Reciprocal Lease-Lend.

Please see exchange of cables with Legation relating to informal
talks particularly our cable of 2nd February indicating desire to
give reciprocal aid subject to limiting factor of our balance of
payments [1] and reply of 4th February [2] giving unofficial views
of Acheson [3] in which he expresses desire 'to work out some
indirect means whereby Australia can meet cost of American
requirements in Australia and U.S. can reimburse us by helping to
meet some of our other oversea obligations to roughly an
equivalent amount'.

2. Since then we have given considerable information and had been
awaiting Minister's [4] advices after further talks in light of
such information, before making formal offer to U.S. Government.

3. On 27th March Prime Minister [5] and Treasurer [6] had talk
with American Minister [7] at which latter read memorandum handed
by Acheson to Australian Legation on 24th March. A summary of this
has since been received from Legation. [8]

4. This communication only requests decision as to procedures but
in view of our previous informal approach Government desires that
in now taking up matter formally you should advise American
Authorities on following lines:-

(a) Government accepts general principle of reciprocal aid to U.S.

Forces in Australia subject to details still to be arranged. This
confirms informal offer made to State Department through Casey
early in February.

(b) Government would prefer joint discussions in Washington with
American authorities and U.K. authorities on questions raised in
U.S. memorandum of 24th March.

(c) As intimated informally Government is anxious to reciprocate
in every way and pending final arrangements are now providing
practically all local supplies and services including works for
U.S. forces. Expenditure may reach 40 to 50 millions a year and on
top of our own programme this will materially increase strain on
internal resources and tend to weaken balance of payments.

(d) Our external balance of payments for current year, after
allowing for overseas war expenditure 65 millions, is estimated to
result in deficiency 65 to 70 millions. Some improvement is
expected next year but the indications are there will still be an
appreciable deficiency. The Government is therefore particularly
concerned that this should receive special consideration in the
proposed discussions so that our sterling funds will be maintained
at a reasonable level.

(e) There is one aspect of our overseas transactions on which some
immediate relief might be possible. Deliveries to Australia to end
of February under Lend-Lease were less than 5 millions. On other
hand cash commitments for imports from U.S. this financial year,
largely for goods directly and indirectly required for war
purposes, are estimated at about 30 millions. It is suggested that
American authorities might in the circumstances desire to divert,
where practicable, some of these cash orders to Lend-Lease.

5. It is assumed discussions will commence as early as possible
and Government would like you to represent Commonwealth if it does
not interfere with your other arrangements.

6. Suggestion in paragraph 4 (e) is prompted by Acheson's desire,
as expressed by him unofficially, to assist our position by
'indirect means'. This might be taken up by you without awaiting
joint discussions and any difficulties at American end ironed out.

7. The foregoing covers the more pressing points mentioned in
telegram 524. [9] Glad to receive advice as to what is involved by
paragraph 3. [10] This and other points raised together with such
additional information you may request will be subject of a
further telegram.