158 McFarlane to Chifley

Cablegram[2824] [1] LONDON, 12 August 1947

MOST IMMEDIATE TOP SECRET TO BE DECODED BY A SPECIAL OFFICER

1. Your 3322 [2] and my ... [3] Had long confidential talk to Eady. He is going to Washington on Friday with U.K. Mission to discuss crisis which has sharpened recently. You may expect telegram from British Government in next few days advising you of Mission and its purpose.

2. Main purpose will be to discuss steps which U.K. will be forced to [take in view of exhaustion of loan] [4] about end of October and to seek U.S. agreement. I gather these steps will involve elasticity in interpretation of convertibility and nondiscrimination clauses of Loan Agreement in order to reduce present drain on dollars and reserves.

3. Although Paris talks are progressing I am of opinion Marshall Plan, if it does come into being, cannot bring European relief until about April. The gap would be aided somewhat if the Monetary Fund in September [in view of world shortage of dollars] approved drawings up to, say, [50%] [5], but that would be only a palliative. It may, however, be tried out.

4. I gave Eady the Australian amendments to the draft letter. His immediate reaction to the letter as a whole was that in view of recent developments and the outlook, it would be unfair to Australia to send this letter now when the circumstances will probably compel U.K. to address a further request in a few weeks.

We discussed whether, in view of the effort put into the letter, it might go as an expression of the way U.K.'s mind was working a few weeks ago and your acceptance would be regarded as a handsome action on your part, but that I should follow up with a personal note to you explaining the latest developments and the probability of a further request in a few weeks which may ask us to live within our dollar earnings during the succeeding six months or so, pending developments.

I rather favoured this course and Eady agreed.

5. I left your amendments with Eady and he has just informed me he is sending the draft as altered by you to the Chancellor for his consideration. I presume you would still prefer to have the letter even in the new circumstances which will probably require some qualifications later, especially on dollars.

6. I suggest you await the cablegram from U.K. Government on the Mission and also postpone submission to Cabinet of draft Attlee letter until it has been considered here on Government level and approved.

7. Re your 3350 [6], Eady greatly appreciated proposed action to conserve dollars and stated that it would not have prejudicial effect upon talks. On contrary, it might help in forcing a realisation of the position on U.S.A. Eady asked whether we would break even on dollars this year. I was unable to give any advice as so much depended on wool. Regarding Eady's indication that we may later be asked to live within our dollar earnings, I explained that any import restrictions take six months to operate. My advice is that for the present dollar imports should be restricted as you now propose, but any dramatic action such as cancellation of licences, should await outcome of Washington talks.

8. Eady has emphasised need for secrecy until results of talk are known. I have sent this cable to give you quick indication of position and am writing more fully.

9. As to my movements, I now feel it would be wise to fly to Washington next week so as to learn result of Washington talks (expected to last one week) which I will send you and then endeavour expedite my return to Australia.

1 The file copy is unnumbered. It is believed to be Cablegram 2824, received 13 August.

2 Dispatched 7 August, it examined the draft UK letter of appeal.

Chifley stressed the need for greater recognition by the United Kingdom of Australia's need for flexibility in the management of its import program, in particular specific recognition of difficulties such as fluctuating export prices and the time lag in controlling imports.

3 The file copy has a blank space here. The cablegram is believed to be 2809, dispatched n August, in which McFarlane advised that he would see Eady the following day.

4 Words in square brackets are alterations made by hand by McFarlane to the original wording on the file copy.

5 Altered by hand from '75%'.

6 Not found.

[AA : AA1968/391/1, 96]