53 McFarlane to Chifley

Cablegram 960 WASHINGTON, 4 October 1949, 10.31 p.m.

EMERGENCY TOP SECRET

My cable 940. [1] Before the week-end Bolton advised delaying approach for two or three weeks as American attitude to drawing generally was unchanged for a variety of monetary and political reasons. In particular Congress had been dealing out billions for E.R.P. and arms aid and was critical of further issues from the Fund.

2. I explained delay was impossible and today sounded out the Americans. I first saw Martin [2] of the Treasury and in a short talk gave him reasons for drawing. [3] I stressed the emergency, urgency and reasonableness of our case and added some useful background. I said ours was a special case and assistance was needed to avoid serious dislocation of industry. Martin indicated there was no shut out on drawings, but each case had to be very carefully weighed. He listened carefully to me and mentioned he would speak to Snyder, but made no promise. I think, however, he will be sympathetic.

3. We arranged I should talk to Southard as to details. I gave Southard a similar background and then explained the emergency character of the request. I stated that the current level of imports, viz. 180 million dollars, together with the seven months lag, made it impossible to achieve the target of 120 million dollars without complete cessation of some imports and serious disruption. I outlined the nature of the imports for last year to show they were essential and little of a capital nature. I referred generally to our economy, record, etc.

4. Southard stated that it would require very serious consideration and he would have to apply the tests to our case as previously notified to the Board because of its bearing on other requests that may be received, including India. He was seriously concerned with the prospect of repayment which would depend on our access to the sterling-dollar pool. The Fund could not underwrite our inconvertible sterling balances nor could it agree to a drawing unless prospects of repayment were satisfactory and that was the difficulty in our case.

5. As he featured these points at some length I stated that access to the sterling area dollar pool was an important factor in our general position but it should not govern a judgment because there were other sources available, including export drive for dollar earnings; prospects of capital inflow; Australian potential in the next ten years; the diversion if necessary of exports to dollar area of such items as gold, metals, etc., and the further restriction of imports so as to provide a greater margin for repayment; and in an extreme emergency, the gold reserve.

6. I added that the risk of repayment from Australia was very much less than the risk of repayment from most other countries that had received drawings. He agreed but said that did not make his task any easier. I put forward further arguments as to the importance of not halting Australia's progress; our position in the South West Pacific and close political and strategic link with the United States.

7. He asked what drawing was contemplated, I replied that you had in mind the full drawing 50 million dollars, but would not want it all at once. I indicated there was an obvious shortage of about 40,000,000 dollars after allowing for commitments and cuts in licences. I emphasised the urgency of our application and mentioned that Parliament would be rising about the 21st October.

He said he would study the matter closely in conjunction with officers who were familiar with Australia. It will also be considered by N.A.C. [4]

8. I must confess to being rather disappointed with Southard's concern and his critical questions about our sterling link and prospects of repayment but am hopeful Martin will be more pliable.

In the meantime, I would appreciate any further factors that could be used on the points at issue (see my gig).

9. I will keep you informed but do not expect any reaction from the Americans for two or three days. I made it clear to Southard I wanted agreement before an application was lodged, so there will be no hitch.

10. News Digests here are still featuring extracts from London papers about joint British-Australian drawing and also Australian drawing or borrowing, some of which appear to have come from Canberra News correspondents.

11. I take it you do not want me to sound out a loan for capital purposes from Export/Import Bank or International Bank. If you did so desire, the former would be quicker and probably cheaper, but it may not have the same appeal to you as the International Bank.

1 Dispatched 27 September 1949 it reported that G.L.F. Bolton, the UK Executive Director of the IMF, had advised McFarlane to wait a few days before making a direct informal sounding about a drawing of funds by Australia.

2 William McChesney Martin, Jr, Assistant Secretary, US Treasury.

3 Chifley stated in the House of Representatives on 23 September 1949 that 'the loan would be raised to meet essential requirements of capital equipment for which commitments had already been entered into prior to the arrangement to reduce dollar imports by 25 per cent'.

4 The US National Advisory Council on International Monetary and Financial Problems.

[AA: A4940, C23]