THE SOVIET UNION



  4. There is a reasonable doubt whether Congress would approve
additional funds for the Eximbank that were clearly intended for
the U.S.S.R. Regardless of the final action of Congress, the debates
would undoubtedly result in charges and counter-charges in regard
to Soviet policy, both in Congress and in the press, that might well
worsen our relations with the U.S.S.R. It is probable that such a
debate would give wide publicity to many Soviet actions in recent
months, including ones that up to the present have not received much
public attention. There is a strong possibility that the U.S.S.R. will
reject the terms in our proposed reply, and in that case the result would
be a needless airing of anti-Soviet opinion in this country.
  5. There are two possible alternative actions open to this Govern-
ment whose advantages and disadvantages should be weighed by
higher officers of the Department before we embark on a step that is
almost certain to lead to a free-for-all debate in Congress on the
U.S.S.R., without any assurance that funds will be available for a loan
to the U.S.S.R. or that the U.S.S.R. will be interested in a loan on our
terms. These alternatives are:
  a) to take advantage that the Soviet reply of May 17th gives to
break off gracefully loan negotiations with the Soviet Union;
  b) to postpone the $1174 billion request for additional lending power
until we have a clearer picture of the likelihood of successful negotia-
tions with the U.S.S.R. This would involve now asking for a sum of
$250-$500 million with an understanding with Congressional leaders
that an additional sum will be requested in case we wish to proceed
with loan negotiations with the U.S.S.R.

861.24/6-1246: Telegram
The Secretary of State to the Ambassador in the Soviet Union (Smith)

SECRET                       WASHINGTON, June 12, 1946-11 a. m.
  1067. From Hazard. Your 1767 June 5.27 No agreement yet
reached on surplus property disposal to USSR. Principal difference
is clause relating to expenses of Embassy for which USSR proposes
restrictive provisions as to annual amounts of currency available and
uses permitted. Delay also occasioned by inability to reach agreement
on what specific surplus items meet Soviet specifications. European
surpluses now nearly exhausted and Pacific area surpluses are prin-
cipal source. Soviets request inspection tour of Pacific presenting
security problems. Anticipate slow developments toward signature
and deliveries.
  Summary of May operations report following later. [Hazard.]
                                                          BYRNES
 '7 Not printed.



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