Memorandum by G.P.S. Hogan of a meeting with John A. Costello and Seán MacBride

On Saturday 5th February, the Taoiseach telephoned to me at a quarter to one and asked me to go to his room, where I found that he had with him the Minister for External Affairs and Mr. T. Murray, Assistant Secretary, Department of Industry and Commerce.

The Taoiseach said that they had been discussing the question of our dollar expenditure and the desirability of increasing it immediately with a view to absorbing as much as possible of the estimated 'surplus' of $24 million on our existing allocations from E.C.A. for the period up to 31st March, 1949. Mr. MacBride said that there now seemed to be every prospect that E.C.A. would give us grants and that it would be fatal if the grants for 1949/50 and subsequent years were reduced by E.C.A. on account of the low level of our dollar expenditure in 1948/49. The Department of Finance must liberalise at once their policy towards dollar expenditure.

At this point the Taoiseach left the meeting, saying before he went that he was in favour of 'loosening up on dollars'.

Mr. MacBride went on to say that, while there were other factors present, the failure to use more of our 1948/49 E.C.A. allocations was due in part to the attitude of the Department of Finance towards dollar applications. Not only were applicants refused facilities for goods which E.C.A. would allow but many importers were deterred from applying by their knowledge of the Department's policy. He wanted all refusals to be reviewed and importers generally to be informed by circular letter that the Department were now prepared to consider speedily and sympathetically applications for dollar imports.

I pointed out, and in this I was strongly supported by Mr. Murray, that in view of the basis of our programming for 1948/49, to which E.C.A. allocations had been related i.e. our original over-estimates of dollar import requirements, the saving of dollars had become inevitable. The pre-war pattern of our dollar imports showed that in normal conditions, allowing for price changes, we should not now be importing dollar goods at a higher level than $50 million per annum. Refusals of applications by the Department of Finance (all the decisions had to be taken in consultation with other interested Departments) had, in general, been given because there were no Procurement Authorisations or because the P.A.s were inadequate to cover all applications, or because the goods were luxuries or non-essentials, or because the goods could be procured outside the dollar area. Excluding non-essentials e.g. nylon stockings, the amount of such refusals represented only a small part of the estimated 'surplus' of $24 million. The basic fact had to be recognised that importers were not now as anxious to buy in the dollar area as they had been in 1947 or in the early months of 1948.

Mr. MacBride said that the importers' attitude would change if the Department of Finance were known to be more liberal. He wanted that done because he had received many complaints from importers. I said it was unfair to talk of the policy of the Department of Finance. It was Government policy that was being implemented, laid down in a formal Government decision and that if that policy was to be changed now it should, I suggested, equally be covered by a Government decision as otherwise the Department of Finance would be in a grave difficulty. Mr. MacBride said that Ministers were agreed on the policy that there should be more dollar spending and that the Government would give any decision that was required to that end. If necessary he would get such a decision that afternoon; speed in this matter was essential.

I suggested to Mr. MacBride that any change of policy would have to be explicit. It would not be enough simply to say 'spend more dollars'. Present policy was based on some considerations that did not arise from our own wishes viz:

• the view of E.C.A. as to whether our dollar imports were necessary for our recovery,
• the joint agreement of O.E.E.C countries that a reduction in dollar expenditure before 1952¹ must be secured,
• the principle laid down by O.E.E.C. and encouraged by E.C.A. that goods should not be bought in the dollar area if they could equally well be bought in the participating countries or their monetary areas,
• that, apart from the fact that the U.K. was also a participating country and thus concerned in our adherence to the principles at (b) and (c) above, our use of the sterling area pool to finance dollar expenditure in advance of E.C.A. reimbursement made it necessary for us to have some regard to British reactions towards an expansion of our dollar imports particularly in so far as these might be non-essentials or available from sterling area sources.

Mr. MacBride said that under the new policy the only one of the considerations I had mentioned that should in future be used as a basis for refusal of applications was that specified at (a). We should use any facilities that E.C.A. were prepared to grant regardless of all other considerations. In reply to Mr. Murray he said that this principle would not involve a reversal of the existing Government decision in regard to American cars. He also qualified it by the exclusion of 'certain obvious luxuries'. Mr. Murray pointed out that, on the question of availability of goods elsewhere, Mr. Carrigan himself was continually raising this question in his reviews on our dollar procurements.

Mr. MacBride then returned to his original request that the Department of Finance should issue circulars to applicants who had been refused and to importers generally. We should send them copies of the forms and ask them to fill them up quickly. I pointed out that action of that kind would only lead to further delay in dealing with new applications and non-compliance with E.C.A. procedure. Furthermore, I saw the gravest objections to the issue of circulars of that kind which could be construed only as an advertisement that dollars were no longer a scarce currency. Any such action on our part would have the most undesirable publicity. Mr. MacBride still wished it to be done and done at once. He then drafted a circular letter which he handed to me. He added that if additional staff was required for this work it would have to be provided. I said that this whole scheme was of the utmost concern to the Minister for Finance, that I would consult him and take his instructions.

Subsequently the Minister for External Affairs saw the Minister for Finance. I was not present at their original discussion but before they separated Mr. McGilligan sent for me and told me that he agreed generally with the proposal to issue approvals for new dollar expenditure which would absorb as much as possible of the 1948/49 'surplus'. I told him my objections to issuing circulars to importers and that the appropriate method of reviewing refusals and of conveying discreetly the impression that dollar applications would be dealt with more liberally, was through the banks. Mr. McGilligan gave me no specific instruction on this point. The question of immediate additional purchases of tobacco was raised and I pointed out that the manufacturers might not wish to buy now and that in any event it would be most embarrassing for us to suggest such a course to them in the light of recent events. Both Ministers appeared to be in agreement that we should reverse the decision to cut 1949 dollar allocations for tobacco by 15%. I pointed out that that was not relevant to the present problem because it could only concern future E.C.A. allocations. Mr. McGilligan said that I should take the opportunity of my meeting with the tobacco manufacturers on the 9th instant to discuss with them the possibility of their buying some supplies of tobacco immediately. He also thought that more sugar should be bought. This conversation was conducted in a very hurried atmosphere and Mr. McGilligan said that he would not be in his office for some days, adding that if I wished to receive directions on these matters the Taoiseach would be the acting Minister for Finance.

After the Minister for Finance had gone Mr. MacBride again asked me to arrange urgently for the issue of circular letters and the review of refusals. I repeated the difficulties which seemed to be involved in this course of action and undertook to consult the other officials concerned during the weekend. I met Messrs. T. Murray, Cremin, Nagle and Seán Murray on Sunday night. The meeting lasted five hours. Mr. Cremin produced a written directive from the Minister for External Affairs, a copy of which he will send to this Department to-day, which included inter alia a review of all refusals issued by the Department of Finance since 1st January, 1948, and the issue of two circular letters which he had drafted. We were all agreed that the realistic basis and method of reviewing past refusals was to ask the banks to resubmit all rejected forms E.5. It was also apparent that if the objective desired by Ministers was to be urgently secured even in part, before the end of March, the most feasible method was to issue in appropriate cases additional approvals for non-E.C.A. financed imports, thus avoiding the complexities and delays involved in seeking new or revised Procurement Authorisations. The amount of uncommitted dollar earnings available for this operation cannot yet be stated with any precision. Although such an operation is feasible it has dangerous implications because it deprives us of the safeguard which our earnings give us towards meeting the cost of imports which cannot be documented to the satisfaction of E.C.A. It also creates discrimination between two classes of importers of the same commodity, the easier terms of purchase being given to those whose applications were not originally regarded as of the same merits as those who have to comply with the full E.C.A. procedure.