As you are aware, the presence of American forces in Australia has
given rise to the question of the extension of some form of 'lend-
lease' aid by Australia to the United States in connection with
expenditure on works, stores, rations etc. on behalf of the U.S.

military authorities.

In addition to the official cables which have been exchanged on
this subject with Mr. Casey [1], further information has been
supplied by the Director-General of Australian War Supplies
Procurement, Mr. L. R. Macgregor, in the course of recent
telephone conversations with the Director of the Division of
Import Procurement, Mr. A. C. Moore.

Mr. Macgregor said that his information had been gained through
his close personal contact with Mr. E. R. Stettinius, the U.S.

Lend-Lease Administrator, who has direct access to the President,
and that it could be accepted as absolutely reliable. On the other
hand, he recognised that the formal approaches on this subject
could be made only to the State Department through Mr. Casey and,
accordingly, he felt that he could not put the information he had
been given into a formal cable.

Briefly the main points made by Mr. Macgregor were-
1. The American Government Departments in Washington are prone to
work in watertight compartments. Thus, views expressed by the
State Department do not necessarily coincide with the view of the
U.S. Administration as a whole. Frequently the State Department
tends to adopt a more cautious and less generous attitude than
that of the President and his most influential advisers.

Mr. Macgregor said that the information he had received on the
question of reciprocal lend-lease aid between Australia and the
United States had come straight from Mr. Stettinius and President
Roosevelt and was consequently a more reliable indication of what
the ultimate U.S. attitude would be than that obtained through
formal State Department channels.

2. Mr. Stettinius had told him that both he (Stettinius) and
President Roosevelt attached great importance to the offer of
reciprocal aid made by the Australian Government. [2] Politically,
the offer would help the U.S. Government very considerably and he
felt that in no circumstances should it be departed from or
restricted.

3. Mr. Stettinius fully recognised the effects which a large-scale
reciprocal aid scheme would be likely to have on the Australian
balance of payments position. He assured Mr. Macgregor that ways
and means of overcoming such difficulties could and would be
found. He thought that a solution of such problems would be much
easier if the matter were left on the basis of a loose general
understanding instead of drawing up a hard and fast agreement.

Mr. Macgregor said he gathered that the sort of arrangement Mr.

Stettinius had in mind was that the Australian Government should
go ahead with its programme of extending 'lend-lease' aid and
enter up as book entries any expenditure incurred on behalf of the
U.S. military authorities. As soon as any difficulties regarding
international payments loomed on the horizon, they should at once
be brought to the notice of the U.S. authorities who would
undertake to come to our assistance. They would do this
irrespective of whether the difficulties concerned London or New
York funds. If we were in difficulties in London they would
approach the British authorities with a view to finding a
solution. Mr. Stettinius said that, if Australia were helping the
United States and the United States were helping Britain, then it
should be a simple matter to ensure that Britain would be able to
help Australia. He said that Australia need never fear that any
embarrassment would arise from her granting aid to U.S. forces in
Australia. If any embarrassment threatened, the U.S. Government
would help Australia out.

4. Mr. Macgregor said that he had pointed out to Mr. Stettinius
that, owing to bottle-necks in the United States, Australia might
have to go to Canada for very large quantities of materials. On
this point Mr. Stettinius said he thought it might be possible to
devise some way of 'lend-leasing' the Canadian materials to
Australia.

5. Mr. Macgregor also raised the question of payment of interest
on bonds taken out on the New York market. Mr. Stettinius said
that the U.S. authorities would be prepared to see if there was
anything they could do to help us there.

6. Mr. Macgregor also reported that, following on Mr. Casey's
discussions with Mr. Acheson of the State Department [3], he
(Macgregor) had received a call to go over to the U.S. Treasury.

The State Department had apparently referred the matter to the
Treasury and they wished to have an informal chat with Mr.

Macgregor to ask him what it was all about.

Mr. Macgregor had had a talk to them but he said he felt that the
request made in the cable from Australia that a U.S. Treasury
official be sent out to Australia to handle the financial side of
the reciprocal aid scheme had been made without a full
appreciation of the functions and scope of the U.S. Treasury.

He said that the U.S. Treasury does not stand in the same relation
to other U.S. Government Departments as does the Treasury in
Australia. The U.S. Treasury does not perform the same supervisory
function over expenditure. Congress appropriates and allocates
special funds to specific Departments and once these funds are
allocated then the particular Department concerned is, so far as
the expenditure of those funds is concerned, far more important
than the Treasury. Thus, on the financial side of lend-lease
matters, the Lend-Lease Administration headed by Mr. Stettinius is
far more powerful than the Treasury. Accordingly, Mr. Macgregor
said he thought that, in asking the U.S. Treasury to send an
official to Australia, we had directed our request to the wrong
place. He said that, in his view, we would be far better off with
a lend-lease man, provided that the other interested U.S.

Departments would agree and that inter-departmental jealousies did
not intrude.

7. Finally, Mr. Macgregor expressed his own firm conviction that
it would be in Australia's best interests to accept a loose
general arrangement rather than a hard and fast agreement. If such
an agreement were made, its terms would be scrutinised by
committees and probably by Congress, and officials would be forced
to adopt a cautious policy. Accordingly he strongly recommended
that if, after their preliminary explorations were completed, the
U.S. officials sponsored a proposal based on a loose arrangement,
the Commonwealth Government should agree.

In his view, the deeper the United States became involved in the
reciprocal lend-lease aid scheme, the sounder would become
Australia's supply and financial position. He thought everything
was to be gained by adopting the broadest and most generous
attitude towards the United States while, on the other hand, much
would be lost by any attempt to limit Australia's obligations
under the reciprocal aid scheme.

Mr. Macgregor has supplied the above information in an entirely
unofficial way and it will not be possible to quote him in the
official messages which may be exchanged on this subject. However,
I am passing his remarks on to you because I feel that the
additional information he has supplied may be of considerable
assistance when the time comes to take decisions on this matter.

As you are aware from messages received from the Australian
Legation in Washington [4] the United States Army is sending to
Australia a senior officer, Brigadier-General Roop, to co-ordinate
and supervise all purchasing of supplies for the United States
Army and Navy in Australia.

Subsequently to the telephone conversations I have referred to
above, Mr. Macgregor has advised by cable [5] that the United
States Lend-Lease Administration has also decided to send a
mission to Australia which will be headed by a Mr. Wasserman, with
a Mr. O'Boyle as his principal assistant. Mr. Macgregor advises
that it is intended that this Lend-Lease mission should work on
parallel lines with the United States Army mission. He says that
Mr. Wasserman, Mr. O'Boyle and Brigadier-General Roop are personal
friends and will work together.

The Lend-Lease mission is being sent for two reasons. The first is
to ascertain by direct consultation Australia's most urgent needs
and to assist the Australian War Supplies Procurement organisation
in Washington to expedite the flow of goods to meet these needs.

The second and major reason is to discuss the principle and
practical operation of reciprocal lend-lease aid.

Mr. Wasserman has indicated to Mr. Macgregor that the Lend-Lease
Administration has reached the conclusion that the United States-
Australia reciprocal lend-lease aid scheme is linked up with the
United Kingdom dollar position. Mr. Wasserman's tentative idea is
that the United States Government should guarantee the British
dollar position so that when the British dollar balance sank below
a certain level the Lend-Lease Administration would purchase
sterling for dollars. This would mean, of course, that the United
States would, by the end of the war, be holding large sterling
balances, but Mr. Wasserman expressed the view that this would not
matter.

To meet the special difficulties of Australia arising from the
plan to provide aid for the United States forces, Mr. Wasserman
has in mind an extension of the same principle. Australia's dollar
and sterling balances would not be permitted to fall below some
agreed level. When the limit was being approached, the Lend-Lease
Administration would arrange for the United Kingdom authorities to
purchase Australian pounds for sterling and would themselves take
parallel action to restore the dollar position.

These are the tentative views held by Mr. Wasserman and were given
informally to Mr. Macgregor.

Mr. Macgregor strongly recommends that no further action be taken
regarding the reciprocal lend-lease aid scheme until Mr. Wasserman
arrives and the matter is personally discussed with him. I feel
myself that this would be the best course to adopt.

In view of the interest which the Treasury has in this matter, I
am also bringing Mr. Macgregor's observations under the notice of
Mr. Chifley. [6]

R. V. KEANE