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Volume 8 1945~1948

Doc No.
Date
Subject

No. 466 NAI DFA 305/57 Part II

Informal memorandum from Frederick H. Boland to George Garrett (Dublin)

Dublin, 16 January 1948

  1. Certain replies made by Mr. Thorp1 at the hearings of the House Foreign Relations Committee on the 12th January seem to raise a question as to the application of ERP in the case of a number of CEEC countries, of which Ireland is one.
  2. The countries concerned are those whose exports are for the most part marketed in Europe but whose essential imports include basic commodities obtained in the United States and other dollar markets. Prior to the war, the convertibility of European currencies enabled these countries to pay for their dollar imports by means of their exports of goods and services to Europe. To the extent to which this is no longer the case, these countries are now faced with a dollar shortage.
  3. This dollar shortage exists whether or not the countries concerned may succeed in balancing their external payments. The question is not one of overall balance of payments but of the difficulty in which European countries which concentrate on supplying the European market are placed in covering their dollar needs owing to the inconvertibility of European currencies.
  4. There are only two ways in which the countries concerned can by their own efforts remedy this dollar shortage. These are the reduction of their dollar imports and the increase of their exports to dollar countries. Action in either direction, however, must tend to defeat the purposes of ERP. As the dollar imports of these countries consist largely or principally of basic commodities, any reduction of them must entail a contraction of their national economies, which in turn must involve a decline in their exportable surpluses, a reduction in their contribution to European recovery and an increase in the dollar needs of their European customers. The same results must attend any effort to divert the exports of the countries concerned from their normal outlets in Europe to new markets in dollar countries. Actually, the production targets set for Ireland in the Paris Report assume continued, and in some cases increased, imports of basic commodities (wheat, coarse grains, concentrates, agricultural machinery, etc.) from dollar countries. Any reduction in these imports must limit Ireland's possibility of contributing to European recovery in the very fields in which her comparative productive efficiency is greatest.
  5. The suggestion that the countries concerned should incur indebtedness to pay for their dollar imports of current consumption goods does not constitute an acceptable solution in the case of Ireland. In view of her limited dollar earnings, Ireland must confine her borrowing in dollars to capital equipment likely to enhance her possibilities of repayment. To incur external indebtedness for the purpose of increasing her exports to European markets would be to invite the risk of a repayment problem at a later date. Furthermore, Ireland is a member of the sterling area. To the extent to which her own dollar earnings are insufficient for the purpose, she must draw on the general reserves of the sterling area to cover her dollar needs. In the circumstances that exist, any dollar indebtedness contracted by Ireland would - unless designed to increase her dollar earnings - go to aggravate the existing payments disequilibrium between the sterling and dollar areas and, to that extent, operate to defeat the purpose which it is the main object of ERP to achieve.

1 Willard Thorp (1899-1992), economist and academic. A drafter of the Marshall Plan, Thorp was United States Assistant Under-Secretary of State for Economic Affairs from 1946 to 1952.

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