384 Senator R. V. Keane, Minister for Trade and Customs, to Mr John Curtin, Prime Minister

Letter CANBERRA, 28 February 1942

SECRET

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

1 Minister to the United States. See Documents 314, 317 and 325.

2 See Document 314.

3 U.S. Assistant Secretary of State.

4 See cablegram 246 of 10 February on file AA:A1608, L41/1/5 and cablegram 292 of 17 February on file AA:A981, USA 181, i.

5 Not found.

6 Treasurer.

[AA:A981, USA 181, iii]