861.51/3037: Telegram
The Ambassador in the Soviet Union (Harriman) to the Secretary of State
[Received March 24—11:25 a.m.]
996. For the Department and FEA. Reference is made to Department’s Nos. 625, 626 and 627 of March 18 and to my 889 March 17, 8 p.m., reporting my preliminary conversations with Mikoyan and commenting on Department’s 510, March 7, 9 p.m. My further comments below are supplementary to my No. 889 and please read them together.
In my talk with Mikoyan I discussed only the idea expressed in article 2 of proposed agreement and did not explain the concept of article 3. I heartily endorse the concept of article 3 as I recognize it will give greater flexibility in accepting justifiable Soviet requests for items which appear to have a minimum war value and a maximum post war value, as you have described them. I will describe the concept of article 3 to Mikoyan next time I see him.
As to terms of repayment and interest rates under articles 2 and 3, I have already expressed my preliminary opinion in my No. 68, January 9, 1 p.m. In my 334, February 1, 11 p.m. [midnight], I transmitted Mikoyan’s suggestion which I consider as his initial trading position. You will note that I proposed to you a credit for from 5 to 30 years at an interest rate of between 2 and 3 percent and repayment beginning 5 years from termination of hostilities in annual [Page 1070] installments, whereas Mikoyan suggested an interest rate of one half of one percent and payment beginning with the 16th year in equal annual installments over 20 years thereafter.
I agree with your suggestion of an interest rate approximating the present rate of US Government long term securities.
I believe it well to ask the Soviets to begin repayment at the end of 5 years as I believe it important to establish at an early date the habit of repayment. We might well however agree to small initial payments and subsequent larger payments. I do not feel in position to recommend a definite period for full repayment but recommend that the longest period justifiable be offered.
As a suggestion, it might be agreed that the Soviets:
- (1)
- Pay annually an amount equaling the interest on the original figure due and, as amortization payments are made, the saving in interest be credited to amortization of principal; and,
- (2)
- Make amortization payments of 1 percent during the 6th through 10th years, 2 percent during the 11th through 15th years, and from the 16th year on amortization at an annual rate sufficient to repay the principal by the end of 30 years after hostilities have terminated.
I believe that the detailed terms of this proposed agreement, including financial terms, should be negotiated in Washington. I believe it would be useful and facilitate the Washington negotiations if I continued to condition Mikoyan to our basic conceptions without making any commitments. I will therefore tell him on the next occasion that interest rates should, in my opinion, be linked with the present rate on US long term securities, without entering into an argument with him over this question. I believe it would also be helpful if you would indicate your preliminary thinking on amortization.
As to my general reaction to your draft agreement, I like it in principle but do not feel that I can say much more at this time as so much depends upon the interpretation of what classes of supplies are to be included under articles 2 and 3. I agree that we should not be committed to supply, or the Soviets be committed to accept, munitions generally or food on the termination of hostilities. I agree that we should have a free hand in determining whether we want to continue to ship these items. On the other hand items such as motor vehicles, tractors and railroad rolling stock should, I believe, come under article 2, whereas certain industrial equipment including railroad equipment such as block signals might be considered applicable to either article 2 or article 3 depending on their character, use and speed of delivery and installation. I have not given enough thought to raw materials to express an opinion at this time but would appreciate having your views.
[Page 1071]I feel your approach is sound to reach an agreement with the Soviets as to the classification of each category of item between the articles of the proposed agreement as well as to provide that categories can be added from time to time. I assume that in the case of industrial equipment agreement would have to be reached on each item as to its classification at the time it is up for final acceptance.
It is my desire to be as helpful as I can and I would therefore much appreciate being kept informed of developments in your thinking.