 5,623 Oct. 27 - Nov. 1 4,772 58 4,484 Nov. 3 - Nov. 8 1,672 342 4,552 Nov. 10 - Nov. 15 2,851 88 2,677 Nov. 17 - Nov. 22 1,228 1,021 3,501 Nov. 24 - Nov. 29 3,239 1,364 2,436 ec. 1 - Dec. 6 791 64 3,609 Joo. 8 - Dec. 13 2,337 18 12,040 Dec. 15 - Dec. 20 111 8 4,500 Dec. 22 - Dec. 27 1 196 1,829 Dec. 29 - Jan. 3 35 2 3.993 Jan. 5 - Jan. 10 91 1,073 8,247 Jan. 12 - Jan. 17 1,695 447 5,874 Jan. 19 - Jan. 24 - - 3,885 Jan. 26 - Jan. = 6,938 923 9,608 Feb. 1 - Feb. 10 w 4,889 1,054 13,315 Feb. 10 - Feb. 20 4,853 583 26,174 Feb. 20 - Feb. 28 5/ 2,921 - 28,119 Mar. 1 - Mar. 10 2,879 23 32,509 Mar. 10 - Mar. 20 8,058 3 28,556 Mar. 20 - Mar. 31 6/ 2 2 42,435 Apr. 1 - Apr. 10 4,836 447 51,698 Aprill - Apr. 20 5,335 639 66,906 Total 73,469 11,083 398,222 These figures are in part taken from copies of shipping manifests. Figures for exports to Free China during these weeks include exports to Rangoon which are presumed to be destined for Free China. It is presumed that a large persentage of exports to Burna are destined for Free Ohina. Beginning with February 1 figures will be given for 10-day period instead of week except where otherwise indieated. 8-day period. 11-day period. reasury Department, Division of Monetary Research May 11, 1942 Regraded Unclassified SECRET 167 APPENDIX c Principal Exports from U. S. to U. S. S. R. as reported to the Treasury Department during the ten-day period ending April 20, 1942 (Thousands of Dollars) TOTAL EXPORTS $ 66,906 Principal Items: Motor trucks 8.372 Military tanks - light 5,642 Military tanks - medium 5,183 Dried egg products Bausage, canned 3,976 Landplanes - bombardment Other aircraft parts and accossories 2,116 Explosive shells and projectiles 2,056 Landplanes - pursuit and fighter 2,000 Pork, canned 1,605 Steel sheets 1,717 Steel bare 1,306 Lard 1,322 Brass and bronse plates and sheets 1,154 Insulated copper wire 1,132 Aireraft engines 1,113 Sugar, refined 1,036 Treasury Department, Division of Monetary Research May 11, 1942 Regraded Unclassified 168 APPENDIE D Principal Exports from U. s. to Free China as reported to the Treasury Department during the ten-day period ending April 20, 1942 (Thousands of Dollars) TOTAL EXPORTS $ 5,335 Principal Items: Military equipment 4,243 Absorbent cotton,gauze and sterilized bandage 220 Printed matter 180 Medicinal and pharmaceutical preparations 119 Borie acid 101 Harness and saddles 92 Auto parts (for assembly) 86 Zine slabs and plates 75 Industrial chemicals 56 Motor trucks 52 Treasury Department, Division of Monetary Research May 11,1942 Regraded Unclassified 169 APPENDIX E Principal Exports from U. S. to Burna as reported to the Treasury Department during the ten-day period ending April 20, 1942 (Thousands of Dollars) TOTAL EXPORTS $ 639 Principal Items: Military equipment 220 Motor trucks 171 Barbed wire 127 Copper wire - bare 64 Auto replacement parts 33 Treasury Department, Division of Monetary Research May 11,1942 ISF/efs 5/11/42 Regraded Unclassified originality May 11, 1942 In reply refer to SD 740.00115 Pacific War/504 My dear Mr. Secretary: I have received your letter of May 4, 1942 stating that there are five Treasury Department representatives at Manila and inquiring in regard to the possible evacua- Islands. tion of American official personnel in the Philippine The Japanese Government has indicated that it is not agreeable to the inclusion in the exchange arrangements now under negotiation of American nationals in the Philip- pine Islands. It is hoped, however, that an understanding may be reached later whereby the return to the continental United States of American Government officials and employees in the Philippines may be effected, and I wish to assure you in that connection that the Department will do whatever may be possible to arrange the evacuation of the personnel of the Treasury Department. I may add that since the Philippine Islands are American territory the same considerations do not apply there as elsewhere regarding arrangements for the exchange of American nationals in enemy and enemy-occupied areas. Sincerely yours, Sumner Welles Under Secrete DES DESCRIBED 10- WVA IS VW 8 20 a DELIVE The Honorable Henry Morgenthau, Jr., SAel Secretary of the Treasury. Regraded Unclassified 171 MAY 4 1942 Dear Mr. Welles: Reference is made to your letter dated April 18th, indicating the attitude of the Japanese Government with respect to a reciprocal arrangement for exchanging official personnel. It is noted in your letter that negotiations are progressing satisfactorily looking toward the return to the United States of official per- sonnel in Japan and Japanese occupied areas with the exception of the Philippines. is pointed out to you in earlier correspondence, there are in Menila five Treasury representatives over and above the office staff left there by High Commis- sioner Sayre. I appreciate fully the many difficulties to be encountered in working out these exchange principles and wish to compliment those in the State Department who have been responsible for the splendid progress thus far attained. On the other hand, I should like to be informed of any action taken or con- templated for the future respecting the personnel left in the Philippines. Sincerely, (Signed) H. Morgenthau, Jr. Honorable Summer Welles, Acting Secretary of State, Department of State, Washington, D. C. Photo file n.m.c. file to Hompsy CSB:em:ic Regraded Unclassified Treasury Date May. 11. 1942 To: Miss Chauncey From: H.D. White The The attached are for your files. Handed to Mr. White by Dr. Clark in Mr. White's Office, May 7, 1942. NOTE ON CANADIAN U.S. DOLLAR POSITION IN FIRST QUARTER 173 OF 1942 IN COMPARISON WITH LATEST FORECAST During the first quarter of 1942 there was a net gain of 42.8 million dollars in Canada's official reserves of U.S. dollars (and gold). This contrasts with the forecast of a decline of 2 million dollars made in the tables prepared in February and early March, dated March 9th. While a complete reconciliation of the two figures must await the compilation of detailed trade returns for March, it is possible to indicate where the major differences between results and forecasts arose. On the side of receipts, there were larger sales of Canadian securities and other imports of capital than were anticipated -- about 33 million instead of the 20 million forecast. Similarly the sale by Canadians of U.S. securities and other capital receipts were $7 million higher than expected (1.e., $17 million instead of $10 million). $2 million of this was ac- counted for by settlements of marine insurance claims. Interest, dividends and profits receipts were $5 million greater than expected (15 instead of 10), due in considerable part to unanticipated large transfers by several companies in March. Newfoundland's net receipts of U.S. dollars were $7 million rather than $5. Correction of these items would increase receipts by $27 million. On the other hand, receipts by War Supplies Limited ..2 174 - 2 - for exports under the Hyde Park Agreement were $24 million less than the forecast, which it was noted at the time was likely to be on the high side. Preliminary adjustment of our foreign trade figures for the first quarter indicated that receipts from exports other than "Hyde Park" exports were about $138 million, compared with the forecast of $131 million -- i.e., about $7 million higher than expected. One reason for this difference was probably to be found in the accumulation of inventories of newsprint by U.S. buyers. The various items noted above would increase the total receipts by a net amount of $10 million above the forecast. On the expenditure side, the forecasts were too high in a number of items. Funds required for bond maturities turned out to be only $4 million instead of $6 million, apparently because we had overestimated the holdings of non-residents, and possibly because of a lag by some agencies in obtaining cover for redemptions. Other capital payments were only about $1 million instead of $2 million, as forecast. Transfers of profits to parent companies are lagging behind last year and the expenditure for dividends and profits is down by 3 millions below the forecast of $23 million. In addition, we received from the United Kingdom adjustments for certain transfers of dividends and interest which had previously been paid to the sterling area in U.S. dollars, and these were offset against the amounts required currently for these types of payments. This reduced net requirements for interest by $2 million and for dividends by $1 million below the forecast figures. 3 175 - 3 - It is difficult as yet to make the necessary ad- justments in trade figures of imports to eliminate the items not requiring payment, and it appears that this adjustment in the first quarter should be in the neighbourhood of 40 or 50 million Canadian dollars. On this basis it appears that the U.S.dollars required for imports in the first quarter, including war imports, was about $235 to $244 million, compared with our forecast of $247 million. It appears that the forecasts of receipts and ex- penditures of U.S. dollars outside the United States (excluding Newfoundland, already noted above) were approximately correct. The items mentioned above indicate that expenditures of U.S. dollars were about $12 to $21 million less than the total forecast, with some uncertainty arising from the lack of information needed to adjust import figures. Taken together with the $10 million dollar increase of total receipts over the forecast, they account for $22 to $31 million of the $45 million divergence between the actual and forecast change in the official reserve position. It appears likely that the remainder of the divergence is mainly due to the lag in buying U.S. dollars for imports, etc., and an acceleration in the selling of U.S. dollars received from exports etc., because of a fairly widespread expectation of a change in the exchange rate. 176 - 4 - During April the official Canadian reserves of U.S. dollars and gold declined by 4.8 million dollars (U.S.). This is less than the average rate forecast for the second quarter -- $66 million for the quarter, or $22 million per month -- but it was expected the rate of decline would increase during the quarter. Statistics for April are not yet available on any of the other items of the forecast. RBB. 2/5/42 177 CANADIAN LEGATION WASHINGTON March 18, 1942. Dear Mr. White: I enclose herewith the new "Forecast of Canada's U.S. Dollar Position" as revised up to March 9, 1942. Yours sincerely, A.F.W. Plumptre Financial Attaché Harry D. White, Esq., Assistant to the Secretary, Treasury Department, Washington, D.C. 178 Handed to Mr White by Mr. Plumptre in STRICTLY CONFIDENTIAL Mr. White's office, March 18, 1942, 12:30 p.m. FORECAST OF CANADA'S U.S. DOLLAR POSITION TABLE I. GOLD AND U.S. DOLLARS (in millions of S.dollars) Sept.15, 1939 to Calendar Quarters of 1942 Dec. 31, Years Financing Canada's 1940 1941 1942 1st 2nd 3rd 4th Deficiency of U.S. Dollars Depletion of Liquid Reserves 61 142 79 2 66 9 2 Liquidation of other U.S. assets by Canada 81 40 35 10 9 8 8 Reduction of Canada's U.S. dollar assets 142 182 114 12 75 17 10 New Investment in Canada 27 54 50. 20 8 14 .8 Sub-total: factors in- creasing Canada's net U.S. dollar debt 169 236 164 32 83 31 18 Gold and U.S. Dollars bought from the U.K. 227 Nil Nil- Nil Nil Nil Nil Net effect of the Hyde Park agreement - 57 379 78 68 102 131 Total (equals total cash deficiency) 396 293 543 110 151 133 149 Official and Private Liquid Reserves Held at Beginning of Period: Official - gold 205 136 136 136 136 c e U.S. dol- lar balan- ces 56 194 52 52 50 c c Total (a) 261 330 188 188 186 120 111 Private (b) 130 - - - - - Total liquid reserves 391 330 188 188 186 120 111 Net decrease during period 61 142 79 2 66 9 2 Total held at end of period 330 188 109 186 120 111 109 (a) Total "official" holdings - Foreign Exchange Control Board, Minister of Finance and Bank of Canada. (b) Total holdings of U.S. dollars by all other residents of Canada, ex- cluding Canadian banks and insurance companies whose holdings of U.S. dollars are required for the purposes of their U.S. business. The totals shown are exclusive of $20 million in minimum working balances. (c) No forecast is attempted as to the extent to which gold rather than balances will be drawn upon in these periods. Revised March 9, 1942. Photostats sent to Viner, Foley and Bell, 3/19/42 Photostat in Aid-to-Canada file. Regraded Unclassified 179 FORECAST OF CANADA'S U.S. DOLLAR POSITION TABLE Ia. EFFECTS OF HYDE PARK AGREEMENT (in millions of U.S. dollars) Calendar Years Quarters of 1942 1941 1942 1st 2nd 3rd 4th Receipts from exports of war supplies and materials pursuant to Hyde Park agreement (a) 61 350 79 63 88 120 of which advance payments 50 45 45 - - - deliveries against advance payments (-) -1 -35 -3 -6 -11 -15 Deduct: U.S. dollar (b) content of such exports 6 19 5 4 5 5 Net cash receipts from "Hyde Park" exports 55 331 74 59 83 115 Defence articles imported into Canada and charged to U.K. Lend-Lease account pursuant to Hyde Park agreement 2 48 4 9 19 16 Net effect on Canada's U.S. dollar position of Hyde Park transactions of both types 57 379 78 68 102 131 Net cash receipts or outgo (-) excluding Hyde Park -199 -458 -80 -134 -111 -133 Net cash receipts or outgo (-) including Hyde Park, as in Table III -142 -79 -2 -66 -9 -2 (a) These figures are taken from the report of the Economics and Statistics Branch of the Department of Munitions and Supply, dated February 26, 1941, which was submitted to the Joint Economic Committees. The figures given here include the receipts of the prepayments, shown separately in the line below, and the later effects of such prepayments in reducing the receipts at the time of delivery, indicated by negative items in the second line below. These figures cover the exports made by War Supplies Limited (including merchant ships) as well as sales of aluminum and lead to the Metals Reserve Company and sales under a sub-contract relating to tank production. It now appears likely that the estimate of this item for the first quarter of 1942 will prove to be too high. (b) Including freight payable in U.S. dollars. This item for 1942 appears low in relation to the value of Hyde Park exports when account is taken of the ratio of U.S. content to other war production. Revised March 9, 1942. Regraded Unclassified 180 FORECAST OF CANADA'S U.S. DOLLAR POSITION TABLE II. IMPORTS FROM U.S.A. OF MUNITIONS AND MATERIALS FOR WAR PRODUCTION (in millions of dollars) Calendar Quarters of 1942 Years 1941 1942 1st 2nd 3rd 4th Total Imports for War Purposes 294 542 116 134 147 145 Imports to Canada obtained by U.K. under Lend-Lease pur- suant to Hyde Park agreement 2 48 4 9 19 16 Imports requiring expenditures of U.S. dollars by Canada(a) Total: (for war purposes) 292 494 112 125 128 129 for account of Canada 115 252 51 65 67 69 for account U.K. and other Empire 172 225 56 56 57 56 for account of War Supplies Ltd. (in re sales to U.S.A) 5 17 5 4 4 4 Memo: imports for other than war purposes 550 505 135 135 120 115 Total imports requiring expenditure of dollars 842 999 247 260 248 244 Total imports including Lend-Lease items 844 1047 251 269 267 260 Total For For U.K. For War Supp Canada and Empire lies Ltd. (U.S. 1941 1942 1941 1942 1941 1942 1941 1942 Expenditure of U.S. dol- lars on imports for war purposes by categories of end products: aircraft 68 79 25 43 42 32 1 4 mechanical transport, tanks, etc. 80 237 15 106 63 128 2 3 guns and small arms 4 12 1 3 8 6 1 3 ammunition 17 28 1 2 15 22 1 4 machine tools and equipment 84 73 41 46 43 27 - miscellaneous 65 107 42 73 22 30 1 5 Total 318 536 125 273 187 244 6 19 Less freight 26 42 10 21 15 19 1 2 Total, as above 292 494 115 252 172 225 5 17 (a) Including additional items for capital projects in the 3rd and 4th quarters of 1942, as explained in Note (a) of part C. of Table III. Revised March 9, 1942. Regraded Unclassified 181 FORECAST OF CANADA'S U.S. DOLLAR POSITION TABLE III. RECEIPTS AND EXPENDITURES OF U.S. DOLLARS (in millions of U.S. Dollars) Calender Years 1942 by Quarters 1941 1942 1st 2nd 3rd 4th Summary Total Estimated Receipts (ex "Hyde Park" Exports) 1102 1025 263 256 261 245 Total Estimated Payments (ex Lend-Lease imports) 1303 1454 544 385 358 367 Excess of Payments over Re- ceipts, excluding "Hyde Park" items 201 429 81 129 97 123 Receipts from "Hyde Park" Exports (a) 61 350 79 63 88 120 Excess of Payments over Receipts including "Hyde Park" exports 140 79 2 66 9 Residual item and unknown changes in private balances 2 - - - - - Actual or forecast net cash deficit 142 79 2 66 9 2 Memo: "Hyde Park" imports under Lend-Lease to U.K. (b) 2 48 4 9 19 16 (a) Receipts from exports pursuant to the Hyde Park agreement including exports by War Supplies Limited (including merchant ships), exports of aluminum and lead to the Metals Reserve Company, and a sub- contract relating to tank production. The effects of prepayments are taken into account here (prepayments are shown separately in Table Ia.). These figures are taken from & report of the Economics and Statistics Branch of the Department of Munitions and Supply, dated February 26, 1942. It now appears likely that the estimate of this item for the first quarter of 1942 will prove to be too high. (b) The Lend-Lease imports here included are those imported into Canada and charged to the United Kingdom on Lond-Lease account in accordance with the second portion of the Hyde Park agreement. Revised March 9, 1942. 182 FORECAST OF CANADA'S U.S. DOLLAR POSITION TABLE III (Cont'd.) RECEIPTS AND EXPENDITURES OF U.S. DOLLARS (in millions of U.S. dollars) alender Years Quarters of 1942 1941 1942 1st 2nd 3rd 4th Receipts Receipts by Canada from U.S.A. Exports (ex Hyde Park exports (a) 506 526 131 128 131 136 Sale of newly mined gold 185 160 42 45 59 36 Interest, dividends and profits(b) 47 41 10 18 10 9 73 40 6 10 19 7 Tourist Trade Freight (c) 54 60 14 15 15 16 Other services and miscella- neous income(d) 40 40 10 10 10 10 Sales of U.S. securities and other U.S. assets(e) 40 35 10 9 8 8 Sales of Canadian securities and other imports of capital (e) 54 50 20 8 14 8 Total receipts from U.S.A. 999 952 243 235 244 230 (ewfoundland's net receipts of U.S. dollars 15 15 5 5 3 2 ecoipts of gold or U.S. dollars from U.K. and other sterling area Hil Nil Nil Nil Nil Nil Receipts of gold or U.S. (f) dollars from other countries 88 58 15 16 14 15 Total Receipts (excluding receipts from Hyde Park Exports) 1102 1025 263 256 261 245 D See note on proceding page re Hyde Park Exports. This item includes all exports except those included under "Hyde Park" Exports, and includes therefore all base metal exports other than the lead and aluminium sales to the Metals Reserve Company. Includes insurance company and other profits, formerly included under "Miscellaneous Income". A considerable part of this item arises from freight on *in transit" items not related to Canadian trade. The particular nature of Hyde Park exports has been allowed for in estimating this item. See note (b) above, which explains a reduction in this item in comparison with previous estimates. Forecasts of these items are necessarily uncertain. In 1941 included dividends and profit transfers of $27 million, and in 1942, it is estimated, this will be $25 million. Remainder is almost entirely from exports. Acvised March 9, 1942. Regraded Unclassified 183 FORECAST OF CANADA'S U.S. DOLLAR POSITION TABLE III (Cont'd.) RECEIPTS AND EXPENDITURES OF U.S. DOLLARS (in millions of U.S. dollars) Calendar Years Quarters of 1942 1941 1942 lst 2nd 3rd 4th D. Expenditures Expenditures by Canada in U.S.A.: Imports for direct war purposes (excluding items obtained on Lend- Lease) (a) (b) 292 494 112 125 128 129 550 505 135 135 120 115 Imports for other purposes 247 260 248 244 Total Imports 842 999 (c) 85 85 19 24 18 24 Interest Dividends and Profits 118 118 23 36 24 35 Tourists and travel 15 15 4 4 4 5 86 96 20 28 28 20 Freight Other services and miscel- laneous income (d) 45 45 11 12 11 11 (e) Bond maturities 26 39 6 7 10 16 7 6 2 1 1 2 Other debt repayments Total Expenditures in U.S.A. 1224 1403 332 372 344 355 Expendituresin other countries outside the sterling area(f) 79 51 12 13 14 12 Total expenditures (ex Lend- 385 358 367 Lease imports) 1303 1454 344 (a) Imports for war purposes as recorded here do not include the imports charged to Britain under the Lend-Lease Act, which are included else- where in the tables. These figures are based upon the ostimates furnished been made of the amount of freight included in the figures furnished the by by the Department of Munitions and Supply. However, an estimate has that Department and has been deducted to obtain these figures, and of the Department of Munitions and Supply do not include any provision freight is included separately under that heading. The estimates for capital assistance projects beyond the second quarter of 1942. account The figures given in this table include 16 million dollars on this for the third and fourth quarters of 1942. This is the same figure that is included on this account in the Munitions and Supply estimate for the second quarter. It seems proper for the purpose of this ex- duction will be continued beyond the first half of 1942, even though change estimate to assume that some capital expenditure on war pro the Department of Munitions and Supply naturally cannot make an accurate estimate of the amount involved. (b) "Imports for other purposes" here may include certain items which are railroads or of war other essential undertakings which serve war industries indirectly for purposes, such, for example, as the requirements of or the armed forces. It may also include some U.S. content of war production which 1a not in fact traceable in any way and has not, therefore, been included in imports for war purposes. These import figures reflect adjustments of the trade figures to exclude items not paid for by Canada and to correct over-valuation, (c) Includes transfers of profits which were included under "Other service and miscellaneous income" in previous ostimates. 2 Revised March 9, 1942. Regraded Unclassified 184 - 2 - (d) See note (c) above, which explains a reduction in this item in comparison with previous estimates. (e) In 1942 this includes a number of provincial and municipal maturities, some of which may be refunded, consequent upon the amendment of the Neutrality Act. (f) Almost entirely for imports. CRIPT 185 C o P Y DEPARTMENT OF STATE WASHINGTON In reply refer to May 11, 1942 FF 840.51 Frozen Credita/6239 The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury and transmits for the information of the Treasury Department copies of a paraphrase of telegram no. 1565 of May 8, 1942 from the American Embassy at Rio de Janeiro, which indicates that the French Government is attempting to have the Brazilian Government unblock French funds and securities in Brazil on the grounds that France is not a belligerent nation. It is suggested that a telegram be despatched to the American Embassy, encouraging the present attitude of the Brazilian authorities to deny the appeal of the French Government. The Secretary of State would appreciate receiving an expression of the views of the Treasury Department. Enclosure: From Rio de Janeiro, no. 1565, May 8, 1942. Copy:1c:5/12/42 Regraded Unclassified 186 C 0 P Y PARAPHRASE OF TELEGRAM RECEIVED FROM: AMEMBASSY, Rio de Janeiro TO: Secretary of State, Washington DATE: May 8, 1942, 4 p.m. NUMBER: 1565 An appeal has been made to the Ministry of Foreign Affairs here by the French Ambassador to unblock French securities and funds in Brazil on the grounds that France is a non-belligerent country. The case is being studied by the Ministries of Foreign Affairs, Finance and the Bank of Brazil and indications have been received from them that the request will not be approved. CAFFERY Copy: 10:5/12/42 Treasury Department 187 Division of Monetary Research Date may 14 1942 To: Miss Chauncey From: mr. Southard need not be brought to the Sucretary's atten. tion General Trimp Treasury Department 188 Division of Monetary Research Date May 13 1942 To: From: NOTI Receipts of U.S. paper currency from Argentina, as reported by banks in the New York district, were as follows: January, 1942 $ 505,000 February, 1942 253,000 March, 1942 367,000 April, 1942 931,000 Total $2,056,000 R.H. o C 0 P 189 Y DEPARTMENT OF STATE WASHINGTON May 11, 1942 In reply refer to If 840.51 Frozen Credits/6243 The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury and transmits for his information a copy of despatch no. 4890 dated April 29, 1942 from the American Embassy at Buenos Aires concerning shipments of dollar currency from Argentina to the United States by the Pan American Airways System for the period January 5 to April 24, 1942 inclusive. Enclosure: From Embassy, Buenos Aires, no. 4890, dated April 29, 1942. 190 Buenos Aires, Argentina, April 29, 1942. Regraded No. 4890 Subject: SHIPMENTS OF DOLLAR CURRENCY FROM ARGENTINA TO THE UNITED STATES. CONFIDENTIAL The Honorable The Secretary of State, Washington. Sir: With reference to the Embassy's despatch No. 4696 of April 10 last and previous despatches regarding the repatriation of United States currency from or through Argentina, I have the honor to enclose four copies of a list of shipments of United States currency by the Pan American Airways system, with indications of the shippers, consignees, destinations and dates, for the period January 5 to April 24, 1942, inclusive. This list was furnished in confidence by Mr. Sylvester J. Roll, General Manager of the Pan American Airways System in Argentina. It will be noted that these shipments aggregated $869,807, and that of this amount, $862,311 were consigned to New York and Miami, the re- maining $7,496 being shipped to La Pas and Lima. Inasmuch as there are no restrictions on the purchase and sale of dollar currency either here or in the United States, and as it is not practicable to ship by steamer, the figure of $862,311 is probably a close approximation of the total flow of such currency from Argentina to the United States thus far this year. With respect to the shipments by the Pan American Airways to its own office in Miami, Mr. Roll states that these are for settling the balances due the home office, it being found more adventageous to buy the currency and ship it to the United States than to buy drafts on New York. It will be noted that, aside from the Pan American Airways System itself, most of the dollar currency shipped to the United States by air this year has been sent by Shaw, Strupp y Compania. Of particular interest is the fact that shipments during the three weeks period from April 1 to 24 amounted to the substantial sum of $363,342. It is reported in financial circles here that there have recently been large offerings of dollar currency due to the fact that substantial amounts of such currency were brought to Buenos Aires several weeks ago on a Spanish vessel. Owing to the increasing traffic here in United States currency, a con- siderable proportion of which presumably represents loot from the occupied countries of Europe, and in view of the reports that members of the Spanish Commercial mission due here shortly will bring large amounts of confiscated -2- 191 dollar currency (the Embassy's telegram No. 680 of April 16, 1942), it is believed that it might serve a useful purpose if steps could be taken by the United States Government in the near future to discourage such traffic, such as the adoption of one of the measures mentioned in the Embassy's despatches No. 4396 of March 12, 1942 (page 2) and No. 4647 of April 4, 1942 (page 4). Respectfully yours, For the Ambassador: Edward L. Reed, Counselor of Embassy Enclosure: No. 1. List (in quadruplicate). File No. 851.5 JWG:je A true copy of the signed origi- nal. (1) J.E. Copy:bj:5-13-42 from Argentina to the United States. CONFIDENTIAL LISTA DE EMBARQUES DE BILLETES SALIDOS No. AMB SHIPPER CONSIGNEE DESTINATION DATE SHIPPED AMOUNT CURRENCY 941271 A. WEILL CHASE NATIONAL BANK NEW YORK 5.1.42 $ 10.000 USA 941314 PASCUAL HNOS. BANCO DE BOLIVIA LA PAZ 7.1.42 3.238 USA 932266 PAN AMERICAN PAN AMERICAN AIRWAYS MIAMI 9.1.42 16.300 USA 941457 SHAW STRUPP CHASE NATIONAL BANK NEW YORK 10.1.42 12.000 USA 941440 A. SONCHEIN ROSA GARCIA DE SONCHEIN NEW YORK 10.1.42 16.600 USA 932274 PAN AMERICAN PAN AMERICAN AIRWAYS MIAMI 11.1.42 12.000 VSA 932289 PAN AMERICAN PAN AMERICAN AIRWAYS MIAMI 14.1.42 12,000 USA 941612 SHAW STRUPP CHASE NATIONAL BANK NEW YORK 15.1.42 15.000 USA 941747 SHAW STRUPP CHASE NATIONAL BANK NEW YORK 16.1.42 11.000 USA 941890 SHAW STRUPP CHASE NATIONAL BANK NEW YORK 22.1.42 15.000 USA 932306 PAN AMERICAN PAN AMERICAN AIRWAYS INC MIAMI 25.1.42 4.000 USA 942415 SHAW STRUPP CHASE NATIONAL BANK NEW YORK 31.1.42 15.000 USA 932359 PAN AMERICAN PAN AMERICAN AIRWAYS INC MIAMI 1.2.42 22,000 USA 932408 PAN AMERICAN PAN AMERICAN AIRWAYS INC MIAMI 6.2.42 15.000 USA 942851 CASA BEHAR ROYAL BANK OF CANADA NEW YORK 14.2.42 14.000 USA 942926 SHAW STRUPP CHASE NATIONAL BANK NEW YORK 14.2.42 10.000 USA 942992 SHAW STRUPP CHASE NATIONAL BANK NEW YORK 14.2.42 15.000 USA 932456 PAN AMERICAN PAN AMERICAN AIRWAYS INC MIAMI 15.2.42 900 USA 957318 SHAW STRUPP CHASE NATIONAL BANK NEW YORK 21.2.42 25.000 USA 932495 PAN AMERICAN PAN AMERICAN AIRWAYS INC MIAMI 25.2.42 11.537 VSA 957455 SHAW STRUPP CHASE NATIONAL BANK NEW YORK 25.2.42 15.000 USA 958787 PASCUAL HNOS BANCO DE BOLIVIA LA PAZ 4.3.42 2.800 VBA 958834 PAN AMERICAN PAN AMERICAN AIRWAYS INC MIAMI 4.3.42 6.317 USA 932534 PAN AMERICAN PAN AMERICAN AIRWAYS INC MIAMI 4.3.42 7-537-53 USA 958887 SHAW STRUPP CHASE NATIONAL BANK NEW YORK 5.3.42 15.000 USA 946231 SHAW STRUPP CHASE NATIONAL BANK NEW YORK 12.3.42 15.000 USA 946329 SHAW STRUPP CHASE NATIONAL BANK NEW YORK 14.3.42 12.000 VSD 946463 SHAW STRUPP CHASE NATIONAL BANK NEW YORK 18.3.42 20.000 USA 946519 SHAW STRUPP CHASE NATIONAL BANK NEW YORK 19.3.42 30.000 USA 946544 SHAW STRUPP CHASE NATIONAL BANK NEW YORK 21.3.42 35.000 USA 946784 SHAW STRUPP CHASE NATIONAL BANK NEW YORK 27.3.42 30.000 VBD 933628 PAN AMERICAN PAN AMERICAN AIRWAYS INC MIAMI 25.3.42 13.230.59 USA 933629 PAN AMERICAN PAN AMERICAN AIRWAYS INC MIAMI 25.3.42 39.006.70 VSA 192 946856 SHAW STRUPP CHASE NATIONAL BANK NEW YORK 28.3.42 20,000 VBD 947130 SHAW STRUPP CHASE NATIONAL BANK NEW YORK 2.4.42 30.000 USA Regraded Unclassit - 2 - 932793 PAN AMERICAN PAN AMERICAN AIRWAYS INC MIAMI 10.4.42 15.000 USA 955548 PASCUAL BANCO DEL PERU LIMA 15.4.42 1.458 USA 955636 SHAW STRUPP CHASE NATIONAL BANK NEW YORK 15.4.42 30.000 USA 955624 SHAW STRUPP CHASE NATIONAL BANK NEW YORK 15.4.42 25.000 USA 955664 SHAW STRUPP CHASE NATIONAL BANK NEW YORK 16.4.42 30.000 USA 955681 SHAW STRUPP CHASE NATIONAL BANK NEW YORK 17.4.42 25.000 USA 935586 SHAW STRUPP CHASE NATIONAL BANK NEW YORK 24.4.42 22.000 USA 935551 SHAW STRUPP CHASE NATIONAL BANK NEW YORK 24.4.42 10.000 USA 935670 SHAW STRUPP CHASE NATIONAL BANK NEW YORK 25.4.42 41.000 USA 958115 SHAW STRUPP CHASE NATIONAL BANK NEW YORK 21.4.42 30.000 USA 958117 SHAW STRUPP CHASE NATIONAL BANK NEW YORK 21.4.42 11.000 USA 935506 PAN AMERICAN PAN AMERICAN AIRWAYS MIAMI 23.4.42 33.450 USA 935531 PAN AMERICAN PAN AMERICAN AIRWAYS MIAMI 23.4.42 14.875.45 USA 935530 PAN AMERICAN PAN AMERICAN AIRWAYS MIAMI 24.4.42 34.559.00 USA $869.807.00 USA eh: copy 5-13-42 193 Treasury Department 194 Division of Monetary Research D Date May 14 19⁴² To: Miss Chauncey From: Mr. White The Secretary will want to read this. It is an interesting indication of the excellent spirit of cooperation which the Australians are giving the American forces in the financial field. 195 OFFICE OF LEND-LEASE ADMINISTRATION FIVE-FIFTEEN 22d STREET NW. WASHINGTON, D.C. E. R. Stettinius, Jr. Administrator May 11, 1942 Mr. Harry D. White Special Assistant to the Secretary Treasury Department Washington, D. C. Dear Mr. White, I am sending you herewith a copy of cable No. 258 just received from William Wasserman, our Lend- Lease representative, in Australia as I believe the information which it contains will be of interest to you. With best wishes, Sincerely yours, Thomas B. McCabe Acting Administrator Enclosure FORDEFENSE SNet SI YAM BUY UNITED STATES lo motalvid LIVINGS BONDS dotaesed visiegoM 196 SS Canberra This telegram must bE pàraphrased before being Dated May 11, 1942 communicated to anyone other than a Governmental REC'd 8:20 a.m. agency. (BR) Secretary of State, Washington. RUSH 28R, May 11, 2 p.m. TO McCABE FROM WASSERMAN Complete and accurate reverse Lend-Lease figures not yet available from United States Army or Austral- ian Government sources. It will bE a fEW WEEKS more before the Army bookkeeping will bE adequate to render complete and accurate records. From avail- able figures United States armed forces had re- CEiVEd from "ustralia under reverse lend lease goods, services and commitments totaling at least $62,000,000.- to "pril 20. From present records it is impossible to break this total figure into a monthly classifi- cation, this total figure includes certain unpaid items not definitely placed under reverse Lend LEOSE such as approximately $2,500,000 for transportation and freight but which WE presume will bE so phoed when final agreements are (#). This total figure includes an item of $874,800 the estimated value of rations supplied by Australian army to the United States forces. Basis of valuing these rations 197 -2- ,#258, May 11, 2 p.m. from Canberra rations has not yet been finally settled so figure only an approximation. Total figure does not in- clude substantial amounts of gasoline and lubricants taken by United States foroes from Australian Army. This amount might bE considerable but there is absolute- ly no basis for reasonable estimate at present. There are also other miscellaneous items probably incon- sequential not included. By June 1 the United States Army hones to have reasonably complete and accurate figures up to April 30 when WE will forward them. United States Army records show that as on May 8 American Army has made actual cash expenditures in Australia amounting to $15,825,865. Figures are not available here as to United States Navy cash Expend- itures, WE are informed that such are transmitted dircct to Washington. For dramatic instances of reciprocal aid would cite the release of school houses, convents, bank buildings, ball parks and private homes many under reverse lend lease; purchase for cash 3500 cars and trucks for the United States forces; purchase of two million dollars signal Equipment for joint use; undertaking 198 -3- #258, May 11, 2 pen. from Conberra undertaking the nanufacture of certain radio Equip- ment; cheerful посертапое of SEVERE civilian ration- ing resulting from the presence of our forces. JOHNSON. (#) Apparent Omission. TWO GEVISORE safethje 5/11/48 SND S.L YAM Copies to: Mr. Hopkins (2) to askid Mr. NeGabe (1) via Stettinius HR named Mr. Stettinius (1) Treasury Department 199 Division of Monetary Research Date 5/11/42 19 To: Miss Chauncey From: Mr. White The Secretary might be interested in this summary. 200 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE May 11, 1942 TO Secretary Morgenthau FROM Mr. White Subject: Digest of cable from Adler dated May 6, 1942. 1. Adler informed by Dr. Kung that all Chinese Government property in Burma had to be destroyed. 2. Dr. Kung informed that Secretary Morgenthau is especially concerned that Stabilization Board should do all possible to aid China's war effort and Dr. Kung sends thanks to the Secretary for his concern. 3. Dr. Kung glad to hear of Mr. Fox's return to China and wishes the Secretary to be assured that the Chinese Government will continue to cooperate fully with the Stabilization Board. Regraded Unclassified 201 MJL Chungking This telegram must be paraphrased before being Dated May 6, 1942 communicated to anyone other than a Governmental Rec'd 2:48 p.m. agency. (BR) Secretary of State, Washington. 513, May 6, 9 a.m. (SECTION ONE) CONFIDENTIAL FROM ADLER FOR SECRETARY OF THE TREASURY. "TF 33 One. Re your 344, May 1. Have informed Board members that you and Fox believe that November lst agreement should continue in effect. No decision will be taken by Board on Central Bank application until Fox's return. Central Bank's net over sold position in April United States dollars 124,974 and sterling 190,230. Thus Central Bank application now totals approximately United States dollars 6,944,250 and sterling 5,341,458. There would appear to be some misunderstanding of TF 31 of April 27, paragraph 6 where it was indicated that attempt at this time to centralize exchange control in hands of Board would involve friction with Chinese Government but not that either Chinese Government 202 -2- #513, May 6, 9 a.m. (SECTION ONE) from Chungking Chinese Government or Exchange Control Commission has objection to continuation of November 1 agree- ment. TF 18 of March 4 had indicated it was British who were worried about continuation of November 1st agreement. Two. Minister of Finance informed me yesterday all Chinese Government property in Burma had had to be destroyed. He was naturally depressed by this news. Took the opportunity to tell him of Fox's return in near future and of fact that (?) 1s especially concerned that Board should do all pos- sible to aid Chinese war effort. Dr. Kung was glad to hear of Fox's return. He wished to thank you for your concern that Board should make maximum contribution to China's war effort and to assure you that Chinese Government would continue to co- operate fully with Board. GAUSS RR 203 EJ Chungking This telegram must bE paraphrased before being Dated May 6, 1942 communicated to anyone other than a Governmental Rec'd 1:30 p.m. agency. (BR) Secretary of State, Washington. 513, May 6, 9 a.m. (SECTION TWO) Three. RE your 325 of April 24. Paragraphs one and two duly noted and communicated to board. RE your paragraph three, formal decision had of course been taken by full board meeting and incorporated in board resolution no. 20 new series. Four. Actuaryal report of board's operations to March 31, 1942, prepared by Lovelock and LEWES of Calcutta now to hand and being forwarded by pouch. Figures are preliminary as only Bank of England statement of account available at time of preparation. Net pay- ments made to March 31, 1942, (to nearest currency unit); total, United States dollars 15,868,425 starling 2,695,343. Breakdown: Shanghai and Hong Kong, United States dollars 11,611,346, starling 1,612,326; Kunming, United States dollars 4,071,324, sterling 1,072,293; Chungking United States dollars 185,755, starling 10,724. Total Chinese national currency notes (in Chinese national dollars) Regraded Unclassified 204 -2-#513, May 6, 9 a.m. (SECTION TWO) from Chungking dollars) held against: (a) United States dollars 298,796,479, of which 219,129,893 were deposited in Shanghai and Hong Kong and 30 million of remainder have been withdrawn to purchase Chinese Government treasury notes. (b) Sterling 207,943,162 of which 96,404,076 were deposited in Shanghai and Hong Kong, and 19 million of remainder withdrawn for purchase of treasury notes. Five. There have been several inquiries from Ministry of Finance as to the present status of United States dollar letters of credit issued by American banks in Hong Kong and Shanghai before outbreak of Pacific war to Chinese Ministry Free China. Ministry has also Evinced interest post-war status of Chinese deposits in American banks in Hong Kong and Shanghai made prior to Pacific war. Six. In TF-32 of April 30, section two, paragraph two, note (E), substitute 5,650 for 5,450. (END OF MESSAGE). GAUSS KLP Regraded Unclassified