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National Advisory Council
Document No# 663
April 14, 1948

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IffilfORAIDUlI Tot

From:
Subject:
!•

The National Advisory Council
The national Advisory Staff Committee
Division of ERP Assistance Between Grants and Loans

Problem

The Economic Cooperation Administrator has requested the advice of the
National Advisory Council on the division to be made in the assistance between loan* and grants (a) for e?.ch p a r t i c i p a t i n g country for the f i r s t
quarter of the European Recovery Program, and (b) for China.
2,

Background

a.
On ftbruary 6, 1948, the Chairman of the NAC, pursuant to a request
from Senator Vandonberg for a d i s t r i b u t i o n of aid to ERP countries on the
basis of loens and grants, submitted a preliminary and t e n t a t i v e breakdown
to the Secretary of State for h i s transidttal to Senator Vandenberg as follows:
Cash payment b a s i s :
Switzerland, Turkey, Portugal
100°^ loan b a s i s :
Sweden, Iceland, Ireland
100$ .grant b a s i s :
Greece, Austria
B5% loans, 15% g r a n t s :
Norway, Belgium-Luxembourg
20% loans, 80# g r a n t s :
The United Kingdom, the Netherlands, Denmark
10% l o a n s , 90% g r a n t s :
France, I t a l y
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National Advisory Council

Document N Q # 663
- 2 Aid to Germany out of a Congressional appropriation for ERP would result
in a claim against that country requiring future negotiation with respect to
settlement.
The foregoing breakdown was subsequently transmitted by the State Department to Senator Vandenberg with the two following modifications:
(1) While Turkey was s t i l l included among the countries on a
"cash payment basis", the letter indicated that this classification was tentative and that i t might prove necessary and
more appropriate to make ERP aid available to Turkey on a loan
basis,
(2) For countries on a partial loan and partial grant basis,
no indication was given of the ratio of loans and grants
applicable to each such country.
b»
N previous consideration has been given to a breakdown between
o
grants and loans for China.
3t

Discussion

a.
A definite division of ERP assistance to a particular country
between grants and loan? cannot be made until such time as the allocation
of assistance to the country has been definitely determined. The division
bctreon grants and lo^n? can be made on an operating basis, ho;/evcr, for
the f i r s t quarter since there is the possibility of making necessary adjustments in the later quarters*
The percentages of loans and grants were arrived at on the assumption
that (a) the allocations will be determined according to the general magnitude of the '.Tostern Hemisphere deficit, nnd (b) that the amount of U. S. aid
(whether in the form of lo^ns or grants) to each participating country would
be based primarily on the projected deficit of each country in i t s trade with
the Y.estern Hemisphere only. N allowance was made for the possibility that
o
under a different system of allocating aid, -n different ratio of loans and
grants for particular countries might be warranted* As for loan terms, i t
was assumed that the terms would fall v.lthin the r?nge ^ \ojm£ previously
established/bv the U# $. Government*
k
The estimated division of ERP aid for each country was distributed
between loans and grants on the basis of the current judgment of the Staff
Committee as to each country's prospective ability to pay. In making this
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N a t i o n a l Advisory Council
Document No. 663

- 3 judgment the Coranittee took into consideration the amount of aid likely to
be received by each country over the full u\ years of the program.
Assistance extended to the Bizone and the French Zone of Germany
represents a charge on the Gtrman economy. The terms of payment of any unpaid balance cannot be determined until the final peace settlement and therefore must be kept open.
After consideration of the position of each participating country, the
Staff Co::imitte: h n s modified slightly the previous percentage breakdown in
the c^sc of a number of the countries. It recommends that the revised percentages be usod for the allocations in the f i r s t quarter.
b.
In the care of China, the Staff Committee considers that on the
basis of the Chinese ability to repay, the v/hole of the non-reconstruction
items shouli be orovided on a grant brsis and that the terms of payment for
re construction items should be settled l a t e r , after the projects have become
knov.-n.
/,.«

Fte coirjne ndat ion

The following action is submitted by the Staff Committee for the consideration of the National Advisory Council:
(a)

The National Advisory Council is of the opinion that
the following classification of recipient countries under
the European Recovery Program should be observed in determining the terms of U, S. assistance v/hich is allotted to
each country in the f i r s t quarter:
Q)

Car1" Payment Basis
Portugal, Switzerland,

(2)

100 Percent Loan Basis
Iceland, Ireland, Sweden, Turkey (to the
extent that any assistance i s extended
to Turkey).

0)

100 Percent Grant Basis
Austria, Greece.

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National Advisory Council
Document No» 663

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(4.) Part Loan and Part Pant Basis
Italy, 10 percent loans, 90 percent grants;
France (including Saar), 15 percent loans,
£5 percent grant?;
United Kingdom, 25 percent loans, 75 percent
grants5
Netherlands, 25 percent loan5, 75 percent
grant s;
Denmark, 25 percent loans, 75 percent grants;
Norway, 50 percent loans, 50 percent'grants;
Balgium-Luxembourg, 85 percent loans,
15 percent grants.
(5)

Charred to German Economy (Terms of payment of unpaid balance to be determined at peace settlement)
Bizone Germany and French Zone of Cbrmany*

(b)

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The National Advisory Council is of the opinion that,
on the basis of the Chinese ability to pay, the whole of the
assistance extended to finance other than reconstruction
projects should be provided on a grant basis and that the
terms of repayment for the aid extended to finance reconstruction projects should be held open until after the projects have become Imoivn*