The present position respecting Canadian loans and credits made during and after World War II to other countries is shown in the following table. In a number of cases problems and difficulties have arisen on which decisions are required

Loans and Credits to the USSR

In 1945 three credits were extended to the USSR - $2.9 million for the purchase of hydro-electric equipment, $8.99 million for the purchase of wheat and flour, and $3.3 million for industrial equipment delivered after termination of mutual aid. The first has been wholly repaid. After protracted negotiations the USSR finally agreed to repay the $8.99 million credit in five instalments commencing June 1953. The $3.3 million claim remains unsettled. This claim arises out of the delivery of various items of industrial equipment to the USSR in the latter months of 1945 after the cessation of hostilities on September 2nd of that year. The USSR gave specific written assurances on October 9, 1945, that if agreement was not reached on the credit arrangements then under discussion, the Government of the USSR would pay in cash for all items delivered to it after September 2, 1945. Presentation of this claim was deferred while settlement of the larger $8.99 million claim, in respect of food shipments, was being pursued. Supporting documentation was prepared and the claim formally presented in Moscow in October, 1951. We have not been able to obtain any response whatever from the Soviet authorities. Our embassy representatives have raised the matter with the appropriate Soviet officials nine times with no result. They have neither denied nor recognized the claim - they simply state that they are not ready to give an answer. This claim is now seven years old and we have been trying without success for more than two years to get it settled. There is nothing much that can be done except perhaps to publicize the failure of the USSR to recognize its obligations. Such a step, however, might remove any possibility of collecting on the claim and might also prejudice future repayments on the other outstanding credit. Consequently it is recommended that no special step be taken to publicize the situation for the time being and that the Canadian Embassy in Moscow be asked to continue to press the Soviet authorities.

The USSR agreed in October, 1944, to pay $20 million in US dollars to the International Nickel Company of Canada Limited in compensation for the Petsamo nickel mines in Finland which were taken over by the USSR at the end of the war. The Canadian Government received the sums paid under the agreement and handed them over to the International Nickel Company. The final payment was due December 31, 1951. However, $2.9 million (US) is still outstanding because the USSR paid only 50% of the last five instalments in US dollars and proffered payment of the balance in inconvertible sterling. This form of payment was not in accordance with the agreement and unacceptable to the International Nickel Company. The USSR has since consistently refused to make any other form of payment, turning down flatly suggestions that payment in gold or Canadian dollars would be acceptable. The Canadian Embassy in Moscow has been making periodic representation to the USSR Government without avail concerning these outstanding amounts. It has been considered advisable that any publicity given to this matter be made by International Nickel Company rather than by the Canadian Government in view of the outstanding governmental claims against the USSR.

Ming Sung

In November 1946, a guarantee was given by the Government to a group of three Canadian banks (Dominion, Imperial and Toronto) in respect of a credit provided by them to the Ming Sung Industrial Company Limited to enable that Company to purchase specially designed ships for use on the Yangtze River. The Chinese Government agreed to act as the primary guarantor of the loan. The Company defaulted on the loan in June, 1951, and the Canadian Government became liable under the guarantee in October, 1951. It was then decided to try to recover the defaulted payment by instituting legal proceedings in Hong Kong under the mortgages which the banks hold on the ships. At this stage the Company advised that the crews refused to take the ships from Canton to Hong Kong. Under present circumstances legal proceedings are ineffective while the ships are in Canton. Under its guarantee, the Canadian Government has up to the present paid $2,523,174.78 in defaulted principal and $516,988.32 in defaulted interest to the three banks. The Chinese Government in Formosa has been asked, as the primary guarantor, to pay the defaulted amounts but that Government has replied that it is financially unable to do so.

Export Credit Loan to China

Under a financial agreement entered into on February 7, 1946, and supplementary arrangements, a credit not to exceed $60 million was made available to the Government of China to be utilized up to December 31, 1948. At that date the total consolidated indebtedness of the Government of China amounted to $52,215,997.48. Difficulties first arose in respect of the principal payment of $1,740,000 due December 31, 1949. (Up to that time payments totalling $3.5 million had been received.) A partial payment of slightly over $1 million was arranged against the principal of $1.7 million due December 31, 1949, and payment of the balance, together with payments due for the next two years, was deferred by agreement until December 31, 1952. Deferred payments of principal and interest, amounting to $9,331,175.73, were due on December 31, 1952. This amount includes interest at 3 per cent on the deferred interest payments.

The Chinese Ambassador informed the Deputy Minister of Finance on November 28th last that his Government was unable to meet the payment of $9.3 million due December 31, 1952, nor was his government able for the time being to meet any further instalments. In the circumstances two alternatives are open. Provision is made in the text of the financial agreement with China that if the debtor Government defaults on any principal instalment of the loan, the whole loan becomes due automatically - whereas it is provided in the bonds, issued pursuant to the agreement, that where a principal instalment of a bond is defaulted, the whole issue of bonds becomes due only at the option of the Minister of Finance. In the opinion of the Solicitor to the Treasury the bonds constitute the primary obligation of the debtor and the Government would be justified in enforcing them according to their terms, although action could also be taken under the mandatory provision in the agreement. Under the terms of comparable loans extended by the United States to China which have also been defaulted, it is provided that if a payment is not made, the whole amount of the loan becomes due and payable. However, these clauses have never been invoked by the United States and no move has been made to formally declare China in default. From the information we have been able to gather on the position of the Government in Formosa, it would appear that it is financially unable to meet payments on the Canadian and United States loans. Indeed the Formosan authorities are being supported by large grants in aid from the United States.

It is recommended (a) that no attempt should be made to enforce the acceleration clause against the Government of China, (b) that the loan should not formally be declared in default, (c) that payments be requested regularly when due, (d) that interest payments be calculated on the total indebtedness now outstanding without charging interest on unpaid interest payments, and (e) that all legal requirements be fulfilled in order to ensure that a valid claim can be made for all outstanding amounts if and when we recognize a Government in continental China.

Export Credit Loan to Czechoslovakia

By an agreement of March 1, 1945, as amended, a credit not to exceed $19 million was extended to the Government of Czechoslovakia to be utilized up to December 31, 1948. The total consolidated debt at that date amounted to $16,673,706.82. Instalments on this debt became due on January 1, 1948, and are scheduled to be completed on November 27, 1954. All payments were received until principal in the amount of $3,330,000 with interest of $33,984.24 was not remitted when due on November 27, 1952. Nor was the interest payment of $83,250, due on January 1, 1953, received. The total overdue amount is now $3,447,234.24. The unpaid principal amount of the loan still outstanding is $9,990,000.

As in the case of China, the text of the loan agreement provides that if the debtor Government defaults on a principal payment, the whole loan becomes due and payable. The terms of the bonds, however, likewise provide an option to be exercised by the Minister of Finance.

In December, 1951, a Czech representative commented, during trade discussions in Ottawa with Canadian representatives, that reduction in Canadian exports to Czechoslovakia of strategic materials might affect their capacity to service the loan. A further development took place in the trade field in November, 1952, when the Czech Government was informed that the Canadian Government would apply appraised valuations to certain imports from Czechoslovakia in accordance with Canadian law and consistent with the provisions of the GATT. This action was taken after repeated efforts over a considerable period to obtain permission from the Czech Government for Canadian representatives to investigate in Czechoslovakia the values of Czech goods which it appeared were being dumped into Canada. Czech embassy officials in Ottawa have intimated in informal discussions that their Government might be prepared to pay the amount owing on the loan if the action against Czech dumping were withdrawn. Canadian officials pointed out that there was no connection between these two matters, that the obligations under the loan were unconditional, and that the action against dumping was in accordance with our laws and in accordance with the provisions of our trade agreements with Czechoslovakia and other countries.

Under the terms of a US credit to Czechoslovakia, repayments can be made either in US dollars or in Czech crowns. In May, 1952, the Czech Government refused to make a payment in crowns. In the case of this loan, at any rate, the default cannot be attributed to trade policies causing difficulties for Czechoslovakia in acquiring the dollars to service the loan.

is recommended that (a) we should not accept any proposal which would involve the withdrawal of our action against Czech dumping in return for an undertaking to meet the payments on the loan, (b) the Government of Czechoslovakia be informed that if the overdue payments are not remitted the whole loan will be formally declared to be in default and that this default will be reported to Parliament.

Loan to Indonesia - Request for release of the Netherlands guarantee

The credit extended in October, 1945, to the Bank for the Netherlands Indies, an agency of the Government of the Netherlands Indies, was guaranteed by that Government. Subsequently in 1947 the terms of the loan were revised and extended on condition that the obligations under both the original and supplementary agreements would be guaranteed by both the Governments of the Netherlands and Indonesia. The guarantee was requested in February, 1947, and later given in view of the impending transfer of sovereignty to Indonesia. Because of the political and economic uncertainties in Indonesia surrounding this transfer of sovereignty, the Canadian Government was not prepared at that time to make further credit available without the express guarantee of the Government of the Netherlands. The Canadian Government has now been requested by both the Governments of the Netherlands and Indonesia to release the Government of the Netherlands from its guarantee. The request is made on the grounds that after the unconditional transfer of sovereignty a guarantee from the Netherlands for a debt of Indonesia to a third country does not fit in with the present relationship between the two countries.

The Canadian Aide Mémoire requesting the Netherlands' guarantee left the possibility open that the guarantee might subsequently be waived if it were found possible to obtain from the Government or governments succeeding the Government of the Netherlands Indies a guarantee acceptable to the Canadian Government. It was made clear at the time, however, that acceptability would not depend merely on technical legal points but was intended to have regard to political and economic considerations. The political and economic developments in Indonesia since transfer of sovereignty have not, however, been such that it would be prudent from the Canadian viewpoint to relieve the Netherlands of its guarantee. The original amount of the loan was $15.4 million, of which $9.3 million remains outstanding. Thus far all instalments have been paid on the due dates.

A similar request for release of the Netherlands' guarantee has been made to the US Government in respect of a surplus property credit extended to the Netherlands Indies in 1946. It is understood that the US Government is disposed for political reasons to grant the request. The Netherlands' guarantee of this loan was, however, given some time before the question of transfer of sovereignty arose and was not given, as in the case of the Canadian loan, because of the impending transfer of sovereignty.

Because (a) it was clearly understood at the time the guarantee was requested that its release would depend on political and economic circumstances in Indonesia and that present conditions in Indonesia are not such as enable us to have an unqualified confidence that the loan will be repaid, (b) the circumstances leading to the guarantee of the Canadian loan and considerations regarding its release differ substantially from that of the US loan, and (c) the balance of the loan is due to be paid off within the next 2 ½ years, it is recommended that the request for the release of the Netherlands' guarantee be not granted.