148 Dedman to Chifley and Department of External Affairs Received 27 December 1947

Cablegram W14 HAVANA, 24 December 1947, 8.07 p.m.

SECRET

1. Wilcox (U.S.A.) has again approached us regarding Article 24(2) and accepting determination of Fund. He repeated that the United States could not accept our amendment, but that they recognise that majority of Delegations here are likely to support us if we press the issue. They are unwilling that the Conference should fail on an issue between the United States and Australia and Wilcox states that rather than reach this position, they are prepared to precipitate a break on some other issue.

2. They have given no new reasons against our amendment and have not suggested any compromise and we remain satisfied that our arguments are correct on this issue. However, we think Wilcox sincerely believes that if our amendment were adopted the United States would not sign the Charter.

3. While believing we are right and appreciating fully political difficulties in Australia of present text we doubt whether actual practice would be much different whichever text were adopted. In either case decision would probably have to be reached by close consultation between I.T.O. and Fund and differences of view would have to be solved before decision were reached.

4. Matter would arise when complaint was lodged against country maintaining restrictions under Article21. [1] Under existing text Fund would then have to decide on one or more of three facts:-

What is serious decline, What is very low level and What is reasonable rate of increase in members' monetary reserves.

On basis of this decision Organisation might then have to recommend member to withdraw or modify its restrictions (assuming basis was not 'imminent threat' of decline, when Organisation and not Fund has final decision). But I.T.O. itself has control over sanctions if member does not accept recommendation to withdraw or modify restrictions, and if I.T.O. disagreed with Fund's ruling.

It would be likely that member would not accept recommendation and I.T.O. would not permit sanctions, so Fund decision would in effect be stultified.

5. Moreover if Fund makes bad decision which member accepts, fact of decline in monetary reserves should soon provide evidence of faulty decision upon which member could again act on own initiative to re-impose restrictions.

Finally recommendation of I.T.O. would probably be to relax or modify restrictions rather than to withdraw them entirely, especially if there were any real doubt as to wisdom of Fund's decision. This again would allow time for facts to speak for themselves and member would again be free to intensify restrictions without prior approval from anybody as soon as evidence of need to do so appeared. There would presumably be some unnecessary loss of monetary reserves, but this should not be severe, and administrative difficulties should not be great if restrictions were merely relaxed and not eliminated entirely.

6. For these reasons, (for regard for its own prestige) [2] and perhaps also to prevent drain on its resources we believe Fund would be unlikely to take unreasonable decisions preventing members from maintaining restrictions under criteria provided in Article 21 and in any case would hesitate to give determination with which the I.T.O. disagreed.

7. Clayton will be back within the next few days and I shall telegraph again when I have seen him, particularly in relation to whether in fact the United States would reject the Charter if they are defeated on this issue. Committee will probably reach Article24 about New Year. [3]

1 Article at dealt with restrictions to safeguard the balance of payments. Restrictions were allowed in the case of (i) imminent threat of, or serious decline in monetary reserves, or (ii) where monetary reserves were very low, in order to achieve a reasonable rate of increase in reserves.

2 Symbols indicating mutilated characters appear next to each bracket.

3 Chifley replied that the proposed amendment should be maintained to avoid 'political repercussions' in Australia. Meetings with Wilcox and Clayton, however, confirmed that the United States would not accept the amendment, but, after further negotiations, a compromise text of Articles 21 and 24 was agreed upon.

STERLING CRISIS

In 1946 the United Kingdom had international debts of about "3,400 million sterling. Large sterling balances were held by Australia, Brazil, Egypt, Eire, New Zealand, Norway, and Uruguay, with Australia's balance standing at about 149 million. When Chifley visited London in April-May 1946, to attend a meeting of British Commonwealth Prime Ministers, he discussed the sterling problem with Dalton. When Coombs visited London from late September to late November 1946, as leader of the Australian delegation to the first session of the Preparatory Committee of the United Nations Conference on Trade and Employment, further discussions took place.

[AA : A1068, ER47/1/33]