Statement on Intergovernmental Debts.

THE COMMUNICATIONS submitted by a number of governments in substance request that their war debts to the United States should be again reviewed, that our Government should enter into an exchange of views on this subject, and that during the period of such a conference there should be a suspension of the payments due to the United States on December 15 next.

This presents a problem which merits thoughtful consideration of the American people. To avoid misunderstanding it seems desirable to summarize briefly the complex questions and the policies consistently followed by the United States in respect to these debts and my views as to the course which should be pursued.

1. These debts were created, and were undoubtedly based, on the proposal of the borrowers, no doubt in good faith, and the assumption of the Government of the United States, that they were actual loans which would be repaid. Had it not been for this assumption, it is hardly to be supposed that this Government would have been so largely involved. We have held at all times that these agreements voluntarily entered upon must be maintained in their full integrity except as adjusted by mutual consent. This is fundamental to upholding the whole structure of obligations between nations and beyond this is basic to the very structure of credit and confidence upon which the modern economic life depends.

2. The United States Government from the beginning has taken the position that it would deal with each of the debtor governments separately, as separate and distinct circumstances surrounded each case. Both in the making of the loans and in the subsequent settlements with the different debtors, this policy has been repeatedly made clear to every foreign government concerned.

3. Debt settlements made in each case took into consideration the economic conditions and the capacity to pay of the individual debtor nation. The present worth of the payments to be received under the terms of the settlements at the time they were made, on the 5 percent interest basis, provided in the original agreements, show concessions ranging from 30 percent to 80 percent of the total amounts that were due.

As indicating the consistent policy of adjustment to ability of the debtor to pay, I may cite President Harding's recommendation to Congress regarding the first of these agreements, that is, the British settlement. Again the principle was fully elaborated in the annual report for the fiscal year 1925 of the World War Foreign Debt Commission, which comprised members of both political parties, and in the reports of the Ways and Means Committee of the House of Representatives upon various settlements. The Congress in ratifying the settlements agreed to this principle. I continued to follow this policy in the statement I made on June 20, 1931, and in my subsequent message to the Congress, proposing postponement of payments during the fiscal year 1932 and their subsequent repayment over a term of years.

4. From the time of the creation of these debts to the United States, this Government has uniformly insisted that they must be treated as entirely separate from reparation claims arising out of the war. The reasons for adherence to this position are plain. After the war we refused to accept general reparations or any compensation in territory, economic privileges, or government indemnity.

Moreover, in the matter of reparations and other intergovernmental debts arising from the war, our position is entirely different from that of governments that are both creditors and debtors. Since we owe no obligation of any kind to others, no concession made in respect of a payment owed to us could either in whole or in part be setoff or balanced against claims owed by us to any other creditor of our own country. On the contrary, every such concession would result in the inevitable transfer of a tax burden from the taxpayers of some other country to the taxpayers in our own, without the possibility of any compensating setoff.

As Secretary of the Treasury Houston pointed out as early as March 1, 1920, in response to a note from the British Government suggesting a general cancellation of war debts:

"... Of course I recognize that a general cancellation of such debts ' would be of advantage to Great Britain and that it probably would not involve any losses on her part. As there are no obligations of the United States Government which would be cancelled under such a plan, the effect would be that, in consideration of a cancellation by the United States Government of obligations which it holds for advances made to the British Government and other Allied Governments, the British Government would cancel its debts against France, Italy, Russia, and her other Allies. Such a proposal does not involve mutual sacrifices on the part of the nations concerned. It simply involves a contribution mainly by the United States .... "

In my statement of June 20, 1931, proposing that one year's payment of all intergovernmental debts should be distributed over a term of years, and again to the Congress on December 10 last, submitting the agreements thereon, I said:

"I wish to take this occasion also to frankly state my views upon our colonies or property. The repayment of debts due to us from the Allies Governments of Europe. Our Government has not been a party to, or exerted any voice in determination of reparation obligations. We purposely did not participate in either general reparations or the division of colonies or property. The repayment of debts due to us from the Allies for the advance for war and reconstruction was settled upon a basis not contingent upon German reparations or related thereto. Therefore reparations is necessarily wholly a European problem with which we have no relation."

5. The debt agreements are, through force of law, unalterable save by congressional action. Without entering into legalistic consideration of the respective powers of the Executive and the Congress, it may be said at once that, based upon the relation of these debts to revenue, the Congress has insisted upon participation in initiation of negotiations and in any ultimate decisions in respect to the war debts. In 1921, when President Harding recommended to the Congress that the Secretary of the Treasury be given broad powers to deal with the debts, subject to approval of the President, the Congress did not accept this proposal but instead provided for the creation of the World War Foreign Debt Commission, and placed very close limitations upon the action of the Commission. Subsequently, the Commission, having found it impossible to reach agreements within the limits set by the Congress, the original act was amended so as to permit the Commission to conclude settlements subject to the approval of the President and the Congress.

With the exception of settlements with Austria and Greece, all settlements were negotiated by the World War Debt Commission, and every agreement was approved by the Congress in acts passed by both Houses, signed by the President.

Believing that emergencies of temporary character might arise in some cases during the depression--which has already proved the case-on December 10, 1931, I sent a recommendation to the Congress that the Commission should be reconstituted to consider such emergency cases. The Congress refused to take such action, and adopted a joint resolution which read in part as follows:

"Section 5: It is hereby expressly declared to be against the policy of Congress that any indebtedness of foreign countries to the United States should be in any way cancelled or reduced, and nothing in this Joint Resolution should be construed as indicating a contrary policy or as indicating that favorable consideration will be given for change in the policy hereby declared."

It must be obvious, therefore, from a practical point of view, that no progress is possible without active cooperation of the Congress.

6. The necessity of this authority does not, however, relieve me of the responsibilities of this office, and I, therefore, shall state my own views.

The worldwide crisis has, at least temporarily, increased the weight of all debts throughout the world. Tremendous disparity in price levels, contraction in markets, depreciation in currency, stagnation of trade and industry are all part of this worldwide depression which is not only increasing the weight of these debts and has made their payment more difficult to some nations, but have thrust them as well into the problem of world recovery and its effect upon our own farmers, workers, and business. These are realities. We cannot blind ourselves to their existence. They are vital factors in the problem now before us for consideration.

At the same time, it must be emphatically recalled that the aftermath of the Great War and these incidents of the depression have also fallen with great weight on the American people, and the effect upon them directly as taxpayers, of any modification with respect to the debts due this country, must not be disregarded. Other nations have their budgetary problems. So have we. Other people are heavily burdened with taxes. So are our people.

I have stated on many occasions my opposition to cancellation. Furthermore, I do not feel that the American people should be called upon to make further sacrifices. I have held, however, that advantages to us could be found by other forms of tangible compensation than cash, such as expansion of markets for products of American agriculture and labor. There are other possible compensations in economic relations which might be developed on study which would contribute to recovery of prices and trade. Such compensations could be made mutually advantageous. These things might serve to overcome difficulties of exchange in some countries and to meet the question of inability of some of them otherwise to pay.

The World Economic Conference will convene in a few months to deal with matters of the deepest import to economic recovery of the world and of ourselves as well. A world disarmament conference is now in progress. And I must reiterate that the problem of foreign debts has in the American mind very definite relationship to the problem of disarmaments and the continuing burden which competitive armaments impose upon us and the rest of the world. There are, therefore, important avenues of mutual advantage which should be genuinely explored.

It is unthinkable that within the comity of nations and the maintenance of international good will that our people should refuse to consider the request of a friendly people to discuss an important question in which they and we both have a vital interest, irrespective of what conclusions might arise from such a discussion. This is particularly true in a world greatly afflicted, where cooperation and good will are essential to the welfare of all.

I believe, therefore, that Congress in view of the requests made by these governments should authorize the creation of an agency to exchange views with those governments, enlarging the field of discussion as above indicated and to report to Congress such recommendations as they deem desirable. Furthermore, such agency should be so constituted through complete or partial identity of membership with the delegations to the World Economic Conference and to the General Disarmament Conference, that under the direction of the President and with the final decision in the Congress, we may take the strongest possible coordinated steps towards the solution of the many underlying causes of the present calamity.

As to the suspension of installments due on December 15, no facts have been presented by the debtor governments which would justify such postponement under the principles heretofore laid down by this country. At the Lausanne Conference, which has been referred to as a precedent for the suspension of payments during those conferences, that postponement was the natural result of the facts which had been elaborately presented during many months of previous inquiry.

The suggestion that the suspension of the December 15 payments would permit the governments to enter undisturbed into discussions now proposed does not appear to me to carry weight. Contrary to this view, it seems to me that discussion would proceed under more favorable circumstances if the terms of these obligations is carried out rather than suspended prior to discussion. By that I do not mean to say that if extraordinary circumstances, such as depreciation of currencies and general fall in world trade, have rendered immediate transfers of this next payment in dollars impossible to some nations without losses on both sides, our Government should be unwilling to consider a proposal that payments of this installment be made to our account in foreign currencies, transfers to be effected from time to time as the situation of the exchanges permits, of course with guarantees as to value of such currencies. If any such circumstances exist and are called to the attention of this Government, I shall transmit them to Congress for prompt consideration, but I must insist that existing agreements be respected until they have been mutually modified by duly authorized representatives of the governments affected.

There is a larger aspect to this question of responding to an invitation from a friendly nation to discuss, through effectively authorized agents, a problem of deep concern to both. Discussion does not involve abandonment on our part of what we believe to be sound and right. On the other hand, a refusal to afford others the opportunity to present in conference their views and to hear ours upon a question in which we are both concerned, and an insistence upon dealing with our neighbors at arms' length, would be the negation of the very principles upon which rests the hope of rebuilding a new and better world from the shattered remnants of the old.

If our civilization is to be perpetuated, the great causes of world peace, world disarmament, and world recovery must prevail. They cannot prevail until a path to their attainment is built upon honest friendship, mutual confidence, and proper cooperation among the nations.

These immense objectives upon which the future and welfare of all mankind depend must be ever in our thought in dealing with immediate and difficult problems. The solution of each one of these, upon the basis of an understanding reached after frank and fair discussion, in and of itself strengthens the foundation of the edifice of world progress we seek to erect; whereas our failure to approach difficulties and differences among nations in such a spirit serves but to undermine constructive effort.

Peace and honest friendship with all nations have been the cardinal principles by which we have ever guided our foreign relations. They are the stars by which the world must today guide its course--a world in which our country must assume its share of leadership and responsibility.