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. National Advisory Council Document No# 663 April 14, 1948 SECRET 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 SECRET SEdiET 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 SECRET SECRET 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. SECIET c National Advisory Council Document No» 663 SECRET (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) SECRE' 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*