Foreign Relations of the United States, 1958–1960, Eastern Europe; Finland; Greece; Turkey, Volume X, Part 2

347. Memorandum of Conversation⁰

Washington, October 7, 1959.

SUBJECT

• Turkish Economic Problems

PARTICIPANTS

• Fatin Rustu Zorlu, Turkish Foreign Minister¹
• Hasan Isik, Turkish Foreign Ministry
• The Under Secretary
• Owen T. Jones, GTI

The conversation turned largely on Turkish relations with IBRD, Turkish investment coordination and planning, and means by which Turkey could get additional short-term financing.

Mr. Zorlu opened the meeting by referring to the negative results of his meeting with Mr. Black² and the fact that this might also affect the availability of Turkish credits with the IDA. In the course of the conversation, Zorlu said this news would not be well received in Turkey by President Bayar, who probably would not be pleased to learn of any contact whatsoever with IBRD. Zorlu then recalled the acrimonious luncheon that President Bayar had with the IBRD when he was in Washington in 1954³ and reviewed generally the negative attitude that IBRD had taken toward Turkey.

The Under Secretary said that in talks with the IBRD since Mr. Zorlu’s meeting with them, he had not gained the impression that they intended to extend their remarks to any possible credits from IDA. IBRD’s principal concern had to do with the heavy foreign exchange servicing requirements of external obligations over the next six to eight years. IDA would present no problem in that respect, since the servicing of its obligations would be in local currencies. Neither had it been his impression that IBRD intended to shut the door indefinitely to Turkish loans. Rather the door was left open to a continuing reappraisal leading to the extension of IBRD credits after several years and an easing of the external debt servicing pressures. Moreover, credits opened after an interval of several years would call for payments beyond the present six-to eight-year period that troubled the IBRD particularly.

Meanwhile, Mr. Dillon went on to say, we had hoped the IBRD would be able to provide Turkey some guidance and help in investment planning and coordination and in the development of an investment program. Given the strong feelings in Turkey toward the IBRD, Zorlu said there was little prospect of Turkey’s seeking such guidance. Mr. Dillon then suggested that Turkey might want to do what Iran and Pakistan had done in utilizing Ford Foundation grants to retain Harvard University teams headed by Professor Mason to help in formulating and coordinating an investment program. Among the advantages of this type of arrangement was that these people would be working for the Turkish Government and thus afford the Turkish Government more freedom of action. In expressing interest in this proposal, Zorlu said they themselves had considered the possibility of retaining the services of a Dutch economist by the name of Professor Tinbergen. This part of the discussion closed with Mr. Dillon saying that the important thing was to have an investment program developed. There were a number of ways by which this could be done.

The discussion then turned to United States aid. After noting the United States aid level of $80 million to Turkey, Mr. Zorlu pleaded that the United States make an additional amount immediately available by dipping now into the reserve fund that Mr. Dillon had mentioned in their last meeting.⁴ In this connection, the Foreign Minister stressed the fact that Turkey had no reserves right now and needed some short-term financing immediately to give it more elbow room. Mr. Dillon explained at some length the problems that we have in administering the reduced amount of funds made available to us by Congress this year, referring specifically to the defense support money and to the contingency fund. He pointed out that actually there was only a small uncommitted amount left from these sources and that while Turkey’s desire for funds now was understandable, it was essential that the United States preserve this small residual uncommitted amount to meet, when they arise, possible emergencies such as the Taiwan crisis of last year. As the year went on, we would be prepared to review the problem. If there were still funds available, we would be happy to consider giving Turkey some further supplemental assistance.

In view of our shortage of funds, Zorlu then asked if we could ease the situation for Turkey by releasing a part of the aid level of $80 million on the same basis that we released the special allocation of $25 million last year. Mr. Dillon thought this would be possible and said we would look into it. This seemed to satisfy Mr. Zorlu, for he went on to say that if they got an immediate release of some of the $80 million they could wait for the remainder.

In connection with this problem of short-term financing, the Foreign Minister also asked Mr. Dillon to speak to the Germans on behalf of Turkey. It was Zorlu’s feeling that Germany was prepared to help Turkey, but for political reasons it was deterred from taking action independently of and possibly contrary to the consensus of the other OEEC member countries. Indeed, he felt that there had been some collusion among the OEEC members in withholding further credits to Turkey, such credits being, he felt, a logical corollary to the successful implementation of the stabilization program. Mr. Dillon said that we would speak to the Germans via our Embassy in Bonn.⁵

0. Source: Department of State, Central Files, 882.00/10–759. Confidential. Drafted by Jones and approved in U on October 14.
1. Zorlu and Menderes were attending the 7th session of the CENTO Ministerial Council in Washington (October 7–9).
2. No documentation on this meeting has been found.
3. January 26–29, 1954, during a January 24–February 27 visit to the United States.
4. Apparently a reference to their December 9, 1958, meeting in Washington. A memorandum of their conversation is in Department of State, Secretary’s Memoranda of Conversation: Lot 64 D 199.
5. No message to Bonn has been found.