No. 66 NAI DFA/5/305/57/1A
Memorandum for Government by the Department of External Affairs 'The Loan-Grant Issue'
Dublin, 3 June 1948
- The suggestion implied in the article in this morning's 'Irish Press' is that, up to the time of the change of Government, the position was that whatever aid Ireland received under ERP would be by way of grant, but that something happened subsequent to that date which altered the picture and resulted in the decision that the $10 million ear-marked for Ireland for the current quarter should be granted by way of loan. The facts are as follows.
- The Economic Co-operation Act vests the exclusive power of deciding whether aid shall be granted by way of grant or loan in the Administrator acting in consultation with the National Advisory Council. Prior to the passage of the Act on the 4th April, 1948, and the appointment of the Administrator on the 6th April, 1948, therefore, there was no official authority in existence which could give any decision or reach any conclusion of any value as to whether the aid given to Ireland would be by way of grant or loan. In other words, the position was that the Act prescribed the manner in which the loan-grant issue was to be determined and, until the Act came into force and the prescribed machinery came into operation, any forecasts as to whether Ireland would receive grants or loans were purely assumptions.
- Perhaps this is all that the 'Irish Press' article means - namely, that, until the Administrator's decision as regards the current quarter is made, it had been assumed that the aid given to Ireland was wholly or mainly by way of grant. It can be argued that such an assumption was not unjustifiable. The proposals made to Congress by President Truman contemplated that States able to pay cash in dollars would do so, but that, in the case of inability to pay immediately in that way, aid would be given by way of grant or loan according to the nature of the goods involved. Food, fuel and fertilisers, as well as agricultural machinery and similar goods of a short-term investment character would be covered by grants. Only capital goods of a long-term investment character would be covered by loans. This was also the effect of the evidence given before the Congressional Committees by prominent members of the U.S. Administration, who went even further in emphasising the point that the primary criterion in deciding between grants and loans should be the ability to pay. It was by no means unreasonable that a person, knowing how this country is situated as regards ability to pay dollars in cash or to repay dollar loans, should reach the conclusion on these facts that aid given to Ireland under ERP was likely to be by way of grant. This is, apparently, what the previous Government did.
- That is not to say, however, that they were altogether without warning that the assumption might not be correct. Giving evidence before the House Foreign Affairs Committee on the 12th January, Mr. Willard Thorp,1 Assistant Secretary of State in the State Department, stated specifically that Ireland, as well as a number of other countries, were not expected to receive grants and should be able to finance their rehabilitation through loans. An informal memorandum was handed to the American Minister here on the 6th January expressing dissent from Mr. Thorp's conclusion. Furthermore, somewhere about the same time or shortly afterwards, the idea emerged in the Congressional discussions that the Act should prescribe that a portion of the total amount to be spent in the current financial year should be granted by way of loan only. One-fifth of the total amount was earmarked for this purpose - a provision which, considering this country's position in the scale of European needs, was at least a red light to anyone expecting that aid to this country would be granted wholly by way of loan.
- Whatever thoughts anyone had on the loan-grant issue prior to the passing of the Act, however, they were purely and simply assumptions. Nothing could be done until the Act was passed and the Administrator, in whom the exclusive right of decision in conjunction with the National Advisory Council is vested by the Act itself, was appointed. In fact, the Minister began to take action immediately the Act was passed. Within a few days subsequent to its enactment, he saw the American Minister, informed him of his desire to have the issue determined, and offered to go to Washington himself at once to furnish any information the Administrator might require in reaching a decision. The Minister spoke to Mr. Garrett several times to this effect. Actually, in a despatch dated 3rd April, the Legation at Washington had informed us that:-
'It will take a very considerable time for the Administrator, when he is appointed, to decide in advance the terms on which assistance will be made available to each country, and, for the first thirty days at least, and perhaps indeed for the greater part of the April-June quarter, all assistance will have to be taken on the understanding that it will remain to be decided after the event whether the assistance will be approved as a grant or as a loan.'
In a despatch dated 16th April,2 the Legation told us that the position in Washington was in a state of great uncertainty since the sudden appointment of the Administrator, but that 'as to discussions on the financial aspects of the programme, i.e., the division of funds between loan and grant, this will have to be done in Washington'.
- Not having heard definitely from Mr. Garrett, a telegram in the following terms was sent to the Legation at Washington on the 27th April:-
'The Government is anxious to reach a firm understanding with the Administrator as soon as possible as to whether ERP aid allotted to us will be grant or loan. The supreme importance of this question will be obvious. We cannot conscientiously accept ERP shipments for any length of time without knowing whether they are grants or loans, and the Government is anxious to know where they stand before Paris Convention is submitted to Dáil for ratification. Matter is so important that one or two Ministers are prepared to travel to Washington forthwith or as soon as ever it is convenient to Administrator to discuss matter and endeavour to reach some firm conclusion about it. Please endeavour to arrange this for earliest possible date. American authorities will no doubt appreciate how impossible it is for us, in view of our position as regards possibility of repaying dollar loans, to do any sound ERP programming in absence of knowledge as to where we stand on grant or loan issue.'
In a telegram of the 28th April, replying to this, the Legation informed us as follows:-
'Discussed the matter with Administrator this morning. He said he will not be in a position to decide whether aid will be grants or loans until after bilateral agreement has been signed, and therefore no useful purpose would be served by Ministers coming here now. Decision has been arrived at as to terms agreed for quarter ending 30th June but cannot be conveyed to us until letter of intent has been received by State Department. In this connection, I am waiting for State Department which should be ready in a few days.'
The 'letter of intent' referred to in this cable was lodged with the State Department on the date of the cable itself, i.e., 28th April. On the 10th May, we received a further cable from Washington stating that the terms of aid for the current quarter were not yet available but that the Director of Operations had informed Mr. Nunan that he would be advised that week of the ECA official with whom the terms should be discussed. Finally, on the 13th May, we were informed by cable from the Legation that the Administrator had determined that assistance during the current quarter should be made available by loan.
- It will be seen from the foregoing that, from the moment that the Act was passed and effective action could be taken, the Minister began pressing the American authorities for an opportunity of discussing the matter; that the delay in acting on the Minister's suggestion was on the American side and not on ours; and that, in the result, the determination for the current quarter was made by the Administrator without prior consultation with us or being in full possession of the Irish Government's views. The damaging effects of his decision are, to some extent, offset by the assurance which the Administrator gave the Minister in Washington that the determinations for the current quarter are not necessarily any guide as to what will be decided for future quarters, but it will be clear from what has been said that the suggestion implied in the 'Irish Press' article that the determination for the present quarter was the result of something done or omitted to be done on the part of the Irish Government is wholly unwarranted.
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