895B.10/7–1051
The Secretary of State to the Secretary of Defense (Marshall)
My Dear Mr. Secretary: The Department of State is concerned about the status of the Special Deposit Account with the Treasurer of [Page 643] the United States (suspense account) accruing under the provisions of the Financial Agreement of July 28, 1950,1 with the Republic of Korea. We believe that there should immediately be released from the suspense account to the Government of the Republic of Korea that amount which has accumulated from sales of Korean currency to individual members of the United Nations forces for their personal expenditures.
The American Ambassador in Korea has repeatedly emphasized the desirable political and economic consequences which will flow from a release of these funds from the suspense account. At the present moment, however, this question has assumed a special urgency because of the armistice negotiations which are now in progress. As the Ambassador points out in the attached program [telegram],2 the removal of this longstanding source of friction and irritation would do much to assure the Korean Government of our continued interest and support.
Recent messages from Korea have stressed that the Korean economy cannot produce the goods and services necessary to sustain the military effort and to maintain the civilian population without considerable outside assistance. Strong inflationary pressures have been generated as a consequence. Local currency expenditures of the United Nations forces have considerably aggravated this problem by increasing the money supply without providing for equivalent imports of goods. The release of funds from the suspense account, accruing at present at the rate of $1.7 million per month, would not by itself bring about the turning point of the inflation. The amount is not nearly large enough. However, it could be used as a fund for Korean procurement of essential imports of commodities which are available now in Japan or in the Far East, thereby alleviating the burden of the United Nations Command aid program, strengthening Korean foreign trade, and lessening inflationary pressures by absorbing some of the currency in circulation through the sale of the imported commodities.
It is our belief, therefore, that there are sound political and economic reasons for a release of a portion of the dollars in the suspense account. The maximum political advantage will be gained if the Korean Government can be notified of the release before the conclusion of the armistice discussions. If you agree in principle with the proposed action, officers of our two departments can promptly work out the necessary procedures, in consultation with representatives of the Department of the Treasury.3
Sincerely yours,
- For the text of the agreement, see Department of State Treaties and Other International Acts Series (TIAS) No. 2135, or United States Treaties and Other International Agreements (UST), vol. 1, p. 705.↩
- Reference is to telegram 20, July 7, from Pusan, p. 634.↩
- The reply to this message is contained in the letter from Mr. Lovett to Secretary Acheson, August 30, p. 864.↩